Rebalancing for growth
Nokia in 2016
Contents
Overview
This is Nokia
Key data
Nokia in 2016 – a successful first
year of combined operations
01
02
06
08
Business overview
10
Letter from our President and CEO
12
Our role as a global technology leader 16
17
Our values
18
Our strategy
Our leadership
24
Our businesses
26
Principal industry trends
affecting operations
40
Board review
Board review
Results of operations
Results of segments
Liquidity and capital resources
Material subsequent events
Sustainability and corporate
44
46
47
55
61
65
responsibility
66
69
Employees
70
Dividend
71
Nokia’s outlook
Risk factors
72
Shares and share capital
74
Board of Directors and management 75
Articles of Association
75
Corporate governance
Corporate governance statement
Compensation
General facts on Nokia
Our history
Memorandum and Articles
of Association
Selected financial data
Shares and shareholders
Related party transactions
Production of infrastructure
equipment and products
Key ratios
Financial statements
Consolidated primary statements
Notes to consolidated financial
76
78
92
108
110
111
113
115
123
123
124
125
126
statements
132
Parent company primary statements 196
Notes to the parent company
primary statements
200
Signing of the Annual Accounts 2016
and proposal by the Board of
Directors for distribution of profit 211
212
Auditor’s Report
Other information
Forward-looking statements
Glossary of terms
Investor information
Contact information
217
218
220
223
224
NOKIA IN 2016
01
Overview This is Nokia
We create the technology to connect the world.
Powered by the research and innovation of
Nokia Bell Labs, we serve communications service
providers, governments, large enterprises and
consumers with the industry’s most complete
end-to-end portfolio of products, services and
licensing. From the enabling infrastructure for
5G and the Internet of Things (“IoT”) to emerging
applications in Virtual Reality (“VR”) and digital
health, we are shaping the future of technology
to transform the human experience.
Since the closing of the Alcatel Lucent
acquisition in early January 2016 (the
“Acquisition of Alcatel Lucent”), we have
combined global leadership in mobile and
fixed network infrastructure with the
software, services and advanced technologies
to serve customers in more than 100
countries around the world. We are driving the
transition to smart, virtual networks and
connectivity by creating one single network
for all services, converging mobile and fixed
broadband, IP routing and optical networks,
with the software and services to manage
them. Our research scientists and engineers
continue to invent new technologies that will
increasingly transform the way people and
things communicate and connect: 5G, ultra
broadband access, IP and Software Defined
Networking (“SDN”), Cloud applications,
IoT and security platforms, data analytics,
as well as sensors and imaging.
Through our five business groups, we have
a global presence with operations in Europe,
the Middle East & Africa, Greater China,
North America, Asia-Pacific and Latin America.
In 2016, we had sales in approximately
130 countries. We also have research and
development (“R&D”) facilities in Europe,
North America and Asia, and at the end
of 2016, we employed approximately
101 000 people.
We closed 2016 delivering net sales of
EUR 23.6 billion. We continued to make
significant targeted R&D investments, a
bedrock of our success in innovation, with
R&D expenditures equaling EUR 4.9 billion
in 2016.
Countries of operation
100+
Number of employees at the end of 2016
~101 000
R&D investment in 2016
EUR 4.9bn
02
NOKIA IN 2016
Acquisition of Alcatel Lucent
In April 2015, we announced plans to acquire
Alcatel Lucent with an aim to create an
innovation leader in next generation
technology and services. The all-share
transaction was agreed on the basis of 0.55
new Nokia shares for every Alcatel Lucent
share, a transaction valued at EUR 15.6 billion
on a fully diluted basis.
At the end of 2015, our shareholders voted
overwhelmingly to approve the Alcatel Lucent
acquisition, and in early January 2016 we
announced that we had gained control of
Alcatel Lucent through the successful public
exchange offer for all outstanding Alcatel
Lucent securities by holding nearly 80%
of outstanding Alcatel Lucent securities.
During the course of the year, we continued
to take steps towards gaining full ownership
of Alcatel Lucent through the initial and
reopened exchange offers and by purchasing
Alcatel Lucent shares and OCEANE convertible
bonds in privately negotiated transactions,
consequently reaching full ownership of
Alcatel Lucent in November 2016.
On October 4, 2016, the French stock market
authority (Autorité des marchés financiers,
the “AMF”) announced that a legal action
was filed before the Paris Court of Appeal on
September 30, 2016 for annulment of the
AMF’s clearance decision regarding our public
buy-out offer, which would be followed by
a squeeze-out of all remaining securities
of Alcatel Lucent. As a result, the public
buy-out offer period was extended and the
squeeze-out was postponed. We found
the legal challenge to be without merit,
as we believed that the offer complied
with all applicable laws and regulations.
On October 25, 2016, with the legal challenge
still pending, the AMF announced the
continuation of the timetable of the public
buy-out offer followed by a squeeze-out
of all remaining securities of Alcatel Lucent,
allowing the public buy-out period to end
on October 31, 2016 and the squeeze-out
to be implemented on November 2, 2016.
On November 2, 2016, we achieved 100%
ownership of Alcatel Lucent.
On December 15, 2016, the plaintiffs
withdrew the complaint they had filed before
the Paris Court of Appeal and, consequently,
the public buy-out offer followed by a
squeeze-out had therefore become definitive,
confirming our ownership of 100% of
Alcatel Lucent.
NOKIA IN 2016
03
Overview This is Nokia continued
Organizational structure
and reportable segments
January 14, 2016 was Nokia and Alcatel
Lucent’s first day of combined operations.
After the Acquisition of Alcatel Lucent, we
organized our networks-oriented businesses
into four business groups: Mobile Networks,
Fixed Networks, IP/Optical Networks and
Applications & Analytics (together the
“Networks business”); and kept our driver
of future innovation and licensing, Nokia
Technologies, as a separate fifth business
group. For descriptions of our business
groups, refer to “Business overview—
Networks business” and “Business overview—
Nokia Technologies”.
We have three reportable segments:
(i) Ultra Broadband Networks comprising
Mobile Networks and Fixed Networks,
(ii) IP Networks and Applications comprising
IP/ Optical Networks and Applications &
Analytics (all within our Networks business),
and (iii) Nokia Technologies.
Following the changes to our organizational
structure announced on March 17, 2017, we
will continue to report financial information
for Ultra Broadband Networks, IP Networks
and Applications and Nokia Technologies.
Ultra Broadband Networks will be composed
of the Mobile Networks, Global Services and
Fixed Networks business groups. IP Networks
and Applications is composed of the IP/Optical
Networks and Applications & Analytics
business groups.
Additionally, we report the results of other
business activities that are not reportable
segments, such as our undersea cables
business, Alcatel-Lucent Submarine
Networks (“ASN”), and our antenna systems
business, Radio Frequency Systems (“RFS”),
in aggregate. Both ASN and RFS are being
managed as separate businesses.
04
NOKIA IN 2016
Our business groups in 2016
Mobile Networks
Higher quality and more
reliable mobile broadband
experiences
Fixed Networks
More bandwidth in more
places giving communities
more access to the world
IP/Optical Networks
Massively scalable networks
securely connecting everyone
and everything to the Cloud
Applications & Analytics
Intelligent software platforms
optimizing and automating
network performance
Nokia Technologies
Connected health devices;
professional Virtual Reality
capture and broadcast;
and highly valuable brand,
intellectual property and
technologies
NOKIA IN 2016
05
Overview Key data
Net sales 2016
EUR 23.6bn
Gross margin 2016
35.8%
Dividend per share 2016
EUR 0.17
Net cash as of December 31, 2016
EUR 5.3bn
The following table sets
forth summary financial and
non-financial information for the
years ended December 31, 2016
(including Alcatel Lucent) and
December 31, 2015 for our
Continuing operations. This
data has been derived from
our consolidated financial
statements, which are included
in this annual report.
For the year ended December 31
Net sales
Nokia’s Networks business
Ultra Broadband Networks
IP Networks and Applications
Nokia Technologies
Group Common and Other
Gross margin
Operating (loss)/profit
Nokia’s Networks business
Ultra Broadband Networks
IP Networks and Applications
Nokia Technologies
Group Common and Other
Unallocated items(1)
Operating margin
Financial income and expenses, net
Income tax benefit/(expense)
(Loss)/profit
Earnings per share (“EPS”), EUR diluted
Average number of employees
Net sales by region
Asia-Pacific
Europe
Greater China
Latin America
Middle East & Africa
North America
Total
2016
EURm
23 614
21 800
15 771
6 029
1 053
1 145
35.8%
(1 100)
1 935
1 362
573
579
(342)
(3 272)
(4.7)%
(287)
457
(912)
(0.13)
102 687
4 206
6 393
2 656
1 457
1 871
7 031
23 614
2015
EURm
Change
12 499
11 487
10 159
1 328
1 027
–
89%
90%
55%
354%
3%
–
44.3% (850)bps
–
1 697
43%
1 349
12%
1 211
315%
138
(17)%
698
284%
(89)
–
(261)
13.6% (1 830)bps
54%
–
–
–
81%
(186)
(346)
1 194
0.31
56 690
3 230
3 813
1 712
973
1 177
1 594
12 499
30%
68%
55%
50%
59%
341%
89%
(1) Includes costs related to the Acquisition of Alcatel Lucent and related integration, goodwill impairment charges, intangible asset
amortization and other purchase price fair value adjustments, restructuring and associated charges and certain other items.
06
NOKIA IN 2016
Net sales (EURm)
Gross profit (EURm)
and gross margin (%)
Dividend per share (EUR)(1)
2
3
6
1
4
1
1
7
6
2
1
2
4
9
9
8
4
5
6
35.8%
5
5
3
6
44.3%
4
9
8
8
42.4%
.
0
1
7
.
0
1
6
.
0
1
4
2014
2015
2016
2014
2015
2016
2014
2015
2016
Gross profit
Gross margin
Net cash as of December 31 (EURm)
Net sales 2016 by business
Net sales 2016 by region
7
7
7
5
5
0
2
3
5
2
9
9
2014
2015
2016
3
2
B
A
1
1
2
6
5
4
3
1 Nokia Networks
A Ultra Broadband
Networks
B IP Networks
EUR 21 800m (+90%)
EUR 15 771m (+55%)
and Applications
2 Nokia Technologies
3 Group Common and Other EUR 1 145m
EUR 6 029m (+354%)
EUR 1 053m (+3%)
1 Asia-Pacific
EUR 4 206m (+30%)
2 Europe(2)
EUR 6 393m (+68%)
3 Greater China
EUR 2 656m (+55%)
4 Latin America
EUR 1 457m (+50%)
5 Middle East & Africa EUR 1 871m (+59%)
6 North America
EUR 7 031m (+341%)
(1) We also paid a special dividend of EUR 0.10 per share in line with our capital structure
optimization program announced on October 29, 2015.
(2) All Nokia Technologies IPR and licensing net sales are allocated to Finland.
Year-on-year change is in parentheses.
Derived from our financial statements which were prepared in accordance with IFRS.
NOKIA IN 2016
07
Overview
Nokia in 2016 –
a successful first year
of combined operations
January
January 14, 2016
We celebrated our
first day of combined
operations after
gaining control of
Alcatel Lucent
following a successful
public exchange offer
earlier that month,
after which we held
nearly 80% of the
outstanding Alcatel
Lucent shares.
This marked the
completion of our
latest transformation
and the formation
of a global leader
in creating the
technologies at
the heart of our
connected world.
February
February 21, 2016
We underscored
our leadership in
5G development
by announcing
5G-ready Nokia
AirScale, an innovative
next-generation radio
access solution that
will enable operators
to satisfy future
demands.
February 21, 2016
Nokia Growth Partners
announced the
closing of a new
USD 350 million fund
for investments in
IoT companies.
March
March 18, 2016
We announced the
start of European
sales for the OZO
professional VR
camera, as well as
new post-production
partnerships to
advance end-to-end
solutions for creating
next generation digital
media experiences.
March 31, 2016
We completed the
acquisition of
Canadian software
firm Nakina Systems,
which specializes
in security and
orchestration
software for virtual
and hybrid networks.
April
April 26, 2016
We announced
our plans to acquire
Withings in line
with our strategy to
accelerate our entry
into digital health
within our Nokia
Technologies
business. Withings
is a pioneer in the
connected health
revolution with a
track record of
award-winning digital
health products and
services. We completed
the acquisition on
May 31, 2016.
May
May 18, 2016
We signed a strategic
brand and intellectual
property licensing
agreement granting
HMD Global Oy (“HMD
Global”) an exclusive
global license to create
Nokia branded mobile
phones and tablets
for the next ten years.
The agreement
entered into effect on
December 1, 2016,
allowing HMD Global
to begin operations
as the new home of
Nokia phones.
June
June 28, 2016
We demonstrated the
world’s first 5G-ready
network at 5G World,
built using our
commercially available
network platforms.
November 2, 2016
We gained 100% ownership of
Alcatel Lucent after a successful
public buy-out of the remaining
Alcatel Lucent securities followed
by a squeeze-out.
08
NOKIA IN 2016
July
July 13, 2016
We agreed with
Samsung to expand
our patent cross
license agreement
to cover certain
additional patent
portfolios of both
Nokia and Samsung.
The agreement
expands access for
each company to
patented technologies
of the other and
reinforces Nokia’s
leadership in
technologies for the
Programmable World.
July 29, 2016
We completed
the acquisition
of Gainspeed, a
California-based
start-up specializing
in Distributed Access
Architecture (“DAA”)
solutions for the cable
industry. With this
acquisition, we are
able to offer a turnkey
solution for the cable
industry that includes
products for routing,
transport, wireless
and analytics.
August
August 4, 2016
As a result of
successful integration
work and increased
granular visibility into
the business of the
combined company,
we raised our estimate
of net operating
cost synergies and
announced a target of
EUR 1.2 billion in total
cost savings in full year
2018 compared to the
combined operating
costs of Nokia and
Alcatel Lucent for
the full year 2015,
excluding Nokia
Technologies. Our
earlier estimate was
EUR 900 million.
September
September 1, 2016
We announced our
new plan to bridge
the transition from
4G to 5G with 4.5G Pro,
an advanced mobile
technology that delivers
significant capacity and
speed enhancements
needed by operators
as they build towards
next-generation
networks. We also
outlined our plans for
4.9G, which will allow
users to maintain a
continuous 5G service
experience using
an evolved LTE to
complement 5G
radio coverage.
September 8, 2016
We were included
in the Dow Jones
Sustainability Index
for the second year
running in recognition
of our economic,
environmental and social
responsibility. We also
improved our overall
score compared to 2015.
December
December 15, 2016
We announced our
intention to acquire
Deepfield, the United
States-based leader
in real-time analytics
for IP network
performance
management and
security. The
acquisition extends
our leadership
in real-time,
analytics-driven
network and service
automation.
October
October 4, 2016
We announced the
acquisition of Eta
Devices, a United
States-based start-up
specializing in power
amplifier efficiency
solutions for base
stations, access points
and devices.
November
November 2, 2016
We gained 100%
ownership of Alcatel
Lucent after a
successful public
buy-out of the
remaining Alcatel
Lucent securities
followed by a
squeeze-out.
November 15-16,
2016
We held our Capital
Markets Day event
in Barcelona, Spain,
where we updated the
market on our new
financial and strategic
priorities. Following
the event, we
commenced a
EUR 1 billion share
repurchase program
in line with our
capital structure
optimization program.
February 9, 2017
We announced plans to acquire
Comptel, a publicly listed
Finnish company providing
software and services for
digital and communications
service providers to advance
our strategy of building a
standalone software business.
NOKIA IN 2016
09
Overview Business
overview
10
NOKIA IN 2016
Contents
Letter from our President and CEO
12
Our role as a global technology leader 16
17
Our values
18
Our strategy
24
Our leadership
Our businesses
26
27
Networks business
28
Market overview
28
Competition
29
Mobile Networks
30
Fixed Networks
31
32
33
33
34
34
36
37
IP/Optical Networks
Applications & Analytics
Services
Sales and marketing
Research and development
Patents and licenses
Nokia Technologies
Market overview
Business overview
and organization
Sales and marketing
Research and development
Patents and licenses
Competition
Principal industry trends
affecting operations
37
38
38
38
39
40
NOKIA IN 2016
11
Business overview
Letter from our
President and CEO
Net sales in 2016
EUR 23.6bn
Proposed dividend per share
EUR 0.17
Proposed dividends
EUR 972m
Customers
Customers have responded extremely well
to the scope of our new end-to-end portfolio.
It has increased our credibility with major
communication services providers (“CSPs”),
who understand that network performance
is based not just on the parts of the networks
but on how those parts work together. It has
also opened doors for us to new customers in
select enterprise segments, who increasingly
need the kind of mission-critical networking
capability that we provide. In addition, we
have successfully agreed product transition
plans with all major customers, and
implementation is underway in many.
This is a remarkable achievement,
completed in well under one year.
2016 was a year of remarkable
change for Nokia.
We started the year primarily as a mobile
networks and patent licensing company.
Today we are a fundamentally different
company, with a complete portfolio that
spans mobile, fixed, cable, routing, optical,
standalone software, services, digital
health, and VR, as well as licensing activities
covering patents, brand, technology,
and more.
During this transformation, we delivered
solid financial performance, made
significant progress integrating Alcatel
Lucent, launched compelling innovations
for our customers, moved forward with the
execution of our strategy, and are on track
to meet our commitment to reduce costs
by EUR 1.2 billion in full year 2018.
Financial highlights
In the context of a challenging market and a
major integration effort, we performed well in
2016. Our Networks business delivered an
operating margin of 8.9% in 2016, and Nokia
Technologies’ net sales increased by 3% to
EUR 1.1 billion in 2016. While overall sales
were down compared to sales of both Nokia
and Alcatel Lucent in 2015, profitability held
up well. Because of this strong performance,
our Board of Directors will propose an
increased dividend compared to 2015 and
compared to our original capital structure
optimization plans.
Integration progress
Despite having only closed the Acquisition
of Alcatel Lucent in early January 2016 and
gained 100% ownership on November 2,
2016, we have completed the majority of our
integration projects. While we have agreed
product transition plans with all major
customers, execution of those programs
will take further time. That said, the speed
of progress and quality of work have been
considerably higher than I have witnessed
in past integrations.
12
NOKIA IN 2016
“The operational foundation we now have in
place, together with our financial strength and
our disciplined, results-focused culture, have
put us in a much stronger position to capitalize
on our bigger portfolio and customer set, to tap
the greater number of paths available to us for
growth and expansion, and to be the innovation
leader that enables our connected lives.”
People
Overall employee engagement scores at
Nokia remained high, based on our periodic
Cultural Cohesion Tracker. The tracker also
pointed to the fact that the Acquisition of
Alcatel Lucent created less cultural conflict
than might have been expected given the
history of acquisitions in our sector. During
the year, we also launched a revitalized effort
to improve our gender balance within the
company. I am confident that we are gaining
momentum and within the next two years
we will start to see some positive change.
Innovation
We made significant progress in our aspiration
to lead in 5G as we began bringing to market
innovation from nearly 10 years of research
at Nokia Bell Labs. We are preparing the world
for 5G with the industry’s best evolutionary
path from 4G to 4.5G to 4.5G Pro to 4.9G
and finally 5G.
We set records for fiber-like speeds over
copper with XG-Fast, delivering 8 gigabits
per second in a test with Australia’s National
Broadband Network. Our new optical chip
sets enabled us to deliver a transmission
speed of 1.2 terabits per second over
optical fiber in Africa’s first field trial of optical
communications technology. In New Zealand,
we delivered 200 gigabits per second on
a single wavelength over a single fiber.
We introduced our intelligent management
platform for all connected things (“IMPACT”)
to help our customers deploy new services
for IoT applications. Our Nuage SDN
platform gained traction helping businesses
move to the Cloud, and we continued our
development of Cloud service orchestration
and network security.
Nokia Bell Labs moved forward with its
Future X projects, shaping the network
of the future—massively distributed,
cognitive, continuously adaptive,
learning and optimizing.
Sustainability and corporate
responsibility
Reducing our carbon footprint and helping
our customers do the same is at the center
of our sustainability objectives, as is doing
business with integrity. The high standards
of our Code of Conduct allow us to build
and maintain personal integrity across the
company and protect our reputation. We
work hard to ensure the technology we
provide is not used to infringe human rights
and conduct robust on-site assessments of
our suppliers, as well as using the EcoVadis
scorecards, to ensure they meet our high
ethical standards. Our customers also use
these very same scorecards to assess our
sustainability performance.
In 2016, we made progress in the EcoVadis
framework in areas of environment, labor
practices, and supply chain management.
We were judged “Outstanding”, the
highest gold recognition level, with a score
of 85/100 putting us in the top 1% of
all suppliers assessed. Our total energy
consumption across our facilities decreased
by approximately 9% compared to 2015,
which reflected a decrease of approximately
16% in our greenhouse gas emissions,
including our renewable energy usage. The
2016 figures are compared to the combined
figures of Nokia and Alcatel Lucent in 2015.
NOKIA IN 2016
13
Business overview Letter from our President and CEO continued
In 2016, we retained our listing in the Dow
Jones Sustainability Index with a score of
83/100, and were ranked the leader of the
CMT Communications Equipment sector.
Cost reductions
With the Acquisition of Alcatel Lucent,
we committed to reduce costs by
EUR 1.2 billion in full year 2018. We are
progressing well towards this goal and, in
2016, we were ahead of plan. I would note
that delivering against this commitment
has required and will require us to reduce
the number of employees as we eliminate
overlaps and use best practices from both
Nokia and Alcatel Lucent to find new areas
of efficiencies. These reductions are never
easy and do not reflect the quality of the
people who had to leave the company.
Throughout the process, which will
continue until the end of 2018, we have
sought to provide support for those
people and to treat them with dignity
and respect.
Strategy
Finally, we announced our new strategy and
made good progress on execution against
four strategic priorities.
Our first strategic priority is to lead in
high-performance end-to-end networks
with our communication service provider
customers. We ended the year with a leading
position in LTE, service provider IP edge
routing, copper access and services.
To maintain these leadership positions,
we launched compelling 4.5G Pro and 4.9G
solutions, giving operators the ability to
continue to meet capacity demands now
while transitioning to 5G in the future. We
acquired Gainspeed, giving us a compelling
entry into the DOCSIS (Data Over Cable
Service Interface Specification) world of
cable operators. We also made several
other acquisitions designed to expand
our capabilities in areas such as big data
analytics for network and service automation
and network security.
Our second priority is to expand network
sales to select vertical markets, specifically
energy, transportation, public sector,
technical extra-large enterprises (“TXLEs”),
and webscale players (“Webscales”) such
as Google and Amazon. We saw good
momentum in the year in several of these
areas, such as building an LTE public safety
network in Dubai with our partner Nedaa,
IP backbone and network modernization for
rail operators such as the S-Bahn in Berlin,
and private LTE networks for utilities and
mining with major players like Rio Tinto.
We see strong future opportunities in all
targeted segments.
To tap this opportunity, we are investing
where it is needed, including focusing our
sales force, and making strategic acquisitions
such as Deepfield, a United States-based
leader in big data analytics to extend our reach
into webscale and large enterprise customers.
Building a strong standalone software
business is our third strategic priority, and in
2016 we made good progress, expanding our
current business with communication service
providers and expanding to enterprises and
IoT platforms. We enhanced our IMPACT
platform to help our customers deploy new
services and lines of business, such as smart
parking, smart lighting, and transportation
and automotive. Our planned acquisition
of Comptel accelerates our plans for a
standalone software business. Comptel’s
service orchestration portfolio, when
combined with Nokia’s Service Assurance and
our Cloudband and Nuage portfolios, enables
us to provide our customers with complete
end-to-end orchestration of complex
Network Function Virtualization (“NFV”)
and SDN deployments.
14
NOKIA IN 2016
Finally, our fourth strategic pillar—to create
new business and licensing opportunities in
the consumer ecosystem—gained strong
momentum. Our patent licensing business
has also progressed, adding more licensees
as well as concluding our arbitration and
agreeing an expanded licensing deal with
Samsung. We also entered into a brand
licensing agreement with HMD Global, which
has already launched its first Nokia-branded
smartphones. We accelerated our Digital
Health business with the acquisition of
Withings, and continued to gain momentum
in OZO camera sales and in taking steps
to see our VR video and audio become
embedded in the VR ecosystem. Our primary
interest in this area continues to be in
developing technology that we can license
to other parties and in refreshing our
patent portfolio.
These are truly exciting times at Nokia.
We came a long way in 2016 and have plenty
of opportunities in our future.
Even if our business has changed massively,
our culture remains uniquely Nokia. We are
driven to win, focused on shareholder value,
but always guided by our strong core values
and deep commitment to ethics and integrity.
We remain true to our vision to expand the
human possibilities of the connected world,
creating new and extraordinary experiences
in people’s lives through technology that
is grounded in real human needs. To that
purpose we are dedicated, ready, and ideally
placed to succeed.
Rajeev Suri
President and CEO
NOKIA IN 2016
15
Business overview Our role as a global
technology leader
Our vision is to enable the human
possibilities of the connected world.
We are innovators of the
global nervous system, shaping
the future of technology to
transform the human experience
Innovating this global nervous system is a role
that Nokia is uniquely well placed to play. Our
business today is not just focused on meeting
extraordinary technological demands, but also
on how technology is deployed and used.
With the potential of Augmented Intelligence,
increasing human and machine interaction,
and a supercomputer in every pocket, we
believe that current trends will have significant
implications for society.
We are shaping a new
revolution in technology
We are shaping a new revolution in
technology, where intelligent networks
augment and aid our daily lives through
sensing the world around us and providing the
data and analytics needed to make choices
that help society thrive. We are innovating this
global nervous system with effortless, simple
and dependable technology for the IoT,
ultra-broadband, Cloud, IP interconnectivity,
digital health and immersive VR technologies.
We create disruptive solutions
enabling market differentiation
and competitive advantage
We believe that innovation is the foundation
of everything we do at Nokia. We force the
pace of change by pushing technology
boundaries, challenging the status quo and
working in open collaboration with customers
and partners on the next “big idea.” It is
through these efforts that Nokia expands and
enhances its portfolio, introduces disruptive
technologies and identifies new market
opportunities for its customers.
We are continually evolving the Nokia
portfolio: adding and combining functionality,
making it more intuitive and simpler to use.
Doing this helps our customers evolve their
networks. For instance, by taking the first step
towards entering the IoT space with our
IMPACT solution; or the next step to transition
from LTE to 5G using 4.5G Pro and 4.9G;
or perhaps the ultimate step to creating
immersive experiences with our OZO
VR camera.
It is through innovation that we create
paths for our customers—whatever their
starting point—to reach the promising new
digital world.
We enable innovative and
compelling business models,
applications and services
With the advent of new technologies such
as the IoT, 5G and Cloud, we believe that
enabling new business opportunities for our
customers is the key to their rapid transition
to new digital networks, capitalizing on the
inherent operational benefits of this
technology, and generating new services.
We assist our customers in identifying
compelling cases for new revenue streams,
in addition to enabling the rapid onboarding
of new applications and services, scalability
and operational efficiency.
We optimize performance to
maximize value and customer
satisfaction
We believe that agility in today’s fast and
constantly evolving marketplace is no longer
just an advantage—it is a vital necessity.
Agile principles, lean practices and innovative
tools are required to successfully survive in
the new digital world and enable continuous
improvement in quality, value and customer
satisfaction.
We enable our customers to move away from
an economy-of-scale network operating
model to demand-driven operations. We do
this by providing the easy programmability
and flexible automation needed to support
dynamic operations, reduce complexity and
improve efficiency.
As a result, our customers can fulfill end user
demands—when and where they are needed—
by provisioning services in real time while
automatically making optimal use of
networks assets.
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NOKIA IN 2016
Our values
We foster a culture of high performance and
high integrity, guided by our vision, brand
and values.
It is through our people and culture that we
shape technology to serve human needs.
Our pursuit of performance with integrity and
sustainability—a culture that stems from our
Finnish roots—is key to why our customers
and partners choose to work with us.
Operational excellence is the cultural platform
we use to pursue Nokia’s core purpose as a
company. It means relentlessly pursuing
financial performance by delivering on our
end-to-end strategy. It informs our quest for
innovation, as we use our insatiable curiosity
and deep technical knowledge to share the
future for our customers. It also drives our
pursuit of continuous improvement, not only
over earlier performance, but also in our
ability to outperform competitors and be
a trusted partner for customers, partners
and suppliers.
We pursue high performance, always under
the guiding principles of our values:
Respect
Acting with uncompromising
integrity, we work openly and
collaboratively, seeking to earn
respect from others.
Challenge
We are never complacent, ask
tough questions, and push for
higher performance to deliver
the right results.
Achievement
We take responsibility, and are
accountable for driving quality,
setting high standards, and
striving for continuous
improvement.
Renewal
We constantly refine our skills,
learn and embrace new ways
of doing things, and adapt
to the world around us.
Our commitments
What we do to design and deploy
technology in the service of people:
We create the most sophisticated
technology that is effortless and
intuitive to use
We lead the relentless quest for gains
in performance and agility, with
technology that thinks for itself.
We solve your future needs
We help customers shape their futures
based on a clear view of technology
opportunities and constraints. We work
closely with customers and partners
to anticipate their priorities and guide
their choices.
We obsess about integrity, quality,
and security
We never compromise our values in
the drive for business or technical
performance. We pursue quality in all
our products and processes, and design
for security and privacy from the start.
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17
Business overview Our
strategy
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NOKIA IN 2016
We are rebalancing for growth, putting
Nokia at the heart of unprecedented
technology demands as innovators
of the global nervous system.
The vision of the Programmable World
continues to guide our corporate strategy.
We have identified six global megatrends
that drive the Programmable World. These
megatrends create massive technological
requirements, impact our current and
potential customers, change the lives of
people and impact business operations
on a global scale and ultimately provide
opportunities for Nokia to diversify into
new growth areas.
The megatrends we have identified are:
1. Network, compute and storage: Ever
present broadband capacity coupled with a
distributed Cloud for ubiquitous compute
and near infinite storage, allowing limitless
connectivity and imperceptible latency
2. Internet of Things: In addition to people,
trillions of things are connected to the
internet, collecting unprecedented
amounts of data in a private and
business context
3. Augmented Intelligence: New tools
transform the collected data into actionable
insights, fundamentally changing the
way decisions are made by businesses,
governments and individuals, resulting in
time savings, less waste, higher efficiency
and new business models
4. Human and machine interaction: A range
of new form factors that fundamentally
transform the way humans interact with
each other and with machines, e.g.
voice-based digital assistance, gesture
control, smart clothes, implantable chips,
robotics and Augmented and Virtual Reality
5. Social and trust economics: Ubiquitous
connectivity, compute and storage, as
well as technologies such as block chain,
enabling new business models based
on sharing assets and distributed trust,
allowing rapid scalability on a global level
6. Digitization and ecosystems: Next
level of digitization beyond content and
information, digitizing atoms with additive
printing in an industrial, consumer
and medical context, fundamentally
transforming production processes
These megatrends are driving massive new
technology requirements, and end-to-end
networks are a central enabler for all
aforementioned megatrends, which create a
multitude of opportunities for us. Nokia Bell
Labs has developed a vision of a future
network architecture that fulfills all of these
requirements in a holistic way—the Future X
network vision. This is our guide not just to
how things will change, but also to what we
need to do to meet the future needs of our
customers and to address these megatrends.
The Future X vision encompasses the key
domains of future networks: massive scale
access, converged edge cloud, smart network
fabric, universal adaptive core, programmable
network operating systems, augmented
cognition systems, digital value platforms
and dynamic data security.
Simultaneously, driven by the identified
megatrends and the increasing relevance
of networks, we are seeing a shift in who
is investing in technology. Our primary
market, comprised of CSPs, in which we
have a leadership position, is expected to
remain challenging with a limited estimated
growth opportunity over the next five years.
However, the megatrends are increasing the
demand for large high-performance networks
in other key areas, which we define as our
select vertical markets. Webscale companies—
such as Google, Microsoft, and Alibaba—are
investing in Cloud technology and network
infrastructure on an increasing scale. As
other vertical markets such as energy,
transportation and government digitize their
operations, they will need massive mission-
critical networks. The same is true for TXLEs—
technically sophisticated companies, such as
banks, that invest heavily in their own network
infrastructures to gain a key competitive
advantage. Consequently, we have identified
attractive growth opportunities in new
domains outside our primary market with
CSPs, which remains a significant market.
We are addressing both our primary CSP
market and the newly identified growth
opportunities in our adjacent market with
our “Rebalancing for Growth” strategy.
This strategy builds on our core strength of
delivering large high-performance networks
by methodically expanding our business into
targeted, higher-growth and higher-margin
vertical markets. Our ambition is to grow the
share of our revenue that is derived from
outside the CSPs.
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Business overview Our strategy continued
Our four pillars
This strategy builds on our business
portfolio and continued drive to design
technology that serves people and
includes the following four key priorities:
1.Lead
Lead in high-
performance,
end-to-end
networks
with CSPs
Nokia is a leader in this area
today and we will use our main
competitive advantage—a near
100% end-to-end portfolio that
we can deliver on a global
scale—to maintain our leadership
while managing for profitability.
Within this first priority, we are
focused on:
■ monetizing additional waves of
4G and establishing leadership
in 5G by being first to market
with key customers and global
technology leadership;
■ maintaining our leading market
■ using our unique capability
share in copper access,
accelerating momentum in
fiber access, successfully
entering the cable market,
and developing new smart
home solutions;
■ leveraging our superior
products to expand in both
edge and core routing, where
we have a fully virtualized
portfolio that is differentiated
by performance, flexibility,
and quality;
of offering optical and routing
that work together, a capability
that is increasingly becoming
a customer requirement; and
■ delivering cost savings by
realizing synergies and applying
best practices across our entire
portfolio to maintain the
industry’s most profitable
networks business.
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NOKIA IN 2016
Over the next two years, we intend to maintain
our leading position with CSPs, while establishing
ourselves as a credible and recognized player in
our target vertical markets among enterprises.
We strive to sustain and rebuild Nokia as a
value-adding consumer brand, earning returns
through both our own businesses and licensing.
2.Expand
Expand network
sales to select
vertical markets
We will expand into five
select vertical markets with
carrier-grade needs: energy,
transportation, public sector,
TXLEs and Webscales. As the
world becomes ever more
digital, the kind of massive,
high-performance networks
once used almost exclusively
in telecommunications are now
needed by other organizations.
Webscale customers will
increasingly require
high-performance networks to
improve customer experiences
and to expand their primary
business models.
■ For Webscale companies we
have identified two areas for
diversification:
■ In terms of select vertical
markets, we have a
three-pronged approach:
– all-IP-led, with a focus on
providing more IP routing
and optical network
infrastructure; and
– mobile access-led, targeted
at those Webscales that wish
to expand into mobile access
connectivity with consumers.
– target a limited number of
customer segments to
ensure focus;
– leverage our full end-to-end
portfolio to increase
penetration with customers;
and
– accelerate and diversify our
go-to-market.
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Business overview Our strategy continued
Our four pillars
Build a strong
standalone
software
business
While Nokia has a large software
business today, much of that
is attached to our hardware
products. Our ambition is to
move beyond that approach in
the medium term and ultimately
to create a large global software
player that has the margin profile
consistent with large software
companies. We have three
priorities to achieve this ambition:
3.Build
■ generate an uplift to our
business by selling software
assets we have today
because our software is largely
network-agnostic. Fixed, cable
and enterprise customers are
targets for expansion;
■ assess where we are able
to expand into enterprise
software and IoT platforms,
where our experience in
providing mission-critical
networks and services at scale
is a powerful differentiator.
■ market our current software
to select vertical markets.
Some of our software assets
today are highly relevant for
our select vertical markets.
For example, Webscales
can benefit from Nokia’s
Operations Support Systems,
Service Assurance to enable
high-performance IT networks,
and inter-data center
connections; and
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NOKIA IN 2016
4.Create
Create new
business and
licensing
opportunities
in the consumer
ecosystem
In addition to renewing existing
patent licenses on favorable
terms, our aim is to add new
licensees from the mobile
industry, and we continue to
expand patent licensing into new
segments, such as automotive
and consumer electronics. Our
brand licensing efforts are well
underway—we see value creation
opportunities in the mobile
devices industry leveraging our
strong brand. Our exclusive brand
licensee for mobile phones and
tablets, HMD Global, has already
launched new Nokia branded
feature phones and smartphones.
In addition to our licensing
businesses, we intend to return
to the consumer market with two
select new businesses in Digital
Media and Digital Health. Our
current focus in the fast-growing
area of VR is to expand the
range of OZO cameras as part of
creating an industry-leading VR
ecosystem. Technology licensing
and strategic partnerships will
form an essential element of
this work, in order to accelerate
VR content creation and
mass adoption.
In Digital Health, we entered the
market through our acquisition
of Withings, a pioneer in
consumer-focused connected
health devices. In the future, we
see opportunities to scale globally
by building on the powerful reach
of the Nokia brand, expanding into
corporate wellness and assessing
opportunities to transition into
business-to-business healthcare,
in areas such as connected
patient care.
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Business overview Our leadership
We have a strong and experienced leadership
team that brings together leaders with many
years of experience in telecommunications
and technology, finance, sales and operations,
as well as various other business disciplines.
The diversity of business backgrounds of
the Nokia Group Leadership Team (the
“Group Leadership Team”) members has
been integral to the transformation of Nokia
into an industry and innovation leader in
next-generation technology and services
in recent years.
The Group Leadership Team is responsible for
the operative management of Nokia, including
decisions concerning our strategy and the
overall business portfolio. The Chair and
members of the Group Leadership Team
are appointed by the Board. The Group
Leadership Team is chaired by the President
and Chief Executive Officer (the “President
and CEO”).
Rajeev
Suri
President and CEO
Samih
Elhage(1)
President of
Mobile Networks
Federico
Guillén
President of
Fixed Networks
Basil
Alwan
President of
IP/Optical Networks
Bhaskar
Gorti
President of
Applications
& Analytics
Kristian
Pullola
Chief Financial
Officer
(1) As announced on March 17, 2017, Mr. Elhage will continue as a member of the Group Leadership Team until April 1, 2017.
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NOKIA IN 2016
On March 17, 2017, we announced a change in
our organizational structure which also impacted
our Group Leadership Team effective from
April 1, 2017. Refer to pages 86 to 89 for the
updated composition of the Group Leadership
Team and full biographies of its members.
Hans-Jürgen
Bill
Chief Human
Resources Officer
Kathrin
Buvac
Chief Strategy Officer
Ashish
Chowdhary
Chief Customer
Operations Officer
Barry
French
Chief Marketing
Officer
Marc
Rouanne(2)
Chief Innovation and
Operating Officer
Maria
Varsellona
Chief Legal
Officer
(2) As announced on March 17, 2017, Mr. Rouanne will transition to his new role as president of Mobile Networks effective from April 1, 2017.
NOKIA IN 2016
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Business overview Our businesses
We have two businesses: Nokia’s Networks
business and Nokia Technologies.
Within these two businesses, we had five
business groups in 2016: Mobile Networks(1),
Fixed Networks, IP/Optical Networks, and
Applications & Analytics (all within our
Networks business); and Nokia Technologies.
This section presents an overview of Nokia’s
Networks business and Nokia Technologies.
Networks business
Nokia Technologies
Mobile Networks
Fixed Networks
Nokia Technologies
Applications &
Analytics
IP/Optical Networks
(1) Following the changes to our organizational structure announced on March 17, 2017, our current Mobile
Networks business group will be separated into two distinct, but closely linked, organizations effective
from April 1, 2017: (1) Mobile Networks, which will focus on products and solutions, and (2) Global Services
which will focus on services. These changes are not reflected in the presentation of our businesses below,
which reflect our organizational structure for the year ended December 31, 2016.
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NOKIA IN 2016
Networks
business
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27
Business overview Networks business
Our Networks business in 2016 was
conducted through its four business groups:
Mobile Networks, Fixed Networks, IP/Optical
Networks, and Applications & Analytics.
Market overview
Through our comprehensive end-to-end
portfolio of products and services, we are
addressing a market that encompasses mobile
and fixed network access infrastructure,
IP routing and optical networks as well as
software platforms and applications.
We define our primary market as a network
and IP infrastructure, software and related
services market for CSPs. We estimate that
our primary market was EUR 113 billion
in 2016. In addition, we have an adjacent
market, including a vertical market that
includes our Networks businesses expansion
areas in both a customer and product
dimension. The adjacent market includes
customer segments such as Webscales,
energy, transport, public sector and TXLEs.
In the product dimension, this includes
solutions like Nuage Networks, SDN, Analytics,
IoT and Security. The adjacent market was
estimated at EUR 18 billion in 2016.
Demand for our portfolio is driven by
exponentially increasing growth in data
traffic as people’s lives and enterprises
become ever more digitized. This drives
the demand for highly reliable networks
for massive connectivity.
Competition
The competitors in our primary market are
Huawei and Ericsson. We also compete with
technology experts in some of our other
market segments, such as Juniper and Cisco
in the routing segment, and Ciena, Adtran,
and Calix in the optical networks and fixed
access segments. Both the optical networks
and the applications and analytics market
segments are still highly fragmented markets.
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NOKIA IN 2016
Mobile
Networks
Market overview
The primary market for our Mobile Networks
business group includes technologies for
mobile access, converged core and microwave
transport as well as related services. This
encompasses access and core technologies
ranging from 2G to 5G licensed spectrum
for both macro and small cell deployments.
The services market includes implementation,
care and professional services for mobile
networks in addition to managed services for
both mobile and fixed networks. The primary
market for Mobile Networks was estimated
at EUR 64 billion in 2016.
The vertical market for Mobile Networks
includes solutions for the public sector,
TXLEs and Webscales, and drives expansion
into domains such as IoT connectivity, LTE
for public safety, private LTE and unlicensed
radio access. The adjacent market, including
verticals, was estimated at EUR 2 billion
in 2016.
Business overview
and organization
Our aim is to lead with traditional
telecommunications operators, as well
as expand into select attractive, vertical
segments. This is accomplished by delivering
a comprehensive end-to-end portfolio
of mobile products and services across
Radio Networks, Converged Core, Advanced
Mobile Networks Solutions and Global
Services businesses.
Radio Networks has the task of driving
leadership in radio access and specifically has
end-to-end responsibility for one of the most
important areas for Nokia’s future: 5G. We
believe that 5G will change the way in which
mobile technology is used in virtually every
sphere of life. As we move along the path
towards making 5G a commercial reality, we
aim to extend our leadership in LTE with a
smooth evolution path comprising successive
generations of 4.5G, 4.5G Pro and 4.9G
offerings. Mobile Networks’ rationalized
portfolio, featuring the 5G-ready AirScale
radio access, is setting the standard for
scalability, openness, energy efficiency
and multitechnology support (“Single RAN”).
AirScale is the platform to enable 4.5G
Pro/4.9G, Cloud and IoT connectivity.
The further evolution of 4G, and ultimately
5G, requires a continuous transformation
of the core network. Mobile Networks’
Converged Core is designing a radically
simplified, robust and scalable core network
based on its concept of a Cloud Native Core.
Mobile Networks is already executing on this
path and distinguishing its offer through its
superior Shared Data Layer and AirFrame data
center infrastructure solutions, which enable
a Telco Cloud architecture that combines the
best of both a centralized and a distributed
approach. Using truly open interfaces and
open source software building blocks, Mobile
Networks can provide excellent performance
for its customers in and beyond traditional
telecommunications operators. Mobile
Networks aims for a leading market position
in end-to-end IP multimedia subsystem
(“IMS”)/voice over LTE (“VoLTE”), subscriber
data management and other virtualized
software infrastructure solutions, putting
together the key building blocks which
will enable new digital business models.
Advanced Mobile Networks Solutions
spearheads Mobile Networks’ expansion
beyond traditional telecommunications
operators to vertical markets in public
safety; connectivity for IoT and connected
automotive; and private LTE networks for,
for example, transportation and energy
companies. With a leading small cells portfolio
and strong positions in unlicensed LTE and
fixed wireless access—as well as innovative
backhaul solutions, including a strong
microwave offering—Mobile Networks aims
to meet the need for increasingly dense
networks to supply the capacity demands
of our changing world.
Finally, through our Global Services offering,
we aim to be the most innovative and
complete service provider for the connected
world. Our services, solutions and multivendor
capabilities help our customers navigate
through the evolving technology landscape,
network complexity and data growth as well
as improve personalized end user experience
while supporting them in day-to-day network
planning, implementation, operations and
maintenance. We differentiate strategically
through our service delivery by driving
speed, quality and efficiency with the right
combination of local expertise and globalized
delivery centers, as well as advanced analytics,
virtualization and automation using the
Nokia AVA platform.
Competition
The mobile networks market is a highly
consolidated market and our main
competitors are Huawei and Ericsson.
Additionally, there are two regional vendors,
ZTE and Samsung, that operate with a below
10% market share. As network infrastructure
gets virtualized and cloudified, we expect IT
companies to emerge, such as HP Enterprise.
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Business overview Networks business continued
Fixed
Networks
The Fixed Networks services portfolio is
based on our unparalleled expertise and
experience and is comprised of deployment,
maintenance and professional services such
as copper and fiber broadband evolution,
public switched telephone network
transformation, ultra-broadband network
design, deployment and operation, site
implementation and outside plant, as well
as multivendor maintenance.
Competition
The competitive landscape in fixed access
has similar characteristics to the mobile
access where the market is dominated by
three main vendors, Huawei, Nokia and ZTE
and a handful of other vendors with less than
10% market share.
Market overview
The primary market for our Fixed Network
business group includes technologies for fixed
access and related services in addition to fixed
network transformation services with focus
on transformation of legacy fixed switching
networks. The primary market for Fixed
Networks was estimated at EUR 9 billion
in 2016. In this market, we see a shift from
copper to fiber technologies. The copper
market is currently stable partially due to
Nokia-driven innovations that improve the
performance of the existing copper networks.
The adjacent market, including verticals,
for Fixed Networks includes virtualization
solutions for cable access platforms, Digital
Home (IoT) and passive optical LAN. The
adjacent market, including verticals, was
estimated at EUR 3 billion in 2016, including
related services.
Business overview
and organization
The Fixed Networks business group provides
copper, fiber and coax access products,
solutions and services to deliver more
bandwidth to more people, faster and in a
cost-efficient way. The portfolio allows for
a customized combination of technologies
that brings fiber to the most economical
point for our customers. It consists of
advanced copper-based solutions to boost
capacity on existing copper infrastructure,
such as VDSL2 Vectoring, Vplus and G.fast.
The Fixed Networks business group is also a
leader in fiber-to-the-home solutions, such
as Ethernet point-to-point, and all versions of
Passive Optical Networks (“PON”), including
EPON and GPON, as well as 10 gigabit next
generation fiber technologies (XGS-PON and
TWDM-PON). Together with Nokia Bell Labs,
we continue innovation and development
of even higher-capacity technologies like
XG-Fast, which allows 10 Gb/s over copper,
and XLG-PON enabling 40 Gb/s symmetrical
bandwidth over fiber.
With our acquisition of Gainspeed, a
California-based start-up specializing in DAA
solutions for the cable industry via its Virtual
Converged Cable Access Platform (“Virtual
CCAP”) product line, we have complemented
our fiber access technologies for cable
multiple-system operators. With this
enhanced product portfolio, we provide cable
operators with the end-to-end technology
capabilities needed to support growing
capacity requirements today and into the
future. With this acquisition, we are able to
offer a turnkey solution for the cable industry
that includes products for routing, transport,
wireless and analytics.
Additionally, our smart home solution
supports digital home devices that enable
communication providers to provide
enriched customer experiences and
diversify their offering.
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NOKIA IN 2016
IP/Optical
Networks
■ advanced datacenter automation and
software-defined WAN solutions that
configure network connectivity among
Clouds and to any enterprise branch
office with the ease and efficiency of
Cloud compute using products from
our Nuage portfolio;
■ advanced IP video services offering the
utmost user experience streamed
efficiently and flawlessly from the
Cloud; and
■ an extensive portfolio of professional
services to accelerate the benefits
of integrating new technologies to
transform networks and leverage the
latest innovations in SDN, virtualization,
video and programmable all-IP networks.
Competition
The competitive landscape is dominated by
Cisco, Juniper, Huawei and Nokia in addition
to various specialized players in optics such
as Ciena.
Market overview
The primary market for our IP/Optical
Networks business group includes routing and
optical technologies and related services sold
to CSPs. This market includes technologies
such as IP edge and core routing, mobile
packet core and Wave Division Multiplex and
Optical Multi-Service Network solutions. The
primary market for IP/Optical Networks was
estimated at EUR 28 billion in 2016.
A significant portion of IP/Optical Networks
revenue is derived from its vertical market,
which includes customer segments like
Webscales, energy, transport, public
sector and TXLEs. We have also included
technologies like SDN controllers, addressed
with our Nuage portfolio, in this market.
The vertical market was estimated at
EUR 6 billion in 2016.
Business overview
and organization
The IP/Optical Networks business group
provides the high-performance and massively
scalable networks that underpin the digital
world’s dynamic interconnectivity. IP/Optical
Networks portfolio of carrier-grade software,
systems and services play across multiple
domains, from programmable IP and optical
transport networks for the smart fabric
to software-defined capabilities for the
programmable network operating system
and more.
The networks of CSPs are under tremendous
pressure from Cloud-based applications,
ultra-broadband evolution and the IoT.
IP/ Optical Networks solutions reduce CSPs
time-to-market and risk in launching new
services, enabling rapid scaling to meet
surging demands in the most optimized
configurations. The solutions further assure
that network services are delivered with
consistent quality, reliability and security and
that restorative actions are automatically
initiated when any parameter varies beyond
set limits. These carrier-grade attributes also
benefit—and are valued by—the needs of
vertical markets including internet content
providers, public sector and verticals,
and TXLEs.
The IP/Optical Networks product portfolio
includes:
■ comprehensive IP and optical Wide Area
Networking (“WAN”) solutions that
dynamically, reliably and securely connect
people and things from any technology
modality to any Cloud at the lowest
cost-per-bit;
■ advanced, Cloud-optimized IP service
gateways for residential, business,
mobile and IoT services and unique
hybrid solutions enabling a converged
services future;
■ carrier SDN solutions for network
management that dynamically provision,
optimize and assure network services
and resources end-to-end, from access
to the Cloud, and spanning IP and optical
technology layers;
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31
Business overview Networks business continued
Applications
& Analytics
These markets are being reshaped by four
trends: the transition to the Cloud, the growth
of the IoT, the increased need for security
and privacy, and the impact of augmented
intelligence and machine learning. These
trends impact the way networks will operate,
how new services and business models will
be monetized, how customer expectations
will evolve and the speed at which CSPs and
TXLEs will need to innovate.
The Applications & Analytics business group
is driving an aggressive innovation agenda
that includes an Emerging Business unit
that is developing software for IoT, security,
Cloud, SON, and analytics. These advances
are helping our customers:
■ modernize BSS systems to rapidly launch
and monetize new IoT and Cloud services;
■ improve customer experiences with rich
analytics and machine learning;
■ operate larger networks and more services
with fewer staff through virtualization
and automation;
■ predict issues before they happen with
augmented intelligence;
■ scale IoT services with a platform
that handles data collection, event
processing, device management, data
contextualization, data analytics, and
end-to-end security;
■ increase the success of digital
transformations with improved processes,
collaboration and profitability; and
■ secure services and data with confidence.
Growing this business into a standalone
software business at scale is a key tenet of
our strategy. Please refer to “—Our strategy”
for more information on our strategy.
Competition
The Applications & Analytics business group
operates in a highly fragmented market in
which very few players have a market share
above 10%. Our main competitors are
Ericsson, Huawei, Amdocs, Oracle, HPE,
Cisco and Netcracker.
Market overview
The Applications & Analytics market is focused
on software platforms and applications
that help CSPs to optimize their operations,
monetize services and improve customer
experiences. Applications & Analytics’ primary
businesses include Business Support Systems
(“BSS”), Operational Support Systems (“OSS”)
and Service Delivery Platforms (“SDP”). The
primary market for Applications & Analytics
and associated professional services was
estimated at EUR 12 billion in 2016.
The adjacent market, including verticals, for
Applications & Analytics includes emerging
software and services for Self-Organizing
Networks (“SON”), Cloud, Analytics, Security
and IoT. From a customer perspective this
market also includes Webscales, digital
enterprises and IoT verticals. The adjacent
market, including verticals, was estimated
at EUR 6 billion in 2016.
Business overview
and organization
The Applications & Analytics business
group is our dedicated software business.
We have long-standing positions in its primary
markets: our BSS solutions support hundreds
of millions of subscribers and manage over
1.5 billion devices each day; we lead in LTE
network management; we have thousands
of OSS deployments with differentiated
capabilities in service assurance, automation,
analytics and Cloud; and our Session Border
Controller, a SDP that secures network
borders and connects an exploding
number of devices, stands out for its
virtualization capabilities.
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NOKIA IN 2016
Within our
Networks business
Services
Our Services are focused on developing
innovative services, solutions and multivendor
capabilities around the mobile, fixed and
IP networks and beyond. With our full service
portfolio we address the current and future
needs of our customers, including network
operators, public sector, TXLEs and
transportation. Customer satisfaction, quality
and efficiency are key in service delivery. To
achieve that, we leverage a combination of
local engagement with the customers, the
network of Global Delivery Centers, and Nokia
AVA, the next-generation delivery platform.
Altogether, our service portfolio and delivery
are powered by 38 000 services experts
around the globe.
Sales and marketing
The Customer Operations (“CO”) organization
is responsible for sales and account
management across the four network-oriented
business groups. The CO teams are active in
approximately 130 countries to ensure that
we are close to our customers, both physically
and in terms of understanding the local
markets, thus helping us build and maintain
our customer relationships. Refer to “General
facts on Nokia—Production of infrastructure
equipment and products” for more information
on our manufacturing facilities globally.
The CO organization is divided into
seven markets:
■ Asia-Pacific and Japan spans a varied
geographical scope, ranging from advanced
telecommunications markets, such as
Japan and the Republic of Korea, to
developing markets including Bangladesh,
Myanmar and Vietnam. We work with
leading operators in the market, including
Indosat, KDDI, KT, LG Uplus, NBN Australia,
NTT DoCoMo, Singtel, SK Broadband,
SK Telecom, Smartfren, SoftBank, Spark,
StarHub, Telekom Malaysia, Telkom
Indonesia, Telkomsel, VNPT and Vodafone.
We have close technology cooperation
with leading operators in Korea and Japan
as well as two Service Delivery Hubs located
in Japan and Indonesia.
■ In Europe, we are engaged with all the
major operators, including Deutsche
Telekom, MegaFon, MTS Sistema, Orange,
Telefónica, Telia Company and Vodafone
Group, serving millions of customers. We
have extensive R&D expertise in Europe,
and some of our largest Technology
Centers, which are developing future mobile
broadband technologies, are based in this
market. We also have a Global Delivery
Center and four regional Service Delivery
Hubs in Europe.
■ In Greater China, we are the number one
player with headquarters outside China,
and we are working with all the operators
including China Mobile, China Telecom,
China Tower and China Unicom. We have
also extended our market presence to the
public and enterprise sectors, including
railways and public security. In Taiwan, we
work with all major operators, including
Chunghwa Telecom and Taiwan Mobile.
In China, we have six Technology Centers,
one regional Service Delivery Hub and more
than 80 offices spread over megacities
and provinces.
■ In India, we are a strong supplier and
service provider to the leading public and
private operators, including Bharti Airtel,
Vodafone, Reliance Jio, Idea, BSNL, MTNL,
Aircel and Uninor. Collectively, our networks
for these operators carry over 280 million
subscribers across over 230 000 sites,
and these figures are growing every day. In
addition, we are a key telecom infrastructure
supplier to non-operator segments,
including large enterprises, utilities
companies such as Tata Power and GAIL,
Indian defense sector through L&T and BEL,
and we are a strategic telecommunication
partner for GSM-Railways technology to
Indian Railways, including Kolkata Metro
Railways and DMRC (Delhi Metro Rail
Corporation). We have a Global Delivery
Center, a Service Delivery Hub and a Global
Technology Center in India.
■ In Latin America, 16% of the population
use LTE services, and high-speed fixed
broadband is still in its early phase. With the
aim of providing broadband services to a
population of over 600 million people in the
area, we supply ultra-competitive solutions
to all major operators, such as América
Móvil, AT&T, Oi, Telefónica, Telmex and Tim,
as well as local operator groups, such as
Avantel, Milicom, Nuevatel and Personal.
■ In Middle East and Africa, we have built a
position of considerable strength, working
alongside leading operators such as Airtel,
du, Etisalat, Maroc Telecom, Mobily, MTN,
Ooredoo, Orange, OTA Djezzy, Smile, STC,
Telkom, Vodacom and Zain, among our key
customers in the market.
■ In North America, we count all the
major operators as our key customers.
We also deliver advanced IP networking,
ultra-broadband access, and Cloud
technology solutions to a wide array of
customers, including local service providers,
cable operators, large enterprises, state
and local governments, utilities, and many
others. North America is also home to the
company’s most important and thriving
innovation practices―from the renowned
Nokia Bell Labs headquarters in Murray Hill,
New Jersey, to the development labs
of Nokia Technologies in Silicon Valley.
In addition, we have a dedicated sales
organization focused on driving mission-critical
communications sales to organizations
outside the telecommunications operator
market. This structure is targeted at allowing
us to gain speed and efficiency in dealing
with customer requirements and cultivating
new and existing customer relationships.
The Global Enterprise and Public Sector
organization focuses on four segments
vertical to the telecommunications operators
that require mission-critical communications
networks: Public Safety, Transportation,
Energy and TXLEs. This global sales
organization is dedicated to serving the
needs of customers such as Nedaa in Dubai,
which provides telecommunication
NOKIA IN 2016
33
Business overview Networks business continued
services to all specialized governmental,
semi-governmental and private institutions;
the Swiss railway company SBB (Swiss
BundesBahn); the Swiss electricity
transmission system operator Swissgrid;
Smart City initiatives e.g. ‘Bristol is open’,
which aim at exploring solutions to make cities
smarter, safer and more sustainable; and
name-brand banks such as BBVA and Santander
that are transforming complex legacy
environments into leading-edge Clouds that
improve their global customer experience.
Research and development
Our Networks business is one of the
industry’s largest R&D investors in
information communication technology
and we expect it to drive innovation across
telecommunications and vertical industries
to meet the needs of a digitally connected
world. Product development is continually
underway to meet the highly programmable,
agile and efficiency requirements of the
next generation software-defined networks
that will accommodate the IoT, intelligent
analytics, and automation used to forge new
human possibilities.
Our four networks-focused business groups
are responsible for product R&D within the
Networks business. The Networks business
has a global network of R&D centers, each
with individual technology and competence
specialties. The main R&D centers are located
in Belgium, Canada, China, Finland, France,
Germany, Greece, Hungary, India, Italy, Japan,
Poland, the Philippines, Portugal, Romania,
the United Kingdom and the United States.
We believe that the geographical diversity of
our R&D network is an important competitive
advantage for us. In addition, the ecosystem
around each R&D center helps us to connect
with experts on a global scale and our
R&D network is further complemented by
cooperation with universities and other
research facilities.
Innovation steering within our Networks
business is carried out by the Chief Innovation
and Operating Office (“CIOO”). For R&D
activities of our Nokia Technologies business
group refer to “Nokia Technologies—
Research and development”. Within the
CIOO, the Chief Technology Office (“CTO”)
and Nokia Bell Labs organization are
responsible for our research agenda and
research portfolio along with group services
for architecture, compliance, reliability and
standards. The CIOO develops disruptive
technologies, incubates these technologies
into novel prototype systems and solutions
and then launches them through our business
groups to generate growth and differentiation
across our entire portfolio. The CIOO
organization also steers innovation externally
with customers, partners and governments,
and has new solutions tested in collaboration
with customers and our business groups.
In response to the six megatrends identified
by Nokia as driving the Programmable World
(for a more detailed description refer to
“Our strategy” above), Nokia Bell Labs has
defined the Future X network architecture—a
massively distributed, cognitive, continuously
adaptive, learning and optimizing network
connecting humans, senses, things, systems,
infrastructure, and processes. All of our
Networks business groups—and also Nokia
Technologies—are committed to this single
architecture view and are developing products
in their respective domains to build seamless
end-to-end solutions in the future:
■ Mobile Networks will enable 1 000X higher
throughput, 100X lower latency, 10X peak
speed, support for multiple spectrum
bands and technologies by building
application-aware and self-organizing
networks that are ultra-secure;
■ Fixed Networks will provide massive-scale,
ubiquitous access, fiber-like speed over any
media, and flexible software-defined access;
■ IP/Optical Networks will implement terabit
scale capacity, dynamic cloud-optimized
smart networks and unlimited network
programmability/slicing;
■ Applications & Analytics will automate
edge/Telco Cloud networks, and enable
cognitive network operation and future
enterprise interactivity, as well as provide
terabit-scale automated IoT/device
management contextual security; and
■ Nokia Technologies will explore and
innovate new digital value platforms, as well
as continue to innovate professional and
consumer devices and technologies, with
focus on digital health and digital media.
Patents and licenses
Intellectual property assets are fundamental
to Nokia, which owns a large patent portfolio
of more than 26 000 patent families,
originating from three distinct organizations
(Nokia Technologies, Nokia Solutions and
Networks and Alcatel Lucent). The Patent
Business in Nokia Technologies is the primary
monetization entity for patent assets. Refer to
“Nokia Technologies—Patents and licenses”
for a description of the patent licensing
activities of Nokia Technologies.
Our Networks business, including Nokia Bell
Labs, generates valuable patents from their
industry leading R&D in fields, such as wireless,
IP networking, ultra-broadband access
and Cloud technologies and applications.
Our patent portfolio includes high-quality
standard-essential patents (“SEPs”) and
patent applications which have been declared
to the European Telecommunications
Standards Institute and other Standards
Developing Organizations as essential to
standards including LTE, WCDMA, GSM and
other standards. We continue to drive new
patent generation.
Our Networks business has patent license
agreements in place with a number of
third parties as part of its ordinary course
of business.
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NOKIA IN 2016
Nokia Bell Labs
Nokia Bell Labs is the
world-renowned industrial
research and innovation arm of
Nokia. Over its 90-year history,
Nokia Bell Labs has invented many
of the foundational technologies
that underpin information and
communications networks and all
digital devices and systems. This
research has resulted in eight
Nobel Prizes, two Turing Awards,
three Japan Prizes, a plethora of
National Medals of Science and
Engineering, as well as an Oscar,
two Grammys and an Emmy
award for technical innovation.
Nokia Bell Labs continues to
conduct disruptive research
focused on solving the challenges
of the new digital era, defined
by the contextual connection
and interaction of everything
and everyone.
Nokia Bell Labs searches for the fundamental
limits of what is possible, rather than being
constrained by the current state of the art.
It looks to the future to understand essential
human needs and the potential barriers to
enabling this new human existence. It then
uses its unique diversity of research intellects
and disciplines and perspectives to solve
the key complex problems by discovering or
inventing disruptive innovations that have the
power to enable new economic capabilities,
new societal behaviors, new business models
and new types of services―in other words,
to drive technological revolutions.
Research at Nokia Bell Labs is focused on
key scientific, technological, engineering or
mathematical areas which require 10x or more
improvement in one or more dimensions.
It then combines these areas of research
into the Future X network architecture, which
brings these disruptive research elements
together into industry-redefining solutions.
These innovations are brought to market
through our business groups or through
technology and patent licensing. Nokia Bell
Labs also engages directly with the market
and customers through its consulting service
to help define the path to the future network
with business model innovation and the
optimum techno-economics.
This model of defining future needs and
inventing game-changing solutions to critical
problems while advising the market on the
path forward has been the constant mission
of Nokia Bell Labs.
Nokia Bell Labs and Alcatel-Lucent
Submarine Networks achieved 65 Tb/s
transmission record for transoceanic
cable systems using Bell Labs’ new
Probabilistic Constellation Shaping (“PCS”)
technology, a ground-breaking new
modulation technique that maximizes
the distance and capacity of high-speed
transmission in optical networks.
Nokia Bell Labs, Deutsche Telekom
T-Labs and the Technical University of
Munich achieved a 1 Tb/s transmission
rate over optical fiber using Bell Labs’
Probabilistic Constellation Shaping
technology to provide greater flexibility
and performance enabling optical
networks to operate closer to the
Shannon limit to meet growing consumer
and business data demands.
Nokia Bell Labs achieved the world’s first
10 Gb/s symmetrical data speeds over
traditional cable access networks using
XG-CABLE that is based on unique access
technology innovations and applications
developed by Nokia Bell Labs.
NOKIA IN 2016
35
Business overview Nokia
Technologies
36
NOKIA IN 2016
Nokia Technologies
Nokia Technologies is an engine
of growth and innovation for Nokia.
Nokia Technologies develops advanced
consumer and professional technology
products in Digital Health and Digital Media,
and licenses our industry-leading innovations
as well as the Nokia brand for mobile
devices. Nokia Technologies is determined
to explore, discover and develop the ways
in which technology can transform our lives.
Whether taking steps towards a healthier
life or sharing experiences like never before,
Nokia Technologies makes our vision for a
connected future your reality for today. Nokia
Technologies’ mission is to create effortless
and impactful technological products and
solutions that expand human possibilities.
Market overview
Nokia Technologies is driving innovation and
product development in two key growing
sectors of consumer technology—VR and
digital health—as well as overseeing the
reintroduction of the Nokia brand to handsets
through a licensing agreement with HMD
Global and the expansion of our patent
licensing business based on decades of
innovation and R&D leadership in enabling
technologies used in virtually all mobile
devices used today.
The market for VR products and technologies
remains at a very early stage, with estimates
of the total market as high as EUR 65 billion
by 2020, with significant growth expected
over the next five to ten years. We believe the
solutions we develop today, the standards
we establish and the patents associated with
them, will position us as a leading player in this
market as adoption grows in products as well
as in technology licensing.
The global digital health market is expected to
grow exponentially over the next five to seven
years, up to EUR 220 billion by 2020. Within
that market, we are focused on the segments
fueling the most significant growth:
1) connected devices that go beyond trackers
and smart watches to include scales and
blood pressure monitors; and 2) remote
patient monitoring.
Smartphones, feature phones, and
tablets had a global estimated market of
over EUR 400 billion in 2016, accounting for
nearly 40% of the total consumer electronics
segment. In the automotive industry,
expectations are that around half of the
approximately 100 million new cars
sold annually around the world will have
connectivity in the next five years.
Business overview
and organization
Nokia Technologies consists of a portfolio
of four growing businesses.
In Digital Media, we are pioneers of the
technology enabling VR, an exciting new
medium that is transporting people to places,
events and experiences like never before.
In Digital Health, we are entering the market
through our acquisition of Withings with a
portfolio of premium, intuitive products
designed to inspire the individual to take
control of their own health.
We have established a brand licensing
business, and our exclusive brand licensee
for mobile phones and tablets, HMD Global,
has already launched new Nokia branded
feature phones and smartphones.
Nokia Technologies continues to grow its
successful patent licensing business, which
drives most of its revenue today, giving us
the ability to invest in our new businesses
in a disciplined, venture capital-like manner.
NOKIA IN 2016
37
Business overview Nokia Technologies continued
Breakdown of patent filings in 2016
by technology
4
3
2
1
1 Connectivity
2 Fixed & optical networks
3 Services, applications
& multimedia
4 Product user interface
825 (59%)
158 (11%)
317 (23%)
and hardware
91 (7%)
Sales and marketing
Nokia Technologies has significant ongoing
R&D activities and an established patent
licensing business. Nokia Technologies
manages intellectual property as a technology
asset and seeks a return on its investments
by making its innovations available to the
markets through licensing activities and
transactions. Nokia Technologies currently
has more than 100 licensees, mainly for our
SEPs. Nokia Technologies is actively engaged
in sales and marketing in support of the OZO
VR camera and related technology solutions
that enable fully immersive audio and
video experiences.
Nokia Technologies is also engaged in
sales and marketing activities to support
the Withings portfolio of connected heath
products in global markets, which span the
regulated and non-regulated segments
of the market.
Nokia Technologies introduced the OZO VR
camera and related technologies including
the OZO Live solution in the United States,
European and Asian markets in 2016 and
is engaged in marketing these solutions to
professional content creators in industries
including film and entertainment, music,
sport, news, travel and education.
Nokia Technologies sees further
opportunities in licensing its proprietary
technologies, intellectual property and
brand assets into telecommunications
and vertical industries.
Research and development
The applied nature of our R&D in Nokia
Technologies has resulted in various
relevant and valuable inventions in areas
that we believe are important for emerging
consumer experiences in the Programmable
World, such as underlying connectivity and
sensing technologies, as well as codecs for
VR video and audio and advanced machine
learning-based health analytics.
Nokia Technologies has R&D centers in
Finland, France, the United Kingdom and
the United States.
Patents and licenses
For more than 20 years, we have defined
many of the fundamental technologies used
in virtually all mobile devices and taken a
leadership role in standards setting. As a
result, we own a leading share of essential
patents for GSM, 3G radio and 4G LTE
technologies. These, together with others
for Wi-Fi and video standards, form the core
of our patent portfolio for monetization
purposes. As mentioned above, Nokia
Technologies currently has more than
100 licensees, mainly for our SEPs.
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NOKIA IN 2016
With the acquisition of Nokia Siemens
Networks (“NSN”) in 2013 and the Acquisition
of Alcatel Lucent, we have added the results
of their sustained innovation, including that
of Nokia Bell Labs, creating a larger and more
valuable IP portfolio than ever before. The
portfolio spans more than 26 000 patent
families, built on combined R&D investments
of more than EUR 119 billion over the last
two decades.
We continue to refresh our portfolio from
R&D activities across all of our businesses,
filing patent applications on more than 1 300
new inventions in 2016. Continuing our focus
on communications standards, we also expect
to have a leading position in 5G. In 2016,
we were a leading contributor to the
development of 5G standards. As part of
our active portfolio management approach,
we are continuously evaluating our collective
assets and taking actions to optimize the size
of our overall portfolio while preserving the
high quality of our patents.
Competition
While several major technology companies are
entering the VR market, it is still nascent, and
long-term trends for capture and playback
solutions have not yet been identified. We
expect opportunities for technology licensing
within the VR ecosystem to grow over time.
In Digital Health, we are focused on high
growth segments of the total market,
including consumer products in both
regulated and non-regulated markets,
and going beyond fitness trackers to
blood pressure monitors, scales and
thermometers, as well as remote patient
monitoring. In this area, Koninklijke Philips N.V.
(Philips) is most notable for its competing
products. While Fitbit is primarily focused
on fitness trackers, they have also pointed to
the broader digital health value proposition
as part of their evolution.
Number of new filings in 2016
1 300+
R&D investment over the last two decades
~EUR 119bn
Number of patent licensees
100+
NOKIA IN 2016
39
Business overview Principal industry trends
affecting operations
Business-specific trends
Networks business
We are a leading vendor in the network and IP
infrastructure, software, and related services
market. We provide a broad range of different
products, from the hardware components
of networks used by network operators and
increasingly by customers in other select
verticals, to software solutions supporting the
efficient interaction of networks, as well as
services to plan, optimize, implement, run and
upgrade networks. Our Networks business
is conducted through four business groups:
Mobile Networks, Fixed Networks, IP/Optical
Networks and Applications & Analytics. These
business groups provide an end-to-end
portfolio of hardware, software and services
to enable us to deliver the next generation
of leading networks solutions and services to
our customers. We aim for all four business
groups to be innovation leaders, drawing
on our frontline R&D capabilities to deliver
leading products and services for our
customers, and ultimately ensure the
company’s long-term value creation. For
more information on the Networks business
refer to “Business overview—Networks
business” above.
Industry trends
The networks industry has witnessed certain
prominent trends in recent years, which
have also affected our Networks business.
First, the increase in the use of data services
and the resulting exponential increase in
data traffic has resulted in an increased
need for high-performance, high-quality
and highly reliable networks. The continuing
increase in data traffic has, however, not
been directly reflected in operators’ revenue.
Consequently, there is an increased need
for efficiency for both operators and network
infrastructure and services vendors.
Second, we are witnessing more operator
consolidation driven by operators’ needs to
provide a wider scope of services, especially
through the convergence of disparate network
technologies across mobile, fixed, and IP and
optical networks. In order to improve networks
in terms of coverage, capacity and quality,
network operators are continuing their
transition to all-IP architectures, with an
emphasis on fast access to their networks
through copper, fiber, LTE and new digital
services delivery. We are also seeing similar
trends with cable operators, who are investing
in the deployment of high-speed networks.
Both the fixed mobile convergence and the
transition to all-IP architectures were major
rationales behind our Acquisition of Alcatel
Lucent and creating our end-to-end portfolio
of products and services.
Third, we see an increasing demand for
large high-performance networks in some
key areas outside the traditional CSPs space,
which we define as our select vertical markets.
Webscales—such as Google, Microsoft and
Alibaba—are investing in Cloud technology
and network infrastructure an increasing
scale. In addition, other vertical markets such
as energy, transportation, government and
TXLEs are investing in their own network
infrastructure, to connect data centers and
provide seamless IP interconnection and
digital services delivery.
Pricing and price erosion
In 2016, we did not witness a dramatic
change in the overall pricing environment.
The environment remained similar to what we
witnessed in the prior year, when competition
intensified in the first quarter of 2015 and
impacted the net sales and profitability of
our Networks business.
Product mix
The profitability of our Networks business is
also affected by our product mix, including the
share of software in the sales mix. Products
and services have varying profitability profiles.
For instance, our Ultra Broadband Networks
reportable segment offers a combination of
hardware, software and services. Hardware,
and especially software products, generally
have higher gross margins, but also require
significant R&D investment, whereas the
service offerings are typically labor-intensive,
while carrying low R&D investment, and have
relatively low gross margins compared to the
hardware and software products.
Seasonality and cyclical nature of projects
Our Networks business’ sales are affected
by seasonality in the network operators’
spending cycles, with generally higher sales in
the fourth quarter, as compared to the first
quarter of the following year. In addition to
normal industry seasonality, there are normal
peaks and troughs in the deployment of large
infrastructure projects. The timing of these
projects depends on new radio spectrum
allocation, network upgrade cycles and the
availability of new consumer devices and
services, which in turn affects our Networks’
business sales. As an example, during the
last couple of years some of the major LTE
roll-outs have been largely completed. The
next major technology cycle is expected to
begin in 2017 when early use-case trials of
5G technology are expected to start, with
the initial commercial deployments currently
expected to start in 2018. Another example
of cyclicality is the IP/Optical Networks market,
where network operators often first
deploy optical capacity into their networks,
which is then followed by investments in
routing equipment.
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NOKIA IN 2016
Continued operational
efficiency improvements
In 2016, our Networks business continued
to focus on operational improvement across
its business groups. In order to continue to
make our Networks business more efficient,
higher-performing and positioned for
long-term success, we aim to further
strengthen our productivity, efficiency and
competitive cost structure. To help us achieve
this, we continue to bring performance
excellence methodologies such as Kaizen,
Lean and Six Sigma to all areas of the
business. Our Networks business will also
pursue further efficiency gains from increased
automation in delivery of Global Services
and in other areas, as well as continued
improvements in R&D efficiency and agility.
Cost of components and raw materials
There are several important factors driving
the profitability and competitiveness of
our Networks business: scale, operational
efficiency and pricing, and cost discipline.
The costs of our networks products comprise,
among others, components, manufacturing,
labor and overheads, royalties and licensing
fees, depreciation of product machinery,
logistics and warranty and other quality costs.
NOKIA IN 2016
41
Business overview Principal industry trends
affecting operations continued
Nokia Technologies
Nokia Technologies pursues new business
opportunities building on our innovations and
the Nokia brand. Nokia Technologies develops
and licenses cutting-edge innovations that
are powering the next revolution in computing
and mobility. The Nokia Technologies strategy
consists of: 1) patent licensing, focused
on licensing standard-essential and other
patents in the Nokia portfolio to companies
in the mobile devices market and beyond;
2) technology licensing, focused on
licensing proprietary technologies to enable
our customers to build better products;
3) brand partnerships, to help our customers
leverage the value of the Nokia brand in
consumer devices; and 4) incubation, focused
on developing new products and solutions in
the areas of digital media and digital health.
All of these activities are supported by Nokia
Bell Labs, our world-class R&D team. For
more information on the Nokia Technologies
business, refer to “Business overview—Nokia
Technologies”.
Monetization strategies of IPR
Success in the technology industry
requires significant R&D investment, with
the resulting patents and other IPR utilized
to protect and generate a return on those
investments and related inventions. In recent
years, we have seen new entrants in the
mobile device industry, many of which do
not have licenses to our patents. Our aim is
to approach these companies by potentially
using one or more means of monetization.
We believe we are well-positioned to protect,
and build on, our existing industry-leading
patent portfolio, and consequently to
increase our shareholders’ value.
We see a number of means of monetizing
our innovations: on the one hand, we seek to
license our patent portfolio, the Nokia brand
and new technological innovations to be
integrated into other companies’ products
and services. On the other hand, our
incubation activities may also, from time to
time, lead to concepts that we bring to the
market ourselves as products or services like
OZO, the extraordinary VR camera designed
and built specifically for professional content
creators. We also accelerated our expansion
into digital health in 2016 with the acquisition
of Withings SA, a leading innovator in health
and lifestyle product technology with a family
of award-winning digital health products
and services. Overall, we have sharpened our
focus on research and product development
in alignment with the strategic growth
opportunities we see emerging in the areas
of digital health and digital media, including
preventive health care and immersive VR.
In patent licensing, the main opportunities
we are pursuing are: 1) renewing existing
license agreements, and negotiating new
license agreements with mobile device
manufacturers; and 2) expanding the scope
of licensing activities to other industries,
in particular those that implement mobile
communication technologies. We no longer
need patent licenses for our own mobile
phone business, enabling the possibility
of improving the balance of inbound and
outbound patent licensing.
In brand licensing, we will continue to seek
further opportunities to bring the Nokia brand
into consumer devices, by licensing our brand
and other intellectual property, as well as,
for example, industrial design. For example,
under a strategic agreement covering
branding rights and intellectual property
licensing, Nokia Technologies granted HMD
Global, a newly founded company based in
Finland, an exclusive global license to create
Nokia-branded mobile phones and tablets
for the next ten years.
In technology licensing, the opportunities
are more long-term in our view, but we will
look at opportunities to license technologies
developed by Nokia Technologies and
delivered to partners in consumer electronics
as solutions or technology packages that can
be integrated into their products and services
to help enable the Programmable World.
To grow each of the aforementioned business
programs, it is necessary to invest in
commercial capabilities to support them.
42
NOKIA IN 2016
General trends in IPR licensing
In general, there has been increased focus
on IPR protection and licensing, and this
trend is expected to continue. As such, new
agreements are generally a product of lengthy
negotiations and potential litigation or
arbitration, and therefore the timing and
outcome may be difficult to forecast. Due to
the structure of patent license agreements,
the payments may be very infrequent, at
times may be partly retrospective, and the
lengths of license agreements can vary.
Additionally, there are clear regional
differences in the ease of protecting and
licensing patented innovations. We have seen
some licensees actively avoiding making
license payments, and some licensors using
aggressive methods to collect them; both
behaviors have attracted regulatory attention.
We expect discussion of the regulation
of licensing to continue at both a global and
a regional level. Some of those regulatory
developments may be adverse to the
interests of technology developers and
patent owners, including us.
Research, development and patent
portfolio development
As the creation of new technology assets
and patented innovations is heavily focused
on R&D activities with long lead-times to
incremental revenues, we may from time to
time see investment opportunities that have
strategic importance. This generally affects
the operating expenses before sales reflect
a return on those investments.
Trends affecting our businesses
Exchange rates
We are a company with global operations
and net sales derived from various countries,
invoiced in various currencies. Therefore,
our business and results from operations
are exposed to changes in exchange rates
between the euro, our reporting currency,
and other currencies, such as the U.S. dollar
and the Chinese yuan. The magnitude of
foreign exchange exposures changes over
time as a function of our net sales and costs
in different markets, as well as the prevalent
currencies used for transactions in those
markets. Refer also to “General facts on
Nokia—Selected financial data—Exchange
rate data” below.
To mitigate the impact of changes in
exchange rates on our results, we hedge
material net foreign exchange exposures
(net sales less costs in a currency) typically
with up to a 12-month hedging horizon.
For the majority of these hedges, hedge
accounting is applied to reduce income
statement volatility.
In 2016, approximately 25% of Continuing
operations net sales and approximately
25% of Continuing operations costs were
denominated in euro. In 2016, approximately
50% of Continuing operations net sales were
denominated in U.S. dollar and approximately
10% in Chinese yuan.
During 2016, the U.S. dollar appreciated
against the euro and this had a positive
impact on our net sales expressed in euros.
However, the stronger U.S. dollar also
contributed to higher cost of sales and
operating expenses, as approximately 45%
of our total cost base was in U.S. dollars.
In total, before hedging, the appreciation
of the U.S. dollar had a slightly positive effect
on our operating profit in 2016.
During 2016, the Chinese yuan depreciated
against the euro and this had a negative
impact on our net sales expressed in euros.
However, the weaker Chinese yuan also
contributed to lower cost of sales and
operating expenses, as approximately 10%
of Continuing operations total costs were
denominated in Chinese yuan. In total, before
hedging, the depreciation of the Chinese yuan
had a slightly negative effect on our operating
profit in 2016.
Significant changes in exchange rates may
also impact our competitive position and
related price pressures through their impact
on our competitors.
For a discussion of the instruments used by
us in connection with our hedging activities,
refer to Note 36, Risk management of
our consolidated financial statements
included in this annual report. Refer also
to “Board review—Risk factors”.
The average currency mix for net sales and total costs:
Currency
EUR
USD
CNY
Other
Total
2016
2015
Net sales
~25%
~50%
~10%
~15%
100%
Total costs
~25%
~45%
~10%
~20%
100%
Net sales
~30%
~35%
~10%
~25%
100%
Total costs
~30%
~30%
~10%
~30%
100%
NOKIA IN 2016
43
Business overview Board review
44
NOKIA IN 2016
Operating and financial review
and prospects
Contents
Board review
Results of operations
Continuing operations
Discontinued operations
Results of segments
Networks business
Nokia Technologies
Group Common and Other
Liquidity and capital resources
Financial position
Cash flow
Financial assets and debt
Capital structure
optimization program
Structured finance
Venture fund investments
and commitments
Treasury policy
Material subsequent events
Sustainability and corporate
46
47
47
53
55
55
58
60
61
61
61
62
63
64
64
64
65
66
66
responsibility
Managing sustainability
Improving people’s lives
66
through connectivity
Protecting the environment
67
Running our business with integrity 68
68
Respecting our people
69
Making change happen together
69
Employees
70
Dividend
71
Nokia’s outlook
72
Risk factors
Shares and share capital
74
Board of Directors and management 75
75
Articles of Association
NOKIA IN 2016
45
Board review Board review
2016 brought yet more change for Nokia. It was
an eventful year of strong execution and transition
marked by the rapid and successful integration of
Alcatel Lucent, firmly positioning us to execute on
our new strategy and deliver robust shareholder value.
We started 2016 primarily with a focus on
mobile networks and patent licensing and
ended the year as a fundamentally different
company, with a complete portfolio to deliver
on our new strategic aims. The Board held
27 meetings in 2016 to, among other things,
address the strategic direction of the
company, resolve on acquisitions and other
transactions introduced by the management,
and execute on our capital structure
optimization program.
In January 2016, following the successful
public exchange offer for Alcatel Lucent
securities and in line with the resolutions
passed at the Extraordinary General Meeting
on December 2, 2015, the Board composition
was updated with three new directors joining
the Board, all with background from Alcatel
Lucent. Carla Smits-Nusteling was further
added to the Board at the Annual General
Meeting 2016.
In 2016, we also continued to execute on
our two-year, EUR 7 billion capital structure
optimization program, initially announced
in October 2015 and updated thereafter in
2016. The program was established following
the Board’s thorough analysis of Nokia’s
potential long-term capital structure
requirements, focusing on shareholder
distributions and de-leveraging while
maintaining Nokia’s financial strength.
Aligned with the program, in July 2016 we
distributed an ordinary dividend of EUR 0.16
per share for 2015, in addition to a special
dividend of EUR 0.10 per share; announced in
November 2016 a share repurchase program
up to an equivalent amount of EUR 1 billion
or a maximum of 575 million shares; and
reduced interest-bearing liabilities and
debt-like items during 2016, reaching our
program target to de-leverage by approximately
EUR 3 billion. Due to Nokia’s solid execution
and operational performance in 2016, we are
proposing a dividend of EUR 0.17 per share
for 2016, up 1 Euro cent per share from what
we returned to shareholders for 2015.
In November 2016, in connection with
our Capital Markets Day held in Barcelona,
Spain, we announced our new strategy
Rebalancing for Growth. Our strategy
taps six future megatrends that we have
identified, and consists of four pillars: lead in
high-performance, end-to-end networks with
communication service providers; expand
network sales to select vertical markets
needing high-performing, secure networks;
build a strong, standalone software business;
and create new business and licensing
opportunities in the consumer ecosystem.
After five years of transformation, including
four major transactions and a successful
integration of Alcatel Lucent, Nokia has
renewed itself once again, with a strong vision
to lead, solid position to compete and new
possibilities to create shareholder value.
The Board members want to particularly
thank and recognize Risto Siilasmaa, the Chair
of the Board, for his remarkable leadership
and oversight of Nokia’s strategic shift, from
leading the sale of the Devices & Services
business to the acquisition and integration
of Alcatel Lucent. Both accomplishments were
nothing short of exemplary and brought the
senior management team and the Board
together in a concerted set of actions which
repositioned Nokia for an exciting future.
Mr. Siilasmaa’s spirit, dedication and actions
for the company extend significantly
beyond the role and duties of a chairman,
and his efficient teamwork with the CEO
is commendable.
46
NOKIA IN 2016
Results of operations
The financial information included in this “Board review” section as of December 31, 2016 and 2015 and for each of the three years ended
December 31, 2016, 2015 and 2014 has been derived from our audited consolidated financial statements included in this annual report.
The financial information as of December 31, 2016 and 2015 and for each of the three years ended December 31, 2016, 2015 and 2014
should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements.
In 2016, following the Acquisition of Alcatel Lucent on January 4, 2016 (refer to Note 5, Acquisitions, of our consolidated financial statements
included in this annual report), we revised our financial reporting structure. We have two businesses: Nokia’s Networks business and Nokia
Technologies, and three reportable segments for financial reporting purposes: Ultra Broadband Networks and IP Networks and Applications
(within Nokia’s Networks business) and Nokia Technologies. We also present certain segment data for Group Common and Other as well as for
Discontinued operations. The comparative financial information presented below has been prepared to reflect the financial results of our
Continuing operations as if the new financial reporting structure had been in operation for the full years 2015 and 2014. Certain accounting
policy alignments, adjustments and reclassifications have been necessary. Refer to Note 4, Segment information, of our consolidated financial
statements included in this annual report.
Continuing operations
For the year ended December 31, 2016 compared to the year ended December 31, 2015
The following table sets forth selective line items and the percentage of net sales for the years indicated.
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other income and expenses
Operating (loss)/profit
Share of results of associated companies and joint ventures
Financial income and expenses
(Loss)/profit before tax
Income tax benefit/(expense)
(Loss)/profit for the year
Net sales
Continuing operations net sales in 2016 were EUR 23 614 million,
an increase of EUR 11 115 million, or 89%, compared to
EUR 12 499 million in 2015. The increase in Continuing operations
net sales was primarily attributable to growth in Nokia’s Networks
business and Group Common and Other, primarily related to the
Acquisition of Alcatel Lucent and, to a lesser extent, growth in
Nokia Technologies.
Nokia’s Networks business net sales in 2016 were EUR 21 800 million,
an increase of EUR 10 313 million, or 90%, compared to
EUR 11 487 million in 2015. Ultra Broadband Networks net sales
were EUR 15 771 million in 2016, an increase of EUR 5 612 million,
or 55%, compared to EUR 10 159 million in 2015. IP Networks and
Applications net sales were EUR 6 029 million in 2016, an increase of
EUR 4 701 million compared to EUR 1 328 million in 2015. The increase
in Ultra Broadband Networks net sales is comprised of an increase
in Mobile Networks net sales of EUR 3 383 million and an increase in
Fixed Networks net sales of EUR 2 229 million. The increase in Mobile
Networks net sales was primarily attributable to the Acquisition of
Alcatel Lucent, which drove higher net sales in both Radio Networks
and Services. This was partially offset by revenue declines from several
key customers in Asia-Pacific and North America due to previous
build-outs and investments, as well as adverse market conditions in
Latin America. The increase in Fixed Networks net sales was primarily
attributable to the Acquisition of Alcatel Lucent, and increases in
Broadband Access, supported by the completion of a large project
in Asia-Pacific.
2016
EURm % of net sales
2015
EURm % of net sales
Year-on-year
change %
23 614
(15 158)
8 456
(4 904)
(3 819)
(833)
(1 100)
18
(287)
(1 369)
457
(912)
100.0
(64.2)
35.8
(20.8)
(16.2)
(3.5)
(4.7)
0.1
(1.2)
(5.8)
1.9
(3.9)
12 499
(6 963)
5 536
(2 080)
(1 772)
13
1 697
29
(186)
1 540
(346)
1 194
100.0
(55.7)
44.3
(16.6)
(14.2)
0.1
13.6
0.2
(1.5)
12.3
(2.8)
9.6
89
118
53
136
116
–
–
(38)
(54)
–
–
–
The increase in IP Networks and Applications net sales is comprised
of an increase in IP/Optical Networks net sales of EUR 3 987 million
and an increase in Applications & Analytics net sales of EUR 714 million,
primarily attributable to the Acquisition of Alcatel Lucent. The increase
in IP/Optical Networks net sales was attributable to an increase in
IP Routing net sales of EUR 2 425 million and an increase in Optical
Networks net sales of EUR 1 562 million. The increase in Applications
& Analytics net sales was primarily attributable to the Acquisition of
Alcatel Lucent, and increases in Services.
Group Common and Other net sales in 2016 were EUR 1 145 million,
an increase of EUR 1 145 million, compared to approximately zero
in 2015. The increase in Group Common and Other net sales was
primarily due to ASN and RFS net sales.
Nokia Technologies net sales in 2016 were EUR 1 053 million, an
increase of EUR 26 million, or 3%, compared to EUR 1 027 million
in 2015. The increase in Nokia Technologies net sales was primarily
attributable to higher IPR licensing income and the inclusion of
Withings’ net sales from June 2016 onwards resulting from the
acquisition of Withings, partially offset by the absence of non-recurring
adjustments to accrued net sales from existing and new agreements,
and lower licensing income from certain existing licensees.
NOKIA IN 2016
47
Board review Results of operations continued
The following table sets forth distribution of net sales by geographical
area for the years indicated.
For the year ended December 31
Asia-Pacific
Europe(1)
Greater China
Latin America
Middle East & Africa
North America
Total
2016
EURm
4 206
6 393
2 656
1 457
1 871
7 031
23 614
2015
EURm
3 230
3 813
1 712
973
1 177
1 594
12 499
Year-on-year
change %
30
68
55
50
59
341
89
(1) All Nokia Technologies IPR and licensing net sales are allocated to Finland.
Refer to “ —Results of segments—Nokia’s Networks business” for the
main changes in regional net sales.
Gross margin
Gross margin for Continuing operations in 2016 was 35.8% compared
to 44.3% in 2015. The decrease in gross margin was primarily due to
Nokia’s Networks business and, to a lesser extent, Nokia Technologies
and Group Common and Other.
Nokia’s Networks business gross margin in 2016 was 38.5%, compared
to 39.0% in 2015. The slight decrease in Nokia’s Networks business
gross margin was due to decreases in both Ultra Broadband Networks
gross margin and IP Networks and Applications gross margin. Ultra
Broadband Networks gross margin in 2016 was 36.3%, compared
to 37.5% in 2015. The decrease in Ultra Broadband Networks gross
margin was primarily attributable to higher central cost of sales in
Mobile Networks, partially offset by favorable region and product mix,
and the completion of a large Fixed Networks project in the Asia-Pacific
region. IP Networks and Applications gross margin in 2016 was 44.1%,
compared to 50.9% in 2015. The decrease in IP Networks and
Applications gross margin was primarily attributable to changes in
the business volume and mix, primarily attributable to the Acquisition
of Alcatel Lucent.
Nokia Technologies gross margin in 2016 was 96.0%, compared to
99.3% in 2015. The decrease in Nokia Technologies gross margin in
2016 was primarily attributable to new, lower gross margin business
in digital health from Withings, and to a lesser extent, digital media.
Group Common and Other gross margin in 2016 was 16.8%. The
Group Common and Other gross margin was attributable to gross
margin in ASN and RFS.
In 2016, cost of sales included working capital-related purchase
price allocation adjustments of EUR 509 million, which resulted in
higher cost of sales and lower gross profit when the inventory was
sold; and product portfolio integration-related costs of EUR 274 million.
Operating expenses
Our R&D expenses for Continuing operations in 2016 were
EUR 4 904 million, an increase of EUR 2 824 million, or 136%,
compared to EUR 2 080 million in 2015. R&D expenses represented
20.8% of our net sales in 2016 compared to 16.6% in 2015. The
increase in R&D expenses was primarily attributable to Nokia’s
Networks business, amortization of acquired intangible assets and
depreciation of acquired property, plant and equipment; and, to a
lesser extent, product portfolio integration costs, as well as Group
Common and Other, all of which primarily related to the Acquisition
of Alcatel Lucent, in addition to Nokia Technologies.
Nokia’s Networks business R&D expenses were EUR 3 691 million
in 2016, an increase of EUR 1 953 million, or 112%, compared to
EUR 1 738 million in 2015. The increase in Nokia’s Networks business
R&D expenses was primarily attributable to an increase in headcount,
partially offset by operational and synergy savings. Group Common
and Other R&D expenses in 2016 were EUR 282 million, an increase of
EUR 198 million, compared to EUR 84 million in 2015. Group Common
and Other R&D expenses increased, primarily attributable to Nokia Bell
Labs. Nokia Technologies R&D expenses in 2016 were EUR 250 million,
an increase of EUR 30 million, or 14%, compared to EUR 220 million
in 2015. The increase in R&D expenses in Nokia Technologies was
primarily attributable to the inclusion of Bell Labs’ patent portfolio costs,
resulting from the Acquisition of Alcatel Lucent, and higher investments
in the areas of digital media and digital health. R&D expenses included
amortization and depreciation of acquired intangible assets, and
property, plant and equipment of EUR 619 million in 2016 compared to
EUR 35 million in 2015, as well as product portfolio integration-related
costs of EUR 61 million in 2016.
Our selling, general and administrative expenses for Continuing
operations in 2016 were EUR 3 819 million, an increase of
EUR 2 047 million, or 116%, compared to EUR 1 772 million in 2015.
Selling, general and administrative expenses represented 16.2% of
our net sales in 2016 compared to 14.2% in 2015. The increase in
selling, general and administrative expenses was primarily attributable
to Nokia’s Networks business, amortization of acquired intangible
assets and depreciation of acquired property, plant and equipment,
and transaction and integration-related costs and Group Common and
Other, all of which primarily related to the Acquisition of Alcatel Lucent,
as well as Nokia Technologies.
Nokia’s Networks business selling, general and administrative expenses
were EUR 2 720 million in 2016, an increase of EUR 1 300 million, or
92%, compared to EUR 1 420 million in 2015. The increase in Nokia’s
Networks business selling, general and administrative expenses was
primarily attributable to an increase in headcount, partially offset by
operational and synergy savings. Group Common and Other selling,
general and administrative expenses in 2016 were EUR 231 million, an
increase of EUR 134 million compared to EUR 97 million in 2015. Nokia
Technologies selling, general and administrative expenses in 2016
were EUR 183 million, an increase of EUR 74 million, or 68%, compared
to EUR 109 million in 2015. The increase in Nokia Technologies selling,
general and administrative expenses was primarily attributable to the
ramp-up of Digital Health and Digital Media, higher business support
costs and increased licensing. Selling, general and administrative
expenses included amortization and depreciation of acquired
intangible assets, and property, plant and equipment of EUR 385 million
in 2016 compared to EUR 44 million in 2015, as well as transaction
and integration-related costs of EUR 294 million in 2016.
48
NOKIA IN 2016
Other income and expenses for Continuing operations in 2016
was a net expense of EUR 833 million, a change of EUR 846 million,
compared to a net income of EUR 13 million in 2015. The change
was primarily attributable to higher restructuring and associated
charges and, to a lesser extent, the absence of realized gains related
to certain investments made through venture funds. Other income
and expenses included restructuring and associated charges of
EUR 759 million in 2016 compared to EUR 121 million in 2015.
Operating loss/profit
Our operating loss for Continuing operations in 2016 was
EUR 1 100 million, a change of EUR 2 797 million, compared to an
operating profit of EUR 1 697 million in 2015. The change in operating
result was primarily attributable to higher R&D expenses and selling,
general and administrative expenses, and a net negative fluctuation
in other income and expenses, partially offset by higher gross profit.
Our operating margin in 2016 was negative 4.7% compared to
positive 13.6% in 2015.
The following table sets forth the impact of unallocated items
on operating loss/profit:
EURm
Total segment operating profit(1)
Amortization and depreciation of acquired
intangible assets and property, plant
and equipment
Release of acquisition-related fair value
adjustments to deferred revenue
and inventory
Restructuring and associated charges
Product portfolio strategy costs
Transaction and related costs, including
integration costs relating to the Acquisition
of Alcatel Lucent
Other
Total operating loss/profit
2016
2015
2 172
1 958
(1 026)
(79)
(840)
(774)
(348)
–
(123)
–
(295)
11
(1 100)
(99)
40
1 697
(1) Excludes costs related to the Acquisition of Alcatel Lucent and related integration, goodwill
impairment charges, intangible asset amortization and other purchase price fair value
adjustments, restructuring and associated charges and certain other items.
Financial income and expenses
Financial income and expenses for Continuing operations was a net
expense of EUR 287 million in 2016 compared to a net expense of
EUR 186 million in 2015, an increase of EUR 101 million, or 54%.
The change in financial income and expenses was primarily
attributable to higher interest expenses, including charges of
EUR 41 million related to the redemption of Alcatel Lucent bonds,
net interest expenses of EUR 65 million for defined benefit pensions,
and impairments of EUR 108 million for certain investments in
private funds; partially offset by higher interest income, significantly
lower foreign exchange losses and realized gains from venture
fund distributions.
Refer to “—Liquidity and capital resources” below.
Loss/profit before tax
Our loss before tax for Continuing operations in 2016 was
EUR 1 369 million, a change of EUR 2 909 million compared to
a profit of EUR 1 540 million in 2015.
Income tax
Income taxes for Continuing operations was a net benefit of
EUR 457 million in 2016, a change of EUR 803 million compared to
a net expense of EUR 346 million in 2015. In 2016, net income tax
benefit was primarily related to two factors. Firstly, we recorded a loss
before tax compared to profit before tax in 2015. Secondly, following
the completion of the squeeze-out of the remaining Alcatel Lucent
securities, we launched actions to integrate the former Alcatel Lucent
and Nokia operating models. In 2016, in connection with these
integration activities, we transferred certain intellectual property
to our operations in the United States, recording a tax benefit and
additional deferred tax assets of EUR 348 million. In addition, we
elected to treat the Acquisition of Alcatel Lucent’s operations in the
United States as an asset purchase for United States tax purposes.
The impact of this election was to utilize or forfeit existing deferred tax
assets and record new deferred tax assets with a longer amortization
period than the life of those forfeited assets. As a result of this we
recorded EUR 91 million additional deferred tax assets in 2016.
Following the acquisition of Alcatel Lucent, we now have a strong
presence in three jurisdictions: Finland, France and the United States,
which had an impact on our effective tax rate in 2016. The local
corporate tax rate in the United States and France is significantly
higher compared to Finland. In addition, we do not recognize deferred
tax assets for tax losses and temporary differences in France as
our ability to utilize unrecognized deferred tax assets is currently
uncertain. As of December 31, 2016 we have unrecognized deferred
tax assets in France of EUR 4.8 billion.
We will continue to make changes in our operating model in 2017
and expect this to have an impact on our effective tax rate in 2017
and going forward (refer to Note 37, Subsequent events, of our
consolidated financial statements included in this annual report).
NOKIA IN 2016
49
Board review Results of operations continued
Loss/profit attributable to equity holders of the parent and
earnings per share
The loss attributable to equity holders of the parent in 2016 was
EUR 766 million, a change of EUR 3 232 million, compared to a profit
of EUR 2 466 million in 2015. Continuing operations generated a loss
attributable to equity holders of the parent in 2016 of EUR 751 million
compared to a profit of EUR 1 192 million in 2015. The change in profit
attributable to equity holders of the parent was primarily attributable
to the operating loss in 2016, compared to an operating profit in 2015
and, to a lesser extent, a net negative fluctuation in financial income
and expenses, both of which primarily related to the Acquisition of
Alcatel Lucent. This was partially offset by an income tax benefit,
resulting from the Acquisition of Alcatel Lucent, compared to an
income tax expense in 2015. In addition, the loss attributable to the
non-controlling interests was higher, as a result of the Acquisition
of Alcatel Lucent. Our total basic EPS in 2016 decreased to negative
EUR 0.13 (basic) and negative EUR 0.13 (diluted) compared to
EUR 0.67 (basic) and EUR 0.63 (diluted) in 2015. In 2015, profit for the
year included EUR 1 178 million gain on the Sale of the HERE Business
recorded in Discontinued operations. From Continuing operations, EPS
in 2016 decreased to negative EUR 0.13 (basic) and negative EUR 0.13
(diluted) compared to EUR 0.32 (basic) and EUR 0.31 (diluted) in 2015.
Cost savings program
On April 6, 2016, we launched a new cost savings program, targeting
approximately EUR 1 200 million of total annual cost savings to be
achieved in full year 2018. In 2016, we recognized restructuring and
associated charges of EUR 750 million related to the cost savings
program. Total expected restructuring and associated charges are
EUR 1 700 million. In 2016, we had cumulative restructuring and
associated cash outflows of EUR 590 million relating to this
cost savings program. We expect the remaining restructuring and
associated cash outflows relating to this cost savings program
to be approximately EUR 2 150 million, including EUR 450 million
related to previous Nokia and Alcatel Lucent restructuring and
cost savings programs.
Carrying value of cash-generating units
The recoverable amounts of our cash-generating units (“CGUs”)
were based on fair value less costs of disposal that was determined
using market participant assumptions based on a discounted
cash flow calculation. The cash flow projections used in calculating
the recoverable amounts were based on financial plans approved
by management covering an explicit forecast period of five years.
Five additional years of cash flow projections subsequent to the
explicit forecast period reflect a gradual progression towards the
steady state cash flow projections modeled in the terminal year.
Estimation and judgment are required in determining the components
of the recoverable amount calculation, including the discount rate,
the terminal growth rate, estimated revenue growth rates, gross
margin and operating margin. The discount rates reflect current
assessments of the time value of money and relevant market risk
premiums reflecting risks and uncertainties for which the future cash
flow estimates have not been adjusted. The terminal growth rate
assumptions reflect long-term average growth rates for the industry
and economies in which our CGUs operate.
We allocated a significant proportion of the goodwill arising from the
Acquisition of Alcatel Lucent to the IP/Optical Networks group of CGUs,
which is comprised mainly of businesses acquired in the acquisition.
As a result, the fair value of the IP/Optical Networks group of CGU’s
corresponds closely to its respective carrying amount.
The results of our impairment testing indicate significant headroom
for each CGU, except for the IP/Optical Networks group of CGUs, where
the recoverable amount exceeds its carrying amount by approximately
EUR 1 200 million. Taken in isolation, the following changes would
cause the recoverable amount of IP/Optical Networks group of CGUs
to equal its carrying amount:
■ Increase in discount rate from 8.9% to 10.7%.
■ Reduction in operational profitability in the terminal year
by 40%, which is equal to the decrease in the operating profit
of EUR 331 million.
Goodwill amounts to EUR 5 724 million as of December 31, 2016
(EUR 237 million in 2015).
Refer to Note 16, Impairment, of our consolidated financial statements
included in this annual report.
50
NOKIA IN 2016
For the year ended December 31, 2015 compared to the year ended December 31, 2014
The following table sets forth selective line items and the percentage of net sales that they represent for the years indicated.
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other income and expenses
Operating profit
Share of results of associated companies and joint ventures
Financial income and expenses
Profit before tax
Income tax (expense)/benefit
Profit for the year
Net sales
Continuing operations net sales in 2015 were EUR 12 499 million, an
increase of EUR 737 million, or 6%, compared to EUR 11 762 million in
2014. The increase in Continuing operations net sales was attributable
to higher net sales in both Nokia’s Networks business and Nokia
Technologies. The increase in Nokia’s Networks business net sales was
primarily attributable to an increase in net sales in Ultra Broadband
Networks, partially offset by the absence of non-recurring IPR net sales
which benefited full year 2014. The increase in Nokia Technologies net
sales was primarily attributable to non-recurring net sales from
existing and new agreements and revenue share related to previously
divested IPR, and IPR divestments; higher IPR licensing income from
existing and new licensees related to settled and ongoing arbitrations;
as well as Microsoft becoming a more significant intellectual property
licensee following the Sale of the D&S Business. The increase in net
sales was partially offset by lower licensing income from certain
existing licensees that experienced decreases in handset sales.
The following table sets forth distribution of net sales by geographical
area for the years indicated.
For the year ended December 31
Asia-Pacific
Europe(1)
Greater China
Latin America
Middle East & Africa
North America
Total
2015
EURm
3 230
3 813
1 712
973
1 177
1 594
12 499
2014
EURm
3 289
3 493
1 380
1 009
1 053
1 538
11 762
Year-on-year
change %
(2)
9
24
(4)
12
4
6
(1) All Nokia Technologies net sales are allocated to Finland.
Refer to “Results of segments—Nokia’s Networks business” for the
main changes in regional net sales.
2015
EURm % of net sales
2014
EURm % of net sales
Year-on-year
change %
12 499
(6 963)
5 536
(2 080)
(1 772)
13
1 697
29
(186)
1 540
(346)
1 194
100.0
(55.7)
44.3
(16.6)
(14.2)
0.1
13.6
0.2
(1.5)
12.3
(2.8)
9.6
11 762
(6 774)
4 988
(1 904)
(1 559)
(111)
1 414
(12)
(403)
999
1 719
2 718
100.0
(57.6)
42.4
(16.2)
(13.3)
(0.9)
12.0
(0.1)
(3.4)
8.5
14.6
23.1
6
3
11
9
14
–
20
–
(54)
54
–
(56)
Gross margin
Gross margin for Continuing operations in 2015 was 44.3% compared
to 42.4% in 2014. The increase in Continuing operations gross margin
was primarily attributable to an increase in Nokia Technologies and
Nokia’s Networks business gross margins, and to a lesser extent
to Group Common and Other gross margin. The increase in Nokia
Technologies gross margin in 2015 was primarily attributable to higher
net sales. The increase in Nokia’s Networks business gross margin in
2015 was attributable to a higher gross margin in Ultra Broadband
Networks, partially offset by lower gross margin in IP Networks and
Applications and the absence of non-recurring IPR net sales which
benefited full year 2014. The increase in Group Common and Other
gross margin in 2015 was primarily attributable to lower cost of sales.
Operating expenses
Our R&D expenses for Continuing operations in 2015 were
EUR 2 080 million, an increase of EUR 176 million, or 9%, compared
to EUR 1 904 million in 2014. R&D expenses represented 16.6% of
our net sales in 2015 compared to 16.2% in 2014. The increase in
R&D expenses was primarily attributable to higher R&D expenses
in Nokia’s Networks business and to a lesser extent in Nokia
Technologies. The increase in Nokia’s Networks business R&D
expenses in 2015 was primarily attributable to higher personnel
expenses and increased investments in LTE, 5G, small cells and
Cloud core, partially offset by continued operational improvements.
The increase in Nokia Technologies R&D expenses was primarily
attributable to higher investments in Digital Media and technology
incubation, higher patent portfolio costs and higher investments
in Digital Health. R&D expenses included amortization of acquired
intangible assets of EUR 35 million and transaction-related costs of
EUR 1 million in 2015 compared to EUR 32 million and EUR 13 million
in 2014 respectively.
NOKIA IN 2016
51
Board review Results of operations continued
Our selling, general and administrative expenses for Continuing
operations in 2015 were EUR 1 772 million, an increase of
EUR 213 million, or 14%, compared to EUR 1 559 million in 2014.
Selling, general and administrative expenses represented 14.2% of
our net sales in 2015 compared to 13.3% in 2014. The increase in
selling, general and administrative expenses was primarily attributable
to higher selling, general and administrative expenses in Nokia’s
Networks business, and to a lesser extent in Nokia Technologies,
partially offset by lower selling, general and administrative expenses in
Group Common and Other. The increase in Nokia’s Networks business
selling, general and administrative expenses was primarily attributable
to higher personnel expenses, partially offset by a continued focus on
cost efficiency. The increase in Nokia Technologies selling, general and
administrative expenses was primarily attributable to the ramp-up
of new businesses, increased licensing activities, and higher business
support costs. Selling, general and administrative expenses included
transaction-related costs of EUR 99 million and amortization of
acquired intangible assets of EUR 44 million in 2015 compared to
EUR 29 million and EUR 35 million in 2014 respectively.
Other income and expenses for Continuing operations in 2015
was a net income of EUR 13 million, an increase of EUR 124 million,
compared to a net expense of EUR 111 million in 2014. The increase
in other income and expenses was primarily attributable to
Group Common and Other, and to a lesser extent to Nokia’s Networks
business and Nokia Technologies. Group Common and Other other
income and expenses in 2015 included net income of approximately
EUR 100 million related to realized gains on investments made
through unlisted venture funds. The change in Nokia’s Networks
business other income and expenses in 2015 was primarily
attributable to lower costs related to the sale of receivables, lower
net indirect tax expenses and the release of certain doubtful account
allowances. Other income and expenses included restructuring and
associated charges of EUR 121 million and contractual remediation
costs of EUR 5 million in 2015 compared to EUR 57 million and
EUR 31 million in 2014 respectively.
Operating profit
Our operating profit for Continuing operations in 2015 was
EUR 1 697 million, an increase of EUR 283 million, or 20%, compared
to an operating profit of EUR 1 414 million in 2014. The increase in
operating profit was primarily attributable to an increase in operating
profit in Nokia Technologies and a lower operating loss from Group
Common and Other, partially offset by lower operating profit in
Nokia’s Networks business. Our operating margin in 2015 was 13.6%
compared to 12.0% in 2014.
The following table sets forth the impact of unallocated items on
operating profit:
EURm
Total segment operating profit(1)
Restructuring and associated charges
Transaction and related costs, including
integration costs relating to the Acquisition
of Alcatel Lucent
Amortization of acquired intangible assets
Other
Total operating profit
2015
2014
1 958
(123)
1 602
(57)
(99)
(79)
40
1 697
(39)
(67)
(25)
1 414
(1) Excludes costs related to the Acquisition of Alcatel Lucent and related integration, goodwill
impairment charges, intangible asset amortization and other purchase price fair value
adjustments, restructuring and associated charges and certain other items.
Financial income and expenses
Financial income and expenses for Continuing operations was a net
expense of EUR 186 million in 2015 compared to a net expense of
EUR 403 million in 2014, a decrease of EUR 217 million, or 54%.
The lower net financial expense in 2015 was primarily attributable to
the absence of a financial expense of EUR 123 million relating to the
redemption of all material Nokia’s Networks business’ borrowings
in 2014, and the absence of a non-cash charge of EUR 57 million
relating to the repayment of EUR 1 500 million convertible bonds
issued to Microsoft.
Refer to “—Liquidity and capital resources” below.
Profit before tax
Our profit before tax for Continuing operations in 2015 was
EUR 1 540 million, an increase of EUR 541 million compared to
EUR 999 million in 2014.
Income tax
Income taxes for Continuing operations were a net expense of
EUR 346 million in 2015, a change of EUR 2 065 million compared
to a net benefit of EUR 1 719 million in 2014. In 2014, the net
income tax benefit was primarily attributable to the recognition of
EUR 2 126 million deferred tax assets following the reassessment
of recoverability of tax assets in Finland and Germany.
Profit attributable to equity holders of the parent and earnings
per share
Profit attributable to equity holders of the parent in 2015 was
EUR 2 466 million, a decrease of EUR 996 million, compared to a
profit of EUR 3 462 million in 2014. Continuing operations generated
profit attributable to equity holders of the parent in 2015 of
EUR 1 192 million compared to a profit of EUR 2 710 million in 2014.
Profit attributable to equity holders of the parent in 2014 was
favorably impacted by the recognition of EUR 2 126 million deferred
tax assets. Nokia Group’s total basic EPS in 2015 decreased to
EUR 0.67 (basic) and EUR 0.63 (diluted) compared to EUR 0.94 (basic)
and EUR 0.85 (diluted) in 2014. Profit for the year included
EUR 1 178 million gain on the Sale of the HERE Business (EUR 2 803 million
gain on the Sale of the D&S Business in 2014) recorded in Discontinued
operations. From Continuing operations, EPS in 2015 decreased to
EUR 0.32 (basic) and EUR 0.31 (diluted) compared to EUR 0.73 (basic)
and EUR 0.67 (diluted) in 2014.
52
NOKIA IN 2016
Discontinued operations
Background
The two businesses below are presented as Discontinued operations
in this annual report.
HERE business
We sold our HERE digital mapping and location services business to
a German automotive industry consortium comprised of AUDI AG,
BMW Group and Daimler AG, that was completed on December 4, 2015
(“the Sale of HERE Business”).
The transaction, originally announced on August 3, 2015, valued HERE
at an enterprise value of EUR 2.8 billion, subject to certain purchase
price adjustments. We received net proceeds from the transaction
of approximately EUR 2.55 billion at the closing of the transaction.
We recorded a gain on the Sale of the HERE Business, including a related
release of cumulative foreign exchange translation differences of
approximately EUR 1.2 billion, in the year ended December 31, 2015.
Devices & Services business
We sold substantially all of our Devices & Services business to
Microsoft in a transaction that was completed on April 25, 2014
(the “Sale of the D&S Business”). We granted Microsoft a ten-year
non-exclusive license to our patents and patent applications. The
announced purchase price of the transaction was EUR 5.44 billion,
of which EUR 3.79 billion related to the purchase of substantially all of
the Devices & Services business, and EUR 1.65 billion to the ten-year
mutual patent license agreement and the option to extend this
agreement into perpetuity. Of the Devices & Services-related assets,
our former CTO organization and our patent portfolio remained
within the Nokia Group, and are now part of the Nokia Technologies
business group.
For the year ended December 31, 2016 compared to the year ended December 31, 2015
As the Sale of the HERE Business closed on December 4, 2015, the financial results of Discontinued operations in 2016 are not comparable
to the financial results of Discontinued operations in 2015.
The following table sets forth selective line items for the years indicated.
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other income and expenses
Operating (loss)/profit
Financial income and expenses
(Loss)/profit before tax
Income tax (expense)/benefit
(Loss)/profit for the year, ordinary activities
Gain on the Sale of the HERE and D&S Businesses, net of tax(1)
(Loss)/profit for the year
2016
EURm
–
–
–
–
(11)
(4)
(15)
14
(1)
(28)
(29)
14
(15)
2015
EURm
1 075
(244)
831
(498)
(213)
(23)
97
(9)
88
8
96
1 178
1 274
(1) In 2016, an additional gain of EUR 7 million was recognized on the Sale of the HERE Business following the final purchase price settlement, and EUR 7 million on the Sale of the D&S Business due to
a tax indemnification.
NOKIA IN 2016
53
Board review Results of operations continued
Net sales
Discontinued operations did not generate net sales in 2016. In 2015,
Discontinued operations net sales were EUR 1 075 million. The
decrease was attributable to the absence of net sales from HERE.
Gross margin
Discontinued operations did not generate gross margin in 2016.
In 2015, Discontinued operations gross margin was 77.3% in 2015.
The decrease in gross margin was attributable to the absence of net
sales and cost of sales from HERE.
Operating expenses
Discontinued operations operating expenses in 2016 were EUR 15 million,
a decrease of EUR 719 million, compared to EUR 734 million in 2015.
The decrease was attributable to the absence of operating expenses
from HERE.
Operating loss/profit
Discontinued operations operating loss in 2016 was EUR 15 million,
a change of EUR 112 million, compared to an operating profit of
EUR 97 million in 2015. The change in Discontinued operations
operating result was attributable to the absence of net sales and
operating expenses from HERE.
Loss/profit for the year
Discontinued operations loss in 2016 was EUR 15 million, a change of
EUR 1 289 million compared to a profit of EUR 1 274 million in 2015.
The gain on the Sale of the HERE Business recorded in 2015 was
EUR 1 178 million, which included a reclassification of EUR 1 174 million
of foreign exchange differences from other comprehensive income.
For the year ended December 31, 2015 compared to the year ended December 31, 2014
As the Sale of the HERE Business closed on December 4, 2015 and the Sale of the D&S Business closed on April 25, 2014, the financial results
of Discontinued operations in 2015 are not comparable to the financial results of Discontinued operations in 2014.
The following table sets forth selective line items for the years indicated.
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other income and expenses(1)
Operating profit/(loss)
Financial income and expenses
Profit/(loss) before tax
Income tax benefit/(expense)
Profit/(loss) for the year, ordinary activities
Gain on the Sale of the HERE and D&S Businesses, net of tax
Profit for the year
(1) Includes impairment of goodwill of EUR 1 209 million related to HERE in 2014.
2015
EURm
1 075
(244)
831
(498)
(213)
(23)
97
(9)
88
8
96
1 178
1 274
2014
EURm
3 428
(2 325)
1 103
(899)
(628)
(1 354)
(1 778)
10
(1 768)
(277)
(2 045)
2 803
758
Net sales
Discontinued operations net sales in 2015 were EUR 1 075 million, a
decrease of EUR 2 353 million, or 69%, compared to EUR 3 428 million
in 2014. The decrease was attributable to the absence of net sales
from Devices & Services.
Gross margin
Discontinued operations gross margin in 2015 was 77.3%, compared
to a gross margin of 32.2% in 2014. The increase in gross margin was
attributable to the absence of cost of sales from Devices & Services.
Operating expenses
Discontinued operations operating expenses in 2015 were
EUR 734 million, a decrease of EUR 2 147 million, or 74.5%, compared
to EUR 2 881 million in 2014. The decrease was primarily attributable
to the absence of a EUR 1 209 million impairment charge related to
HERE which negatively affected 2014, and lower operating expenses
attributable to Devices & Services.
Operating profit/loss
Discontinued operations operating profit in 2015 was EUR 97 million,
an increase of EUR 1 875 million, compared to an operating loss of
EUR 1 778 million in 2014. The change in Discontinued operations
operating result was primarily attributable to the absence of a
EUR 1 209 million impairment charge related to HERE which negatively
affected 2014, and lower operating expenses attributable to Devices
& Services, partially offset by lower gross profit.
Profit for the year
Discontinued operations profit in 2015 was EUR 1 274 million, an
increase of EUR 516 million compared to a profit of EUR 758 million
in 2014. The gain on the Sale of the HERE Business recorded in
2015 was EUR 1 178 million, which included a reclassification of
EUR 1 174 million of foreign exchange differences from other
comprehensive income. The gain on the Sale of the D&S Business
recorded in 2014 was EUR 2 803 million.
54
NOKIA IN 2016
Results of segments
Networks business
For the year ended December 31, 2016 compared to the year ended December 31, 2015
The following table sets forth selective line items and the percentage of net sales for the years indicated.
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other income and expenses
Operating profit
Segment information(1)
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other income and expenses
Operating profit
2016
EURm % of net sales
2015
EURm % of net sales
Year-on-year
change %
21 800
(13 414)
8 386
(3 691)
(2 720)
(40)
1 935
100.0
(61.5)
38.5
(16.9)
(12.5)
(0.2)
8.9
11 487
(7 006)
4 481
(1 738)
(1 420)
26
1 349
100.0
(61.0)
39.0
(15.1)
(12.4)
0.2
11.7
Ultra
Broadband
Networks(2)
IP Networks
and
Applications(3)
2016
EURm
15 771
(10 044)
5 727
(2 405)
(1 936)
(24)
1 362
2016
EURm
6 029
(3 370)
2 659
(1 286)
(784)
(16)
573
Networks
total(4)
2016
EURm
21 800
(13 414)
8 386
(3 691)
(2 720)
(40)
1 935
Ultra
Broadband
Networks(2)
IP Networks
and
Applications(3)
2015
EURm
10 159
(6 354)
3 805
(1 470)
(1 146)
22
1 211
2015
EURm
1 328
(652)
676
(268)
(274)
4
138
90
91
87
112
92
–
43
Networks
total(4)
2015
EURm
11 487
(7 006)
4 481
(1 738)
(1 420)
26
1 349
(1) Refer to Note 4, Segment information, of our consolidated financial statements included in this annual report.
(2) Net sales include EUR 13 406 million (EUR 10 023 million in 2015) attributable to Mobile Networks and EUR 2 365 million (EUR 136 million in 2015) attributable to Fixed Networks.
(3) Net sales include EUR 2 940 million (EUR 515 million in 2015) attributable to IP Routing; EUR 1 562 million attributable to Optical Networks; and EUR 1 527 million (EUR 813 million in 2015) attributable
to Applications & Analytics.
(4) Includes Services net sales of EUR 8 531 million (EUR 5 424 million in 2015).
Net sales
Nokia’s Networks business net sales in 2016 were EUR 21 800 million,
an increase of EUR 10 313 million, or 90%, compared to
EUR 11 487 million in 2016. The increase in Nokia’s Networks business
net sales was primarily attributable to the Acquisition of Alcatel Lucent.
Ultra Broadband Networks net sales were EUR 15 771 million
in 2016, an increase of EUR 5 612 million, or 55%, compared to
EUR 10 159 million in 2015. IP Networks and Applications net sales
were EUR 6 029 million in 2016, an increase of EUR 4 701 million
compared to EUR 1 328 million in 2015.
The increase in Ultra Broadband Networks net sales is comprised
of an increase in Mobile Networks net sales of EUR 3 383 million and
an increase in Fixed Networks net sales of EUR 2 229 million. The
increase in Mobile Networks net sales was primarily attributable to
the Acquisition of Alcatel Lucent, which drove higher net sales in both
Radio Networks and Services. This was partially offset by revenue
declines from several key customers in Asia-Pacific and North America
due to previous build-outs and investments, as well as adverse market
conditions in Latin America. The increase in Fixed Networks net sales
was primarily attributable to the Acquisition of Alcatel Lucent, and
increases in Broadband Access, supported by the completion of a
large project in Asia-Pacific.
The increase in IP Networks and Applications net sales is comprised
of an increase in IP/Optical Networks net sales of EUR 3 987 million
and an increase in Applications & Analytics net sales of EUR 714 million,
primarily attributable to the Acquisition of Alcatel Lucent. The increase
in IP/Optical Networks net sales was attributable to an increase in
IP Routing net sales of EUR 2 425 million and an increase in Optical
Networks net sales of EUR 1 562 million. The increase in Applications
& Analytics net sales was primarily attributable to the Acquisition
of Alcatel Lucent, and increases in Services.
The following table sets forth distribution of net sales by geographical
area for the years indicated.
For the year ended December 31
Asia-Pacific
Europe
Greater China
Latin America
Middle East & Africa
North America
Total
2016
EURm
4 216
4 881
2 640
1 444
1 889
6 730
21 800
2015
EURm
3 231
2 805
1 710
970
1 177
1 594
11 487
Year-on-year
change %
30
74
54
49
60
322
90
NOKIA IN 2016
55
Board review Results of segments continued
On a regional basis, Nokia’s Networks business net sales increased
across all regions, with particularly strong growth in North America
and Europe, primarily attributable to the Acquisition of Alcatel Lucent.
The increase in Mobile Networks net sales was driven by the Acquisition
of Alcatel Lucent, resulting in significant improvements in the North
America, Greater China, and the Middle East & Africa regions, partially
offset by revenue decreases in Asia-Pacific and Latin America. The
increase in Fixed Networks net sales was primarily attributable to the
Acquisition of Alcatel Lucent, supported by the completion of a large
project in Asia-Pacific, offset by contraction in Europe.
The increases in both IP/Optical Networks net sales and Applications
& Analytics net sales were primarily attributable to significant increases
in North America following the Acquisition of Alcatel Lucent.
Gross margin
Nokia’s Networks business gross margin in 2016 was 38.5%, compared
to 39.0% in 2015. The slight decrease in Nokia’s Networks business
gross margin was due to decreases in both Ultra Broadband Networks
gross margin and IP Networks and Applications gross margin. Ultra
Broadband Networks gross margin in 2016 was 36.3%, compared
to 37.5% in 2015. The decrease in Ultra Broadband Networks gross
margin was primarily attributable to higher central cost of sales
in Mobile Networks, partially offset by favorable region and product
mix, and the completion of a large Fixed Networks project in the
Asia-Pacific region.
IP Networks and Applications gross margin in 2016 was 44.1%,
compared to 50.9% in 2015. The decrease in IP Networks and
Applications gross margin was primarily attributable to changes in
the business volume and mix, primarily attributable to the Acquisition
of Alcatel Lucent.
Operating expenses
Nokia’s Networks business R&D expenses were EUR 3 691 million
in 2016, an increase of EUR 1 953 million, or 112%, compared to
EUR 1 738 million in 2015. The increase in Nokia’s Networks business
R&D expenses was primarily attributable to an increase in headcount
attributable to the Acquisition of Alcatel Lucent, partially offset by
operational and synergy savings. The increase in Nokia’s Networks
business R&D expenses was attributable to both Ultra Broadband
Networks and IP Networks and Applications. Ultra Broadband
Networks R&D expenses were EUR 2 405 million in 2016, an increase of
EUR 935 million, compared to EUR 1 470 million in 2015. IP Networks
and Applications R&D expenses were EUR 1 286 million in 2016, an
increase of EUR 1 018 million, compared to EUR 268 million in 2015.
Nokia’s Networks business selling, general and administrative expenses
were EUR 2 720 million in 2016, an increase of EUR 1 300 million, or
92%, compared to EUR 1 420 million in 2015. The increase in Nokia’s
Networks business selling, general and administrative expenses was
primarily attributable to an increase in headcount attributable to
the Acquisition of Alcatel Lucent, partially offset by operational and
synergy savings. The increase in Nokia’s Networks business selling,
general and administrative expenses was attributable to both
Ultra Broadband Networks and IP Networks and Applications. Ultra
Broadband Networks selling, general and administrative expenses
were EUR 1 936 million in 2016, an increase of EUR 790 million,
compared to EUR 1 146 million in 2015. IP Networks and Applications
selling, general and administrative expenses were EUR 784 million in
2016, an increase of EUR 510 million, compared to EUR 274 million
in 2015.
Nokia’s Networks business other income and expenses was an expense
of EUR 40 million in 2016, a change of EUR 66 million compared to an
income of EUR 26 million in 2015. The change was attributable to both
Ultra Broadband Networks and IP Networks and Applications, primarily
related to doubtful accounts allowances.
Operating profit
Nokia’s Networks business operating profit was EUR 1 935 million in
2016, an increase of EUR 586 million compared to EUR 1 349 million in
2015. Nokia’s Networks business operating margin in 2016 was 8.9%
compared to 11.7% in 2015. The decrease in operating margin was
primarily attributable to Ultra Broadband Networks. Ultra Broadband
Networks operating margin decreased from 11.9% in 2015 to 8.6%
in 2016. IP Networks and Applications operating margin decreased
from 10.4% in 2015 to 9.5% in 2016. The decreases in both Ultra
Broadband Networks and IP Networks and Applications operating
margins in 2016 were attributable to lower gross margin and higher
operating expenses.
56
NOKIA IN 2016
For the year ended December 31, 2015 compared to the year ended December 31, 2014
The following table sets forth selective line items and the percentage of net sales for the years indicated.
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other income and expenses
Operating profit
Segment information(1)
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other income and expenses
Operating profit
2015
EURm % of net sales
2014
EURm % of net sales
Year-on-year
change %
11 487
(7 006)
4 481
(1 738)
(1 420)
26
1 349
100.0
(61.0)
39.0
(15.1)
(12.4)
0.2
11.7
11 144
(6 755)
4 389
(1 616)
(1 296)
(38)
1 439
100.0
(60.6)
39.4
(14.5)
(11.6)
(0.3)
12.9
3
4
2
8
10
–
(6)
Ultra
Broadband
Networks(2)
IP Networks
and
Applications(3)
2015
EURm
10 159
(6 354)
3 805
(1 470)
(1 146)
22
1 211
2015
EURm
1 328
(652)
676
(268)
(274)
4
138
Networks
total(4)
2015
EURm
11 487
(7 006)
4 481
(1 738)
(1 420)
26
1 349
Ultra
Broadband
Networks(2)
IP Networks
and
Applications(3)
2014
EURm
9 818
(6 119)
3 699
(1 368)
(1 053)
(27)
1 251
2014
EURm
1 326
(636)
690
(248)
(243)
(11)
188
Networks
total(4)
2014
EURm
11 144
(6 755)
4 389
(1 616)
(1 296)
(38)
1 439
(1) Refer to Note 4, Segment information, of our consolidated financial statements included in this annual report.
(2) Net sales include EUR 10 023 million (EUR 9 639 million in 2014) attributable to Mobile Networks and EUR 136 million (EUR 179 million in 2014) attributable to Fixed Networks.
(3) Net sales include EUR 515 million (EUR 523 million in 2014) attributable to IP Routing and EUR 813 million (EUR 803 million in 2014) attributable to Applications & Analytics.
(4) Includes Services net sales of EUR 5 424 million (EUR 5 078 million in 2014).
Net sales
Nokia’s Networks business net sales in 2015 were EUR 11 487 million,
an increase of EUR 343 million, or 3%, compared to EUR 11 144 million
in 2014. The increase in Nokia’s Networks business net sales
was primarily attributable to an increase in net sales in Ultra
Broadband Networks. Ultra Broadband Networks net sales were
EUR 10 159 million in 2015, an increase of EUR 341 million, or 3%,
compared to EUR 9 818 million in 2014. IP Networks and Applications
net sales in 2015 were EUR 1 328 million, approximately flat compared
to EUR 1 326 million in 2014. Foreign exchange fluctuations had a
positive impact on net sales in 2015 compared to 2014.
The following table sets forth distribution of net sales by geographical
area for the years indicated.
For the year ended December 31
Asia-Pacific
Europe
Greater China
Latin America
Middle East & Africa
North America
Total
2015
EURm
3 231
2 805
1 710
970
1 177
1 594
11 487
2014
EURm
3 283
2 910
1 374
1 021
1 052
1 504
11 144
Year-on-year
change %
(2)
(4)
24
(5)
12
6
3
Nokia’s Networks business net sales in Greater China increased 24%
in 2015 compared to 2014 driven by higher net sales in both Ultra
Broadband Networks and IP Networks and Applications.
In Middle East & Africa, net sales increased 12% in 2015 compared
to 2014. The overall increase in Middle East & Africa was primarily
attributable to growth in several countries in the Middle East.
In North America, net sales increased 6% in 2015 compared to 2014,
driven by higher net sales in Ultra Broadband Networks, partially
offset by lower net sales in IP Networks and Applications, as well as
the absence of non-recurring IPR net sales which benefited 2014.
In Europe, net sales decreased 4% in 2015 compared to 2014. The
overall decrease in Europe was primarily attributable to lower net sales
in Germany and Russia, partially offset by growth in the United Kingdom.
In Asia-Pacific, net sales decreased 2% in 2015 compared to 2014.
The overall decrease in Asia-Pacific was primarily attributable to lower
net sales in Japan and South Korea, partially offset by growth in India
and Myanmar.
In Latin America, net sales decreased 5% in 2015 compared to 2014.
The overall decrease in Latin America was primarily attributable
to lower net sales in Brazil, partially offset by growth in Argentina.
NOKIA IN 2016
57
Board review Results of segments continued
Gross margin
Nokia’s Networks business gross margin in 2015 was 39.0%,
compared to 39.4% in 2014. The slight decrease in Nokia’s Networks
business gross margin in 2015 was primarily attributable to a lower
gross margin in IP Networks and Applications and to a lesser extent
to a lower gross margin in Ultra Broadband Networks.
Operating expenses
Nokia’s Networks business R&D expenses were EUR 1 738 million in 2015,
an increase of EUR 122 million, or 8%, compared to EUR 1 616 million
in 2014. The increase was primarily attributable to higher personnel
expenses and increased investments in LTE, 5G, small cells and
Cloud core, partially offset by continued operational improvements.
Nokia’s Networks business selling, general and administrative expenses
were EUR 1 420 million in 2015, an increase of EUR 124 million, or
10%, compared to EUR 1 296 million in 2014. In 2015, the increase
was primarily attributable to higher personnel expenses, partially
offset by a continued focus on cost efficiency.
Nokia’s Networks business other income and expenses was an income
of EUR 26 million in 2015 compared to an expense of EUR 38 million
in 2014, a change of EUR 64 million. The change was primarily
attributable to the lower costs related to the sale of receivables,
lower net indirect tax expenses and the release of certain doubtful
account allowances.
Operating profit
Nokia’s Networks business operating profit was EUR 1 349 million in
2015, a decrease of EUR 90 million compared to EUR 1 439 million in
2014. Nokia’s Networks business operating margin in 2015 was 11.7%
compared to 12.9% in 2014. The decrease in operating profit was
primarily attributable to lower operating profit in Ultra Broadband
Networks and to a lesser extent to IP Networks and Applications.
Ultra Broadband Networks operating profit decreased from
EUR 1 251 million in 2014 to EUR 1 211 million in 2015. The decrease
in Ultra Broadband Networks operating profit in 2015 was primarily
attributable to higher operating expenses, partially offset by higher
gross profit.
IP Networks operating profit was EUR 138 million in 2015 compared to
EUR 188 million in 2014. The decrease in IP Networks and Applications
operating profit was primarily attributable to higher operating
expenses and to a lesser extent to lower gross margin.
Nokia Technologies
For the year ended December 31, 2016 compared to the year ended December 31, 2015
The following table sets forth selective line items and the percentage of net sales for the years indicated.
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other income and expenses
Operating profit
Net sales
Nokia Technologies net sales in 2016 were EUR 1 053 million, an
increase of EUR 26 million, or 3%, compared to EUR 1 027 million
in 2015. The increase in Nokia Technologies net sales was primarily
attributable to higher IPR licensing income and the inclusion of
Withings’ net sales from June 2016 onwards, resulting from the
acquisition of Withings, partially offset by the absence of non-recurring
adjustments to accrued net sales from existing and new agreements,
and lower licensing income from certain existing licensees.
2016
EURm % of net sales
2015
EURm % of net sales
Year-on-year
change %
1 053
(42)
1 011
(250)
(183)
1
579
100.0
(4.0)
96.0
(23.7)
(17.4)
0.1
55.0
1 027
(7)
1 020
(220)
(109)
7
698
100.0
(0.7)
99.3
(21.4)
(10.6)
0.7
68.0
3
–
(1)
14
68
(86)
(17)
Gross margin
Nokia Technologies gross margin in 2016 was 96.0%, compared to
99.3% in 2015. The decrease in Nokia Technologies gross margin in
2016 was primarily attributable to new, lower gross margin business
in digital health from Withings, and to a lesser extent, digital media.
58
NOKIA IN 2016
Operating expenses
Nokia Technologies R&D expenses in 2016 were EUR 250 million,
an increase of EUR 30 million, or 14%, compared to EUR 220 million
in 2015. The increase in R&D expenses in Nokia Technologies was
primarily attributable to the inclusion of Bell Labs’ patent portfolio
costs, resulting from the Acquisition of Alcatel Lucent, and
higher investments in the areas of digital media and digital health.
The higher R&D expenses in Digital Health were primarily attributable
to the inclusion of Withings’ R&D expenses from June 2016. This
was partially offset by the focusing of general research investments
towards more specific opportunities.
Nokia Technologies selling, general and administrative expenses
in 2016 were EUR 183 million, an increase of EUR 74 million, or
68%, compared to EUR 109 million in 2015. The increase in Nokia
Technologies selling, general and administrative expenses was
primarily attributable to the ramp-up of Digital Health and Digital
Media, higher business support costs and increased licensing activity.
The higher selling, general and administrative expenses in Digital
Health were primarily attributable to the inclusion of Withings’ selling,
general and administrative expenses from June 2016.
Nokia Technologies other income and expense in 2016 was a net
income of EUR 1 million, a decrease of EUR 6 million compared
to a net income of EUR 7 million in 2015.
Operating profit
Nokia Technologies operating profit in 2016 was EUR 579 million,
a decrease of EUR 119 million, or 17%, compared to an operating
profit of EUR 698 million in 2015. The decrease in Nokia Technologies
operating profit was primarily attributable to higher selling, general
and administrative and R&D expenses. Nokia Technologies operating
margin in 2016 was 55.0% compared to 68.0% in 2015.
For the year ended December 31, 2015 compared to the year ended December 31, 2014
The following table sets forth selective line items and the percentage of net sales for the years indicated.
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other income and expenses
Operating profit
Net sales
Nokia Technologies net sales in 2015 were EUR 1 027 million, an
increase of EUR 395 million, or 63%, compared to EUR 632 million
in 2014. The increase in Nokia Technologies net sales was primarily
attributable to two factors. Firstly, approximately EUR 310 million of
Nokia Technologies net sales in 2015 related to non-recurring net
sales from existing and new agreements, and revenue share related to
previously divested IPR and IPR divestments. Secondly, approximately
EUR 130 million of Nokia Technologies net sales in 2015 related to
higher IPR licensing income from existing and new licensees, related
to settled and ongoing arbitrations, as well as Microsoft becoming a
more significant intellectual property licensee following the Sale of the
D&S Business. The increase in net sales was partially offset by lower
licensing income from certain existing licensees that experienced
decreases in handset sales.
Gross margin
Nokia Technologies gross margin in 2015 was 99.3%, compared to
98.7% in 2014. The increase in Nokia Technologies gross margin
in 2015 was primarily attributable to higher net sales.
2015
EURm % of net sales
2014
EURm % of net sales
Year-on-year
change %
1 027
(7)
1 020
(220)
(109)
7
698
100.0
(0.7)
99.3
(21.4)
(10.6)
0.7
68.0
632
(8)
624
(170)
(64)
(1)
389
100.0
(1.3)
98.7
(26.9)
(10.1)
(0.2)
61.6
63
(13)
63
29
70
–
79
Operating expenses
Nokia Technologies R&D expenses in 2015 were EUR 220 million,
an increase of EUR 50 million, or 29%, compared to EUR 170 million
in 2014. The increase in R&D expenses was primarily attributable
to higher investments in Digital Media and technology incubation,
higher patent portfolio costs, and higher investments in digital health.
Nokia Technologies selling, general and administrative expenses in
2015 were EUR 109 million, an increase of EUR 45 million, or 70%,
compared to EUR 64 million in 2014. The increase in selling, general
and administrative expenses was primarily attributable to the ramp-up
of new businesses, increased licensing activities, and higher business
support costs.
Nokia Technologies other income and expense in 2015 was a net
income of EUR 7 million, a change of EUR 8 million compared to a net
expense of EUR 1 million in 2014.
Operating profit
Nokia Technologies operating profit in 2015 was EUR 698 million,
an increase of EUR 309 million, or 79%, compared to an operating
profit of EUR 389 million in 2014. The increase in operating profit was
attributable to higher gross profit, partially offset by higher operating
expenses. Nokia Technologies operating margin in 2015 was 68.0%
compared to 61.6% in 2014.
NOKIA IN 2016
59
Board review Results of segments continued
Group Common and Other
For the year ended December 31, 2016 compared to the year ended
December 31, 2015
The following table sets forth selective line items for the years indicated.
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative
expenses
Other income and expenses
Operating loss
2016
EURm
1 145
(953)
192
(282)
(231)
(21)
(342)
2015
EURm
–
–
–
(84)
(97)
92
(89)
Net sales
Group Common and Other net sales in 2016 were EUR 1 145 million,
an increase of EUR 1 145 million, compared to approximately zero
in 2015. The increase in Group Common and Other net sales was
primarily due to ASN and RFS net sales, both of which related to the
Acquisition of Alcatel Lucent.
Gross margin
Group Common and Other gross margin in 2016 was 16.8%. The
Group Common and Other gross margin was attributable to gross
margin in ASN and RFS, both of which related to the Acquisition of
Alcatel Lucent.
Operating expenses
Group Common and Other R&D expenses in 2016 were EUR 282 million,
an increase of EUR 198 million, compared to EUR 84 million in 2015.
Group Common and Other R&D expenses increased, primarily
attributable to Nokia Bell Labs, related to the Acquisition of
Alcatel Lucent.
Group Common and Other selling, general and administrative
expenses in 2016 were EUR 231 million, an increase of EUR 134 million
compared to EUR 97 million in 2015. The increase in Group Common
and Other selling, general and administrative expenses was primarily
attributable to higher central function costs, related to the Acquisition
of Alcatel Lucent.
Group Common and Other other income and expense in 2016 was a
net expense of EUR 21 million, a change of EUR 113 million compared
to a net income of EUR 92 million in 2015. The change was primarily
attributable to the absence of realized gains related to certain
investments made through venture funds and the non-cash
impairment of certain financial assets.
Operating loss
Group Common and Other operating loss in 2016 was EUR 342 million,
an increase of EUR 253 million, compared to an operating loss of
EUR 89 million in 2015. The increase in Group Common and Other
operating loss was primarily attributable to higher R&D and selling,
general and administrative expenses and a net negative fluctuation
in other income and expenses, partially offset by higher gross profit.
For the year ended December 31, 2015 compared to the year ended
December 31, 2014
The following table sets forth selective line items for the years indicated.
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative
expenses
Other income and expenses
Operating loss
2015
EURm
–
–
–
(84)
(97)
92
(89)
2014
EURm
1
(27)
(26)
(73)
(132)
5
(226)
Group Common and Other operating loss in 2015 was EUR 89 million,
a decrease of EUR 137 million, or 61%, compared to an operating loss
of EUR 226 million in 2014. The decrease in Group Common and Other
operating loss was primarily attributable to change in other income
and expense and to a lesser extent to decrease in selling, general
and administrative expenses, partially offset by an increase in R&D
expenses. Other income and expense in 2015 included net income of
approximately EUR 100 million related to investments made through
unlisted venture funds, a significant portion of which resulted from
Nokia Growth Partners selling its holdings in Ganji.com to 58.com for
a combination of cash and shares.
60
NOKIA IN 2016
Liquidity and
capital resources
Financial position
As of December 31, 2016, our total cash and other liquid assets
(defined as cash and cash equivalents; current available-for-sale
investments, liquid assets; and investments at fair value through
profit and loss, liquid assets) equaled EUR 9 326 million, a decrease
of EUR 523 million, compared to EUR 9 849 million as of December 31,
2015. The decrease was attributable to EUR 1 454 million negative
cash flow from operating activities, and shareholder distributions
including payment of dividends of EUR 1 515 million and repurchases
of shares of EUR 216 million. Total cash and other liquid assets also
decreased by EUR 3 360 million comprising EUR 2 168 million cash
used for repayment of long-term borrowings and EUR 1 192 million
cash used for purchase of Alcatel Lucent shares and convertible bonds.
Our total cash and other liquid assets also decreased due to capital
expenditures of EUR 477 million and cash flows related to acquisitions
of EUR 342 million, excluding the Acquisition of Alcatel Lucent. This
decrease was partially offset by an increase of EUR 6 558 million
related to the acquired cash and other liquid assets of Alcatel Lucent
and other net cash inflows relating to investing and financing activities.
As of December 31, 2014, our total cash and other liquid assets
equaled EUR 7 715 million.
As of December 31, 2016, our net cash and other liquid assets
(defined as total cash and other liquid assets less long-term
interest-bearing liabilities and short-term borrowings) equaled
EUR 5 299 million, a decrease of EUR 2 476 million, compared to
EUR 7 775 million as of December 31, 2015. The decrease was
primarily attributable to EUR 1 454 million negative cash flow from
operating activities, shareholder distributions including payment
of dividends of EUR 1 515 million and repurchases of shares of
EUR 216 million and EUR 729 million net cash impact arising from
the purchase of Alcatel Lucent shares and convertible bonds. The
acquisition of Alcatel Lucent increased net cash by EUR 1 970 million
comprised of EUR 6 558 million in acquired cash and other liquid
assets and EUR 4 588 million related to long-term interest-bearing
liabilities and short-term borrowings. As of December 31, 2014,
our net cash and other liquid assets equaled EUR 5 023 million.
As of December 31, 2016, our cash and cash equivalents equaled
EUR 7 497 million, an increase of EUR 502 million compared to
EUR 6 995 million as of December 31, 2015. As of December 31,
2014, our cash and cash equivalents equaled EUR 5 170 million.
Cash flow
2016
Our cash outflow from operating activities in 2016 of EUR 1 454 million
decreased by EUR 1 957 million compared to a cash inflow of
EUR 503 million in 2015. The decrease was primarily attributable to
a EUR 2 207 million increase in net working capital in 2016 compared to a
EUR 1 377 million increase in 2015 and a decrease in net profit, adjusted
for non-cash items of EUR 727 million. The primary driver for the increase
in net working capital related to a decrease in liabilities of EUR 2 758
million in 2016 compared to a decrease of EUR 990 million in 2015,
partially offset by a decrease in inventories of EUR 533 million in 2016
compared to a decrease of EUR 341 million in 2015. The decrease in
liabilities mainly related to restructuring cash outflows, reductions in
liabilities related to our actions to harmonize working capital processes
and practices, termination of Alcatel Lucent’s license agreement with
Qualcomm, the payment of incentives related to Alcatel Lucent’s and
Nokia’s strong business performance in 2015 and the impact of foreign
exchange fluctuations.
The decrease in cash flow from operating activities was also attributable
to a EUR 400 million increase in cash outflows related to net interest
and income taxes paid in 2016 and 2015 of EUR 727 million and
EUR 327 million, respectively. Interest paid includes cash outflows
from the premium paid for the redemption of Alcatel Lucent bonds
and notes related to our capital structure optimization program. Income
taxes paid include a non-recurring tax payment due to the integration
of the former Alcatel Lucent and former Nokia operating models into
one combined operating model.
In 2016, our cash inflow from investing activities equaled
EUR 6 836 million, representing an increase of EUR 4 940 million
compared to EUR 1 896 million cash inflow from investing activities in
2015. The increase in cash inflow from investing activities was primarily
driven by cash and cash equivalents acquired as part of the Acquisition
of Alcatel Lucent and an increase in proceeds from maturities and sale
of current available-for-sale investments, liquid assets partially offset
by purchase of current available-for-sale investments and liquid assets.
In 2016, our capital expenditure equaled EUR 477 million, an increase of
EUR 163 million, as compared to EUR 314 million in 2015. Major items of
capital expenditure in 2016 included investments in R&D equipment, test
equipment, hardware for Telco and Cloud environment, plants, buildings
and construction for transformation projects, repair or improvements
of sites as well as intangible rights.
In 2016, our cash outflow from financing activities of EUR 4 923 million
increased by EUR 4 343 million in comparison to our cash outflow of
EUR 580 million in 2015. The increase in cash outflows was primarily
driven by the repayment of long-term borrowings of EUR 2 599 million
mainly including the redemption of Alcatel Lucent bonds and notes
related to our capital structure optimization program, paid dividends
of EUR 1 515 million primarily related to the payment of the ordinary
and special dividends, purchase of equity instruments of subsidiaries of
EUR 724 million related to the purchase of Alcatel Lucent shares and the
equity component of the purchased Alcatel Lucent convertible bonds and
EUR 216 million cash outflow related to the commencement of Nokia’s
share repurchasing program.
NOKIA IN 2016
61
Board review Liquidity and capital resources continued
2015
Our cash inflow from operating activities in 2015 of EUR 503 million
decreased by EUR 772 million compared to the cash inflow of
EUR 1 275 million in 2014. The decrease was primarily attributable
to EUR 1 377 million cash being tied up in net working capital in
2015 compared to EUR 988 million cash release in 2014, partially
offset by an increase in net profit, adjusted for non-cash items of
EUR 993 million. The primary drivers of the increase in net working
capital were higher accounts receivables, mainly relating to the
Samsung patent license receivables and lower accounts payable.
In 2015, our cash inflow of operating activities also included cash
outflows of EUR 327 million related to net interests and taxes paid,
a decrease of EUR 600 million compared to EUR 927 million cash
outflows in 2014. The decrease was primarily attributable to lower
net income taxes paid. Paid taxes in 2014 included approximately
EUR 300 million cash outflows relating to Discontinued operations.
In 2015, our cash flow from investing activities equaled
EUR 1 896 million, an increase of EUR 1 010 million compared to
EUR 886 million cash received from investing activities in 2014.
Cash inflow from investing activities was primarily driven by
gross proceeds attributable to the Sale of the HERE Business of
approximately EUR 2 540 million, and the increase in proceeds from
maturities and sale of current available-for-sale investments and liquid
assets. The increase was partially offset by an increase in purchases
of current available-for-sale investments, liquid assets, purchases of
investments at fair value through profit and loss, liquid assets and
cash outflows related to capital expenditure of EUR 314 million and
acquisitions of EUR 98 million.
In 2015, our capital expenditure equaled EUR 314 million, an increase
of EUR 3 million compared to EUR 311 million in 2014. Major items of
capital expenditure in 2015 included investments in production lines,
test equipment and computer hardware used primarily in R&D, office
and manufacturing facilities as well as services and software-related
intangible assets.
In 2015, our cash outflow from financing activities equaled
EUR 580 million, a decrease of EUR 3 996 million compared to
EUR 4 576 million cash outflow in 2014. Cash outflows from financing
activities were primarily attributable to the payment of EUR 0.14
per share in dividends equaling EUR 507 million and EUR 173 million
in cash outflows relating to share repurchases. Cash outflows from
financing activities also included payments to non-controlling interest
holders to acquire subsidiary shares and pay dividends equaling
EUR 57 million.
Financial assets and debt
As of December 31, 2016, our net cash and other liquid assets equaled
EUR 5 299 million and consisted of EUR 9 326 million in total cash and
other liquid assets and EUR 4 027 million of long-term interest-bearing
liabilities and short-term borrowings.
We hold our cash and other liquid assets predominantly in euro.
Our liquid assets are mainly invested in high-quality money-market
and fixed income instruments with strict maturity limits. We also
have a EUR 1 579 million undrawn revolving credit facility available
for liquidity purposes.
Our interest-bearing liabilities consisted of a EUR 500 million bond
due in 2019, a USD 1 000 million bond due in 2019, a USD 300 million
bond due in 2028, a USD 1 360 million bond due in 2029, a
USD 500 million bond due in 2039 and EUR 464 million of other
liabilities. The bonds maturing in 2019 and 2039 are issued by
Nokia Corporation, while the bonds maturing in 2028 and 2029 are
issued by Lucent Technologies Inc., (the predecessor to Alcatel-Lucent
USA Inc., Nokia’s wholly-owned subsidiary). Refer to Note 23,
Interest-bearing liabilities, of our consolidated financial statements
included in this annual report for further information regarding our
interest-bearing liabilities.
In June 2016, we exercised our options to increase the size of our
EUR 1 500 million revolving credit facility to EUR 1 579 million and to
extend the maturity date from June 2018 to June 2019. The facility
has a one-year extension option remaining, no financial covenants
and it remains undrawn.
In January 2016, Alcatel Lucent SA repaid its EUR 190 million 8.50%
senior notes. In February, 2016, Alcatel-Lucent USA Inc. redeemed
its USD 650 million 4.625% notes due in July 2017, USD 500 million
8.875% notes due in January 2020 and USD 700 million 6.750%
notes due in November 2020 in accordance with their respective
terms and conditions. In February 2016, Alcatel Lucent SA terminated
its EUR 504 million revolving credit facility. In March 2016, ASNs’
EUR 74 million credit facility was repaid.
As part of the public exchange offer to acquire Alcatel Lucent
2018 OCEANE, 2019 OCEANE and 2020 OCEANE convertible bonds
with nominal amounts of EUR 381 million, EUR 238 million and
EUR 293 million respectively, were tendered for exchange into Nokia
shares. As a result, less than 15% of the 2018 OCEANE convertible
bonds remained outstanding, and the Group caused Alcatel Lucent SA
to redeem at par value plus accrued interest all of the outstanding
2018 OCEANE convertible bonds pursuant to the terms and
conditions of the bonds. Subsequently during 2016 the remaining
outstanding 2019 OCEANE and 2020 OCEANE convertible bonds with
nominal amounts of EUR 402 million and EUR 136 million respectively,
were either put back, acquired in privately negotiated transactions, or
acquired through the public buy-out offer followed by a squeeze-out
for an aggregate cash payment of EUR 562 million. Refer to Note 31,
Notes to the consolidated statement of cash flows and Note 23,
Interest-bearing liabilities, of our consolidated financial statements
included in this annual report for further information regarding
these transactions.
62
NOKIA IN 2016
Our capital structure optimization program further included a part
to de-leverage by approximately EUR 3 billion. In 2016, we took the
following actions to reach our target:
■ Alcatel Lucent SA repaid its EUR 190 million 8.50% senior notes
and terminated its EUR 504 million revolving credit facility;
■ Alcatel-Lucent USA Inc., a subsidiary of Alcatel Lucent SA, redeemed
its USD 650 million 4.625% notes due in July 2017, USD 500 million
8.875% notes due in January 2020 and USD 700 million 6.750%
notes due in November 2020 in accordance with their respective
terms and conditions; and
■ approximately EUR 1.0 billion reduction in the sale of receivables
(debt-like items).
We intend to execute the following shareholder distributions during
2017 to complete the capital structure optimization program:
■ ordinary dividend for 2016 of EUR 0.17 per share, subject to
shareholder approval at the Annual General Meeting on May 23,
2017; and
■ continue the share repurchase program until we have reached
the threshold of EUR 1.0 billion, or acquired the maximum allowed
575 million shares.
Refer to “—Dividend” below for the Board’s dividend proposal for 2016.
We believe, with EUR 9 326 million of cash and other liquid assets
as well as a EUR 1 579 million revolving credit facility, that we have
sufficient funds available to satisfy our future working capital needs,
capital expenditures, R&D investments, acquisitions and debt service
requirements at least through 2017. We further believe, with our
current credit ratings of BB+ by Standard & Poor’s and Ba1 by
Moody’s, that we have access to the capital markets should any
funding needs arise in 2017.
We aim to re-establish our investment grade credit rating.
Capital structure optimization program
In 2015, we announced a two-year, EUR 7 billion program to
optimize the efficiency of our capital structure (our “capital structure
optimization program”). The capital structure optimization program
was initially subject to the closing of the Acquisition of Alcatel Lucent
and the Sale of the HERE Business, as well as the conversion of all
Nokia and Alcatel Lucent OCEANE convertible bonds. The Sale of the
HERE business closed in December 2015. The result of the successful
offer for Alcatel Lucent securities was announced on January 5, 2016
and 100% ownership was reached on November 2, 2016. However,
not all convertible bonds were converted.
As of December 31, 2016, we have completed the following shareholder
distributions as part of our capital structure optimization program:
■ ordinary dividend for 2015 of EUR 0.16 per share, totaling
EUR 924 million, paid in July 2016;
■ special dividend of EUR 0.10 per share, totaling EUR 577 million,
paid in July 2016;
■ on October 27, 2016, the originally intended EUR 1.5 billion share
repurchase program was adjusted to EUR 1.0 billion, after we had
used approximately EUR 560 million in cash during 2016 to acquire
Alcatel Lucent securities in order to reach the 95% squeeze-out
threshold. We consider these acquisitions as indirect share
repurchases, and thus, part of the initially planned EUR 1.5 billion
share repurchase program;
■ on November 16, 2016, we commenced our share repurchase
program up to an equivalent amount of EUR 1.0 billion or a
maximum of 575 million shares. Thereafter, in 2016, EUR 216 million
was used for share repurchases under the program; and
■ between January 1, 2017 and March 10, 2017, EUR 159 million
was used for share repurchases under the program.
NOKIA IN 2016
63
Board review Liquidity and capital resources continued
Venture fund investments and commitments
We make financing commitments to a number of unlisted venture
funds that make technology-related investments. The majority of the
investments are managed by Nokia Growth Partners which specializes
in growth-stage investing, seeking companies that are changing the
face of mobility and connectivity.
As of December 31, 2016, our unlisted venture fund investments
equaled EUR 819 million, as compared to EUR 953 million as of
December 31, 2015. Refer to Note 24, Fair value of financial
instruments, of our consolidated financial statements included
in this annual report for further information regarding fair value
of our unlisted venture fund investments.
As of December 31, 2016, our venture fund commitments equaled
EUR 525 million, as compared to EUR 230 million as of December 31,
2015. As a limited partner in venture funds, we are committed to
capital contributions and entitled to cash distributions according
to the respective partnership agreements and underlying fund
activities. Refer to Note 30, Commitments and contingencies, of
our consolidated financial statements included in this annual report
for further information regarding commitments and contingencies.
Treasury policy
Treasury activities are governed by the Nokia Treasury Policy approved
by the President and CEO and supplemented by operating procedures
approved by the CFO, covering specific areas such as foreign exchange
risk, interest rate risk, credit and liquidity risk. The objective of
treasury’s liquidity and capital structure management activities is to
ensure that the Group has sufficient liquidity to go through unfavorable
periods without being severely constrained by the availability of funds
to execute its business plans and implement its long-term business
strategy. We are risk-averse in our treasury activities.
Structured finance
Structured finance includes customer financing and other third-party
financing. Network operators occasionally require their suppliers,
including us, to arrange, facilitate or provide long-term financing
as a condition for obtaining infrastructure projects.
As of December 31, 2016, our total customer financing,
outstanding and committed, equaled EUR 352 million, an increase
of EUR 139 million as compared to EUR 213 million in 2015. As of
December 31, 2014, our total customer financing, outstanding and
committed, equaled EUR 156 million. Customer financing primarily
consisted of financing commitments to network operators.
Refer to Note 36, Risk management, of our consolidated financial
statements included in this annual report for further information
relating to our committed and outstanding customer financing.
We expect our customer financing commitments to be financed
mainly from cash and other liquid assets and through cash flow
from operations.
As of December 31, 2016, guarantees of our performance consisted
of bank guarantees given on behalf of Nokia to its customers for
EUR 1 805 million (EUR 400 million as of December 31, 2015). In
addition, Nokia Corporation issued corporate guarantees directly
to Nokia customers with primary obligation for EUR 88 million
(EUR 74 million as of December 31, 2015) and such corporate
guarantees issued by certain Alcatel Lucent entities for
EUR 1 520 million. These instruments entitle the customer to claim
payments as compensation for non-performance by Nokia of its
obligations under network infrastructure supply agreements.
Depending on the nature of the instrument, compensation is either
payable on demand, or is subject to verification of non-performance.
Due to certain differences in the business and a less centralized
guarantee process, bank guarantees as well as corporate guarantees
with primary obligation were used to a larger extent by Alcatel Lucent.
Financial guarantees and securities pledged that we may give on
behalf of customers, represent guarantees relating to payment by
certain Nokia customers and other third parties under specified loan
facilities between such customers or other third parties and their
creditors. Our obligations under such guarantees are released upon
the earlier of expiration of the guarantee or early payment by the
customer or other third party.
Refer to Note 30, Commitments and contingencies, of our
consolidated financial statements included in this annual report for
further information regarding commitments and contingencies.
64
NOKIA IN 2016
Material
subsequent events
After December 31, 2016, the following material events have
taken place:
On March 17, 2017, we announced changes in our organizational
structure and Group Leadership Team, effective from April 1, 2017.
■ In January 2017, as part of continuing changes to our operating
model, we transferred certain intellectual property between our
operations in Finland and the United States, which is expected to
result in an approximately EUR 250 million negative non-recurring
impact on tax expense in the first quarter of 2017, but no material
cash tax outflow.
■ On January 31, 2017, we acquired 100% ownership interest in
Deepfield Networks Inc., a United States-based leader in real-time
analytics for IP network performance management and security.
■ On February 8, 2017, we entered into a transaction agreement with
Comptel Corporation (“Comptel”), a Finnish publicly listed company,
whereby we undertake to make a voluntary public cash tender offer
to purchase all of the issued and outstanding shares and option
rights in Comptel that are not owned by Comptel or any of its
subsidiaries. The price offered for each share validly tendered in
the tender offer will be EUR 3.04 in cash. The tender offer values
Comptel at approximately EUR 347 million, on a fully diluted basis.
■ On February 22, 2017, we announced that we had commenced
a tender offer to purchase the outstanding EUR 500 million
6.75% notes due February 4, 2019 issued by Nokia Corporation
(the “2019 Euro Notes”) and the outstanding USD 300 million
6.50% notes due January 15, 2028 (the “2028 Dollar Notes”) and
USD 1 360 million 6.45% notes due March 15, 2029 (the “2029
Dollar Notes”) issued by Lucent Technologies Inc., (the predecessor
to Alcatel-Lucent USA Inc., Nokia’s wholly-owned subsidiary) up to
a maximum cash consideration of USD 1 000 million (the “Tender
Offer”). The purpose of the Tender Offer is to manage our overall
indebtedness. Following the settlement of the Tender Offer, we
expect to cancel any euro-denominated notes purchased pursuant
to the Tender Offer and to hold any U.S. dollar-denominated notes.
On March 21, 2017, the Tender Offer expired. We received
tenders for 53.76% (EUR 268.8 million) of the 2019 Euro Notes,
28.66% (USD 86.0 million) of the 2028 Dollar Notes and 29.48%
(USD 400.9 million) of the 2029 Dollar Notes. We expect to settle
the Tender Offer on March 23, 2017.
■ On March 15, 2017, we issued EUR 500 million 1.00% Senior
Notes due 2021 and EUR 750 million 2.00% Senior Notes due 2024
under our 5 000 000 000 Euro Medium-Term Note Programme.
The proceeds of the new notes are intended to fund the Tender
Offer, and for general corporate purposes.
The organizational changes include the separation of our current
Mobile Networks business group into two distinct, but closely linked,
organizations: (1) Mobile Networks, focused on products and solutions
and (2) Global Services, focused on services. In addition, our Chief
Innovation and Operating Officer (“CIOO”) organization will be split,
with its current operating activities moved to a newly-appointed Chief
Operating Officer (“COO”) organization, innovation activities to our
Chief Technology Officer and incubation to our Chief Strategy Officer.
The leadership changes include the following:
■ Marc Rouanne, currently Chief Innovation and Operating Officer,
will become President of the Mobile Networks business group.
■ Igor Leprince, currently Executive Vice President of Global Services,
will join the Group Leadership Team and assume the role of
President of Global Services, a new business group comprised of
the Services organization that currently resides within the existing
Mobile Networks business group.
■ Monika Maurer, currently Chief Operating Officer of Fixed Networks,
will join the Group Leadership Team and assume the role of Group
COO, responsible for Nokia’s operating model, Global Operations
(manufacturing and supply chain), procurement, implementation
of cost saving and ongoing transformation activities, information
technology, real estate, and quality.
■ Marcus Weldon, currently President of Nokia Bell Labs and Chief
Technology Officer, will join the Group Leadership Team and retain
current responsibilities.
■ Kathrin Buvac, Chief Strategy Officer, will assume additional
responsibilities for incubation of select new business opportunities,
and Barry French, Chief Marketing Officer, will assume additional
responsibilities for Health, Safety, Security and Environment.
■ Samih Elhage will continue in his current role and as a member of
the Group Leadership Team until April 1, 2017, and will remain as an
advisor to the company through May 31, 2017.
We will continue to report financial information for Ultra Broadband
Networks, IP Networks and Applications and Nokia Technologies.
Ultra Broadband Networks will be composed of the Mobile Networks,
Global Services and Fixed Networks business groups. IP Networks and
Applications is composed of the IP/Optical Networks and Applications
& Analytics business groups.
NOKIA IN 2016
65
Board review Sustainability and
corporate responsibility
We are shaping the future of technology to
transform the human experience and improve
people’s lives and we aim to achieve that
by conducting our business in a responsible
manner. We align with globally recognized
ethical and responsible business practices and
frameworks, putting in place the processes,
policies and programs to achieve our aim.
Managing sustainability
Our Sustainability vision and priorities
Our sustainability vision remained unchanged
in 2016—to design technologies that enable
the human possibilities of the connected
world while making it more productive,
healthy and sustainable. We drive this through
the following renewed priorities: improving
people’s lives with technology, protecting the
environment, conducting our business with
integrity and respecting our people.
Sustainability and corporate responsibility
issues are reviewed regularly at all levels
within Nokia, including by the Nokia Board of
Directors (the “Board”). Our sustainability
strategy and governance were realigned to
our renewed strategy and business focus and
new governance was implemented in 2016.
Sustainability performance and
materiality assessment
In 2016, we reviewed and updated our
materiality analysis whereby we systematically
analyzed stakeholder requirements, our
influence on sustainable development
throughout the value chain, industry
cooperation and the UN’s Sustainable
Development Goals. In total, we evaluated
more than 40 sustainability issues that affect
our short, medium, and long-term corporate
strategy. Each issue was carefully defined and
weighed against its impact on our commercial
success and sustainable development.
The results of the materiality assessment
helped us identify key issues and to focus
our efforts on the benefits of connectivity
and sustainable products, environmental
impact and climate change challenges, ethical
business practices and the increasing need
for data privacy and freedom of expression,
supply chain responsibility, health & safety
and employee engagement as well as
diversity. Please refer to our forthcoming
2016 Sustainability Report at www.nokia.com/
people&planet for further details of the
materiality assessment.
In 2016, we published 25 targets reflecting
our commitment to sustainable development.
Our sustainability strategy and reporting
framework conform to key regulatory,
investor and customer requirements and
globally recognized sustainability frameworks.
Our Sustainability Report is prepared in
accordance with the GRI sustainability
reporting guidelines. In 2016, we incorporated
information on our sustainability activities
based on the 21 UN Global Compact
advanced level assessment criteria.
EcoVadis is one of the evaluation platforms
through which we provide annual sustainability
information for evaluation which is then
shared with customers as required. In 2016,
we were judged “Outstanding”, the highest
level in the gold category with a score of
85/100. We were in the top 1% of suppliers
assessed, achieving excellent scores in
environment, labor practices, and supply chain
management. In 2016, we retained our listing
in the Dow Jones Sustainability Index with a
score of 83/100 and were ranked leader of
the CMT communication equipment sector.
Other recognition included being ranked a
leader in the CDP (formerly Carbon Disclosure
Project) for our work on and disclosure of
climate change data and being listed in the
World and Europe 120 indices of Euronext
Vigeo. We reconfirmed our position in the
Ethibel Sustainability Indices and were
awarded best-in-class in human rights and
climate change reporting in the Sustainability
Reporting Competition in Finland.
We have provided detailed reports on our
progress and performance in sustainability
and corporate responsibility matters annually,
and online for over a decade. For further
information, refer to our People and Planet
report at http://www.nokia.com/en_int/
about-us/sustainability.
Improving people’s lives
through connectivity
The development of technologies such
as 5G and IoT is expected to enable more
people and billions of things to be connected,
helping to realize smart innovations in cities
and homes, access to digital health and
greater public safety. We can have the
greatest impact on sustainable development
through our main business of delivering
networks, technology solutions and services
to operators, enterprises and organizations.
Through our end-to-end portfolio, our
technology can connect the unconnected,
increase efficiency and productivity, and
drive greater economic growth to improve
the lives of people across the globe.
66
NOKIA IN 2016
43%
The networks we modernized brought
on average energy savings of 43% for
our customers
1 900
Over 1 900 of our leaders were trained
on gender balance topics in 2016
Our radio networks’ customers serve around
5.5 billion subscriptions worldwide. In May 2016,
we introduced our ultra-compact network
solution, providing a lightweight standalone
LTE network, which can re-establish
connectivity within minutes where existing
communications are down. With satellite,
microwave or cable link, it can connect rescue
teams to emergency services, hospitals and
other teams in any location. This technology
is also part of our Nokia Saving Lives
innovation initiative, in which we combine the
capabilities of the ultra-compact LTE network
with drone video applications for search
and rescue missions.
Our digital health strategy, reinforced
through our acquisition of Withings, centers
on empowering people (i.e. by making health
monitoring more accessible). Building on
Nokia’s track record of innovation, we are now
positioned to help people live healthier lives
through a portfolio of smart health solutions
that are reliable, easy to use and grounded
in human-centered design—qualities Nokia
customers have come to expect.
Through our corporate community
investment programs we rolled out a new
project in Myanmar in which technology plays
a key role in improving early childhood care
and development monitoring. We have,
together with Save the Children, developed
a web-based database and synchronized
mobile application which is currently
being deployed, intended to replace slow,
non-real-time paper-based data collection
used during care center monitoring visits.
During a visit, the application enables saving
of data on your mobile phone when offline
and uploading it when online again. This is
particularly important in parts of Myanmar,
and elsewhere, where there is limited
network coverage today.
Protecting the environment
We believe we can directly support the
fight against climate change by reducing the
energy usage of the products we deliver to
our customers. We aim to minimize our own
operations’ footprint while also creating and
delivering solutions that help our customers
and other industries minimize theirs. For
example, we offer an Asset Recovery Service
as part of product lifecycle management.
In 2016, we sent around 2 450 metric tons
of old telecommunications equipment for
materials recovery and we refurbished
approximately 85 800 units.
Our environmental management system
helps us monitor our progress and identify
ways to improve further. We manage our
own footprint through continued certification
to ISO 14001 environmental management
standard and our performance is audited
regularly by external auditors.
In 2016, we continued working towards
improving our energy efficiency and
controlling waste across our business.
Our total energy consumption across our
facilities decreased by approximately 9%,
as compared to 2015, which, consequently,
reflected a decrease of approximately 16% in
our greenhouse gas emissions, including our
renewable energy usage. We further reduced
the carbon intensity (CO2 e/km) of our car
fleet by 8%, as compared to 2015. Overall,
the undertaken actions in our operations in
2016 reduced our total Scope 1 & 2 emissions
by 10%, including emissions from our own
marine fleet. (In this paragraph, we compare
our 2016 results to our 2015 results which
represent the combined amounts of Nokia
and Alcatel Lucent in 2015.)
Our actions were further supported by
customer deployment of AirScale base
stations which feature new software that
reduces radio module and system module
energy consumption and even use zero
energy in the absence of network traffic.
In 2016, we modernized 27% more base
stations than in 2015, achieving average
energy savings of 43% for our customers
compared to non-modernized networks.
This reduces the environmental impact
of electricity consumption and is directly
reflected as increased financial benefits
for our customers. We also acquired Eta
Devices that specialize in power amplifier
efficiency to support our goal of improved
energy efficiency.
NOKIA IN 2016
67
Board review
Sustainability and
corporate responsibility continued
Running our business
with integrity
Ethical business
We conduct business based on defined high
ethical standards and apply our Code of
Conduct across our operations, which allows
us to build and maintain personal integrity
and protect our reputation. We emphasize the
implementation and understanding of the
Code of Conduct across our workforce, sales
and supplier interactions. All our employees
are expected to comply with our Code
of Conduct.
Leadership involvement and oversight
of ethics and compliance are provided by
the Board via the Audit Committee, which
convened eight times in 2016. Compliance
management is further supported by both
global and regional compliance committees.
Employees and external stakeholders
are urged to report any ethical misconduct
using our compliance hotline which allows
for anonymous reporting. In 2016, our
Ethics & Compliance office received 637
concerns, of which 228 were investigated by
Ethics & Compliance Investigations as alleged
violations of our Code of Conduct. We also
implemented corrective actions including 17
dismissals and 40 written warnings following
these and other investigations. We also
track how our employees feel about raising
concerns through a bi-monthly internal
anonymous survey on whether our
employees are comfortable raising concerns.
We also work hard to ensure the technology
we provide is not used to infringe human
rights, including the right to privacy, freedom
of expression and assembly. We further work
closely with our supply chain to encourage
adherence to the same standards of ethical
business to help ensure responsible sourcing
and globally acceptable labor practices.
Human rights, freedom of expression
and privacy
In 2016, in order to mitigate the risks of
potential misuse of our products and increase
transparency, we updated our Human Rights
Policy and followed up with training to all
relevant groups within Nokia. We run human
rights due diligence processes as part
of our global sales process, in order to
further mitigate potential risks and cases of
misuse. We are a founding member of the
Telecommunications Industry Dialogue
Group (“ID”) and, as of October 2016, Nokia
chairs the group. Since February 2016, we
have had official observer status with the
Global Network Initiative (“GNI”), with an aim
of becoming a full member in March 2017.
Responsible sourcing
We regularly run robust assessments with
our supplier network to support them in
meeting our ethical standards and improving
performance where necessary. In 2016, we
implemented 390 supply chain audits, which
included 45 on-site audits on Corporate
Responsibility topics; 39 were on-site audits
against our supplier requirements and 306
suppliers were audited using the EcoVadis
scorecards. Additionally, we run training
workshops for suppliers operating in high-risk
countries. In 2016, we organized online
training on conflict-free sourcing and climate
change, and we arranged face-to-face training
workshops establishing improvement
plans and actions for 238 suppliers.
We work closely with our supply chain to jointly
create environmental improvement programs
and better our upstream Scope 3 emissions
reporting (overall Scope 3 means all indirect
emissions that occur in our value chain,
including upstream and downstream) through
the CDP Supply Chain Program. In 2016, 243
of our key suppliers responded to the CDPs
request to disclose their climate performance
information and 127 also provided emission
reduction targets.
The traceability of our materials and
ensuring our products are conflict-free is a
priority for us, which is also reflected in our
updated Conflict Minerals Policy. In 2016,
84% of smelters identified as part of
Nokia’s supply chain have been validated as
conflict-free or are active in the validation
process. Refer to our conflict minerals report
available at http://www.nokia.com/en_int/
about-us/sustainability/downloads.
Respecting our people
In a year of integration, we emphasized a firm
understanding of Nokia’s vision, values and
culture through training, town hall meetings
and communication. We measure cultural
cohesion through our Cultural Cohesion
Tracker survey five times a year, and in 2016
understanding of Nokia’s vision rose from
85% favorable to 88%. In addition, one
building block of the Cultural Cohesion Tracker
is “Understanding New Nokia Mindset”, which
contains questions focused on behaviors,
values, ethics and emotional connection and
received 83% favorability at the end of 2016.
We received over 70 000 responses covering
a range of aspects of working for Nokia.
The Nokia Code of Conduct also underpins
our own labor conditions, along with the
human resources policies that underline
our approach to fair employment.
We focus on ensuring that all our employees
and contractors are aware of the risks
related to their jobs and receive the
necessary training and equipment to work
safely—whether in the office or on site. We
address job-related health and safety risks
through training, analysis, assessments and
consequence management. We have put in
place a wide range of programs to improve our
health and safety performance and encourage
reporting of near misses and dangerous
incidents by employees and contractors.
We realize that our employees must be
positively engaged for our business to
be successful. In 2016, our employee
engagement index showed a 76% favorability
towards the company. We offer training,
development programs, comprehensive
reward packages and flexible working as part
of our effort to motivate and show that we
value our employees and the work they do.
In 2016, each employee spent an average
of approximately 19 hours on training.
Additionally, we arrange a one-hour dialog
session every quarter between the line
manager and each team member, which
covers objective setting and review of results,
individual development, employee well-being
and engagement, coaching by the line
manager, and mutual feedback.
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NOKIA IN 2016
Cooperating with others in our industry
and beyond
We are a member of the United Nations
Global Compact, Global e-Sustainability
Initiative, CDP supply chain program, ID,
Climate Leadership Council, Digital Europe,
Conflict-Free Sourcing Initiative and several
standardization and university cooperation
groups. We have further structured
engagement with the World Economic Forum,
the Broadband Commission and ITU Telecom
World, amongst others. In 2016, we became
a member of the GSMA Humanitarian
Connectivity Charter. Working with ID,
we also made a submission to the UN Special
Rapporteur on freedom of opinion and
expression to support his forthcoming study.
We also collaborate with the public sector to
further the use of technology in enhancing
sustainable development and improving the
day-to-day lives of citizens. In 2016, we joined
the Bristol Is Open initiative, becoming the
first major telecommunications vendor to
participate in Bristol’s unique living laboratory,
underlining our commitment to smart city
solutions. In support of the UN’s Refugee
agency, we provided a Nokia OZO VR camera
and equipment to The Humanitarian
Cooperative to enable the creation of a film
to raise awareness of, and action on, the
current refugee crisis.
Employees
In 2016, the average number of Nokia
employees was 102 687 (56 690 in 2015 and
51 499 in 2014). The total amount of salaries
and wages paid in 2016 was EUR 6 275 million
(EUR 3 075 million in 2015 and EUR 2 797
million in 2014). Refer to Note 9, Personnel
expenses, of our consolidated financial
statements in this annual report.
The table below shows the average number
of employees in 2016, divided according to
business and geographical location:
Business
Networks business
Nokia Technologies
Group Common Functions
Total
Region
Finland
Other European countries
Middle East & Africa
China
Asia-Pacific
North America
Latin America
Total
Average number
of employees
99 243
790
2 654
102 687
Average number
of employees
6 564
31 550
4 024
18 929
22 007
15 560
4 053
102 687
The health, sports and activity programs
we offer our employees contribute to cost
savings in terms of reduced sick leave days.
Diversity, inclusion and anti-discrimination
are key to our employee makeup. In 2016,
approximately 14% of our senior
management positions were held by women
and over 1 900 leaders were trained on
gender balance topics. In total, women
accounted for 22% of Nokia’s workforce in
2016. Nokia’s employee-driven program,
StrongHer, was selected by the ITU as an
example of how to bridge the gender digital
divide in corporations in 2016. The average
age of our employees in 2016 was 40 years.
Making change happen together
To achieve our sustainability goals, we
collaborate closely with suppliers, customers,
non-governmental organizations (“NGOs”),
authorities and industry peers, not only
supporting them in achieving their
sustainability goals but also driving the
sustainability of our products and solutions.
Working with NGOs
As part of our ongoing work with NGOs,
we have created a Group-wide corporate
community investment approach with three
key pillars—to connect the unconnected,
to empower women, and to save lives. Our
contribution focuses on how technology can
improve access to better health, education
and information, and ultimately drives social,
environmental and economic progress.
In addition to multi-year signature programs
with Plan International, Save the Children
and Oxfam, we have approved and planned
new signature programs for launch in 2017
with e.g. UNICEF, Greenlight for Girls and
Junior Achievement. We also work with
smaller charities whose programs use
technology to improve lives. In 2016,
through Nokia Corporate Community
Investment and the Alcatel-Lucent
Foundation, we contributed corporate-level
resources totaling EUR 3 million, which
supported 42 community organizations.
NOKIA IN 2016
69
Board review Dividend
The Board proposes a dividend
of EUR 0.17 per share for 2016.
The proposed dividend is in line with our
distribution policy.
We distribute retained earnings, if any, within
the limits set by the Finnish Companies Act
(as defined below). We make and calculate
the distribution, if any, in the form of cash
dividends, share buy-backs, or in some other
form or a combination of these. There is no
specific formula by which the amount of a
distribution is determined, although some
limits set by law are discussed below. The
timing and amount of future distributions
of retained earnings, if any, will depend on
our future results and financial conditions.
Under the Finnish Companies Act, we may
distribute retained earnings on our shares
only upon a shareholders’ resolution and
subject to limited exceptions in the amount
proposed by the Board. The amount of any
distribution is limited to the amount of
distributable earnings of the parent company
pursuant to the last accounts approved by
our shareholders, taking into account the
material changes in the financial situation of
the company after the end of the last financial
period and a statutory requirement that
the distribution of earnings must not result
in insolvency of the company. Subject to
exceptions relating to the right of minority
shareholders to request a certain minimum
distribution, the distribution may not exceed
the amount proposed by the Board.
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NOKIA IN 2016
Nokia’s outlook
Nokia
Metric
Annual cost savings for
Nokia, excluding Nokia
Technologies
Guidance
Approximately EUR 1.2 billion
of total annual cost savings to
be achieved in full year 2018(1)
Network equipment swaps Approximately EUR 900 million
in total(1)
Financial income and
expenses, excluding
unallocated items(2)
Expense of approximately
EUR 300 million in full
year 2017
Tax rate, excluding
unallocated items(2)
Between 30% and 35% for
full year 2017
Capital expenditures
Net sales
Nokia’s
Networks
business
Approximately EUR 500 million
in full year 2017
Decline in line with the
primary addressable
market in full year 2017
Commentary
Compared to the combined operating costs of Nokia and
Alcatel Lucent for full year 2015, excluding Nokia Technologies
and unallocated items(2). Nokia expects approximately
EUR 800 million of the cost savings to come from operating
expenses and approximately EUR 400 million from cost of sales.
Restructuring and associated charges are expected to total
approximately EUR 1.7 billion. Restructuring and associated cash
outflows are expected to total approximately EUR 2.15 billion.
The charges related to network equipment swaps are being
recorded as unallocated items(2), and therefore do not affect
Nokia’s operating profit excluding unallocated items.
Primarily includes net interest expenses related to
interest-bearing liabilities, interest costs related to the defined
benefit pension and other post-employment benefit plans,
as well as the impact of foreign exchange rate fluctuations on
certain balance sheet items.
Nokia expects cash outflows related to financial income and
expenses to be approximately EUR 200 million in full year 2017.
Nokia expects its tax rate, excluding unallocated items(2), for full
year 2017 to be around the midpoint of the guidance range.
Nokia expects cash outflows related to taxes to be approximately
EUR 600 million for full year 2017.
Primarily attributable to Nokia’s Networks business.
Nokia’s outlook for net sales and operating margin for Nokia’s
Networks business in full year 2017 are expected to be
influenced by factors including:
■ A low single digit percentage decline in the primary
addressable market for Nokia’s Networks business;
■ Competitive industry dynamics;
Operating margin
8-10% in full year 2017
■ Product and regional mix;
Nokia
Technologies
Net sales
Not provided
■ The timing of major network deployments; and
■ Execution of cost savings and reinvestment plans, with
operating expenses down on a year-on-year basis.
The 2017 outlook for Nokia’s Networks business was provided
on November 15, 2016 assuming constant foreign exchange rates.
Due to risks and uncertainties in determining the timing and
value of significant licensing agreements, Nokia believes it is not
appropriate to provide an annual outlook for full year 2017. If no
new licensing agreements are signed, the annualized net sales
run rate for patent and brand licensing would be approximately
EUR 800 million in 2017, representing approximately 30% of the
global smartphone market, by value, under license.
Nokia expects total net sales from Digital Health and Digital
Media to grow year-on-year in full year 2017, primarily
influenced by increased consumer adoption of our Digital Health
and Digital Media products.
(1) Refer to our financial report for Q4 and full year 2016, published on February 2, 2017 for further details related to the cost savings and network equipment swaps guidance.
(2) Unallocated costs include costs related to the Acquisition of Alcatel Lucent and related integration, goodwill impairment charges, intangible asset amortization and other purchase price fair value
adjustments, restructuring and associated charges and certain other items.
NOKIA IN 2016
71
Board review
Risk factors
Set forth below is a description
of risk factors that could affect
our business. Shareholders
and potential investors should
carefully review the following
risk factors, in addition to other
information contained in this
annual report. The risk factors
described below should not be
construed as exhaustive. There
may be additional risks that are
unknown to us and other risks
currently believed to be immaterial
that could turn out to be material.
These risks, either individually or collectively,
could adversely affect our business, sales,
profitability, results of operations, financial
condition, competitiveness, costs, expenses,
liquidity, market share, brand, reputation and
share price. Unless otherwise indicated or the
context otherwise requires, references in
these risk factors to “Nokia”, the “Nokia
Group”, “Group”, “we”, “us” and “our” mean
Nokia’s consolidated operating segments.
Certain risks or events may be more prevalent
with respect to Nokia or a certain business
group, business or part of the Group.
Additional risks and uncertainties not
presently known to us, or that are currently
believed to be immaterial, could impair our
business or the value of an investment made
in it. This annual report also contains
forward-looking statements that involve risks
and uncertainties presented in “Forward-looking
statements” below.
■ Our strategy is subject to various risks
■ Our efforts aimed at managing and
and uncertainties and we may be unable to
successfully implement our strategic plans,
sustain or improve the operational and
financial performance of our business
groups, correctly identify or successfully
pursue business opportunities or
otherwise grow our business.
■ We may be unable to realize the
anticipated benefits, including synergies,
cost savings or efficiencies, from the
Acquisition of Alcatel Lucent, and we may
encounter issues or inefficiencies related
to our new organizational and operational
structure, including not being able to
successfully implement our business plans
and to integrate Alcatel Lucent’s business.
■ We may be materially and adversely
affected by general economic and market
conditions and other developments in the
economies where we operate.
■ We face intense competition and may fail
to effectively and profitably invest in new
competitive high-quality products, services,
upgrades and technologies or bring them
to market in a timely manner.
■ We are dependent on the development
of the industries in which we operate,
including the information technology and
communications industries and related
services market, as well as the digital media
and digital health markets. The information
technology and communications industries
and related services market are cyclical and
are affected by many factors, including the
general economic environment, purchase
behavior, deployment, roll-out timing and
spending by service providers, consumers
and businesses. The digital media and
digital health markets are rapidly evolving
markets affected by numerous factors,
including regulation and IPR.
■ We conduct our business globally,
exposing us to political and regional risks,
including unfavorable or unpredictable
treatment in relation to tax matters,
exchange controls, and other restrictions.
improving our financial or operational
performance, cost savings, competitiveness
and obtaining the targeted synergy
benefits and cost savings, may not lead
to targeted results, benefits, cost savings
or improvements.
■ We are dependent on a limited number of
customers and large multi-year agreements.
The loss of a single customer, operator
consolidation, unfavorable contract terms
or other issues related to a single agreement
may have a material adverse effect on our
business and financial condition.
■ Due to our global operations, our net sales,
costs and results of operations, as well as
the U.S. dollar value of our dividends and
market price of our ADSs, are affected by
exchange rate fluctuations.
■ The Nokia Technologies business group’s
patent licensing income and other
intellectual property-related revenues are
subject to risks and uncertainties such as
our ability to maintain our existing sources
of intellectual property-related revenue,
establish new sources of revenue and
protect our intellectual property from
infringement. A proportionally significant
share of the current patent licensing
income is generated from the smartphone
market which is rapidly changing and
features a limited number of large vendors.
■ Our products, services and business
models depend on technologies that we
have developed as well as technologies that
are licensed to us by certain third parties.
As a result, evaluating the rights related to
the technologies we use or intend to use
is increasingly challenging, and we expect
to continue to face claims that we have
allegedly infringed third parties’ IPR.
The use of these technologies may also
result in increased licensing costs for us,
restrictions on our ability to use certain
technologies in our products and/or costly
and time-consuming litigation.
72
NOKIA IN 2016
■ The amount of dividend and equity
return distributed to shareholders
for each financial period is uncertain.
■ We are exposed to pension,
employee fund-related and employee
healthcare-related risks and we may be
unsuccessful in our ability to avoid or
control costs resulting from a need
for increased funding.
■ We engage in the installation
and maintenance of undersea
telecommunications cable networks,
and in the course of this activity we may
cause damage to existing undersea
infrastructure, for which we may
ultimately be held responsible.
■ Our business is subject to direct and
■ We may be adversely affected by
indirect regulation. As a result, changes
in various types of regulations or their
application, as well as economic and
trade policies applicable to current or new
technologies or products, may adversely
affect our business and results of operations.
Our governance, internal controls and
compliance processes could also fail to
prevent regulatory penalties, both at
operating subsidiaries and in joint ventures.
■ We have identified material weaknesses in
our internal control over financial reporting
following the Acquisition of Alcatel Lucent
which, if not remediated, could have
a material adverse effect on us.
■ We are exposed to risks related to
information security. Our business model
relies on solutions for distribution of
services and software or data storage,
which entail inherent risks relating
to applicable regulatory regimes,
cybersecurity breaches and other
unauthorized access to network data
or other potential security risks that
may adversely affect our business.
■ Inefficiencies, breaches, malfunctions
or disruptions of information technology
systems and processes could have a
material adverse effect on our business
and results of operations.
■ Our Nokia Technologies business group
aims to generate net sales and profitability
through licensing of the Nokia brand and
technologies, the development and sales
of products and services, especially in the
areas of digital media and digital health,
as well as other business ventures including
technology innovation and incubation, which
may not materialize as planned or at all.
■ We are subject to various legislative
frameworks and jurisdictions that regulate
fraud, as well as economic sanctions and
trade policies and, as such, the extent
and outcome of possible proceedings
concerning such issues are difficult to
estimate with any certainty and we may
be subject to material fines, penalties
and other sanctions as a result of
such investigations.
developments with respect to the
customer financing or extended payment
terms that we provide our customers.
■ We have operations in a number of
countries and, consequently, risk facing
complex tax issues and disputes and
could be obligated to pay additional taxes
in various jurisdictions.
■ Our actual or anticipated performance,
among other factors, could reduce our
ability to utilize our deferred tax assets.
■ We may be unable to retain, motivate,
develop and recruit appropriately
skilled employees.
■ We may face problems or disruptions
in our manufacturing, service creation,
delivery, logistics or supply chain.
Additionally, adverse events may have a
profound impact on production sites or
the production sites of our suppliers,
which are geographically concentrated.
■ An unfavorable outcome of litigation,
arbitrations, agreement-related disputes
or product liability-related allegations
against our business could have a material
adverse effect on us.
■ We may not be able to optimize our capital
structure as planned and re-establish
our investment grade credit rating or
otherwise improve our credit ratings.
■ We may be unable to achieve targeted
benefits from, or successfully implement,
planned transactions or transactions may
result in liabilities.
■ We are involved in joint ventures and are
exposed to risks inherent to companies
under joint management.
■ Performance failures of our partners,
as well as failures to agree to partnering
arrangements with third parties could
adversely affect us.
■ The carrying amount of our goodwill
may not be recoverable.
NOKIA IN 2016
73
Board review
Shares and
share capital
Nokia has one class of shares.
Each Nokia share entitles the
holder to one vote at General
Meetings of Nokia.
As of December 31, 2016, the total number
of Nokia shares was 5 836 055 012 and our
share capital equaled EUR 245 896 461.96.
As of December 31, 2016, Nokia and its
subsidiary companies owned a total of
115 551 878 Nokia shares, representing
approximately 2% of the total number of
the shares and voting rights of the company.
In 2016, under an authorization held by
the Board, we issued in deviation from
shareholders’ pre-emptive rights to
subscription 1 842 158 031 shares in
exchange for the Alcatel Lucent ordinary
shares, ADSs and OCEANE convertible bonds
to effect the business combination with
Alcatel Lucent. The number of shares issued
consisted of 1 831 136 063 new shares and
11 021 968 treasury shares.
In 2016, under the authorization held by
the Board, we issued a total of 3 408 437
treasury shares to our employees, including
certain members of the Group Leadership
Team, as settlement under Nokia's
equity-based incentive plans. The shares
were issued without consideration and in
accordance with the plan rules. Additionally,
we issued a total of 40 451 treasury shares to
employees of former Alcatel Lucent in order
to fulfill Nokia’s obligations under the liquidity
agreements entered into by Nokia and some
beneficiaries of Alcatel Lucent employee
equity compensation arrangements. The total
number of treasury shares issued represented
5.9% of the total number of shares and the
total voting rights as of December 31, 2016.
The issuances did not have a significant effect
on the relative holdings of the other Nokia
shareholders, or on their voting power.
In 2016, we issued 1 033 265 new shares
following the holders of stock options
issued in 2011 and 2012 exercising their
option rights.
On November 15, 2016, in line with the
previously announced EUR 7 billion capital
structure optimization program, the Board
resolved to commence a share repurchase
program under the authorization granted by
the Nokia Annual General Meeting on June 16,
2016. The Board resolved to repurchase a
maximum of 575 million Nokia shares up to an
equivalent of EUR 1 billion. The program and
the authorization granted by the Nokia Annual
General Meeting on June 16, 2016 are valid
until December 16, 2017. Refer to “—Liquidity
and capital resources—Capital structure
optimization program”.
In 2016, we repurchased a total of 54 296 182
shares, representing 0.9% of the total number
of shares and voting rights. The price paid for
the shares was based on the current market
price of the Nokia share on the securities
market at the time of the repurchase.
Information on the authorizations held
by the Board in 2016 to issue shares and
special rights entitling to shares, to transfer
shares and repurchase own shares, as well
as information on related party transactions,
the shareholders, stock options, shareholders’
equity per share, dividend yield, price per
earnings ratio, share prices, market
capitalization, share turnover and average
number of shares is available in the
“Corporate Governance—Compensation”,
“Financial Statements”, “General facts
on Nokia—Shares and shareholders” and
“General facts on Nokia—Related party
transactions” sections.
Refer to Note 20, Shares of the Parent
Company, of our consolidated financial
statements included in this annual report for
further information regarding Nokia shares.
74
NOKIA IN 2016
Board of Directors
and management
Pursuant to the Articles of
Association of Nokia Corporation,
our Board is composed of
a minimum of seven and a
maximum of 12 members. The
Board is elected at least annually
at the Annual General Meeting
of the shareholders for a term
ending at the end of the next
Annual General Meeting, which
convenes annually by June 30.
The Board has responsibility for appointing
and discharging the President and CEO, the
Chief Financial Officer and other members
of the Group Leadership Team.
For information on remuneration, shares
and stock options held by the members of
the Board, the President and CEO and the
other members of the Group Leadership
Team, refer to “Corporate governance—
Compensation”. For more information
regarding corporate governance at Nokia,
refer to “Corporate governance—Corporate
governance statement” or to our website
at http://www.nokia.com/en_int/investors/
corporate-governance.
Articles of
Association
Our Articles of Association are available on
our website www.nokia.com/en_int/investors/
corporate-governance. Amendment of the
Articles of Association requires a resolution
of the general meeting of shareholders,
supported by two-thirds of the votes cast and
two-thirds of the shares represented at the
meeting. For information on our Articles of
Association, refer to “General facts on Nokia—
Memorandum and Articles of Association”.
Our Articles of Association include provisions
for obligation to redeem. Amendment of
the provisions of Article 13 of the Articles of
Association, “Obligation to purchase shares”,
requires a resolution supported by three-
quarters of the votes cast and three-quarters
of the shares represented at the meeting.
Board of Directors, Nokia Corporation
March 23, 2017
NOKIA IN 2016
75
Board review Corporate
governance
76
NOKIA IN 2016
Contents
Corporate governance statement
Regulatory framework
Main corporate governance
78
78
bodies of Nokia
78
General meeting of shareholders 78
Board of Directors
79
Group Leadership Team and
President and CEO
Risk management, internal
control and internal audit
functions at Nokia
Main features of risk
management systems
Description of internal control
procedures in relation to the
financial reporting process
Description of the organization
85
90
90
90
of the internal audit function 90
Main procedures relating to
insider administration
Auditor fees and services
Audit Committee pre-approval
policies and procedures
Compensation
Remuneration governance
Remuneration policy
Remuneration Report
91
91
91
92
92
94
102
NOKIA IN 2016
77
Corporate governance Corporate governance statement
This corporate governance
statement is prepared in
accordance with Chapter 7,
Section 7 of the Finnish
Securities Markets Act (2012/746,
as amended) and the Finnish
Corporate Governance Code
2015 (the “Finnish Corporate
Governance Code”).
Regulatory framework
Our corporate governance practices
comply with Finnish laws and regulations
as well as with our Articles of Association.
We also comply with the Finnish Corporate
Governance Code, available at
www.cgfinland.fi, with the following exception:
In 2016, we complied with the Finnish
Corporate Governance Code, with the
exception that we were not in full compliance
with recommendation 24, because our
restricted share plans did not include
performance criteria but were time-based
only. The restricted shares vest in three equal
tranches on the first, second and third
anniversary of the award subject to continued
employment with Nokia. Restricted shares
were to be granted on a highly limited basis
and only in exceptional retention and
recruitment circumstances, primarily in the
United States, to ensure our ability to retain
and recruit talent vital to the future success
of the company. The restricted share plan
for 2017 is designed in a similar manner,
to be used on a limited basis for exceptional
purposes related to retention and
recruitment, primarily in the United States.
The Board approves, upon recommendation
from the Board’s Personnel Committee,
any long-term incentive compensation
and all equity plans, programs or similar
arrangements of significance that the
company establishes for its employees.
We comply with the corporate governance
standards of Nasdaq Helsinki, which are
applicable due to the listing of our shares on
the exchange. Furthermore, as a result of the
listing of our American Depositary Shares on
the New York Stock Exchange (the “NYSE”)
and our registration under the U.S. Securities
Exchange Act of 1934, we must comply
with the U.S. federal securities laws and
regulations, including the Sarbanes-Oxley
Act of 2002 as well as the rules of the NYSE,
in particular the corporate governance
standards under Section 303A of the NYSE
Listed Company Manual, which is available
at http://nysemanual.nyse.com/lcm/.
We comply with these standards to the extent
such provisions are applicable to foreign
private issuers.
To the extent any non-domestic rules would
require a violation of the laws of Finland, we
are obliged to comply with Finnish law. There
are no significant differences in the corporate
governance practices applied by Nokia
compared to those applied by United States
companies under the NYSE corporate
governance standards, with the exception
that Nokia complies with Finnish law with
respect to the approval of equity
compensation plans. Under Finnish law, stock
option plans require shareholder approval at
the time of their launch. All other plans that
include the delivery of company stock in the
form of newly issued shares or treasury
shares require shareholder approval at the
time of the delivery of the shares, unless
shareholder approval has been granted
through an authorization to the Board, a
maximum of five years earlier. The NYSE
corporate governance standards require that
the equity compensation plans be approved
by a company’s shareholders. Nokia aims to
minimize the necessity for, or consequences
of, conflicts between the laws of Finland
and applicable non-domestic corporate
governance standards.
The Board has also adopted corporate
governance guidelines (“Corporate
Governance Guidelines”) to reflect our
commitment to good corporate governance.
Our Corporate Governance Guidelines are
available on our website at http://www.nokia.
com/en_int/investors/corporate-governance.
Main corporate governance
bodies of Nokia
Pursuant to the provisions of the Finnish
Limited Liability Companies Act (2006/624,
as amended) (the “Finnish Companies Act”)
and Nokia’s Articles of Association, the control
and management of Nokia are divided among
the shareholders at a general meeting, the
Board, the President and CEO and the Group
Leadership Team, chaired by the President
and CEO.
General meeting of shareholders
The shareholders may exercise their
decision-making power and their right
to speak and ask questions at the general
meeting of shareholders. Each Nokia share
entitles a shareholder to one vote at general
meetings of Nokia. Pursuant to the Finnish
Companies Act, an Annual General Meeting
must convene annually by June 30.
The Annual General Meeting decides,
among other things, on the election and
remuneration of the Board, the adoption of
the annual accounts, the distribution of profit
shown on the balance sheet, and discharging
the members of the Board and the President
and CEO from liability, as well as on the
election and fees of the external auditor.
In addition to the Annual General Meeting,
an Extraordinary General Meeting shall be
convened when the Board considers such
meeting to be necessary, or when the
provisions of the Finnish Companies Act
mandate that such a meeting must be held.
78
NOKIA IN 2016
The Board has adopted principles concerning
Board diversity describing (a) our commitment
to promoting diverse Board composition and
(b) how diversity is embedded into our
processes and practices when identifying
and proposing new Board candidates as well
as re-election of current Board members.
At Nokia, Board diversity consists of a number
of individual elements, including gender,
age, nationality, cultural and educational
backgrounds, skills and experience. At Nokia
diversity is not a static concept, but rather
a relevant mix of required elements for the
Board as a whole that evolves with time
based on, among other things, the relevant
business objectives and future needs of
Nokia. Board diversity is treated as a means
of improvement and development rather
than an end in itself.
Nokia acknowledges and supports the
resolution adopted by the Finnish Government
on February 17, 2015 on gender equality on
the boards of directors of Finnish large and
mid-cap listed companies. Accordingly, we
aim to have representation of 40% of both
genders in our Board by January 1, 2020
by proposing a corresponding Board
composition for shareholder approval in the
Annual General Meeting of 2019, at the latest.
At the Annual General Meeting on June 16,
2016, Carla Smits-Nusteling was elected to
the Board after which the gender balance of
the Board was 78% male and 22% female.
After Vivek Badrinath’s resignation from the
Board on July 29, 2016, the gender balance
of the Board has been 75% male and 25%
female. We report annually our objectives
relating to both genders being represented
on our Board, the means to achieve them, and
the progress we have made in achieving them.
Corporate governance framework
General Meeting of Shareholders
External
audit
Board of Directors
Audit Committee
Personnel Committee
Corporate Governance and
Nomination Committee
Internal
audit
Group Leadership Team
President and CEO
Board of Directors
The operations of Nokia are managed
under the direction of the Board, within the
framework set by the Finnish Companies Act
and Nokia’s Articles of Association as well as
any complementary rules of procedure as
defined by the Board, such as the Corporate
Governance Guidelines and the charters
of the Board’s committees.
Election and composition of the
Board of Directors
Pursuant to the Articles of Association of
Nokia Corporation, we have a Board that
is composed of a minimum of seven and
a maximum of 12 members. The Board is
elected at least annually at each Annual
General Meeting with a simple majority of
the shareholders’ votes cast at the meeting.
The term of a Board member shall begin at
the closing of the general meeting at which
he or she was elected, or later as resolved by
the general meeting, and expire at the closing
of the following Annual General Meeting.
The Annual General Meeting convenes by
June 30 annually.
The Annual General Meeting held on June 16,
2016 elected the following nine members
to the Board: Vivek Badrinath, Bruce Brown,
Louis R. Hughes, Jean C. Monty, Elizabeth
Nelson, Olivier Piou, Risto Siilasmaa, Carla
Smits-Nusteling and Kari Stadigh. Vivek
Badrinath subsequently resigned on July 29,
2016 since when the Board has consisted
of eight members.
Our Board’s leadership structure consists of
a Chair and Vice Chair elected annually by the
Board, and confirmed by the independent
directors of the Board, from among the Board
members upon the recommendation of the
Corporate Governance and Nomination
Committee. On June 16, 2016, the Board
elected Risto Siilasmaa to continue to serve as
the Chair and Olivier Piou as the Vice Chair of
the Board. The Chair of the Board has certain
specific duties as stipulated by Finnish law and
our Corporate Governance Guidelines. The
Vice Chair of the Board assumes the duties of
the Chair of the Board in the event he or she is
prevented from performing his or her duties.
We do not have a policy concerning the
combination or separation of the roles of the
Chair of the Board and the President and CEO,
but the leadership structure is dependent
on our needs, shareholder value and other
relevant factors applicable from time to time,
while respecting the highest corporate
governance standards. In 2016, Rajeev Suri
served as the President and CEO, while Risto
Siilasmaa served as the Chair of the Board.
The current members of the Board are all
non-executive. For the term of the Board
that began at the Annual General Meeting on
June 16, 2016, all Board member candidates
were determined to be independent under
the Finnish corporate governance standards
and the rules of the NYSE.
NOKIA IN 2016
79
Corporate governance Corporate governance statement continued
Louis Hughes
b. 1949
Nokia Board member since 2016.
Member of the Audit Committee.
Elizabeth Nelson
b. 1960
Nokia Board member since 2012.
Chair of the Audit Committee.
Members of the
Board of Directors
Set forth below are
the current members
of the Board and
their biographical
details. Information
about the share
ownership of the Board
members is disclosed
in the Remuneration
Statement, refer to “—
Compensation” below.
Chair Risto Siilasmaa
b. 1966
Chair of the Nokia Board. Board
member since 2008. Chair since
2012. Chair of the Corporate
Governance and Nomination
Committee.
Master of Science (Eng.), Helsinki
University of Technology, Finland.
President and CEO of F-Secure
Corporation 1988–2006.
Chairman of the Board
of Directors of F-Secure
Corporation. Chairman of the
Board of Directors of the
Federation of Finnish Technology
Industries. Member of the Board
of Directors of the Confederation
of Finnish Industries (EK).
Member of European Roundtable
of Industrialists.
Chairman of the Board of
Directors of Elisa Corporation
2008–2012. Member of the
Board of Directors of Alcatel
Lucent SA 2016.
80
Vice Chair Olivier Piou
b. 1958
Vice Chair of the Nokia Board.
Board member and Vice Chair
since 2016. Member of the
Personnel Committee and the
Corporate Governance and
Nomination Committee.
Degree in Engineering, École
Centrale de Lyon, France.
Chief Executive Officer of
Gemalto N.V. 2006–2016. Chief
Executive Officer of Axalto N.V.
2004–2006. With Schlumberger
1981–2004, including numerous
management positions in the
areas of technology, marketing
and operations, in France and
the United States.
Member of the Board of Directors
of Gemalto N.V. Member of the
Board of Directors of ErYoch
SARL. Member of the Board of
Directors of Alcatel Lucent SA
2008–2016.
Bruce Brown
b. 1958
Nokia Board member since 2012.
Chair of the Personnel
Committee. Member of the
Corporate Governance and
Nomination Committee.
Master’s Degree in Business
Administration, Harvard
University, Graduate School
of Business, the United States.
Bachelor of Mechanical
Engineering, General Motors
Institute, now Kettering
University, the United States.
President & Chief Operating
Officer of Lockheed Martin in
2000. Executive Vice President
of General Motors Corporation
1992–2000. President of General
Motors International Operations
1992–1998. President of General
Motors Europe 1992–1994.
Chairman of InZero Systems
(formerly GBS Laboratories)
(the United States). Independent
director and member of the
Audit Committee of AkzoNobel.
Independent director and
chairman of the Audit, Finance
and Compliance Committee of
ABB. Executive advisor partner
of Wind Point Partners.
Member of the Board of Directors
of Alcatel Lucent SA 2008–2016.
MBA (Marketing and Finance),
Xavier University, the United
States. BS (Chemical Engineering),
Polytechnic Institute of New York
University, the United States.
Jean Monty
b. 1947
Nokia Board member since 2016.
Member of the Personnel
Committee.
Retired from The Procter &
Gamble Company in 2014. Chief
Technology Officer of the Procter
& Gamble Company 2008–2014.
Various executive and managerial
positions in Baby Care, Feminine
Care, and Beauty Care units of
The Procter & Gamble Company
since 1980 in the United States,
Germany and Japan.
Member of the Board of Directors
of Agency for Science, Technology
& Research (A*STAR) in Singapore.
Member of the Board of
Directors, the Audit Committee
and the Nominating and
Corporate Governance
Committee of P. H. Glatfelter
Company. Member of the Board
of Directors, the Audit Committee
and the Compensation
Committee of Medpace, Inc.
Bachelor of Arts, Collège
Sainte-Marie de Montréal,
Canada. Master of Arts in
Economics, University of
Western Ontario, Canada. Master
of Business Administration,
University of Chicago, the
United States.
Chairman of the Board and Chief
Executive Officer of Bell Canada
Enterprises until 2002. President
and Chief Executive Officer of
Nortel Networks Corporation
beginning in 1993.
Member of the Boards of
Directors of Bombardier
and Fiera Capital Inc.
Member of the Board of Directors
of Alcatel Lucent SA 2008–2016.
MBA (Finance), the Wharton
School, University of
Pennsylvania, the United States.
BS (Foreign Service), Georgetown
University, the United States.
Executive Vice President and
Chief Financial Officer,
Macromedia, Inc. 1997–2005.
Vice President, Corporate
Development, Macromedia, Inc.
1996–1997. Various roles in
Corporate Development
and International Finance,
Hewlett-Packard Company
1988–1996.
Chairman of the Board of
Directors of DAI. Independent
Lead Director and Chair of the
Audit Committee of Zendesk Inc.
Member of the Board of Directors
and Chair of the Audit Committee
of Pandora Media.
Member of the Boards of
Directors of Brightcove, Inc.
2010–2014, SuccessFactors, Inc.
2007–2012 and Ancestry.com,
Inc. 2009–2012.
Carla Smits-Nusteling
b. 1966
Nokia Board member since 2016.
Member of the Audit Committee.
Master’s Degree in Business
Economics, Erasmus University
Rotterdam, the Netherlands.
Executive Master of Finance
and Control, Vrije University
Amsterdam, the Netherlands.
Member of the Board of Directors
and Chief Financial Officer of
KPN 2009–2012. Various financial
positions in KPN 2000–2009.
Various financial and operational
positions in TNT/PTT Post
1990–2000.
Member of the Supervisory Board
since 2013 and Chair of the Audit
Committee of ASML. Member of
the Board of Directors since 2013
and Chair of the Audit Committee
of TELE2 AB. Member of the
Management Board of the
Unilever Trust Office since 2015.
Lay Judge in the Enterprise Court
of the Amsterdam Court of
Appeal since 2015.
NOKIA IN 2016
The following individuals served
on the Board until the close
of the Annual General Meeting
held on June 16, 2016, or later
if indicated.
Simon Jiang
b. 1953
Board member 2015–2016.
Served as a member of the
Personnel Committee until June
16, 2016.
Jouko Karvinen
b. 1957
Board member 2011–2016.
Served as a member of the Audit
Committee and the Corporate
Governance and Nomination
Committee until June 16, 2016.
Vivek Badrinath
until July 29, 2016
b. 1969
Board member 2014–2016.
Served as a member of the Audit
Committee until July 29, 2016.
Kari Stadigh
b. 1955
Group CEO and President of
Sampo plc. Nokia Board member
since 2011. Member of the
Personnel Committee and the
Corporate Governance and
Nomination Committee.
Master of Science (Eng.), Helsinki
University of Technology, Finland.
Bachelor of Business
Administration, Hanken School
of Economics, Helsinki, Finland.
Deputy CEO of Sampo plc
2001–2009. President of Sampo
Life Insurance Company Limited
1999–2000. President of Nova
Life Insurance Company Ltd
1996–1998. President and
COO of Jaakko Pöyry Group
1991–1996.
Member of the Board of Directors
and Chair of the Board’s Risk
Committee of Nordea Bank AB
(publ). Chairman of the Board of
Directors of If P&C Insurance
Holding Ltd (publ) and Mandatum
Life Insurance Company Limited.
Member of the Board of Directors
of the Federation of Finnish
Financial Services. Member of the
Board of Directors of Waypoint
Capital Group Holdings Ltd.
Member of the Board of Directors
of Niilo Helanderin Säätiö.
Chair Risto Siilasmaa
Vice Chair Olivier Piou
Bruce Brown
Louis Hughes
Jean Monty
Elizabeth Nelson
Carla Smits-Nusteling
Kari Stadigh
NOKIA IN 2016
81
Corporate governance Corporate governance statement continued
In risk management policies and processes,
the Board’s role includes risk analysis and
assessment in connection with financial,
strategy and business reviews, updates and
decision-making proposals. Risk management
policies and processes are integral parts of
Board deliberations and risk-related updates
are provided to the Board on a recurring basis.
For a more detailed description of our risk
management policies and processes, refer
to “—Risk management, internal control
and internal audit functions at Nokia—Main
features of risk management systems” below.
The Board has the responsibility for
appointing and discharging the President and
CEO and the other members of the Group
Leadership Team. Since May 2014, Rajeev Suri
has served as the President and CEO. His
rights and responsibilities include those
allotted to the President under Finnish law
and he also chairs the Group Leadership Team.
Subject to the requirements of Finnish law,
the independent directors of the Board
confirm the compensation and terms of
employment of the President and CEO upon
the recommendation of the Personnel
Committee of the Board. The compensation
and employment conditions of the other
members of the Group Leadership Team
are approved by the Personnel Committee
upon the recommendation of the President
and CEO.
The Board has three committees: the Audit
Committee, the Corporate Governance and
Nomination Committee and the Personnel
Committee. These committees assist
the Board in its duties pursuant to their
respective committee charters. The
independent directors of the Board elect
the members and chairs of the Board’s
committees from among the Board’s
independent directors based on the
recommendation of the Corporate
Governance and Nomination Committee
and based on each committee’s member
qualification standards. The Board may also
establish ad hoc committees for detailed
reviews or consideration of particular topics
to be proposed for the approval of the Board.
In line with our Corporate Governance
Guidelines, the Board conducts annual
performance evaluations, which also include
evaluations of the Board committees’ work as
well as the Board and Committee Chairs and
individual Board members. In 2016, the Board
conducted an evaluation process consisting of
self-evaluations and peer evaluations, as well
as interviews. The evaluation process included
both numeric assessments and the possibility
to provide more detailed written comments.
The feedback from selected members of
management was also requested as part of
this evaluation process. The results of the
evaluation are discussed and analyzed by
the entire Board and improvement actions
are agreed based on such discussion.
Operations of the Board of Directors
The Board represents and is accountable
to the shareholders of Nokia. The Board’s
responsibilities are active, not passive, and
include the responsibility to evaluate the
strategic direction of Nokia, its management
policies and the effectiveness of the
implementation of such by the management
on a regular basis. It is the responsibility of the
members of the Board to act in good faith and
with due care, so as to exercise their business
judgment on an informed basis, in a manner
which they reasonably and honestly believe
to be in the best interests of Nokia and its
shareholders. In discharging that obligation,
the members of the Board must inform
themselves of all relevant information
reasonably available to them. The Board and
each Board committee also have the power to
appoint independent legal, financial or other
advisers as they deem necessary from time
to time.
The Board is ultimately responsible for
monitoring and reviewing Nokia’s financial
reporting process, effectiveness of related
control and audit functions and the
independence of Nokia’s external auditor,
as well as for monitoring the statutory audit
of the annual and consolidated financial
statements. The Board’s responsibilities
also include overseeing the structure
and composition of our top management
and monitoring legal compliance and
the management of risks related to our
operations. In doing so, the Board may set
annual ranges and/or individual limits for
capital expenditures, investments and
divestitures and financial commitments
that may not be exceeded without separate
Board approval.
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NOKIA IN 2016
Meetings of the Board of Directors
The Board held 27 meetings excluding committee meetings during 2016, of which approximately 30% were regularly scheduled meetings held
in person, complemented by meetings via video or conference calls or by other means. Additionally, in 2016, the non-executive directors held
meetings regularly without management in connection with Board meetings. Also, the independent directors held one separate meeting in 2016.
Directors’ attendance at Board meetings, including committee meetings but excluding meetings among the non-executive directors or
independent directors only, in 2016 is set forth in the table below:
Vivek Badrinath (until July 29, 2016)
Bruce Brown
Elizabeth Doherty (until January 8, 2016)
Louis Hughes (from January 8, 2016)
Simon Jiang (until June 16, 2016)
Jouko Karvinen (until June 16, 2016)
Jean Monty (from January 8, 2016)
Elizabeth Nelson
Olivier Piou (from January 8, 2016)
Risto Siilasmaa
Carla Smits-Nusteling (from June 16, 2016)
Kari Stadigh
(1) Until June 16, 2016
(2) From June 16, 2016
Additionally, many of the directors attended,
as non-voting observers, in meetings of a
committee of which they were not a member.
According to Board practices, the
non-executive directors meet without
management in connection with each regularly
scheduled meeting. Such sessions are chaired
by the non-executive Chair of the Board. If the
non-executive Chair of the Board is unable
to chair these meetings, the non-executive
Vice Chair of the Board chairs the meeting.
Additionally, the independent directors meet
separately at least once annually.
All the directors who served on the Board for
the term until the close of the Annual General
Meeting in 2016, except Jouko Karvinen and
Simon Jiang, attended Nokia’s Annual General
Meeting held on June 16, 2016. The Finnish
Corporate Governance Code recommends
that the Chair and members of the Board and
the President shall be present at the general
meeting of shareholders to ensure the
possibility for the shareholders to exercise
their right to present questions to both the
Board and management.
Board
meetings
%
100
100
100
96
71
85
96
93
96
100
100
96
Audit
Committee
meetings
%
100
Corporate
Governance
and Nomination
Committee
meetings
%
Personnel
Committee
meetings
%
100
100
100
80
100(1)
100
100
75
100(2)
88
100
85
100
85
Committees of the Board of Directors
The Audit Committee consists of a minimum
of three members of the Board who meet all
applicable independence, financial literacy
and other requirements as stipulated by
Finnish law, the rules of Nasdaq Helsinki and
the NYSE. From June 16, 2016, the Audit
Committee consisted of the following four
members of the Board: Elizabeth Nelson
(Chair), Vivek Badrinath, Louis Hughes and
Carla Smits-Nusteling. Since Vivek Badrinath’s
resignation from the Board on July 29, 2016,
the Audit Committee has consisted of the
following three members: Elizabeth Nelson
(Chair), Louis Hughes and Carla Smits-Nusteling.
The Audit Committee is established by the
Board primarily for the purpose of oversight
of the accounting and financial reporting
processes of Nokia and the audits of its
financial statements. The Committee is
responsible for assisting the Board in the
oversight of:
■ the quality and integrity of the company’s
financial statements and related disclosures;
■ the statutory audit of the company’s
financial statements;
■ the external auditor’s qualifications and
independence;
■ the performance of the external auditor
subject to the requirements of Finnish law;
■ the performance of the company’s
internal controls and risk management
and assurance function;
■ the performance of the internal audit
function; and
■ the company’s compliance with legal and
regulatory requirements, including the
performance of its ethics and compliance
program. The Committee also maintains
procedures for the receipt, retention and
treatment of complaints received by the
company regarding accounting, internal
controls, or auditing matters and for the
confidential, anonymous submission by
our employees of concerns relating to
accounting or auditing matters. Nokia’s
disclosure controls and procedures, which
are reviewed by the Audit Committee and
approved by the President and CEO and the
Chief Financial Officer, as well as the internal
controls over financial reporting, are
designed to provide reasonable assurance
regarding the quality and integrity of the
company’s financial statements and
related disclosures.
For further information on internal control
over financial reporting, refer to “—Risk
management, internal control and internal
audit functions at Nokia—Description of
internal control procedures in relation to
the financial reporting process” below.
NOKIA IN 2016
83
Corporate governance Corporate governance statement continued
The Committee fulfills its responsibilities by:
■ actively identifying individuals qualified to
be elected members of the Board as well as
considering and evaluating the appropriate
level and structure of director remuneration;
■ preparing the proposal to the shareholders
on the director nominees for election at
the general meetings as well as director
remuneration;
■ monitoring significant developments in the
law and practice of corporate governance
and of the duties and responsibilities of
directors of public companies;
■ assisting the Board and each Committee
of the Board in its annual performance
evaluations, including establishing criteria
to be applied in connection with
such evaluations;
■ developing and recommending to the
Board and administering Nokia’s Corporate
Governance Guidelines; and
■ reviewing Nokia’s disclosure in the
corporate governance statement.
Under Finnish law, an external auditor is
elected by shareholders by a simple majority
vote at the Annual General Meeting for one
year at a time. The Audit Committee prepares
the proposal to the shareholders, upon
its evaluation of the qualifications and
independence of the external auditor, of the
nominee for election or re-election. Under
Finnish law, the fees of the external auditor are
also approved by the shareholders by a simple
majority vote at the Annual General Meeting.
The Committee prepares the proposal to the
shareholders in respect of the fees of the
external auditor, and approves the external
auditor’s annual audit fees under the guidance
given by the Annual General Meeting. For
information about the fees paid to Nokia’s
external auditor, PricewaterhouseCoopers Oy,
during 2016, refer to the “—Auditor fees
and services” below.
In discharging its oversight role, the Audit
Committee has full access to all company
books, records, facilities and personnel. The
Committee may appoint counsel, auditors or
other advisers in its sole discretion, and must
receive appropriate funding, as determined
by the Audit Committee, from Nokia for
the payment of compensation to such
outside advisers.
The Board has determined that all members
of the Audit Committee, including its Chair,
Elizabeth Nelson, are “audit committee
financial experts” as defined in the
requirements of Item 16A of the annual report
on Form 20-F filed with the U.S. Securities and
Exchange Commission (“SEC”). Ms. Nelson
and each of the other members of the Audit
Committee are “independent directors” as
defined by Finnish law and Finnish Corporate
Governance Code and in Section 303A.02 of
the NYSE Listed Company Manual.
The Audit Committee meets a minimum
four times a year based upon a schedule
established at the first meeting following
the appointment of the Committee. The
Committee meets separately with the
representatives of Nokia’s management,
heads of the internal audit, and ethics and
compliance functions, and the external
auditor in connection with each regularly
scheduled meeting. The head of the
internal audit function has, at all times,
direct access to the Audit Committee,
without the involvement of management.
The Audit Committee held eight (8) meetings
in 2016. The average attendance at the
meetings was 97%. Additionally, any director
who so wishes may attend meetings of the
Audit Committee as a non-voting observer.
The Corporate Governance and Nomination
Committee consists of three to five
members of the Board who meet all applicable
independence requirements as stipulated by
Finnish law, the rules of Nasdaq Helsinki and
the NYSE. From June 16, 2016, the Corporate
Governance and Nomination Committee has
consisted of the following four members
of the Board: Risto Siilasmaa (Chair),
Bruce Brown, Olivier Piou and Kari Stadigh.
The Corporate Governance and Nomination
Committee’s purpose is to prepare the
proposals for the general meetings in
respect of the composition of the Board and
the director remuneration to be approved
by the shareholders, and to monitor
issues and practices related to corporate
governance and to propose necessary
actions in respect thereof.
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NOKIA IN 2016
The Committee has the power to appoint
recruitment firms or advisers to identify
appropriate candidates. The Committee may
also appoint counsel or other advisers, as it
deems appropriate from time to time. The
Committee has the sole authority to appoint
or terminate the services of such firms or
advisers and to review and approve such
firm’s or adviser’s fees and other retention
terms. It is the Committee’s practice to
appoint a recruitment firm to identify new
director candidates.
The Corporate Governance and Nomination
Committee held seven (7) meetings in 2016.
The average attendance at the meetings
was 93%. Additionally, any director who so
wishes may attend meetings of the Corporate
Governance and Nomination Committee as
a non-voting observer.
The Personnel Committee consists of a
minimum of three members of the Board
who meet all applicable independence
requirements as stipulated by Finnish law, the
rules of Nasdaq Helsinki and the NYSE. From
June 16, 2016, the Personnel Committee has
consisted of the following four members of
the Board: Bruce Brown (Chair), Jean Monty,
Olivier Piou and Kari Stadigh.
The primary purpose of the Personnel
Committee is to oversee the personnel-related
policies and practices at Nokia, as described
in the Committee charter. It assists the
Board in discharging its responsibilities in
relation to all compensation, including equity
compensation, of the company’s executives
and their terms of employment. The
Committee has overall responsibility
for evaluating, resolving and making
recommendations to the Board regarding:
■ compensation of the company’s top
executives and their terms of employment;
■ all equity-based plans;
■ incentive compensation plans, policies
and programs of the company affecting
executives; and
■ other significant incentive plans.
The Committee is responsible for overseeing
compensation philosophy and principles and
ensuring the above compensation programs
are performance-based, and designed
to contribute to long-term shareholder
value creation and alignment to shareholders’
interests, properly motivate management,
and support overall corporate strategies.
The Personnel Committee held nine (9)
meetings in 2016. The average attendance
at the meetings was 93%. Additionally,
any director who so wishes may attend
meetings of the Personnel Committee
as a non-voting observer.
Further information
The Corporate Governance Guidelines
concerning the directors’ responsibilities, the
composition and election of the members of
the Board, its committees and certain other
matters relating to corporate governance are
available on our website at http://www.nokia.
com/en_int/investors/corporate-governance.
We have a Code of Conduct that is applicable
to all of our employees, directors and
management and, in addition, we have a
Code of Ethics applicable to the President and
CEO, Chief Financial Officer and Corporate
Controller. These documents and the charters
of the Audit Committee, the Corporate
Governance and Nomination Committee and
the Personnel Committee are available on our
website at http://www.nokia.com/en_int/
investors/corporate-governance.
Group Leadership Team and the President
and CEO
We have a Group Leadership Team that is
responsible for the operative management of
Nokia. The Chair and members of the Group
Leadership Team are appointed by the Board.
The Group Leadership Team is chaired by the
President and CEO. The President and CEO’s
rights and responsibilities include those
allotted to the President under Finnish law.
NOKIA IN 2016
85
Corporate governance Corporate governance statement continued
Rajeev Suri
Members of the Nokia
Group Leadership Team
Set forth below are the current
and appointed members of the
Group Leadership Team and their
biographical details. Information
about the shares and share-
based rights of the members of
the Group Leadership Team is
disclosed in the Remuneration
Statement; refer to “—
Compensation” below.
During 2016 and thereafter, the
following new appointments were
made to the Group Leadership
Team:
■ Federico Guillén was appointed
the President of Fixed Networks
and member of the Group
Leadership Team as of January
8, 2016;
■ Basil Alwan was appointed the
President of IP/Optical Networks
and member of the Group
Leadership Team as of January
8, 2016;
■ Bhaskar Gorti was appointed the
President of Applications &
Analytics and member of the
Group Leadership Team as of
January 8, 2016;
■ Hans-Jürgen Bill was appointed
the Chief Human Resources
Officer and member of the
Group Leadership Team as of
January 8, 2016;
■ Kathrin Buvac was appointed the
Chief Strategy Officer
and member of the Group
Leadership Team as of
January 8, 2016;
■ Ashish Chowdhary was
appointed the Chief Customer
Operations Officer and member
of the Group Leadership Team
as of January 8, 2016;
■ Barry French was appointed
the Chief Marketing Officer
and member of the Group
Leadership Team as of
January 8, 2016;
■ Marc Rouanne was appointed
the Chief Innovation &
Operating Officer and member
of the Group Leadership Team
as of January 8, 2016, and
President of Mobile Networks
as of April 1, 2017;
■ Maria Varsellona was
appointed the Chief Legal
Officer and member of the
Group Leadership Team as
of January 8, 2016;
■ Kristian Pullola was appointed
the Chief Financial Officer
and member of the Group
Leadership Team as of
January 1, 2017;
■ Igor Leprince was appointed
the President of Global Services
and member of the Group
Leadership Team as of
April 1, 2017;
■ Monika Maurer was appointed
Chief Operating Officer and
member of the Group
Leadership Team as of
April 1, 2017; and
■ Marcus Weldon was appointed
Chief Technology Officer and
President of Nokia Bell Labs,
and member of the Group
Leadership Team as of
April 1, 2017.
Further, during 2016 and
thereafter, the following
members of the Group
Leadership Team resigned:
■ Ramzi Haidamus, formerly
President of Nokia Technologies,
stepped down from the
Group Leadership Team
as of August 31, 2016;
■ Timo Ihamuotila, formerly
Chief Financial Officer,
stepped down from the
Group Leadership Team as
of December 31, 2016; and
■ Samih Elhage, President of
Mobile Networks, will step down
from the Group Leadership
Team as of March 31, 2017.
Rajeev Suri
b. 1967
President and Chief Executive
Officer of Nokia Corporation.
Chair of the Nokia Group
Leadership Team since 2014.
Joined Nokia in 1995.
Bachelor of Engineering
(Electronics and
Communications), Manipal
Institute of Technology,
Karnataka, India.
CEO, Nokia Solutions and
Networks 2009–2014. Head of
Services, Nokia Siemens Networks
2007–2009. Head of Asia Pacific,
Nokia Siemens Networks April
2007. Senior Vice President,
Nokia Networks Asia Pacific
2005–2007. Vice President,
Hutchison Customer Business
Team, Nokia Networks
2004–2005. General Manager,
Business Development, Nokia
Networks Asia Pacific 2003. Sales
Director–BT, O2 and Hutchison
Global Customers, Nokia
Networks 2002. Director,
Technology and Applications, BT
Global Customer, Nokia Networks
2000–2001. Head of Global
Competitive Intelligence, Nokia
Networks 1999–2000. Head of
Product Competence Center,
Nokia Networks South Asia
1997–1999. System Marketing
Manager, Cellular Transmission,
Nokia Networks India 1995–1997.
Head of Group Procurement,
imports and special projects,
Churchgate Group, Nigeria
1993–1995. National Account
Manager–Transmission/Manager–
Strategic Planning, ICL India (ICIM)
1990–1993. Production Engineer,
Calcom Electronics 1989.
Member of the Board of Directors
of Alcatel Lucent SA 2016.
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NOKIA IN 2016
Kathrin Buvac
b. 1980
Chief Strategy Officer. Group
Leadership Team member since
2016. Joined Nokia Siemens
Networks in 2007.
Ashish Chowdhary
b. 1965
Chief Customer Operations
Officer. Group Leadership Team
member since 2016. Joined Nokia
in 2003.
Degree in Business Information
Systems from University of
Cooperative Education, Germany.
Bachelor Degree in Business
Administration from Open
University, London, the
United Kingdom.
MBA, Wharton School, University
of Pennsylvania, Philadelphia,
the United States. MS Computer
Science, Emory University,
Atlanta, the United States. BA
Mathematics from University of
Delhi, India.
Executive Vice President and
Chief Business Officer at Nokia
Networks 2015–2016. Head of
Customer Operations Asia, Middle
East & Africa (AMEA), Nokia
Networks 2011–2015. Head of
Global Services, Nokia Siemens
Networks 2009–2010. Head of
Managed Services, Nokia Siemens
Networks 2007–2009. Country
Head India, Nokia Networks
2003–2007. Vice President for
Enterprise Business, Hughes
Communications Ltd 2000–2003
and 1994–1998. Software and
Project Engineer, Hughes Network
Systems 1989–1993. Teaching
Assistant, Computer Science,
Emory University 1987–1989.
Vice President, Corporate
Strategy, Nokia Networks
2014–2016. Chief of staff to
the CEO, Nokia Solutions and
Networks 2011–2013. Head of
Strategic Projects, Business
Solutions, Nokia Siemens
Networks 2009–2011. General
Manager, Integration Programme,
Nokia Siemens Networks
2007–2009. General Manager,
Corporate Audit, Siemens Holding
S.p.A. 2006–2007. Head of
Controlling International
Businesses, Siemens
Communications 2003–2006.
Head of Performance Controlling
USA, Siemens Communications
2002–2003. Business Process
Manager Global IT Strategy,
Siemens Communications
2001–2002. Business Analyst,
EADS Aerospace and Defence
1999–2000.
Basil Alwan
Hans-Jürgen Bill
Kathrin Buvac
Ashish Chowdhary
Basil Alwan
b. 1962
President of IP/Optical Networks.
Group Leadership Team member
since 2016. Joined Nokia in 2016.
Bachelor in Computer
Engineering, University of Illinois
at Urbana-Champaign, the
United States.
Previously President of IP Routing
and Transport, Alcatel Lucent
2012–2016. President of IP
Division, Alcatel Lucent
2003–2012. Founder, President
and CEO, TiMetra Networks
2000–2003. Vice President and
General Manager, Bay Networks
(acquired by Nortel) Enterprise
Products Division (EPD)
1997–2000. Vice President of
Product Management and
Marketing, Rapid City
Communications 1996–1997.
Hans-Jürgen Bill
b. 1960
Chief Human Resources Officer.
Group Leadership Team member
since 2016. Joined Nokia Siemens
Networks in 2007.
Diploma in Telecommunications
from the University of Deutsche
Bundespost, Dieburg/Darmstadt,
Germany. Diploma in Economics
from the University of Applied
Sciences, Pforzheim, Germany.
Executive Vice President, Human
Resources, Nokia Corporation
2014–2016. Head of Human
Resources, NSN 2009–2014.
Head of West South Europe
region, NSN 2007–2009. Head of
Asia Pacific for Mobile Networks,
Siemens 2003–2007. Head of
Operations for Mobile Networks,
Siemens 2001–2003. Head of
Region Central-East and North
Europe for Mobile Networks,
Siemens 1998–2001. Head of
Mobile Networks in Indonesia,
Siemens 1994–1998. Various
management positions, Siemens
1983–1994.
NOKIA IN 2016
87
Corporate governance Corporate governance statement continued
Samih Elhage
b. 1961
President of Mobile Networks until
March 31, 2017. Group Leadership
Team member since 2014. Joined
Nokia Siemens Networks in 2012.
Bachelor of Electrical
Engineering (telecommunications),
University of Ottawa, Canada.
Bachelor of Economics,
University of Ottawa, Canada.
Master of Electrical Engineering
(telecommunications), École
Polytechnique de Montréal, Canada.
Chief Financial and Operating
Officer, Nokia Networks
2013–2016. Chief Operating
Officer, NSN 2012–2013.
Senior Advisor, leading private
equity and global management
consulting firms 2011–2012.
President, Carrier Voice over IP
and Applications Solutions (CVAS)
division, Nortel 2008–2010.
Leadership positions in
Operations, Business
Transformation, Broadband
Networks, Optical Networks,
and Core Data Networks, Nortel
1998–2008. Multiple leadership
and management roles related
to network development at
Bell Canada 1990–1998.
Vice Chairman of the Board
of Directors of Alcatel-Lucent
Shanghai Bell.
Member of the Board of Directors
of Alcatel Lucent SA 2016.
Barry French
b. 1963
Chief Marketing Officer. Group
Leadership Team member since
2016. Joined Nokia in 2006.
Federico Guillén
b. 1963
President of Fixed Networks.
Group Leadership Team member
since 2016. Joined Nokia in 2016.
Samih Elhage
Master’s Degree in International
Affairs from Columbia University’s
School of International and Public
Affairs, New York, the United
States. Bachelor of Arts degree in
Political Science, Bates Colleges,
Lewiston, Maine, the United States.
Chief Marketing Officer and
Executive Vice President,
Marketing and Corporate
Affairs, Nokia 2014–2016.
Head of Marketing and
Corporate Affairs, Nokia Siemens
Networks 2010–2014. Head
of Communications, Nokia
Siemens Networks 2006–2010.
Vice President, Corporate
Communications, United Airlines
2004–2006. Director, Corporate
Communications, Dell 2000–2004.
Additional roles included
communications, government
relations and management
positions, Engineering Animation,
Raytheon, KRC Research and the
Sawyer/Miller Group.
Bhaskar Gorti
b. 1966
President of Applications &
Analytics. Group Leadership
Team member since 2016.
Joined Nokia in 2016.
Master’s degree in Electrical
Engineering from Virginia
Polytechnic Institute and State
University, Blacksburg, the United
States. Bachelor’s degree in
Technology and Electrical
Engineering from National
Institute of Technology,
Warangal, India.
Previously President of IP
Platforms, Alcatel Lucent
2015–2016. Senior Vice
President and General Manager,
Communications Global Business
Unit, Oracle 2006–2015. Senior
Vice President, Portal Software
2002–2006.
Degree in Telecommunications
Engineering, ETSIT at Universidad
Politécnica de Madrid, Spain.
Master’s degree in Switching &
Communication Architectures,
ETSIT at Universidad Politécnica
de Madrid, Spain. Master’s Degree
in International Management,
ESC Lyon and Alcatel, France.
President of Fixed Networks,
Alcatel Lucent 2013–2016.
President and CEO of Alcatel
Lucent Spain & Global Account
Manager Telefonica, Alcatel
Lucent 2009–2013. Vice
President Sales of Vertical Market
Sales in Western Europe, Alcatel
Lucent 2009. Head of Regional
Support Centre within Alcatel
Lucent’s Fixed Access Division for
South Europe, MEA, India and
CALA 2007–2009. CEO, Alcatel
Mexico & Global Account Manager,
Telmex 2003–2007. Various R&D,
Portfolio and Sales Management
Positions, Telettra and then
Alcatel in Spain, Belgium and U.S.
1989–2003.
Igor Leprince
b. 1971
President of the Global Services.
Group Leadership Team member
as of April 1, 2017. Joined Nokia
Siemens Networks in 2007.
Master’s degree in
Telecommunications and Network
Engineering, E.N.S.T. Paris, France.
Bachelor’s and Master’s degree in
Computer Science and Systems
and Networks, University Paris 7,
Paris, France.
Executive Vice President, Global
Services, Nokia since 2014. Senior
Vice President and Head of Middle
East & Africa, Nokia Networks
2011–2014. Vice President, Head
of Care, Global Services, Nokia
Siemens Networks 2010–2011.
Vice President, Head of Network
Planning & Optimization,
Global Services, Nokia Siemens
Networks 2007–2010. Senior
Vice president, LCC International
2007. Managing Director EMEA,
WFI 2005–2007.
Barry French
Bhaskar Gorti
Federico Guillén
Igor Leprince
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NOKIA IN 2016
Monika Maurer
Kristian Pullola
Marc Rouanne
Maria Varsellona
Marcus Weldon
Marc Rouanne
b. 1963
Chief Innovation & Operating
Officer until March 31, 2017 and
President of Mobile Networks
as of April 1, 2017. Group
Leadership Team member since
2016. Joined Nokia Siemens
Networks in 2008.
Ph.D. in Information Theory from
University of Notre Dame, Indiana,
the United States. Engineering
degree in Signal Processing from
Supélec, France. Degree in
Computer Science from
Université d’Orsay, France.
Executive Vice President, Mobile
Broadband, Nokia Networks
2011–2016. Head of Network
Systems, Nokia Siemens Networks
2010–2011. Head of Radio
Access, Nokia Siemens Networks
2008–2009. Executive Vice
President of Alcatel, President
of Convergence Business Group,
Alcatel Lucent 2006–2008. Chief
Operating Officer, then President
Wireless Business Group, then
Executive Vice President, Alcatel
2003–2006. VP positions, then
Chief Operating Officer, then
President Wireless Business
Division, Alcatel 1997–2003.
R&D and Engineering Director
positions, Matra and Nortel
Matra Cellular 1988–1997.
Chairman of the Board of
Directors of Alcatel Lucent SA
2016.
Monika Maurer
b. 1956
Senior Vice President, Chief
Operating Officer. Group
Leadership Team member as of
April 1, 2017. Joined Nokia in
2016.
Diploma in Physics and Chemistry,
the University of Stuttgart,
Germany. Diploma in Pedagogy,
State University for Pedagogic,
Stuttgart, Germany.
Chief Operating Officer, Fixed
Networks Business Group, Nokia
2016–2017. Chief Operating
Officer, Fixed Networks Business
Line, Alcatel Lucent 2012–2016.
Vice President Presales Europe,
Middle East & Africa, Alcatel
Lucent 2010–2012. President,
Product Attached Services
Division, Alcatel Lucent
2009–2010. Executive Vice
President Supply Chain and
Procurement, Alcatel Shanghai
Bell 2006–2008.
Kristian Pullola
b. 1973
Chief Financial Officer. Group
Leadership Team member since
2017. Joined Nokia in 1999.
Master of Science (Economics),
the Hanken School of Economics,
Helsinki, Finland. Finance diploma,
the Stockholm School of
Economics, Stockholm, Sweden.
Senior Vice President, Corporate
Controller, Nokia 2011–2016.
Vice President, Treasury &
Investor Relations, Nokia
2009–2011. Vice President,
Corporate Treasurer, Nokia
2006–2008. Director, Treasury
Finance & Control, Nokia
2003–2006. Various roles in Nokia
Treasury 1999–2003. Associate,
Citibank International
1998–1999.
Member of the Board of Directors
of Ilmarinen Mutual Pension
Insurance Company.
Maria Varsellona
b. 1970
Chief Legal Officer. Group
Leadership Team member since
2016. Joined Nokia Siemens
Networks in 2013.
Law Degree from University
of Palermo (Juris Doctor), Italy.
Executive Vice President and
Chief Legal Officer, Nokia
2014–2016. General Counsel,
NSN 2013–2014. Tetra Pak Group
General Counsel, Tetra Laval
Group 2011–2013. Sidel Group
General Counsel, Tetra Laval
Group 2009–2011. Senior
Counsel Commercial Operations
and Global Services, GE Oil & Gas
2006–2009. Senior Counsel
Europe, Hertz Europe
2005–2006. Senior Counsel
Global Services, GE Oil & Gas
2001–2005. Lawyer, Pini
Birmingham & Partners
1998–2001. Lawyer, Greco Law
Firm 1994–1998.
Member of the Board of Directors
of Nordea Bank AB.
Member of the Board of Directors
of Alcatel Lucent SA 2016.
Marcus Weldon
b. 1968
Senior Vice President, Corporate
Chief Technology Officer and
President of Nokia Bell Labs.
Group Leadership Team member
as of April 1, 2017. Joined Nokia
in 2016.
Ph.D (Physical Chemistry) degree,
Harvard University, Cambridge,
Massachusetts, United States.
Bachelor of Science (Computer
Science and Chemistry) joint
degree, King’s College, London,
United Kingdom.
Corporate Chief Technology
Officer and President of Bell Labs,
Alcatel Lucent (then Nokia)
2013–2016. Corporate Chief
Technology Officer, Alcatel Lucent
2009–2013. Chief Technology
Officer, Broadband Networks &
Solutions, Alcatel Lucent
2006–2009. Member of
Technical Staff, Bell Labs, Lucent
Technologies 1997–2006.
NOKIA IN 2016
89
Corporate governance Corporate governance statement continued
Risk management, internal control
and internal audit functions at Nokia
Main features of risk management systems
We have a systematic and structured approach to risk management
across business operations and processes. Key risks and opportunities
are primarily identified against business targets either in business
operations or as an integral part of financial planning. Key risks and
opportunities are analyzed, managed, monitored and identified as
part of business performance management with the support of risk
management personnel. Our overall risk management concept is
based on managing the key risks that would prevent us from meeting
our objectives, rather than solely focusing on eliminating risks. The
principles documented in the Nokia Enterprise Risk Management
Policy, which is approved by the Audit Committee of the Board, require
risk management and its elements to be integrated into key processes.
One of the main principles is that the business or function head is also
the risk owner, although all employees are responsible for identifying,
analyzing and managing risks, as appropriate, given their roles and
duties. Risk management covers strategic, operational, financial and
hazard risks. Key risks and opportunities are reviewed by the Group
Leadership Team and the Board in order to create visibility of business
risks as well as to enable prioritization of risk management activities.
In addition to the principles defined in the Nokia Enterprise Risk
Management Policy, specific risk management implementation is
reflected in other key policies.
The Board’s Audit Committee is responsible for, among other matters,
risk management relating to the financial reporting process and
assisting the Board’s oversight of the risk management function.
Overseeing risk is an integral part of Board deliberations. The Board’s
role in overseeing risk includes risk analysis and assessment in
connection with financial, strategy and business reviews, updates and
decision-making proposals. Additionally, certain significant risks are
selected as priority risks that are monitored by the Board regularly.
We have an Enterprise Risk Management (“ERM”) function within the
Chief Financial Officer organization. ERM regularly reviews risk
evaluations with the internal controls function, and the internal
controls function utilized the ERM analysis in planning its priority areas.
Description of internal control procedures in relation
to the financial reporting process
The management is responsible for establishing and maintaining
adequate internal control over financial reporting for Nokia. Our
internal control over financial reporting is designed to provide
reasonable assurance to the management and the Board regarding
the reliability of financial reporting and the preparation and fair
presentation of published financial statements.
The management conducts a yearly assessment of Nokia’s internal
controls over financial reporting in accordance with the Committee of
Sponsoring Organizations framework (the “COSO framework”, 2013)
and the Control Objectives for Information and related technology of
internal controls. The assessment is performed based on a top-down
risk assessment of our financial statements covering significant
accounts, processes and locations, corporate-level controls and
information systems’ general controls.
As part of its assessment the management has documented:
■ the corporate-level controls, which create the “tone from the top”
containing the Nokia values and Code of Conduct and which provide
discipline and structure to decision-making processes and ways of
working. Selected items from our operational mode and governance
principles are separately documented as corporate-level controls;
■ the significant processes, structured under so-called financial
cycles. Financial cycles have been designed to: (i) give a complete
end-to-end view of all financial processes; (ii) identify key control
points; (iii) identify involved organizations; (iv) ensure coverage
for important accounts and financial statement assertions; and
(v) enable internal control management within Nokia;
■ the control activities, which consist of policies and procedures to
ensure the management’s directives are carried out and the related
documentation is stored according to our document retention
practices and local statutory requirements; and
■ the information systems’ general controls to ensure that sufficient
IT general controls, including change management, system
development and computer operations, as well as access and
authorizations, are in place.
Further, the management has also:
■ assessed the design of the controls in place aimed at mitigating
the financial reporting risks;
■ tested operating effectiveness of all key controls; and
■ evaluated all noted deficiencies in internal controls over financial
reporting in the interim and as of year end.
In 2016, Nokia has followed the procedures as described above and
has reported on the progress and assessments to the management
and to the Audit Committee of the Board on a quarterly basis.
However, our assessment of the operating effectiveness of internal
controls as of year end has excluded the business acquired through
the Acquisition of Alcatel Lucent, on January 4, 2016 and continue to
integrate into the company. This exclusion is in accordance with the
SEC’s guidance that a recently acquired business may be omitted
from the scope of the assessment in the year of acquisition.
Refer to “General facts on Nokia—Controls and Procedures”.
Description of the organization of the internal audit function
We also have an internal audit function that acts as an independent
appraisal function by examining and evaluating the adequacy and
effectiveness of our system of internal control. Internal audit reports
to the Audit Committee of the Board. The head of the internal
audit function has direct access to the Audit Committee, without
involvement of the management. Internal Audit staffing levels and
annual budget are approved by the Audit Committee. All authority
of the internal audit function is derived from the Board. Internal
audit aligns to the business regionally and by business and function.
Annually, an internal audit plan is developed with input from the
management, including key business risks and external factors.
This plan is approved by the Audit Committee of the Board. Audits are
completed across the business focused on country level, customer
level, IT system implementation, IT security, operations activities or
at a Group function level. The results of each audit are reported to
the management identifying issues, financial impact, if any, and
the correcting actions to be completed. Quarterly, internal audit
communicates the progress of the internal audit plan completion,
including the results of the closed audits.
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NOKIA IN 2016
Audit Committee pre-approval
policies and procedures
The Audit Committee of the Board is responsible, among other
matters, for oversight of the external auditor subject to the
requirements of Finnish law. The Audit Committee has adopted a
policy regarding pre-approval of audit services performed by the
external auditors of Nokia Group (including the principal auditor as
well as any other auditor of a Nokia Group company) and permissible
non-audit services performed by the principal external auditor of
the Nokia Group (the “Pre-approval Policy”).
Under the Pre-approval Policy, proposed services either: (i) may be
pre-approved by the Audit Committee in accordance with certain
service categories described in appendices to the Pre-approval Policy
(“general pre-approval”); or (ii) require the specific pre-approval of the
Audit Committee (“specific pre-approval”). The Audit Committee may
delegate either type of pre-approval authority to one or more of its
members. The appendices to the Pre-approval Policy set out the audit,
audit-related, tax and other services that have received the general
pre-approval of the Audit Committee. All other audit, audit-related
(including services related to internal controls and significant mergers
and acquisitions projects), tax and other services are subject to
specific pre-approval by the Audit Committee. All service requests
concerning generally pre-approved services will be submitted to an
appointed Audit Committee delegate within management, who will
determine whether the services are within the services generally
pre-approved. The Pre-approval Policy and its appendices are subject
to annual review by the Audit Committee.
The Audit Committee establishes budgeted fee levels annually for
each of the four categories of audit and non-audit services that
are pre-approved under the Pre-approval Policy, namely, audit,
audit-related, tax and other services. Requests or applications to
provide services that require specific approval by the Audit Committee
are submitted to the Audit Committee by both the external auditor
and the appointed Audit Committee delegate within management.
At each regular meeting of the Audit Committee, the auditor provides a
report in order for the Audit Committee to review the services that the
auditor is providing, as well as the status and cost of those services.
Internal audit also works closely with our Ethics and Compliance office
to review any financial concerns brought to light from various channels
and, where possible, works with Enterprise Risk Management to ensure
priority risk areas are reviewed through audits.
In 2016, the internal audit plan was completed and all results of
these reviews were reported to the management and to the Audit
Committee of the Board.
Main procedures relating to insider administration
Our insider administration is organized according to the applicable
European Union and Finnish laws and regulations as well as the Nokia
Insider Policy which sets out Group-wide rules and practices. The policy
is applicable to all Nokia insiders as well as to all our employees.
Our insider administration’s responsibilities include internal
communications related to insider matters and arrangement of
related trainings; organizing and maintaining our insider registers;
and overseeing the compliance with the insider rules.
Auditor fees and services
PricewaterhouseCoopers Oy has served as our auditor for each of the
fiscal years in the three-year period ended December 31, 2016. The
auditor is elected annually by our shareholders at the Annual General
Meeting for the fiscal year in question. The Audit Committee of the
Board prepares the proposal to the shareholders in respect of the
appointment of the auditor based upon its evaluation of the
qualifications and independence of the auditor to be proposed
for election or re-election on an annual basis.
The following table presents fees by type paid to
PricewaterhouseCoopers for the years ended December 31:
EURm
Audit fees(1)
Audit-related fees(2)
Tax fees(3)
All other fees(4)
Total
2016
31.3
1.8
3.4
–
36.5
2015
13.5
3.1
1.2
0.6
18.4
(1) Audit fees consist of fees incurred for the annual audit of the Group’s consolidated financial
statements and the statutory financial statements of the Group’s subsidiaries.
(2) Audit-related fees consist of fees billed for assurance and related services that are reasonably
related to the performance of the audit or review of the Group’s financial statements or that are
traditionally performed by the independent auditor, and include consultations concerning
financial accounting and reporting standards; advice on tax accounting matters; advice and
assistance in connection with local statutory accounting requirements; due diligence related
to mergers and acquisitions; employee benefit plan audits and reviews; and audit procedures in
connection with investigations in the pre-litigation phase and compliance programs. They also
include fees billed for other audit services, which are those services that only the independent
auditor can reasonably can provide, and include the provision of comfort letters and consents
in connection with statutory and regulatory filings and the review of documents filed with the
SEC and other capital markets or local financial reporting regulatory bodies.
(3) Tax fees include fees billed for: (i) services related to tax compliance including preparation and/or
review of tax returns, preparation, review and/or filing of various certificates and forms and
consultation regarding tax returns and assistance with revenue authority queries; customs
duties reviews and advice; compliance reviews, advice and assistance on other indirect taxes;
and transaction cost analysis; (ii) service related to tax audits; (iii) services related to individual
compliance (preparation of individual tax returns and registrations for employees (non-executives),
assistance with applying visa, residency, work permits and tax status for expatriates); (iv) services
related to technical guidance on tax matters; (v) services related to transfer pricing advice and
assistance with tax clearances; and (vi) tax consultation and planning (advice on stock-based
remuneration, local employer tax laws, social security laws, employment laws and compensation
programs and tax implications on short-term international transfers).
(4) Other fees include fees billed for company establishments; liquidations; forensic accounting,
data security, other consulting services and reference materials and services.
NOKIA IN 2016
91
Corporate governance Compensation
This section sets out our remuneration policies,
how they have been implemented within Nokia,
and includes our Remuneration Report where we
provide disclosure of the compensation of our
Board, the President and CEO and aggregated
compensation information for the Group
Leadership Team. We report information related
to executive compensation in accordance
with Finnish regulatory requirements and with
requirements set forth by the U.S. Securities
and Exchange Commission.
Following the Acquisition of Alcatel Lucent, we focused on the
following management and personnel-related objectives:
■ creation of the new Group Leadership Team;
■ alignment of compensation practices and legacy arrangements
with Nokia’s needs;
■ business continuity during integration; and
■ culture integration as we combined the two companies, aiming
to keep the “best of both” companies.
Separately, we took the opportunity to further enhance our
compensation disclosures with the intention of simplifying and
further increasing transparency. To achieve this and to make the
information more useful for our stakeholders, we separated our
report into three sections:
(1) remuneration governance;
(2) remuneration policies; and
(3) Remuneration Report.
In 2016, our Group Leadership Team grew larger following the
Acquisition of Alcatel Lucent and we witnessed the impact of our
remuneration policies aligning with the performance of the company:
■ annual bonuses were down at 40% compared to 2015, reflecting
tough market conditions; and
■ the Chair of the Board of Directors and the President and CEO
reinforced their commitment to Nokia and the share ownership
policy by investing directly in Nokia shares.
In 2016, the President and CEO received EUR 7.5 million, which was
triggered by the vesting of the remaining 2012 Nokia Networks equity
incentive plan awards, representing reward for the transformation
of the former Nokia Siemens Networks to what today forms the
foundation of our business.
Remuneration governance
We manage our remuneration through clearly defined processes,
with well-defined governance principles, ensuring that no individual
is involved in the decision-making process related to their own
remuneration and that there is appropriate oversight of any
compensation decision. Remuneration of the Board is annually
presented to shareholders for approval at the Annual General
Meeting and the remuneration of the President and CEO is approved
by the Board.
The General Meeting of shareholders
■ Shareholders approve the composition of the Board and the
director remuneration based on proposals of the Board’s
Corporate Governance and Nomination Committee, which actively
considers and evaluates the appropriate level and structure
of director remuneration. The composition of the Board and
director remuneration are resolved by a majority vote of the
shareholders represented at the General Meeting and determined
as of the date of the General Meeting, until the close of the next
Annual General Meeting.
■ Shareholders authorize the Board to resolve to issue shares, for
example, to settle the company’s equity-based incentive plans
based on the proposal of the Board.
The Board of Directors
■ Approves, and the independent members of the Board confirm, the
compensation of the President and CEO, upon recommendation
of the Personnel Committee;
■ Approves, upon recommendation of the Personnel Committee, any
long-term incentive compensation and all equity plans, programs or
similar arrangements of significance that the company establishes
for its employees; and
■ Decides on the issuance of shares (under authorization by
shareholders) to fulfill the company’s obligations under equity
plans in respect of vested awards to be settled.
The Personnel Committee
The Personnel Committee assists the Board in discharging its
responsibilities relating to all compensation, including equity
compensation, of the company’s executives and the terms of
employment of the executives.
■ In respect of the President and CEO, the Committee is accountable
to the Board for:
– reviewing and recommending to the Board the goals and
objectives relevant to compensation;
– evaluating and presenting to the Board the assessment
of performance in light of those goals and objectives; and
– proposing to the Board the total compensation based on
this evaluation.
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NOKIA IN 2016
■ In respect of the other members of the Group Leadership Team
(other than the President and CEO) and the direct reports to the
President and CEO in Vice President-level positions and above,
the Committee:
– reviews and approves the goals and objectives relevant to the
compensation, upon recommendation of the President and CEO;
– reviews the results of the evaluation of the performance in
relation to the approved goals and objectives. The Committee
approves the incentive compensation based on such evaluation;
– approves and oversees the total compensation recommendations
made by the President and CEO; and
– reviews and approves compensation proposals made by the
President and CEO in the event of termination of employment
of a member of the Group Leadership Team.
■ The Committee reviews periodically and makes recommendations
to the Board regarding any equity programs, plans and other
long-term incentive compensation arrangements, or similar
arrangements of significance that the company establishes for,
or makes available to, its employees, the appropriateness of the
allocation of benefits under the plans and the extent to which
the plans are meeting their intended objectives.
■ The Committee reviews and resolves, at their discretion, any
other significant compensation arrangements applicable to the
wider executive population in the Nokia Group.
■ The Committee will report to the Board at least annually on its
views as to whether the President and CEO is providing the
necessary leadership for the company in the long and short term.
■ The Committee reviews and discusses with management on
compensation philosophy, strategy, principles, and management
compensation to be included in our Remuneration Report.
■ The Committee reviews annually the company’s share ownership
policy to determine the appropriateness of the policy against its
stated objectives.
■ The Committee has the power, in its sole discretion, to retain
compensation consultants having special competence to assist
the Personnel Committee in evaluating director and executive
compensation.
■ The Committee reviews and approves changes to the company’s
peer group for the assessment of the competitiveness of our
compensation from time to time.
The committee consults regularly with the President and CEO and
the Chief Human Resources Officer though they are not present
when their own compensation is reviewed or discussed.
Work of the Personnel Committee
The Personnel Committee convened five (5) times during 2016 with a
general theme for each meeting. The discussion and timing of certain
remuneration-related elements was unique in 2016, given the specific
needs following the Acquisition of Alcatel Lucent and any associated
integration-related matters, as required:
D E C
JAN
N O V
F
E
B
T
C
O
S
E
P
4
3
A
U
G
JUL
J U N
1
2
M
A
R
R
P
A
M AY
1 Approvals & reporting
2 Philosophy & structure
3 Long-term direction & market review
4 Planning
January:
■ Achievement review
■ Budget approval for 2016
Nokia equity program and
performance review for 2014
performance share plan
■ Employee engagement and
organizational health review
March:
■ Review of 2015 short-term
incentive program
achievement and performance
■ Target setting for 2016
short-term incentive program
■ Review of 2015 annual report
May:
Setting the long-term
incentive target
Review of:
■ succession;
■ diversity;
■ policy; and
■ annual compensation.
September:
Compensation strategy and
philosophy review
Update on:
■ market and legal environment;
and
■ adviser market practices.
Talent summit outcomes
November:
Review of:
■ framework for short-term
incentive program for 2017;
■ framework for long-term
incentive program for 2017;
■ risks;
■ annual report for 2016; and
■ peer group for 2017.
NOKIA IN 2016
93
Corporate governance
Compensation continued
The President and CEO
The President and CEO has an active role in the compensation
governance and performance management processes for the Group
Leadership Team and the wider employee population at Nokia.
The President and CEO is not a member of the Personnel Committee
and does not vote at Personnel Committee meetings, nor does he
participate in any conversations regarding his own compensation.
Advisers
The Personnel Committee retains the use of Aon, an independent
external consultant appointed in 2015, to assist in the review and
determination of executive compensation and program design and
provide insight into market trends and regulatory developments.
The Personnel Committee has reviewed and established that Aon
is independent of Nokia and does not have any other business
relationships with Nokia.
Authorizations and resolutions of the Board
concerning remuneration
Valid authorizations
The Annual General Meeting held on June 16, 2016 resolved to
authorize the Board to resolve to issue a maximum of 1 150 million
shares through one or more issuances of shares or special rights
entitling to shares. The authorization may be used to develop
the company’s capital structure, diversify the shareholder base,
finance or carry out acquisitions or other arrangements, to settle
the company’s equity-based incentive plans or for other purposes
resolved by the Board.
The authorization is effective until December 16, 2017 and the
authorization terminated the earlier shareholder authorization
for the Board to issue shares and special rights entitling to shares
resolved at the Annual General Meeting on May 5, 2015. The
authorization did not terminate the authorization granted by the
Extraordinary General Meeting held on December 2, 2015 to the
Board for issuance of shares in order to implement the Acquisition
of Alcatel Lucent.
Board resolutions
On February 1, 2017, the Board approved the Nokia equity program
for 2017 and the issuance, without consideration, of a maximum
of 9.75 million Nokia shares held by the company in 2017 to settle its
commitments to Nokia’s equity plan participants. The Nokia equity
program for 2017 is explained in more detail below.
Remuneration policy
This section of our statement describes our remuneration policy
and the considerations taken into account when setting the policy.
Board of Directors
The objective of the Board’s Corporate Governance and Nomination
Committee is to ensure that Nokia is able to compete for top-of-class
Board competence when determining director remuneration in order
to maximize shareholder value. Therefore, it is the practice of the
Corporate Governance and Nomination Committee to review and
compare the total remuneration levels and their criteria paid in
other global companies with net sales, geographical coverage and
complexity of business comparable to that of Nokia’s. The Corporate
Governance and Nomination Committee’s aim is to ensure that
the company has an efficient Board consisting of international
professionals representing a diverse and relevant mix of skills and
experience. Nokia believes that a competitive Board remuneration
contributes to the achievement of this target.
Director remuneration at Nokia consists of an annual fee and a
meeting fee. Director remuneration for the term that began at the
Annual General Meeting held on June 16, 2016 and ends at the close
of the Annual General Meeting in 2017 consists of the following fees:
Annual fee
Chair
Vice Chair
Member
Chair of Audit Committee
Member of Audit Committee
Chair of Personnel Committee
Meeting fee/meeting(1)
Meeting requiring intercontinental travel
Meeting requiring continental travel
EUR
440 000
185 000
160 000
30 000
15 000
30 000
EUR
5 000
2 000
(1) Paid for a maximum of seven meetings per term. Not paid to the Chair of the Board.
Approximately 40% of the annual fee is paid in Nokia shares purchased
from the market or by using treasury shares. According to the
company’s policy, the directors shall retain until the end of their
directorship such number of shares that corresponds to the number
of shares they have received as Board remuneration during their
first three years of service on the Board (the net amount received
after deducting those shares needed to offset any costs relating to
the acquisition of the shares, including taxes). The shares shall be
purchased from the market on behalf of the directors, or, if treasury
shares are used, transferred to the directors, as soon as practicable
after the Annual General Meeting. The remainder of the annual fee is
payable in cash, most of which is typically used to cover taxes arising
from the paid remuneration.
A meeting fee for Board and Committee meetings is paid to all other
members of the Board except the Chair of the Board based on travel
required between the home location of the member of the Board and
the location of a meeting. Only one meeting fee is payable for multiple
Board and Committee meetings per eligible travel. The meeting fee is
paid for a maximum of seven meetings per term. The meeting fee is
paid in cash.
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NOKIA IN 2016
According to the company’s policy, non-executive directors do not
participate in any of Nokia’s equity programs and do not receive
performance shares, restricted shares or any other equity-based
or other form of variable compensation for their duties as members
of the Board.
Group Leadership Team
Our focus when considering policies related to remuneration of
the Group Leadership Team and other senior executives is to:
We aim to provide a globally competitive compensation offering,
which is comparable to that of our peer group companies, taking into
account industry, geography, size and complexity. The peer group
is reviewed annually and external advice is sought to confirm the
appropriateness of the peer group and also the quantum and the
relative mix of compensation packages. The peer group for 2016
is presented in the “—Remuneration Report” below.
In designing our variable compensation programs key consideration
is given to:
■ attract, retain and motivate the right people to lead Nokia;
■ incorporating specific performance measures that align directly
■ drive performance and appropriate behaviors; and
■ align the interests of the executives and results of our compensation
programs with the interests and returns of our shareholders.
Compensation philosophy, design and strategy
Our compensation programs are designed to attract, incentivize and
retain the talent necessary to deliver strong financial results to the
ultimate benefit of our shareholders. Rewards are tied to the execution
of our strategy by adopting an appropriate mix of fixed and variable
compensation to engage and motivate employees in the performance
of the business and ensure alignment with shareholder interests.
A single compensation framework is used across the Nokia Group
with a varying mix of fixed and variable compensation for each level
of responsibility. Higher levels of performance-based compensation
and equity compensation are used to reward executives for delivering
long-term sustainable growth and creating value for our shareholders.
with the execution of our strategy and driving long-term
sustainable success;
■ delivering an appropriate amount of performance-related variable
compensation for the achievement of strategic goals and financial
targets in both the short and long term;
■ appropriately balancing rewards between company and individual
performance; and
■ fostering an ownership culture that promotes sustainability and
long-term value creation that aligns the interests of participants
with those of our shareholders.
Compensation structure and target setting
In line with our overall compensation philosophy, our executives are rewarded using a mix of fixed and variable pay.
Targets for the short- and long-term incentive plans are set by the Board. The Board reviews business plans, external analysts’ expectations,
previous year’s performance and the overall macro-economic environment to arrive at suitable targets for the plans. The goal of target-setting
is equally to set achievable targets while also ensuring those targets are sufficiently demanding to create shareholder value.
The elements of the compensation structure for the President and CEO and the Group Leadership Team are further detailed below:
Element
Base salary
Purpose
To attract and retain the
best executives with the
requisite level of knowledge,
skills and experience to lead
our businesses and provide
a degree of financial
certainty and stability
to executives.
Philosophy
Fixed cash component targeted at our peer
group median. Base salary can vary from
the market average due to individual
performance, experience, time in position
and internal comparison. Base salaries are
reviewed annually taking into account
market conditions, our financial condition
and individual performance.
Short-term
incentives
To incentivize and reward
performance against
delivery of the annual
business plan.
All members of the Group Leadership Team
are eligible to receive a short-term incentive,
based on a set of pre-determined targets
linked to key metrics that drive sustainable
business performance and are designed to
reward a mix of corporate, business group
and individual performance goals.
Operation
Changes in base pay are determined based
on consideration of a variety of factors,
including, for example, the following:
■ performance by the member of the
Group Leadership Team;
■ changes in the market;
■ market positioning;
■ changes in individual responsibilities; and
■ average employee salary increases
across Nokia and in the local market.
Achievement is assessed at the end of the
year to determine payout.
Target short-term incentive awards,
when taken together with base salary, are
designed to provide a target annual cash
compensation comparable to that provided
by our peer group.
NOKIA IN 2016
95
Corporate governance Compensation continued
Element
Long-term
incentives
Purpose
To reward for delivery of
sustainable long-term
performance, align the
executives’ interests with
those of shareholders
and aid retention.
Benefits &
perquisites
To attract, retain and
protect executives.
Operation
The value of performance share awards is
determined by performance against preset
strategic targets of
■ net sales; and
■ earnings per share.
Targets are set in the context of the Nokia
long-term plans which are validated against
analyst forecasts ensuring that they are
considered both demanding of recipients
and motivational to them.
The target value of a long-term incentive
award depends on the recipient’s role in
the company and is set in the context of
award levels for comparable roles in the
wider market.
Benefits are determined by country of
employment and align with local practices
and regulatory requirements.
Philosophy
Long-term incentive awards are intended to
provide competitive incentive compensation
compared to our peer group when combined
with base salary and target short-term incentive.
Performance share awards are made annually.
They have a two-year performance period and
a one-year restriction period. The ultimate
value of an award depends on our share
price and business performance against
predetermined performance criteria.
Restricted shares are also used for
exceptional purposes related to retention and
recruitment. The number of shares vesting
is predetermined but the ultimate value will rise
or fall in line with movements in our share price.
There are also certain legacy equity
compensation programs in force as
described in “—Legacy equity compensation
programs” below.
Members of the Group Leadership Team are
provided with the same benefits as are made
available to employees more broadly in the
relevant country, with additional security
provisions, as appropriate.
Members of the Group Leadership Team may
also be provided with certain other benefits
from time to time, which are not material
in value.
Relocation
& mobility
To support the international
mobility of executives and
ensure the right people
are in the right location
to meet business needs.
Retirement
plans
To allow executives to
provide for their retirement
with a level of certainty.
Change
of control
arrangements
To ensure the continuity of
management in connection
with a possible change
of control event.
Benefits are provided with the intention
of maintaining the health and wellness
of our executives.
Members of the Group Leadership Team may be
offered support to cover additional costs related
to relocation. Mobility policies support the
relocation of an executive and their dependents
or the reasonable costs of commuting. Benefits
are market-specific and are not compensation
for performing the role but provided to defray
costs or additional burdens of a relocation or
residence outside the home country.
Taking into account our global executive
population, we provide retirement funding in line
with local market and regulatory requirements,
typically through defined contribution or locally
mandated pension plans. No supplemental
pension arrangements are provided in Finland.
Change of control arrangements are offered
on a very limited basis only and are based on
a double trigger structure, which means that
both a specified change of control event and
termination of the individual’s employment
must take place for any change of control-based
severance payment to materialize. Refer to
“—Termination provisions of the President
and CEO” and “—Termination provisions of the
Group Leadership Team”.
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NOKIA IN 2016
Payments to departing executives
In the event of a termination of employment, any payable
compensation is determined in line with legal advice regarding local
legislation, country policies, contractual obligations and the rules of
the applicable incentive and benefit plans. Refer to “—Termination
provisions of the President and CEO” and “—Termination provisions
of the Group Leadership Team”.
Recruitment
Our policy on recruitment is to offer a compensation package which
is sufficient to attract, retain and motivate individuals with the right
skills for the required role. On occasion, we may offer compensation
to buy out awards which the candidate held prior to joining Nokia,
but which lapsed upon the candidate leaving their previous employer.
Due consideration is given to the potential value and timing of such
awards, taking into account any conditions attached to the awards
and the likely performance against such conditions.
Clawback
Our executives are subject to a clawback policy where any restatement
of financial results may result in the reclaiming of amounts previously
paid which had been based on numbers which have since been
materially restated. Any such reclaimed amount, and the period
over which payments can be reclaimed, will take into account the
circumstances and duration of any misstatement.
Share ownership requirement
Nokia believes that it is desirable for its executives to own shares in
the company to align their interests with those of shareholders and to
ensure that their decisions are in the long-term interest of the company.
The President and CEO and members of the Group Leadership Team
are given a period of five years from their appointment in a designated
role to achieve the required level of share ownership as follows:
Role
President and CEO
Member of the Group Leadership Team
Share ownership
requirement
3 x base salary
2 x base salary
President and CEO
Compensation mix
To align the interests of the President and CEO with those of the
company’s shareholders, the compensation mix for the President and
CEO is heavily geared toward performance-based pay with only 16.5%
of core target compensation in 2016 consisting of fixed pay. Additionally,
the President and CEO receives incidental benefits and mobility support
and pension contributions are made in line with his participation in the
statutory Finnish pension system, as regulated by the Finnish Employees’
Pension Act (395/2006, as amended) (the “Finnish TyEL”).
The total remuneration of the President and CEO is thus dependent
on performance, as detailed opposite:
Variable pay of the President and CEO
The variable pay of the President and CEO is determined based on
performance against a mix of targets, either short- or long-term
in nature, depending on the strategic impact for the business.
Based on the Board’s assessment, the most appropriate metrics
for driving sustainable business performance at Nokia are:
■ non-IFRS revenue;
■ non-IFRS operating profit;
■ non-IFRS earnings per share; and
■ operating cash flow.
NOKIA IN 2016
2016 Pay mix
3
1
2
1 Base salary
2 Short-term incentive
3 Long-term incentive
16.51%
20.64%
62.85%
2016 Pay opportunity (EURm)
12.00
10.00
8.00
6.00
4.00
2.00
0.00
Min
Target
Max
Base salary
Short-term incentive
Long-term incentive
Incentive opportunity by metric (% of total variable pay)
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
Non-IFRS
revenue
Non-IFRS
EPS
Integration
synergies
Non-IFRS
operating
profit
Operating
cash flow
Personal
strategic
objectives
Short-term incentive
Long-term incentive
Non-IFRS measures exclude costs related to the Acquisition of Alcatel Lucent and related
integration, goodwill impairment charges, intangible asset amortization and other purchase
price fair value adjustments, restructuring and associated charges and certain other items.
97
Corporate governance
Compensation continued
The variable compensation focuses on these measures as well
as personal strategic objectives to support the strategic development
of Nokia, which is not necessarily measurable or easily measured
in purely financial terms.
Short-term incentives of the President and CEO
The short-term incentives for the President and CEO are based on the
achievement of key financial targets and other strategic objectives,
as defined below. Performance against these defined targets is then
multiplied by a business results multiplier, which acts as a funding
factor for the incentive plan for most employees, to determine the
final payment.
% of base salary
Minimum
performance
Target
performance
Maximum
performance
Measurement criteria
0%
125%
281.25%
80% of the incentive is based on performance against the Nokia scorecard:
■ non-IFRS revenue (⅓);
■ non-IFRS operating profit (⅓); and
■ operating cash flow (⅓).
The final 20% of the incentive is determined based on the achievement of personal strategic
objectives set for President and CEO by the Board.
Long-term incentives of the President and CEO
Long-term incentive awards are determined by reference to the
market and as a percentage of salary. The President and CEO
participates in the same long-term incentive arrangements as
other Nokia executives and senior executives. Long-term incentive
programs are described under “—Nokia Equity Program”.
Pension arrangements of the President and CEO
The President and CEO participates in the statutory Finnish pension
system, the Finnish TyEL, which provides for a retirement benefit
based on years of service and earnings according to prescribed rules
and regulations. No supplemental pension arrangements are provided.
Under the Finnish TyEL pension system, base pay, incentives and
other taxable fringe benefits are included in the definition of earnings,
while gains realized from equity are not. The retirement age for the
President and CEO is 65.
Termination provisions of the President and CEO
Termination provisions for the President and CEO’s service agreement specify alternatives for termination and associated compensation
in accordance with the following table:
Termination by
Nokia
Reason
Cause
Notice
None
Nokia
Reasons other
than cause
Up to 18 months
President and CEO Any reason
Six (6) months
President and CEO Nokia’s material
Up to 18 months
breach of the
service agreement
Compensation
The President and CEO is entitled to no additional compensation and all
unvested equity awards would be forfeited.
The President and CEO is entitled to a severance payment equaling up
to 18 months of compensation (including annual base salary, benefits,
and target incentive) and unvested equity awards would be forfeited.
The President and CEO may terminate his service agreement at any time
with six months’ prior notice. The President and CEO would continue to receive
either salary and benefits during the notice period or, at Nokia’s discretion,
a lump sum of equivalent value. Additionally, the President and CEO would
be entitled to any short- or long-term incentives that would normally vest
during the notice period. Any unvested equity awards would be forfeited.
In the event that the President and CEO terminates his service agreement
based on a final arbitration award demonstrating Nokia’s material breach
of the service agreement, he is entitled to a severance payment equaling to
up to 18 months of compensation (including annual base salary, benefits
and target incentive). Any unvested equity awards would be forfeited.
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NOKIA IN 2016
Termination provisions of the Group Leadership Team
In all cases, if an executive is dismissed for cause, no compensation
will be payable and no outstanding equity will vest.
In the event of termination by the company for any other reason
than cause, where the company pays compensation in lieu of notice
period salary, the benefits and target short-term incentive amounts
are taken into account.
Additionally, the Board believes that maintaining a stable and effective
leadership team is essential for protecting and enhancing the best
interests of Nokia and its shareholders. In order to encourage the
continued focus, dedication and continuity of the members of
the Group Leadership Team to their assigned duties without the
distraction that may arise from the possibility of termination of
employment as a result of a specified change of control event in Nokia,
certain provisions have been made available to them as appropriate
when certain change of control events occur.
Certain members of the Group Leadership Team received change of
control agreements related to the Acquisition of Alcatel Lucent that
expired on January 8, 2017, one year after the transaction completion.
These change of control agreements have not been renewed.
Certain members of the Group Leadership Team received change of
control agreements at the time of the integration of Nokia and Nokia
Siemens Networks which serve as an addendum to their executive
agreements and provide for the pro-rata settlement of outstanding
equity awards as follows. The change of control agreements are
based on a double trigger structure, which means that both a change
of control event and the termination of the Group Leadership
Team member’s employment must take place for any change of
control-based severance payment to materialize. More specifically, if a
change of control event, as defined in the agreement, has occurred in
the company, and the individual’s employment with the company is
terminated either by Nokia or its successor without cause, or by the
individual for “good reason” (e.g., material reduction of duties and
responsibilities), in either case within 18 months from such change of
control event, the individual will be entitled to his or her notice period
compensation (including base salary, benefits and target incentive)
and cash payment (or payments) for the pro-rated value of the
individual’s outstanding unvested equity, including restricted shares
and performance shares, payable pursuant to the terms of the
agreement. The Board has full discretion to terminate or amend the
change of control agreements at any time.
No new change of control clauses have been included in the service
agreements of executives who joined the Group Leadership Team
since January 1, 2016.
The President and CEO’s service agreement includes special severance
provisions in the event of a termination of employment following
a change of control event. Such change of control provisions are
based on a double trigger structure, which means that both a change
of control event and the termination of the President and CEO’s
employment within a defined period of time must take place in
order for any change of control-based severance payment to become
payable. More specifically, if a change of control event has occurred,
as defined in the service agreement, and the President and CEO’s
service with Nokia is terminated either by Nokia or its successor
without cause, or by the President and CEO for “good reason”, in
either case within 18 months from such change of control event,
the President and CEO would be entitled to a severance payment
equaling up to 18 months of compensation (including annual base
salary, benefits, and target incentive) and cash payment (or payments)
for the pro-rated value of his outstanding unvested equity awards,
restricted shares, performance shares and stock options (if any),
payable pursuant to the terms of the service agreement. “Good
reason” referred to above includes a material reduction of the
President and CEO’s compensation and a material reduction of his
duties and responsibilities, as defined in the service agreement and
as determined by the Board.
The President and CEO is subject to a 12-month non-competition
obligation that applies after the termination of the service
agreement or the date when he is released from his obligations
and responsibilities, whichever occurs earlier.
The Group Leadership Team
Remuneration of the Group Leadership Team
The remuneration of the members of the Group Leadership Team
(excluding the President and CEO) consists of base salary, fringe
benefits and short- and long-term incentives. The members of the
Group Leadership Team participate in the same reward programs,
including short- and long-term incentive programs and under the
same terms and conditions, as other eligible employees, although
the quantum and mix of their compensation vary by role and
individual. Short-term incentive plans are based on rewarding the
delivery of business performance and certain or all of the following
metrics as appropriate in light of the member’s role: non-IFRS revenue,
non-IFRS operating profit, operating cash flow and defined strategic
objectives. Long-term incentive programs are described under
“— Nokia Equity Program”.
Each member of the Group Leadership Team will have a mix of
Nokia level and business group targets based on a mix of revenue,
operating profit and operating cash flow depending on their role.
Personal strategic objectives of the members of the Group Leadership
Team account for up to 20% of their short-term incentive awards.
Pension arrangements of the Group Leadership Team
The members of the Group Leadership Team participate in the local
retirement plans applicable to employees in the country of residence.
Executives based in Finland participate in the statutory Finnish
pension system, as regulated by the Finnish TyEL. Refer to “—Pension
arrangements of the President and CEO” above.
Executives based outside Finland participate in arrangements relevant
to their location. Retirement plans vary by country and include defined
benefit, defined contribution and cash balance plans. The retirement
age for the members of Group Leadership Team varies between
60 and 65.
NOKIA IN 2016
99
Corporate governance Compensation continued
Nokia Equity Program
A key component of Group Leadership Team members’ and other executives’ compensation is equity-based long-term incentives with the
purpose of aligning the participants’ interests with those of shareholders. The amount of equity as a percentage of the compensation package
increases with the seniority of the role. As in previous years, the Nokia equity program 2017 includes the following equity instruments:
Eligible employees
Purpose
Vesting schedule
Performance shares
Grade based eligibility
Annual long-term incentive awards,
to reward delivery of sustainable
long-term performance, align with
the interests of shareholders and
aid retention of key employees
Two-year performance period based
on financial targets and one-year
restriction period
Restricted shares
Grade-based eligibility
Exceptional recruitment and retention Encourage share ownership within the
Nokia employee population, increasing
engagement and sense of ownership
in the company
Employee share purchase plan
Employees in participating countries
Vest equally in three tranches on the
1st, 2nd and 3rd anniversary of grant
Matching shares vest at the end of the
12-month savings period
Performance Shares
In accordance with the previous years’ practice, the primary equity instruments granted to executive employees and other eligible employees
are performance shares. The performance shares represent a commitment by Nokia to deliver Nokia shares to employees at a future point
in time, subject to our fulfillment of pre-defined performance criteria. Performance shares vest to participants after three years following
a two-year performance period based on financial targets and a subsequent one-year restriction period.
The Board has continued with the practice of the two-year performance period which gives greater predictability in a fast changing environment
and supports greater alignment of underlying achievement with payments. Targets are set in the context of the Board’s view of the future
business plans for Nokia, investor expectations and analyst forecasts and the Board will continue to review the suitability of the two-year
performance period for future years. The table below illustrates the performance criteria of the performance share plans for 2014 through
to 2017.
Performance criteria (non-IFRS)(1)
Annual net sales Nokia Group(2)
Average annual earnings per share, Nokia Group (diluted)
Minimum settlement at below threshold performance(3)
2017
Yes
Yes
–
2016
Yes
Yes
25%
2015
Yes
Yes
25%
2014
Yes
Yes
25%
(1) Non-IFRS measures exclude costs related to the Acquisition of Alcatel Lucent and related integration, goodwill impairment charges, intangible asset amortization and other purchase price fair value
adjustments, restructuring and associated charges and certain other items.
(2) The performance criteria of the performance share plan 2015 were restated in May 2016 to reflect the new organizational structure and scope of the Nokia Group. The restatement adjusts the net
sales and earnings per share performance targets to remove the impact related to the Sale of the HERE Business for the fourth quarter of 2015 following the sale of HERE in 2015 and restates the
2016 targets based on the combined Group following the Acquisition of Alcatel Lucent in January 2016. Net sales metric is weighted equally each year, instead of calculating average over the two-year
performance period due to significant difference between the metrics for Nokia in 2015 and the combined Group in 2016. For other years’ performance share plans, the criterion has been average
annual net sales for Nokia Group during the performance period.
(3) In 2014, a minimum payout level was introduced to reinforce the retentive impact of the plan by giving some certainty to remaining employees during the transformation of Nokia following the
Sale of the D&S Business and integration of the Nokia Networks business. The 2017 plan removes the minimum payout of 25% of the grant amount for executive employees. Employees who are not
executives at the time the awards are granted to them will continue to benefit from a minimum payout of 25% with the intention of this continuing to provide a retention effect.
The 2017 performance share plan has a two-year performance period (2017-2018) and a subsequent one-year restriction period. The shares
will vest on January 1, 2020. The performance criteria for the 2017 performance share plan are:
Performance criteria (non-IFRS)(1)
Nokia average annual net sales January 1,
2017—December 31, 2018
Nokia average annual earnings per share (diluted)
Weighting
Threshold
performance (EUR)
Maximum
performance (EUR)
50%
22 842 million
26 280 million
January 1, 2017—December 31, 2018
50%
0.26
0.38
Potential range of settlement(2)
Threshold number up to maximum
level (4 x Threshold number)
Threshold number up to maximum
level (4 x Threshold number)
(1) Non-IFRS measures exclude costs related to the Acquisition of Alcatel Lucent and related integration, goodwill impairment charges, intangible asset amortization and other purchase price fair value
adjustments, restructuring and associated charges and certain other items.
(2) The minimum payout of 25% of the grant amount will be payable to all participants except executives only in the event that the calculated payout (based on Nokia’s performance against the
performance criteria) is beneath 25% achievement against the performance criteria.
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NOKIA IN 2016
Based on a resolution by the Board, the maximum number of
performance shares that can be granted under the performance
share plan for 2017 is 37 million. The maximum payout can be 200%.
Accordingly, achievement of the maximum performance against all the
performance criteria would result in the vesting and an aggregate
maximum payout of 74 million Nokia shares. Achievements beyond
the maximum performance level will not cause any further shares to
vest. For employees who are not executives at the time the awards are
granted to them, 25% of the performance shares granted in 2017 will
settle after the restriction period, regardless of the satisfaction of the
applicable performance criteria. In case the applicable performance
criteria are not satisfied, employees who are executives on the grant
date for their 2017 performance shares will not receive any settlement.
Until the Nokia shares are delivered, the participants will not have any
shareholder rights, such as voting or dividend rights associated with
these performance shares.
Restricted Share Plan
Restricted shares are used on a selective basis to ensure retention
and recruitment of individuals deemed critical to our future success.
The restricted shares vest in three equal tranches on the first,
second and the third anniversary of the award subject to continued
employment with Nokia.
In 2017, restricted shares will be granted on a limited basis for
exceptional purposes related to retention and recruitment, primarily
in the United States, to ensure we are able to retain and recruit vital
talent for the future success of Nokia.
Until the Nokia shares are delivered, the participants will not have
any shareholder rights, such as voting or dividend rights, associated
with the restricted shares.
Share in Success
Under our employee share purchase plan “Share in Success”, eligible
employees can elect to make monthly contributions from their salary
to purchase Nokia shares. The contribution per employee cannot
exceed EUR 1 800 per year. The share purchases are made at market
value on predetermined dates on a monthly basis during a 12-month
savings period. Nokia intends to deliver one matching share for every
two purchased shares the employee still holds at the end of the Plan
cycle. Participation in the plan is voluntary for all employees in countries
where the plan is offered.
Monitoring the performance of our equity plans
Each year Nokia monitors the performance of its equity plans against
the targets for the plan, total shareholder return and the impact that
the plans have on total compensation compared to market peers.
For further discussion on the performance of the plans refer to
“— Remuneration Report” below.
Legacy equity programs
Stock Options
The granting of stock options ceased at the end of 2013; however,
awards granted under the 2011 stock option plan remain in force.
Under the plan, each stock option entitles the holder to subscribe for
one new Nokia share. The stock options are non-transferable and may
be exercised for shares only. The vesting schedule of the 2011 stock
option plan is as follows:
Plan
Vesting schedule
2011 stock
option plan
50% on third anniversary of grant
50% on fourth anniversary of grant
Term is approximately six years
The final subscription periods end on December 27, 2019
Shares will be eligible for dividends in respect of the financial year in
which the share subscription takes place. Other shareholder rights will
commence on the date on which the subscribed shares are entered
in the trade register. The stock option grants are generally forfeited
if the employment relationship is terminated with Nokia.
2012 Nokia Networks Equity Incentive Plan
The 2012 Nokia Networks equity incentive plan was established by
the board of Nokia Siemens Networks prior to Nokia’s acquisition
of full ownership of the Nokia Networks business. Under this plan
options over Nokia Solutions and Networks B.V. shares were granted
to Mr. Suri and approximately 65 other Nokia Networks employees.
At that time, both Nokia and Siemens were considering a potential
exit from Nokia Siemens Networks. The plan had two objectives:
(1) to increase the value of Nokia Networks; and
(2) to create an exit option for its parent companies.
With the significantly improved performance of Nokia Networks, the
first objective has been met. The second objective has not occurred
and, given the change in our strategy, the likelihood of a sale or an
initial public offering (“IPO”) has diminished.
The exercise price of the options is based on a Nokia Networks share
value on grant, as determined for the purposes of the 2012 Nokia
Networks equity incentive plan. The options will be cash-settled at
exercise, unless an IPO has taken place, at which point they would be
converted into equity-settled options.
The targets of the plan were set at a demanding level and payments
from the plan represent the outstanding achievement of the Networks
team. The actual payments under the 2012 Nokia Networks equity
incentive plan were determined based on the value of the Nokia
Networks business. In 2015, 30% of the options became exercisable
and the remaining 70% became exercisable in 2016.
Alcatel Lucent liquidity agreements
In 2016, Nokia and Alcatel Lucent entered into liquidity agreements
with beneficiaries of the 2015 Alcatel Lucent performance share plan.
Pursuant to the agreements, the 2015 Alcatel Lucent performance
shares (as well as other unvested performance share plans, where
the employee elected to enter into a liquidity agreement rather than
accelerate their equity), would be exchanged for Nokia shares, or for
the cash equivalent of the market value of such Nokia shares, shortly
after expiration of the vesting period. The exchange ratio would be
aligned with the exchange ratio of Nokia’s exchange offer for all
outstanding Alcatel Lucent securities, subject to certain adjustments
in the event of financial transactions by either Nokia or Alcatel Lucent.
Accordingly, these agreements apply to any member of the Group
Leadership Team who has entered into such liquidity agreement.
NOKIA IN 2016
101
Corporate governance Compensation continued
Remuneration Report
Compensation paid in 2016(1):
The Remuneration Report provides information on the remuneration
earned between January 1, 2016 and December 31, 2016. We provide
disclosure of the compensation of our Board, the President and
CEO and aggregated compensation information for the Group
Leadership Team.
Board of Directors
In 2016, the aggregate amount of compensation paid to the members
of the Board for their services on the Board and its committees
equaled EUR 2 050 902.
In accordance with the resolutions passed at the Extraordinary General
Meeting on December 2, 2015, and following the successful public
exchange offer for all Alcatel Lucent securities, we confirmed the new
composition of the Board on January 8, 2016. The newly elected
members of the Board were Louis R. Hughes, Jean C. Monty and
Olivier Piou. Elizabeth Doherty, who was a member of the Board until
the successful closing of the exchange offer for all Alcatel Lucent
securities, stepped down from the Board.
Additionally, the Extraordinary General Meeting resolved that the
newly elected members of the Board would receive the same annual
remuneration as was paid to the members of the Board elected at the
Annual General Meeting on May 5, 2015, prorated for the new Board
members’ time in service from January 8, 2016 until the closing of
the Annual General Meeting held on June 16, 2016.
The Annual General Meeting held on June 16, 2016 resolved to elect
nine members to the Board. The following members of the Board
were re-elected for a term ending at the close of the Annual General
Meeting in 2017: Vivek Badrinath, Bruce Brown, Louis R. Hughes,
Jean C. Monty, Elizabeth Nelson, Olivier Piou, Risto Siilasmaa and Kari
Stadigh. Carla Smits-Nusteling was elected as new member of the
Board for the same term. For director remuneration resolved by the
Annual General Meeting for the current term refer to “Remuneration
Policy—Board of Directors” above.
On July 29, 2016, Nokia announced that Vivek Badrinath had stepped
down from the Board.
The following table outlines the total annual compensation paid in
2016 to the members of the Board for their services, as resolved by
shareholders at the Extraordinary General Meeting on December 2,
2015 and the Annual General Meeting on June 16, 2016. The table
does not include the meeting fees as resolved by the Annual General
Meeting in June 2016. The meeting fees for applicable Board and
Committee meetings held in 2016 will be paid in 2017. For details of
Nokia shares held by the members of the Board, refer to “—Share
ownership—Share ownership of the Board of Directors” below.
Risto Siilasmaa, Chair
Olivier Piou, Vice Chair(2)
Vivek Badrinath(3)
Bruce Brown(4)
Elizabeth Doherty(5)
Louis R. Hughes(6)
Simon Jiang(7)
Jouko Karvinen(8)
Jean C. Monty(9)
Elizabeth Nelson(10)
Carla Smits-Nusteling(11)
Kari Stadigh(12)
Total
EUR
440 000
255 082
175 000
190 000
–
240 410
–
–
225 410
190 000
175 000
160 000
2 050 902
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Approximately 40% of each Board member’s annual fee was paid in Nokia shares purchased
from the market and the remaining amount of approximately 60% was paid in cash. The
meeting fees as resolved by the Annual General Meeting in 2016 will be paid in cash in 2017
and are not included in the table.
Consists of EUR 70 082 for services as the Vice Chair of the Board from January 8, 2016 until
the Annual General Meeting in 2016 and EUR 185 000 for services as the Vice Chair of the
Board from the Annual General Meeting in 2016.
Consists of EUR 160 000 for services as a member of the Board and EUR 15 000 for services
as a member of the Audit Committee. However, Mr. Badrinath stepped down from the Board
on July 29, 2016 and has returned to the company the compensation paid to him.
Consists of EUR 160 000 for services as a member of the Board and EUR 30 000 for services
as the Chair of the Personnel Committee.
Served as a member of the Audit Committee and a member of the Board until January 8, 2016.
She was not paid any compensation during fiscal year 2016, but received compensation for
the term until the close of the Annual General Meeting in June 2016 in the fiscal year 2015.
Consists of EUR 60 738 for services as a member of the Board and EUR 4 672 for services as
a member of the Audit Committee from January 8, 2016 until the Annual General Meeting in
2016 and of EUR 160 000 for services as a member of the Board and EUR 15 000 for services
as a member of the Audit Committee from the Annual General Meeting in 2016.
Served as a member of the Board until the Annual General Meeting in 2016. He was not paid
any compensation during fiscal year 2016, but received compensation for the term until the
close of the Annual General Meeting in 2016 in the fiscal year 2015.
Served as the Vice Chair of the Board until January 8, 2016, the Chair of the Audit Committee
until April 1, 2016 and as a member of the Board until the Annual General Meeting in 2016.
He was not paid any compensation during fiscal year 2016, but received compensation for
the term until the close of the Annual General Meeting in 2016 in the fiscal year 2015.
Consists of EUR 60 738 for services as a member of the Board and EUR 4 672 for services as
a member of the Audit Committee from January 8, 2016 until the Annual General Meeting in
June 2016 and of EUR 160 000 for services as a member of the Board from the Annual General
Meeting in 2016.
(10) Consists of EUR 160 000 for services as a member of the Board and EUR 30 000 for services
as the Chair of the Audit Committee.
(11) Consists of EUR 160 000 for services as a member of the Board and EUR 15 000 for services
as a member of the Audit Committee.
(12) Consists of EUR 160 000 for services as a member of the Board.
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NOKIA IN 2016
The President and CEO
The following table shows the remuneration received by the President and CEO in 2016 and 2015. The long-term incentive payments reflect
actual payments in the respective years attributable to the vesting of the 2012 Nokia Networks equity incentive plan.
EUR
Salary
Short-term incentive(1)
Equity-based incentive(2)
From role as Nokia President and CEO
From role as NSN CEO
Other compensation(3)
Total
2016
1 049 044
780 357
–
7 556 598
122 157
9 508 156
2015
1 000 000
1 922 125
–
3 238 542
145 658
6 306 325
(1) Short-term incentives represent amounts earned in respect of the financial year, but that are paid in April of the following year.
(2) Amounts represent the value of the 2012 Nokia Networks equity incentive plan. Refer to “—2012 Nokia Networks Equity Incentive Plan” above.
(3) Other compensation includes compensation for housing equaling EUR 41 312 (2015: EUR 47 950); travel assistance equaling EUR 33 482 (2015: EUR 48 510); Tax services equaling EUR 19 260 (2015:
EUR 17 834) and other benefits including mobile phone, driver and supplemental medical and disability insurance equaling EUR 28 103 (2015: EUR 31 363).
Pursuant to Finnish legislation, Nokia is required to make contributions to the Finnish TyEL pension arrangements in respect of the President
and CEO. Such payments can be characterized as defined contribution payments. In 2016, payments to the Finnish state pension system
equaled EUR 469 737 (EUR 491 641 in 2015).
Short-term incentive
In line with Nokia’s performance in 2016, the short-term incentive of the President and CEO equaled EUR 780 357, or 63.5%, of the target
award, reflecting the challenging market environment.
Long-term incentive
In 2016, the President and CEO was eligible to exercise the final options under the 2012 Nokia Networks equity incentive plan. The plan was
established in 2012 to incentivize the turnaround of the former Nokia Siemens Networks business. The value of the options to the President
and CEO reflects the dramatic success of the turnaround plan and is borne out by the fact that, today, the core of Nokia’s business is
networks-related.
In 2016, the President and CEO was awarded the following equity awards under the Nokia equity program:
Award
Performance shares(1)
Restricted shares (with individual
Units awarded
642 114
Grant date fair value (EUR)
3 005 736
Grant date
July 1, 2016
integration-related performance conditions)(2)
208 700
986 942
August 16, 2016
Vesting date
January 1, 2019
October 1, 2017,
2018 and 2019
(1) The 2016 performance share plan has a two-year performance period based on financial targets and a one-year restriction period. Minimum payout under the plan, even if threshold performance is
not achieved, is 25% of the awarded amount. The maximum payout would be 200% subject to maximum performance against all the performance criteria. Vesting is subject to continued employment.
(2) In 2016, Nokia and certain senior executives of the company entered into agreements based on which the vesting of restricted shares granted to them is subject to fulfillment of predetermined
performance conditions related to the successful integration of Nokia and Alcatel Lucent. Performance is currently estimated at 100% payout and the restricted shares are expected to vest in three
equal tranches on October 1, 2017, 2018 and 2019. Vesting is subject to continued employment.
The award of restricted shares represents a special long-term incentive to ensure that the President and CEO (and other senior executives) is
motivated to deliver the synergies of the Acquisition of Alcatel Lucent and share alongside shareholders in the benefits that they are expected
to deliver.
Share ownership
Our share ownership policy requires that the President and CEO holds a minimum of three times his base salary in Nokia shares in order to
ensure alignment with shareholder interests over the long term. This requirement has been met. In 2016, the President and CEO acquired
519 757 Nokia shares. In addition, the 2014 performance share plan vested on January 1, 2017 and consequently 742 297 Nokia shares were
delivered to the President and CEO on February 8, 2017.
Beneficially owned shares as of December 31, 2016(1)
Vested shares under the 2014 performance share plan delivered on February 8, 2017(2)
Unvested shares under other Nokia equity plans(3)
Total
Units
549 480
742 297
1 351 961
2 643 738
Value (EUR)
2 522 113
3 377 451
6 205 500
12 105 064
(1) The value is based on the closing price of Nokia share of EUR 4.59 on Nasdaq Helsinki on December 30, 2016.
(2) The value and number of units represent fair market value of a Nokia share of EUR 4.55 on Nasdaq Helsinki on February 8, 2017 and the net number of shares delivered after the applicable taxes was
withheld from the number of shares that vested to the President and CEO.
(3) The number of units represents the number of unvested awards at December 31, 2016 including the payout factor of the 2015 performance share plan and excluding the 2014 performance share plan
that vested on January 1, 2017. The value is based on the closing price of a Nokia share of EUR 4.59 on Nasdaq Helsinki on December 30, 2016. Vesting is subject to continued employment.
NOKIA IN 2016
103
Corporate governance Compensation continued
Group Leadership Team
Following the Acquisition of Alcatel Lucent, the Group Leadership Team has consisted of 13 persons split between Finland, other European
countries and the United States. The compensation structure for the Group Leadership Team was set in the Nokia framework honoring inherited
agreements where appropriate.
Name
Rajeev Suri
Samih Elhage
Federico Guillén
Basil Alwan
Bhaskar Gorti
Ramzi Haidamus(1)
Timo Ihamuotila(2)
Hans-Jürgen Bill
Kathrin Buvac
Ashish Chowdhary
Barry French
Marc Rouanne
Maria Varsellona
Position in 2016
President and CEO
President of Mobile Networks
President of Fixed Networks
President of IP/Optical Networks
President of Applications & Analytics
President of Nokia Technologies
Chief Financial Officer
Chief Human Resources Officer
Chief Strategy Officer
Chief Customer Operations Officer
Chief Marketing Officer
Chief Innovation & Operating Officer
Chief Legal Officer
Appointment date
May 1, 2014
May 1, 2014
January 8, 2016
January 8, 2016
January 8, 2016
September 3, 2014
September 1, 2011
January 8, 2016
January 8, 2016
January 8, 2016
January 8, 2016
January 8, 2016
January 8, 2016
(1) Ramzi Haidamus was a member of the Group Leadership Team until September 30, 2016.
(2) Timo Ihamuotila was a member of the Group Leadership Team until December 31, 2016. Kristian Pullola was appointed as Chief Financial Officer and a member of the Group Leadership Team as of
January 1, 2017. The Group Leadership Team currently consists of twelve (12) members, however, as announced on March 17, 2017, the Group Leadership Team will grow to fourteen (14) members
from April 1, 2017.
Remuneration of the Group Leadership Team (excluding the President and CEO) in 2015 and 2016, in the aggregate, was as follows:
Salary, short-term incentives and other compensation(2)
Equity-based incentives(3)
Total
2016
EURm(1)
22.7
25.5
48.2
2015
EURm(1)
6.3
3.7
10.0
(1) In 2016, the Group Leadership Team consisted of up to twelve members (excluding the President and CEO), whereas in 2015 the Group Leadership Team consisted of up to four members
(excluding the President and CEO).
(2) Short-term incentives represent amounts earned in respect of 2016 performance. Other compensation includes mobility related payments, local benefits and certain pension costs.
(3) Amounts represent the value of the 2012 Nokia Networks equity incentive plan or other equity awards vesting or stock options exercised during 2016 and share awards from Alcatel Lucent
where appropriate.
In 2016, the Group Leadership Team was awarded the following equity awards under the Nokia equity program:
Award
Performance shares(1)
Restricted shares (with individual integration-related
performance conditions)(2)
Units awarded
Grant date fair
value (EUR)
1 571 478
7 356 200
Grant date
July 1, and
August 16, 2016
1 015 100
4 800 408
August 16, 2016
Vesting date
January 1, 2019
October 1, 2017,
2018 and 2019
(1) The 2016 performance share plan has a two-year performance period based on financial targets and a one-year restriction period. Minimum payout under the plan, even if threshold performance is
not achieved, is 25% of the awarded amount. The maximum payout would be 200% subject to maximum performance against all the performance criteria. Vesting is subject to continued employment.
(2) Nokia and certain senior executives of the company entered into agreements based on which the vesting of restricted shares granted to them is subject to fulfillment of predetermined performance
conditions related to the successful integration of Nokia and Alcatel Lucent. Performance is currently estimated at 100% payout and the restricted shares are expected to vest in three equal tranches
on October 1, 2017, 2018 and 2019. Vesting is subject to continued employment.
104
NOKIA IN 2016
Review of our incentive plans
Short-term Incentives
Short-term incentive targets and achievements for the members of
the Group Leadership Team (excluding the President and CEO) were
based on a mix of revenue, operating profit and cash flow targets.
These targets are measured either at a Nokia Group level or,
alternatively, a mix of Nokia Group and business group level for
business group presidents. Payout levels for 2016 represent the
challenging business environment in which Nokia has been operating
with median payout at 70% of target.
Long-term incentives
We have actively introduced a rolling review of compensation against
key metrics such as total shareholder return and share price to validate
the effectiveness of our equity plans.
The 2014 performance share plan vested on January 1, 2017 with
125.72% of the target award vesting based on the achievement
against the net sales and earnings per share targets during the
performance period.
The 2015 performance share plan will vest on January 1, 2018 with
123.75% of the target award vesting based on the achievement
against the net sales and earnings per share targets during the
performance period.
While short-term performance in 2016 was affected by a
challenging market and the integration of Alcatel Lucent, the
performance under long-term incentive plans represents the
significant turnaround of Nokia from 2013 when it acquired the
remainder of Nokia Siemens Networks and the continued focus
on delivering profit despite challenging market conditions. The
performance of the business in 2014, 2015 and 2016 against
targets set in the context of analyst forecasts shows fair rewards
for a business well positioned for the longer term.
Share price and total shareholder return vs long-term
incentive performance
250%
200%
150%
100%
50%
0
TSR
value
25.72%
23.75%
86%
100%
100%
Nil
2011
Nil
2012
2013
2014
2015
2016*
Long-term incentive plan year,
as of December 31
Achieved
Overachieved
Nokia total shareholder return (TSR)
* Performance period not yet completed.
Total shareholder return Nokia vs Stoxx 50 vx S&P 500
(January 1, 2013 to December 31, 2016)
300
250
200
150
100
50
0
01/01/13
01/01/14
01/01/15
01/01/16
Nokia
Stoxx 50
S&P 500
NOKIA IN 2016
105
Corporate governance
Relative degree of alignment pay vs total shareholder return ranking
k
n
a
r
e
c
n
a
m
r
o
f
r
e
p
e
v
i
t
a
e
R
l
13
12
11
10
9
8
7
6
5
4
3
2
1
0
Nokia
0
1
2
3
4
5
6
7
Relative pay rank
8
9
10
11
12
13
Compensation continued
Pay for performance
Core to our compensation philosophy is a desire to pay for
performance.
We compare ourselves to a group of peer companies. We rank our
performance against the peer group based on total shareholder return
and total compensation paid, to ensure that the targets and amounts
paid are for superior performance and reflect a balanced view. Data
are only publicly available for our peer group for financial years to
December 31, 2015. Based on the comparison, the performance
of Nokia over the preceding three years, as measured by total
shareholder return, was ranked first, whilst the compensation paid
out to the President and CEO (as opposed to awarded) was ranked
second. This shows a strong pay-for-performance alignment at Nokia,
and this is illustrated in the chart opposite.
Our Peers
In looking for suitable comparators, we have considered ourselves a
European technology company and looked at businesses of similar
size, global scale and complexity, such as:
ABB
ASML
BT
Deutsche Telekom
Ericsson
Hexagon
Infineon
Kone
Phillips
Rolls-Royce
SAP
Vodafone
Share ownership
Share ownership of the Board of Directors
As of December 31, 2016, the members of our Board held a total of
4 754 602 shares and ADSs in Nokia, which represented approximately
0.08% of our outstanding shares and total voting rights excluding
shares held by Nokia Group.
The following table sets forth the number of shares and ADSs held by
the members of the Board at December 31, 2016:
Name(1)
Risto Siilasmaa
Olivier Piou
Bruce Brown
Louis R. Hughes
Jean C. Monty
Elizabeth Nelson
Carla Smits-Nusteling
Kari Stadigh
Shares(1)
1 282 708
252 760
–
41 827
2 767 557
–
13 921
250 000
ADSs(1)
–
–
99 961
–
–
45 868
–
–
(1) The number of shares or ADSs includes shares and ADSs received as director compensation as
well as shares and ADSs acquired through other means. Stock options or other equity awards
that are deemed as being beneficially owned under the applicable SEC rules are not included.
For the number of shares or ADSs received as director compensation, refer to Note 35, Related
party transactions, of our consolidated financial statements included in this annual report.
106
NOKIA IN 2016
Share ownership of the President and CEO and the Nokia Group Leadership Team
The following table sets forth the share ownership of the President and CEO, and the other members of the Group Leadership Team in office
as of December 31, 2016. The share ownership of all members of the Group Leadership Team, including the President and CEO, was 1 091 181
Nokia shares, which represented 0.02% of the outstanding shares and total voting rights excluding shares held by Nokia Group at December 31,
2016. The share ownership requirement of the President and CEO as well as the members of the Group Leadership Team is described under
“—Share ownership requirement” above.
Name
Rajeev Suri
Samih Elhage
Federico Guillén
Basil Alwan
Bhaskar Gorti
Timo Ihamuotila
Hans-Jürgen Bill
Kathrin Buvac
Ashish Chowdhary
Barry French
Marc Rouanne
Maria Varsellona
Position in 2016
President and Chief Executive Officer
President of Mobile Networks
President of Fixed Networks
President of IP/Optical Networks
President of Applications & Analytics
Chief Financial Officer
Chief Human Resources Officer
Chief Strategy Officer
Chief Customer Operations Officer
Chief Marketing Officer
Chief Innovation & Operating Officer
Chief Legal Officer
Beneficially owned shares
number
549 480
–
13 498
163 071
133
353 120
10 000
–
1 746
133
–
–
Unvested equity awards held by the Nokia Group Leadership Team as of December 31, 2016
The following table sets forth the potential ownership interest through the holding of equity-based incentives of the Group Leadership Team,
including the President and CEO:
Number of equity awards held by the
Group Leadership Team(1)
% of the outstanding shares(2)
% of the total outstanding equity incentives
(per instrument)(3)
Shares receivable
through stock options
Shares receivable
through performance
shares at grant
Shares receivable
through performance
shares at maximum(4)
Shares receivable
through restricted
shares
320 000
0.01%
19.99%
4 912 265
0.09%
9 824 530
0.17%
1 250 480
0.02%
11.31%
11.31%
20.95%
(1) Includes the 12 members of the Group Leadership Team in office as of December 31, 2016. The number of units held under awards made before June 30, 2016 was adjusted to reflect the impact
of the special dividend paid in 2016.
(2) The percentages are calculated in relation to the outstanding number of shares and total voting rights of Nokia as of December 31, 2016, excluding shares held by Nokia Group. No member of the
Group Leadership Team owns more than 1% of the outstanding Nokia shares.
(3) The percentages are calculated in relation to the total outstanding equity incentives per instrument. The number of units outstanding under awards made before June 30, 2016 reflects the impact
of the special dividend paid in 2016.
(4) At maximum performance, under the performance share plans outstanding as of December 31, 2016, the payout would be 200% and the table reflects this potential maximum payout. The restriction
period for the performance share plan 2014 and the performance period for the performance share plan 2015 ended on December 31, 2016 and Nokia’s performance against the performance criteria
set out in the plan rules, was above the threshold performance level for both plans. The settlement to the participants under the performance share 2014 plan took place in February 2017 and the
settlement for the performance share 2015 plan is expected to take place in the beginning of 2018 after the restriction period ends.
NOKIA IN 2016
107
Corporate governance General facts
on Nokia
108
NOKIA IN 2016
Contents
Our history
Memorandum and Articles
of Association
Selected financial data
Shares and shareholders
Related party transactions
Production of infrastructure
equipment and products
Key ratios
110
111
113
115
123
123
124
NOKIA IN 2016
109
General facts on Nokia General facts on Nokia
A shifting industry
In 2007, Nokia combined its telecoms infrastructure operations with
those of Siemens to create the NSN joint venture. We later bought
Siemens’ stake in NSN in 2013 as the business was emerging from
a successful strategy shift and the reality of what Nokia calls a
Programmable World of connected devices, sensors and people
was starting to take shape.
In 2011, we joined with Microsoft to strengthen our position in
the highly competitive smartphone market, which in 2014 resulted
in the closing of the Sale of the D&S Business. Nokia emerged from
the transaction with a firm financial footing and three strong
businesses—Nokia Networks, HERE and Nokia Technologies—focused
on connecting the things and people of the Programmable World.
Nokia’s transformation was not complete. Our former HERE digital
mapping and location services business, an arena we entered in 2006,
had been a key pillar of Nokia’s operational performance. However,
following a strategic review of the business by the Board in light of
plans to acquire Alcatel Lucent, Nokia decided to sell its HERE Business.
Acquisition of Alcatel Lucent and beyond
The Acquisition of Alcatel Lucent positions Nokia as an innovation
leader in next-generation technology and services.
Our reputation as an innovation powerhouse has been bolstered
by the addition of Bell Labs, now known as Nokia Bell Labs. It joins a
future-focused business backed by tens of thousands of engineers
and thousands of patent families, a reflection of Nokia’s innovation
pedigree which has produced a huge array of benefits for consumers,
business and society as a whole.
The acquisition helps us shape the connectivity and digitization
revolution before us—the Programmable World—in which billions of
people, devices, and sensors are connected in a way that opens up
a world of possibilities. These can make our planet safer, cleaner,
healthier, more sustainable, more efficient and more productive.
Nokia’s long history is marked by change and reinvention. We have
always been excited by where technology will lead us as we seek to
enable the human possibilities of a connected world. We will continue
to innovate, reimagining how technology works for us discreetly
while blending into, and enriching, our daily lives.
Our history
Few companies have Nokia’s storied capacity for transforming,
developing new technologies and adapting to shifts in market
conditions. From its beginning in 1865 as a single paper mill operation,
Nokia has found and nurtured success in several sectors over the
years, including cable, paper products, rubber boots and tires,
mobile devices and telecommunications infrastructure equipment.
Nokia’s sector-by-sector success over the years has mirrored its
geographical rise: from a Finnish-focused company until the 1980s
with a growing Nordic and European presence; to a genuine European
company in the early 1990s; and on to a truly global company from the
mid-1990s onward. With the Acquisition of Alcatel Lucent, we further
deepen and widen our global reach.
Nokia has been producing telecommunications equipment since the
1880s—almost since telephony began.
A storied past
When Finnish engineer Fredrik Idestam set up his initial wood pulp
mill in Southern Finland in 1865, he took the first step in laying the
foundation of Nokia’s capacity for innovating and finding opportunity.
Sensing growing pulp product demand, Idestam opened a second mill
a short time later on the Nokianvirta River, inspiring him to name his
company Nokia AB.
Idestam’s sense of endeavor would continue to prevail in the different
phases Nokia would take.
In the 1960s, Nokia became a conglomerate, comprised of rubber,
cable, forestry, electronics and power generation businesses, resulting
from the merger of Idestam’s Nokia AB, and Finnish Cable Works Ltd,
a phone and power cable producer founded in 1912, and other
businesses.
Transformation anew
It was not long before transformation would call again.
Deregulation of the European telecommunications industries in the
1980s triggered new thinking and fresh business models.
In 1982, Nokia introduced both the first fully-digital local telephone
exchange in Europe and the world’s first car phone for the Nordic
Mobile Telephone analog standard. The breakthrough of GSM (global
system for mobile communications) in the 1980s introduced more
efficient use of radio frequencies and higher-quality sound. The first
GSM call was made with a Nokia phone over the Nokia-built network
of a Finnish operator called Radiolinja in 1991.
It was around this time that Nokia made the strategic decision to
make telecommunications and mobile phones our core business. Our
other businesses, including aluminum, cable, chemicals, paper, rubber,
power plant, and television businesses were subsequently divested.
By 1998, Nokia was the world leader in mobile phones, a position
it enjoyed for more than a decade.
And still, the business and technology worlds would continue to evolve,
as would Nokia.
110
NOKIA IN 2016
Memorandum and Articles of Association
Registration
Nokia is organized under the laws of the Republic of Finland and
registered under the business identity code 0112038-9. Under
its current Articles of Association, Nokia’s corporate purpose is
to research, develop, manufacture, market, sell and deliver
products, software and services in a wide range of consumer and
business-to-business markets. These products, software and services
relate to, among others, network infrastructure for telecommunication
operators and other enterprises, the IoT, human health and well-being,
multimedia, big data and analytics, mobile devices and consumer
wearables and other electronics. The company may also create,
acquire and license intellectual property and software as well as
engage in other industrial and commercial operations, including
securities trading and other investment activities. The company
may carry on its business operations directly, through subsidiary
companies, affiliate companies and joint ventures.
Director’s voting powers
Under Finnish law, resolutions of the Board shall be made by a majority
vote. A director shall refrain from taking any part in the consideration
of an agreement between the director and the company or third party,
or any other issue that may provide any material benefit to him
or her, which may be contradictory to the interests of the company.
Under Finnish law, there is no age limit requirement for directors,
and there are no requirements under Finnish law that a director
must own a minimum number of shares in order to qualify to act as
a director. However, in accordance with the current company policy,
approximately 40% of the annual remuneration payable to the Board
members is paid in Nokia shares purchased from the market, and the
directors shall retain, until the end of their directorship, such number of
shares that corresponds to the number of shares they have received
as Board remuneration during their first three years of service (the net
amount received after deducting those shares used for offsetting any
costs relating to the acquisition of the shares, including taxes).
Share rights, preferences and restrictions
Each share confers the right to one vote at general meetings.
According to Finnish law, a company generally must hold an Annual
General Meeting called by the Board within six months from the
end of the fiscal year. Additionally, the Board is obliged to call an
Extraordinary General Meeting, whenever such meeting is deemed
necessary, or at the request of the auditor or shareholders
representing a minimum of one-tenth of all outstanding shares.
Under our Articles of Association, the Board is elected at least annually
at the Annual General Meeting of the shareholders for a term ending
at the end of the next Annual General Meeting.
Under Finnish law, shareholders may attend and vote at general
meetings in person or by proxy. It is not customary in Finland for
a company to issue forms of proxy to its shareholders. Accordingly,
Nokia does not do so. However, registered holders and beneficial
owners of ADSs are issued forms of proxy by the Depositary.
To attend and vote at a general meeting, a shareholder must be
registered in the register of shareholders in the Finnish book-entry
system on or prior to the record date set forth in the notice of the
general meeting. A registered holder or a beneficial owner of the
ADSs, like other beneficial owners whose shares are registered in
the company’s register of shareholders in the name of a nominee,
may vote with their shares provided that they arrange to have their
name entered in the temporary register of shareholders for the
general meeting.
The record date is the eighth business day preceding the meeting.
To be entered in the temporary register of shareholders for the
general meeting, a holder of ADSs must provide the Depositary,
or have his broker or other custodian provide the Depositary, on or
before the voting deadline, as defined in the proxy material issued
by the Depositary, a proxy with the following information: the name,
address, and social security number or another corresponding
personal identification number of the holder of the ADSs, the number
of shares to be voted by the holder of the ADSs and the voting
instructions. The register of shareholders as of the record date of
each general meeting is public until the end of the respective meeting.
Other nominee registered shareholders can attend and vote at the
general meetings by instructing their broker or other custodian to
register the shareholder in Nokia’s temporary register of shareholders
and give the voting instructions in accordance with the broker’s or
custodian’s instructions.
By completing and returning the form of proxy provided by the
Depositary, a holder of ADSs also authorizes the Depositary to give
a notice to us, required by our Articles of Association, of the holder’s
intention to attend the general meeting.
Each of our shares confers equal rights to share in the distribution of
the company’s funds. For a description of dividend rights attaching to
our shares, refer to “—Shares and shareholders”. Dividend entitlement
lapses after three years if a dividend remains unclaimed for that
period, in which case the unclaimed dividend will be retained by Nokia.
Under Finnish law, the rights of shareholders are related to the shares
as set forth in law and our Articles of Association. Finnish law or our
Articles of Association do not set limitations on the rights to own
Nokia securities, including the rights of foreign shareholders to hold
or exercise voting rights in the said securities. Amendment of the
Articles of Association requires a decision of the general meeting,
supported by two-thirds of the votes cast and two-thirds of the shares
represented at the meeting.
NOKIA IN 2016
111
General facts on Nokia General facts on Nokia continued
Under the Finnish Companies Act, a shareholder whose holding
exceeds nine-tenths of the total number of shares or voting rights
in Nokia has both the right and, upon a request from the minority
shareholders, the obligation to purchase all the shares of the minority
shareholders for the current market price. The market price is
determined, among other things, on the basis of the recent market
price of the shares. The purchase procedure under the Finnish
Companies Act differs, and the purchase price may differ, from the
purchase procedure and price under the Finnish Securities Market Act,
as discussed above. However, if the threshold of nine-tenths has been
exceeded through either a mandatory or a voluntary public offer
pursuant to the Finnish Securities Market Act, the market price under
the Finnish Companies Act is deemed to be the price offered in the
public offer, unless there are specific reasons to deviate from it.
Pre-emptive rights
In connection with any offering of shares, the existing shareholders
have a pre-emptive right to subscribe for shares offered in proportion
to the amount of shares in their possession. However, a general
meeting of shareholders may vote, by a majority of two-thirds of the
votes cast and two-thirds of the shares represented at the meeting,
to waive this pre-emptive right provided that, from the company’s
perspective, weighty financial grounds exist.
Under the Finnish Act on the Monitoring of Foreign Corporate
Acquisitions (2012/172 as amended), a notification to the Ministry
of Employment and the Economy is required for a non-resident of
Finland, directly or indirectly, when acquiring one-tenth or more of
the voting power or corresponding factual influence in a company.
The Ministry of Employment and the Economy has to confirm the
acquisition unless the acquisition would jeopardize important national
interests, in which case the matter is referred to the Council of State.
If the company in question is operating in the defense sector, an
approval by the Ministry of Employment and the Economy is required
before the acquisition is made. These requirements are not applicable
if, for instance, the voting power is acquired in a share issue that is
proportional to the holder’s ownership of the shares. Moreover, the
requirements do not apply to residents of countries in the European
Economic Area or EFTA countries.
Disclosure of shareholder ownership or voting power
According to the Finnish Securities Market Act, which entered into
effect on January 1, 2013, a shareholder shall disclose their ownership
or voting power to the company and the Finnish Financial Supervisory
Authority when the ownership or voting power reaches, exceeds or
falls below 5, 10, 15, 20, 25, 30, 50 or 90% of all the shares or the
voting rights outstanding. The term “ownership” includes ownership
by the shareholder, as well as selected related parties, and calculating
the ownership or voting power covers agreements or other
arrangements, which when concluded would cause the proportion of
voting rights or number of shares to reach, exceed or fall below the
aforementioned limits. Upon receiving such notice, the company
shall disclose it by a stock exchange release without undue delay.
Purchase obligation
Our Articles of Association require a shareholder that holds one-third
or one-half of all of our shares to purchase the shares of all other
shareholders that so request, at a price generally based on the
historical weighted average trading price of the shares. A shareholder
who becomes subject to the purchase obligation is also obligated to
purchase any subscription rights, stock options or convertible bonds
issued by the company if so requested by the holder. The purchase
price of the shares under our Articles of Association is the higher of:
(a) the weighted average trading price of the shares on Nasdaq Helsinki
during the ten business days prior to the day on which we have been
notified by the purchaser that its holding has reached or exceeded
the threshold referred to above or, in the absence of such notification
or its failure to arrive within the specified period, the day on which
our Board otherwise becomes aware of this; or (b) the average price,
weighted by the number of shares, which the purchaser has paid for
the shares it has acquired during the last 12 months preceding the
date referred to in (a).
Under the Finnish Securities Market Act, a shareholder whose voting
power exceeds 30% or 50% of the total voting rights in a company
shall, within one month, offer to purchase the remaining shares of the
company, as well as any other rights entitling to the shares issued by
the company, such as subscription rights, convertible bonds or stock
options issued by the company. The purchase price shall be the market
price of the securities in question. The market price is determined
on the basis of the highest price paid for the security during the
preceding six months by the shareholder or any party in close
connection to the shareholder. This price can be deviated from for a
specific reason. If the shareholder or any related party has not during
the six months preceding the offer acquired any securities that are
the target for the offer, the market price is determined based on the
average of the prices paid for the security in public trading during the
preceding three months weighted by the volume of trade. This price
can be deviated from for a specific reason.
112
NOKIA IN 2016
Selected financial data
The financial data set forth below at and for the years ended December 31, 2016 and 2015 and for each of the years in the three-year period
ended December 31, 2016 has been derived from our audited consolidated financial statements included in this annual report. Financial
data at December 31, 2014 has been derived from our historical audited consolidated financial statements not included in this annual report.
The financial data at December 31, 2016 and 2015 and for each of the years in the three-year period ended December 31, 2016 should be
read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements.
For the year ended December 31
From the consolidated income statement – Continuing operations
Net sales
Change %
Operating (loss)/profit
% of net sales
Financial income and expenses, net
(Loss)/profit before tax
Income tax benefit/(expense)
(Loss)/profit attributable to equity holders of the parent
(Loss)/profit attributable to non-controlling interests
(Loss)/profit from Continuing operations
Earnings per share (for (loss)/profit attributable to equity holders of the parent)
Basic earnings per share, EUR
Diluted earnings per share, EUR
From the statement of financial position
Non-current assets
Cash and other liquid assets(1)
Other current assets
Assets held for sale and assets of disposal groups classified as held for sale
Total assets
Capital and reserves attributable to equity holders of the parent
Non-controlling interests
Non-interest bearing liabilities(2)
Interest-bearing liabilities(3)
Total equity and liabilities
Other information
Research and development expenses
% of net sales
Purchases of property, plant and equipment, and intangible assets(4)
% of net sales
Salaries and social expenses
Average number of employees
Key financial indicators
Cash dividends per share, EUR(5)
Dividends(6)
Return of capital employed, %
Return on shareholders’ equity, %
Equity ratio, %
Net debt to equity (gearing), %
Net cash
Free cash flow
2016
2015
2014
(in EURm, except for percentage and personnel data)
23 614
88.9%
(1 100)
(4.7)%
(287)
(1 369)
457
(751)
(161)
(912)
(0.13)
(0.13)
24 182
9 326
11 349
44
44 901
20 094
881
19 899
4 027
44 901
(4 904)
(20.8)%
(477)
(2.0)%
(7 854)
102 687
0.17
972
neg.
neg.
51.7 %
(25.3)%
5 299
(1 931)
12 499
6.3%
1 697
13.6%
(186)
1 540
(346)
1 192
2
1 194
0.32
0.31
5 102
9 849
5 975
–
20 926
10 503
21
8 328
2 074
20 926
(2 080)
(16.6)%
(278)
(2.2)%
(3 738)
56 690
0.26
1 501
14.1%
12.5%
59.0%
(73.9)%
7 775
193
11 762
(0.3)%
1 414
12.0%
(403)
999
1 719
2 710
8
2 718
0.73
0.67
7 339
7 715
6 009
–
21 063
8 611
58
9 702
2 692
21 063
(1 904)
(16.2)%
(254)
(2.2)%
(3 381)
51 499
0.14
511
11.2%
35.9%
49.3%
(57.9)%
5 023
964
(1) Cash and other liquid assets consist of the following line items from our consolidated statement of financial position: cash and cash equivalents, available-for-sale investments, liquid assets and
investments at fair value through profit and loss, liquid assets.
(2) Includes deferred tax liabilities, deferred revenue and other long-term liabilities, provisions, other financial liabilities, current income tax liabilities, accounts payable and accrued expenses and deferred
revenue and other liabilities.
(3) Includes long-term interest-bearing liabilities, current portion of long-term interest-bearing liabilities and short-term borrowings.
(4) Includes purchases of property, plant and equipment and intangible assets for Continuing operations.
(5) The Board proposes a cash dividend of EUR 0.17 per share for 2016 for the shareholders’ approval at the Annual General Meeting convening on May 23, 2017.
(6) Maximum amount to be distributed as dividends based on the number of shares at December 31, 2016 excluding the number of shares owned by the Group companies. Comparative figures
represents the total actual amounts paid.
NOKIA IN 2016
113
General facts on Nokia General facts on Nokia continued
Exchange rate data
Our business and results of operations are, from time to time, affected by changes in exchange rates, particularly between the euro, our
reporting currency, and other currencies such as the U.S. dollar, the Chinese yuan, the Japanese yen and the Korean won. The following table
sets forth information concerning the noon buying rate for the years 2012 to 2016 and for each of the months in the six-month period ended
February 28, 2017, expressed in U.S. dollars per euro. The average rate for a year means the average of the exchange rates on the last day of
each month during a year. The average rate for a month means the average of the daily exchange rates during that month.
For the year ended December 31 (unless otherwise specified)
2012
2013
2014
2015
2016
September 30, 2016
October 31, 2016
November 30, 2016
December 30, 2016
January 31, 2017
February 28, 2017
March 1, 2017 to March 10, 2017
On March 10, 2017, the noon buying rate was USD 1.0667 per EUR 1.00.
End of period rate
Average rate
Highest rate
Lowest rate
(USD per EUR)
1.3186
1.3779
1.2101
1.0859
1.0552
1.1238
1.0962
1.0578
1.0552
1.0794
1.0618
1.0667
1.2909
1.3303
1.3210
1.1032
1.1029
1.1218
1.1014
1.0792
1.0545
1.0635
1.0650
1.0575
1.3463
1.3816
1.3927
1.2015
1.1516
1.1271
1.1212
1.1121
1.0758
1.0794
1.0802
1.0667
1.2062
1.2774
1.2101
1.0524
1.0375
1.1158
1.0866
1.0560
1.0375
1.0416
1.0551
1.0514
114
NOKIA IN 2016
Shares and shareholders
Shares and share capital
Nokia has one class of shares. Each Nokia share entitles the holder to one vote at general meetings of Nokia.
As of December 31, 2016, the share capital of Nokia Corporation equaled EUR 245 896 461.96 and the total number of shares issued was
5 836 055 012. As of December 31, 2016, the total number of shares included 115 551 878 shares owned by Group companies representing
approximately 2.0% of the total number of shares and the total voting rights.
Nokia does not have minimum or maximum share capital or a par value of a share.
As of December 31
Share capital, EURm
Shares, (000s)
Shares owned by the Group, (000s)
Number of shares excluding shares owned by the Group, (000s)
Average number of shares excluding shares owned by the Group
2016
246
5 836 055
115 552
5 720 503
2015
246
3 992 864
53 669
3 939 195
2014
246
3 745 044
96 901
3 648 143
2013
246
3 744 994
32 568
3 712 427
2012
246
3 744 956
33 971
3 710 985
during the year, (000s), basic
5 732 371
3 670 934
3 698 723
3 712 079
3 710 845
Average number of shares excluding shares owned by the Group
during the year, (000s), diluted
Number of registered shareholders(1)
(1) Each account operator is included in the figure as only one registered shareholder.
Key ratios
5 741 117
237 700
3 949 312
209 509
4 131 602
216 830
3 712 079
225 587
3 710 845
250 799
As of December 31, Continuing operations
2016
2015
2014
2013
2012
Earnings per share for (loss)/profit attributable
to equity holders of the parent
Earnings per share, basic, EUR
Earnings per share, diluted, EUR
P/E ratio, basic(1)
Dividend per share, EUR(2)
Total dividends paid, EURm(2)(3)
Payout ratio, basic(2)
Dividend yield, %(2)
Shareholders’ equity per share, EUR(4)
Market capitalization, EURm(4)
(0.13)
(0.13)
neg.
0.17
972
neg.
3.70
3.51
26 257
0.32
0.31
20.6
0.26
1 501
0.81
3.94
2.67
25 999
0.73
0.67
8.99
0.14
511
0.19
2.13
2.36
23 932
0.07
0.07
83.14
0.37
1 374
5.29
6.36
1.74
21 606
(0.16)
(0.16)
neg.
–
–
neg.
–
2.14
10 873
(1) Based on Nokia closing share price at year-end.
(2) The Board proposes a cash dividend of EUR 0.17 per share for 2016, subject to shareholders’ approval at the Annual General Meeting convening on May 23, 2017.
(3) For 2016, the figure represents the maximum amount to be distributed as dividends, based on the number of shares as of December 31, 2016, excluding the number of shares owned by the Group
companies. Comparative figures represent the total actual amounts paid.
(4) Excludes shares owned by Group companies.
Reductions of share capital and number of shares
Type of reduction
Cancellation of shares
Cancellation of shares
Cancellation of shares
Cancellation of shares
Cancellation of shares
Number of
shares
000s
–
–
–
66 904
–
Year
2012
2013
2014
2015
2016
Amount
of reduction
of the share
capital
EURm
–
–
–
–
–
Amount
of reduction
of the restricted
capital
EURm
–
–
–
–
–
Amount
of reduction
of the retained
earnings
EURm
–
–
–
–
–
NOKIA IN 2016
115
General facts on Nokia General facts on Nokia continued
Share turnover
Share turnover (000s)(1)
Total number of shares (000s)
% of total number of shares
2016
9 604 722
5 836 055
165
2015
8 490 823
3 992 823
213
2013
2014
2012
9 278 853 16 748 295 19 995 211
3 744 956
3 744 956
3 745 044
534
447
248
(1) Source: Nasdaq Helsinki, the NYSE composite tape and Euronext Paris (since November 2015).
The principal trading markets for the shares are Nasdaq Helsinki and Euronext Paris, in the form of shares, and the NYSE, in the form of ADSs.
Nasdaq Helsinki share prices(1)
EUR
Low/high
Average(2)
Year-end
(1) Source: Nasdaq Helsinki.
(2) Total turnover divided by total volume.
Euronext Paris share prices(1)
EUR
Low/high
Average(2)
Year-end
(1) Source: Euronext Paris.
(2) Total turnover divided by total volume.
NYSE share prices (ADS)(1)
USD
Low/high
Average(2)
Year-end
(1) Source: The NYSE composite tape.
(2) Total turnover divided by total volume.
2016
3.66/6.99
5.07
4.59
2015
4.91/7.87
6.53
6.60
2014
4.89/6.97
5.99
6.56
2013
2.30/6.03
3.57
5.82
2012
1.33/4.46
2.62
2.93
2016
3.66/6.99
4.98
4.57
2015
6.29/7.15
6.66
6.59
2014
–
–
–
2013
–
–
–
2012
–
–
–
2016
4.04/7.55
5.64
4.81
2015
5.71/8.37
7.28
7.02
2014
6.64/8.73
7.79
7.86
2013
3.02/8.18
4.82
8.11
2012
1.63/5.87
3.41
3.95
Nokia share prices on Nasdaq Helsinki (EUR) and the NYSE (USD) 2012–2016
)
D
S
U
/
R
U
E
(
e
u
a
v
e
c
l
i
r
p
e
r
a
h
s
l
a
c
o
L
10
8
6
4
2
0
116
Jan 12
Jan 13
Jan 14
Jan 15
Jan 16
Dec 16
Nasdaq Helsinki
NYSE
NOKIA IN 2016
Stock option exercises 2012–2016
Year
2012
2013
2014
Stock option category
Nokia Stock Option Plan 2007 2Q
Nokia Stock Option Plan 2007 3Q
Nokia Stock Option Plan 2007 4Q
Nokia Stock Option Plan 2008 1Q
Nokia Stock Option Plan 2008 2Q
Nokia Stock Option Plan 2008 3Q
Nokia Stock Option Plan 2008 4Q
Nokia Stock Option Plan 2009 1Q
Nokia Stock Option Plan 2009 2Q
Nokia Stock Option Plan 2009 3Q
Nokia Stock Option Plan 2009 4Q
Nokia Stock Option Plan 2010 1Q
Nokia Stock Option Plan 2010 2Q
Nokia Stock Option Plan 2010 3Q
Nokia Stock Option Plan 2010 4Q
Total
Nokia Stock Option Plan 2008 1Q
Nokia Stock Option Plan 2008 2Q
Nokia Stock Option Plan 2008 3Q
Nokia Stock Option Plan 2008 4Q
Nokia Stock Option Plan 2009 1Q
Nokia Stock Option Plan 2009 2Q
Nokia Stock Option Plan 2009 3Q
Nokia Stock Option Plan 2009 4Q
Nokia Stock Option Plan 2010 1Q
Nokia Stock Option Plan 2010 2Q
Nokia Stock Option Plan 2010 3Q
Nokia Stock Option Plan 2010 4Q
Total
Nokia Stock Option Plan 2009 1Q
Nokia Stock Option Plan 2009 2Q
Nokia Stock Option Plan 2009 3Q
Nokia Stock Option Plan 2009 4Q
Nokia Stock Option Plan 2010 1Q
Nokia Stock Option Plan 2010 2Q
Nokia Stock Option Plan 2010 3Q
Nokia Stock Option Plan 2010 4Q
Nokia Stock Option Plan 2011 2Q
Nokia Stock Option Plan 2011 3Q
Total
Subscription price
EUR
18.39
21.86
27.53
24.15
19.16
17.80
12.43
9.82
11.18
9.28
8.76
10.11
8.86
7.29
7.59
24.15
19.16
17.80
12.43
9.82
11.18
9.28
8.76
10.11
8.86
7.29
7.59
9.56
10.92
9.02
8.50
9.85
8.60
7.03
7.33
5.76
3.50
Number of new
shares 000s
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
50
0
50
Date of
payment
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
Net proceeds
EURm
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.29
0.00
0.29
New share capital
EURm
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
NOKIA IN 2016
117
General facts on Nokia
General facts on Nokia continued
Year
2015
2016
Stock option category
Nokia Stock Option Plan 2010 1Q
Nokia Stock Option Plan 2010 2Q
Nokia Stock Option Plan 2010 3Q
Nokia Stock Option Plan 2010 4Q
Nokia Stock Option Plan 2011 2Q
Nokia Stock Option Plan 2011 3Q
Nokia Stock Option Plan 2011 4Q
Nokia Stock Option Plan 2012 1Q
Nokia Stock Option Plan 2012 2Q
Nokia Stock Option Plan 2012 3Q
Total
Nokia Stock Option Plan 2011 2Q
Nokia Stock Option Plan 2011 3Q
Nokia Stock Option Plan 2011 4Q
Nokia Stock Option Plan 2012 1Q
Nokia Stock Option Plan 2012 2Q
Nokia Stock Option Plan 2012 3Q
Nokia Stock Option Plan 2012 4Q
Nokia Stock Option Plan 2013 1Q
Nokia Stock Option Plan 2013 2Q
Nokia Stock Option Plan 2013 3Q
Total
Subscription price
EUR
9.85
8.60
7.03
7.33
5.76
3.50
4.58
3.58
2.18
1.92
5.66
3.40
4.48
3.48
2.08
1.82
1.76
2.58
2.35
2.72
Number of new
shares 000s
0
0
0
0
442
212
90
0
213
285
1 242
104
0
0
0
240
308
10
0
166
5
833
Date of
payment
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
New share capital
EURm
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Net proceeds
EURm
0.00
0.00
0.00
0.00
2.55
0.74
0.41
0.00
0.47
0.55
4.72
0.60
0.00
0.00
0.00
0.51
0.57
0.02
0.00
0.39
0.01
2.10
Shareholders
As of December 31, 2016, shareholders registered in Finland represented 17.46% and shareholders registered in the name of a nominee
represented 82.54% of the total number of shares of Nokia Corporation. The number of directly registered shareholders was 237 700
as of December 31, 2016. Each account operator (14) is included in this figure as only one registered shareholder.
Largest shareholders registered in Finland as of December 31, 2016(1)
Shareholder
Varma Mutual Pension Insurance Company
Schweizerische Nationalbank
The State Pension Fund
Ilmarinen Mutual Pension Insurance Company
Elo Mutual Pension Insurance Company
Folketrygdfondet
Lival Oy Ab
Svenska Litteratursällskapet i Finland rf
Nordea Finland Fund
Keva (Local Government Pensions Institution)
Total number
of shares 000s
62 722
38 498
38 000
29 820
18 499
18 389
14 626
14 394
13 263
10 849
% of all shares
1.07
0.66
0.65
0.51
0.32
0.32
0.25
0.25
0.23
0.19
% of all voting rights
1.09
0.67
0.66
0.52
0.32
0.32
0.26
0.25
0.23
0.19
(1) Excluding nominee registered shares and shares owned by Nokia Corporation. Nokia Corporation owned 104 093 217 shares as of December 31, 2016.
118
NOKIA IN 2016
Breakdown of share ownership as of December 31, 2016(1)
By number of shares owned
1–100
101–1 000
1 001–10 000
10 001–100 000
100 001–500 000
500 001–1 000 000
1 000 001–5 000 000
Over 5 000 000
Total
Number of
shareholders
47 964
115 933
65 028
8 267
388
43
53
24
237 700
% of
shareholders
20.18
48.77
27.36
3.48
0.16
0.02
0.02
0.01
100.00
Total number
of shares
2 774 317
53 091 780
203 634 514
200 858 393
77 417 339
29 450 835
126 843 622
5 141 984 212
5 836 055 012
% of
all shares
0.05
0.91
3.49
3.44
1.33
0.51
2.17
88.11
100.00
(1) The breakdown covers only shareholders registered in Finland, and each account operator (14) is included in the number of shareholders as only one registered shareholder. As a result, the breakdown
is not illustrative of the entire shareholder base of Nokia.
By nationality
Non-Finnish shareholders
Finnish shareholders
Total
By shareholder category (Finnish shareholders)
Corporations
Households
Financial and insurance institutions
Non-profit organizations
Governmental bodies (incl. pension insurance companies)
Total
% of shares
82.54
17.46
100.00
% of shares
3.50
7.67
2.09
1.08
3.12
17.46
As of December 31, 2016, a total of 617 976 509 ADSs (equivalent to the same number of shares or approximately 10.59% of the total
outstanding shares) were outstanding and held of record by 139 658 registered holders in the United States. We are aware that many ADSs
are held of record by brokers and other nominees, and accordingly the above number of holders is not necessarily representative of the actual
number of persons who are beneficial holders of ADSs or the number of ADSs beneficially held by such persons. Based on information available
from Automatic Data Processing Inc., the number of beneficial owners of ADSs as of December 31, 2016 was 391 848.
Based on information known to us as of March 22, 2017, as of November 26, 2015 Blackrock, Inc. beneficially owned 287 009 903 Nokia shares
or convertible bonds combined, which at that time corresponded to approximately 7.19% of the total number of shares and voting rights of
Nokia. All of our shareholders have the same voting rights, refer to “Board review—Shares and share capital”.
To our knowledge, Nokia is not directly or indirectly owned or controlled by any other corporation or any government, and there are no
arrangements that may result in a change of control of Nokia.
NOKIA IN 2016
119
General facts on Nokia General facts on Nokia continued
Shares and stock options owned by the members of the Board and the Nokia Group Leadership Team
As of December 31, 2016, members of the Board and the Group Leadership Team owned an aggregate of 3 142 338 shares which represented
approximately 0.05% of the aggregate number of shares and voting rights. They also owned stock options which, if exercised in full, including
both exercisable and non-exercisable stock options, would be exercisable for an additional 310 000 shares representing approximately 0.005%
of the total number of shares and voting rights as of December 31, 2016.
Authorizations
Authorizations to issue shares and special rights entitling to shares
At the Annual General Meeting held on May 5, 2015, Nokia shareholders authorized the Board to issue a maximum of 730 million shares
through one or more issues of shares or special rights entitling to shares. The Board was authorized to issue either new shares or shares held
by the company. The authorization included the right for the Board to resolve on all the terms and conditions of such share and special rights
issuances, including issuance in deviation from the shareholders’ pre-emptive rights. The authorization may be used to develop the company’s
capital structure, diversify the shareholder base, finance or carry out acquisitions or other arrangements, settle the company’s equity-based
incentive plans, or for other purposes resolved by the Board. The authorization that would have been effective until November 5, 2016 was
terminated by a resolution of Annual General Meeting on June 16, 2016.
At the Extraordinary General Meeting held on December 2, 2015, Nokia shareholders authorized the Board to issue, in deviation from the
shareholders’ pre-emptive right, a maximum of 2 100 million shares through one or more share issues. The authorization includes the right
for the Board to resolve on all the terms and conditions of such share issuances. The authorization may be used to issue Nokia shares to the
holders of Alcatel Lucent shares, ADSs and convertible bonds as well as to beneficiaries of Alcatel Lucent employee equity compensation
arrangements for the purpose of implementing the transaction with Alcatel Lucent, including the consummation of the public exchange
offers for all outstanding Alcatel Lucent securities made to Alcatel Lucent shareholders as well as other transactions contemplated by the
memorandum of understanding between Nokia and Alcatel Lucent, and/or otherwise to effect the combination of Nokia and Alcatel Lucent.
The authorization is effective until December 2, 2020. On November 2, 2016 Nokia reached 100% ownership of Alcatel Lucent.
At the Annual General Meeting held on June 16, 2016, Nokia shareholders authorized the Board to issue a maximum of 1 150 million shares
through one or more issues of shares or special rights entitling to shares. The Board is authorized to issue either new shares or shares held
by the company. The authorization includes the right for the Board to resolve on all the terms and conditions of such share and special rights
issuances, including issuance in deviation from the shareholders’ pre-emptive rights. The authorization may be used to develop the company’s
capital structure, diversify the shareholder base, finance or carry out acquisitions or other arrangements, settle the company’s equity-based
incentive plans, or for other purposes resolved by the Board. The authorization is effective until December 16, 2017.
As of December 31, 2016, the Board had no other authorizations to issue shares, convertible bonds, warrants or stock options.
120
NOKIA IN 2016
Authorization to repurchase shares
At the Annual General Meeting held on May 5, 2015, Nokia shareholders authorized the Board to repurchase a maximum of 365 million shares.
The amount corresponded to less than 10% of the total number of the company’s shares. The shares may be repurchased in order to optimize
the capital structure of the company, in order to finance or carry out acquisitions or other arrangements, to settle the company’s equity-based
incentive plans or to be transferred for other purposes. The authorization that would have been effective until November 5, 2016 was terminated
by a resolution of the Annual General Meeting on June 16, 2016.
At the Annual General Meeting held on June 16, 2016, Nokia shareholders authorized the Board to repurchase a maximum of 575 million
Nokia shares. The amount corresponds to less than 10% of the total number of the company’s shares. The shares may be repurchased in order
to optimize the capital structure of the company, to finance or carry out acquisitions or other arrangements, to settle the company’s equity-based
incentive plans, or to be transferred for other purposes. The authorization is effective until December 16, 2017.
On November 15, 2016, in line with its previously announced EUR 7 billion capital structure optimization program, the Board resolved to
commence a share repurchase program under the authorization granted by the Nokia Annual General Meeting on June 16, 2016. The Board
resolved to repurchase a maximum of 575 million Nokia shares up to an equivalent of EUR 1 billion.
Period
January
February
March
April
May
June
July
August
September
October
November(2)
December
Total
Total number of
shares purchased
–
–
–
–
–
–
–
–
–
–
20 880 143
33 416 039
54 296 182
Average price
paid per share, EUR
–
–
–
–
–
–
–
–
–
–
3.95
4.43
4.25
Total number of shares
purchased as part of
publicly announced plans
or programs(1)
–
–
–
–
–
–
–
–
–
–
20 880 143
33 416 039
54 296 182
Maximum value
of shares that may yet
be purchased under the
plans or programs, EUR
–
–
–
–
–
–
–
–
–
–
917 499 980
769 389 815
769 389 815
(1) On October 29, 2015 Nokia announced a capital structure optimization program including share repurchases. In line with the program, a EUR 1 billion share purchase program was announced on
November 15, 2016.
(2) Repurchases commenced on November 16, 2016.
NOKIA IN 2016
121
General facts on Nokia General facts on Nokia continued
Offer and listing details
Our capital consists of shares traded on Nasdaq Helsinki under the symbol “NOKIA” and Euronext Paris under the symbol “NOKIA”. Our ADSs,
each representing one of our shares, are traded on the NYSE under the symbol “NOK”. The ADSs are evidenced by American Depositary Receipts
(“ADRs”) issued by Citibank, N.A., as the Depositary under the Amended and Restated Deposit Agreement dated as of March 28, 2000
(as amended), among Nokia, Citibank, N.A. and registered holders from time to time of ADRs, as amended on February 6, 2008.
The table below sets forth, for the periods indicated, the reported high and low quoted prices for our shares on Nasdaq Helsinki and Euronext
Paris, and the high and low quoted prices for the ADSs, as reported on the NYSE composite tape.
2012
2013
2014
2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Full year
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Full year
Most recent six months
September 2016
October 2016
November 2016
December 2016
January 2017
February 2017
March 10, 2017(2)
(1) Nokia’s listing and trading on Euronext Paris commenced on November 19, 2015.
(2) For the period until March 10, 2017.
Nasdaq Helsinki
price per share
New York Stock Exchange
price per ADS
Euronext Paris
price per share(1)
High
Low
High
Low
High
Low
EUR
USD
4.46
6.03
6.97
7.38
7.87
6.55
7.11
7.87
6.99
5.58
5.38
5.20
6.99
5.20
5.20
4.17
4.74
4.67
4.92
5.01
1.33
2.30
4.89
6.33
5.71
4.91
5.92
4.91
5.06
4.48
4.56
3.66
3.66
4.78
4.06
3.66
3.93
4.15
4.12
4.82
5.87
8.18
8.73
8.14
8.37
7.10
7.63
8.37
7.55
6.31
5.99
5.83
7.55
5.89
5.83
4.53
4.99
4.99
5.21
5.38
1.63
3.02
6.64
7.40
6.30
5.71
6.53
5.71
5.74
5.01
5.22
4.04
4.04
5.40
4.47
4.04
4.20
4.50
4.52
5.16
EUR
–
–
–
–
–
–
7.15
7.15
6.99
5.57
5.38
5.20
6.99
5.20
5.20
4.17
4.75
4.71
4.92
5.00
–
–
–
–
–
–
6.29
6.29
5.06
4.17
4.56
3.66
3.66
4.78
4.06
3.66
3.93
4.15
4.13
4.82
122
NOKIA IN 2016
Related party transactions
Other than the paid compensation, as described above, there have
been no material transactions during the last three fiscal years to
which any director, executive officer or 5% shareholder, or any
relative or spouse of any of them, was a party. There is no significant
outstanding indebtedness owed to Nokia by any director, executive
officer or 5% shareholder.
In 2016, through the Acquisition of Alcatel Lucent, we also acquired
Alcatel-Lucent Shanghai Bell Co. Ltd (“ASB”), a partly owned subsidiary
incorporated in China, which has a counterparty, China Huaxin, with a
non-controlling interest (50% less one share) that is material to the
Group. ASB, with its subsidiaries in China and the rest of the world,
including the RFS Group, comprise the Alcatel-Lucent Shanghai Bell
Group. Refer to Note 33, Significant partly-owned subsidiaries, and
Note 35, Related party transactions, of our consolidated financial
statements included in this annual report.
Production of infrastructure equipment
and products
Our operations team handles the supply chain management of all its
hardware, software and original equipment manufacturer products.
This includes supply planning, manufacturing, distribution,
procurement, logistics and supply.
On December 31, 2016, we had twelve manufacturing facilities
globally: one in Australia, one in Brazil, three in China, one in Finland,
two in France, one in Germany, one in India, one in the United Kingdom
and one in the United States.
Most of our production and assembly is outsourced, while the
remaining portion is carried out in our production sites. This system
provides us with considerable flexibility in our manufacturing and
enables us to meet demands related to cost, availability and customer
requirements more easily.
The table below shows the productive capacity per location of
significant manufacturing facilities for our infrastructure equipment
on December 31, 2016.
Location and products(1)
Country
Australia Kilsyth: radio frequency systems
Embu: radio frequency systems
Brazil
Shanghai: fixed access and wireless access
China
systems
Shanghai (cable): radio frequency systems
China
Shanghai (antenna): radio frequency systems
China
Oulu: base stations
Finland
Calais: submarine cables
France
France
Trignac: radio frequency systems
Germany Hanover: radio frequency systems
India
Chennai: base stations, radio controllers
UK
USA
and transmission systems
Greenwich: submarine cables
Meriden: radio frequency systems
Productive
capacity,
Net (m2)(2)
5 000
7 800
23 000
9 200
5 600
16 000
48 000
10 200
21 000
12 800
19 500
31 000
(1) We consider the production capacity of our manufacturing network to be sufficient to meet
the requirements of its network infrastructure business. The extent of utilization of our
manufacturing facilities varies from plant to plant and from time to time during the year.
None of these facilities is subject to a material encumbrance.
(2) Productive capacity equals the total area allotted to manufacturing and to the storage
of manufacturing-related materials.
NOKIA IN 2016
123
General facts on Nokia General facts on Nokia continued
Key ratios
Operating profit
Profit before interest and taxes
Earnings per share (basic)
Profit attributable to equity holders of the parent
Average adjusted number of shares during the year
Earnings per share (diluted)
Adjusted profit attributable to equity holders of the parent
Average number of shares during the year adjusted for the
effect of dilutive shares
P/E ratio
Closing share price at December 31
Earnings per share (basic) for Continuing operations
Payout ratio
Dividend per share
Earnings per share (basic) for Continuing operations
Dividend yield %
Dividend per share
Closing share price at December 31
Shareholders’ equity per share
Capital and reserves attributable to equity holders of the parent
Number of shares at December 31—number of treasury shares
at December 31
Market capitalization
(Number of shares at December 31—number of treasury shares
at December 31) x closing share price at December 31
Share turnover %
Number of shares traded during the year
Average number of shares during the year
Interest-bearing liabilities
Long-term interest-bearing liabilities (including the current portion
thereof) + short-term borrowings
Return on capital employed %
Profit before taxes + interest and other financial expenses
Average capital and reserves attributable to the Company’s
equity holders + average non-controlling interests + average
interest-bearing liabilities
Return on shareholders’ equity %
Profit attributable to the equity holders of the parent
Average capital and reserves attributable to the company’s
equity holders during the year
Equity ratio %
Capital and reserves attributable to equity
holders of the parent + non-controlling interests
Total assets—advance payments received
Net debt to equity (gearing) %
Interest-bearing liabilities—cash and other liquid assets
Capital and reserves attributable to the equity holders
of the parent + non-controlling interests
Net cash
Total cash and other liquid assets—interest-bearing liabilities
Free cash flow(1)
Net cash from/(used in) operating activities—purchases of property,
plant and equipment, and intangible assets
(1) The consolidated statement of cash flows combines cash flows from both Continuing operations
and Discontinued operations.
124
NOKIA IN 2016
Financial statements
Contents
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement of
financial position
Consolidated statement of cash flows
Consolidated statement of changes
in shareholders’ equity
Notes to consolidated financial
statements
1. Corporate information
2. Significant accounting policies
3. Use of estimates and critical
accounting judgments
4. Segment information
5. Acquisitions
6. Disposals treated as
Discontinued operations
7. Revenue recognition
8. Expenses by nature
9. Personnel expenses
10. Other income and expenses
11. Financial income and expenses
12. Income taxes
13. Earnings per share
14. Intangible assets
15. Property, plant and equipment
16. Impairment
17. Inventories
18. Allowances for doubtful accounts
19. Prepaid expenses and
accrued income
20. Shares of the Parent Company
21. Fair value and other reserves
22. Other comprehensive income
23. Interest-bearing liabilities
24. Fair value of financial instruments
25. Derivative financial instruments
26. Share-based payment
27. Pensions and other
post-employment benefits
28. Accrued expenses, deferred
revenue and other liabilities
29. Provisions
30. Commitments and contingencies
31. Notes to the consolidated
126
127
128
129
130
132
132
132
139
142
144
148
151
151
152
152
153
153
156
157
158
159
160
161
161
162
163
164
165
166
169
170
173
180
181
183
Parent Company income statement
Parent Company statement of
196
financial position
197
Parent Company statement of cash flows 199
Notes to Parent Company financial
statements
1. Accounting principles
2. Personnel expenses
3. Auditor’s fees
4. Other income
5. Financial income and expenses
6. Group contributions
7. Income taxes
8. Property, plant and equipment
9. Investments
10. Prepaid expenses and
200
200
202
202
202
203
203
203
204
204
accrued income
205
11. Shareholders’ equity
205
205
12. Distributable earnings
206
13. Fair value and other reserves
14. Fair value of financial instruments
206
15. Derivative financial instruments
208
16. Provisions
209
17. Long-term interest-bearing liabilities 209
18. Accrued expenses and
deferred revenue
19. Commitments and contingencies
20 Loans granted to the management
of the company
21. Notes to the statement
of cash flows
22. Principal Group companies
23. Shares of the Parent Company
24. Risk management
25. Subsequent events
Signing of the Annual Accounts 2016
and proposal by the Board of
Directors for distribution of profit
Auditor’s report
209
209
209
210
210
210
210
210
211
212
statement of cash flows
184
32. Principal Group companies
184
33. Significant partly-owned subsidiaries 185
34. Investments in associates
and other companies
35. Related party transactions
36. Risk management
37. Subsequent events
185
186
188
195
NOKIA IN 2016
125
Financial statements Consolidated income statement
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other income
Other expenses
Operating (loss)/profit
Share of results of associated companies and joint ventures
Financial income and expenses
(Loss)/profit before tax
Income tax benefit/(expense)
(Loss)/profit for the year from Continuing operations
(Loss)/profit for the year from Continuing operations attributable to:
Equity holders of the parent
Non-controlling interests
(Loss)/profit for the year from Continuing operations
(Loss)/profit for the year from Discontinued operations attributable to:
Equity holders of the parent
Non-controlling interests
(Loss)/profit for the year from Discontinued operations
(Loss)/profit for the year attributable to:
Equity holders of the parent
Non-controlling interests
(Loss)/profit for the year
Earnings per share attributable to equity holders of the parent
Basic earnings per share
Continuing operations
Discontinued operations
(Loss)/profit for the year
Diluted earnings per share
Continuing operations
Discontinued operations
(Loss)/profit for the year
Average number of shares
Basic
Continuing operations
Discontinued operations
(Loss)/profit for the year
Diluted
Continuing operations
Discontinued operations
(Loss)/profit for the year
Notes
4, 7
8
8
8
10
8, 10
34
11
12
6
2016
EURm
23 614
(15 158)
8 456
(4 904)
(3 819)
116
(949)
(1 100)
18
(287)
(1 369)
457
(912)
(751)
(161)
(912)
(15)
–
(15)
(766)
(161)
(927)
2015(1)
EURm
2014(1)
EURm
12 499
(6 963)
5 536
(2 080)
(1 772)
236
(223)
1 697
29
(186)
1 540
(346)
1 194
1 192
2
1 194
1 274
–
1 274
2 466
2
2 468
11 762
(6 774)
4 988
(1 904)
(1 559)
118
(229)
1 414
(12)
(403)
999
1 719
2 718
2 710
8
2 718
752
6
758
3 462
14
3 476
13
EUR
EUR
EUR
(0.13)
0.00
(0.13)
(0.13)
0.00
(0.13)
0.32
0.35
0.67
0.31
0.32
0.63
0.73
0.20
0.94
0.67
0.18
0.85
000s shares
000s shares
000s shares
5 732 371
5 732 371
5 732 371
3 670 934
3 670 934
3 670 934
3 698 723
3 698 723
3 698 723
5 741 117
5 741 117
5 741 117
3 949 312
3 949 312
3 949 312
4 131 602
4 131 602
4 131 602
(1) In 2016, following the Acquisition of Alcatel Lucent, the Group adopted a new financial reporting structure which resulted in changes to allocation and presentation principles of certain costs.
Comparatives for 2015 and 2014 have been recasted to reflect the new financial reporting structure.
The notes are an integral part of these consolidated financial statements.
126
NOKIA IN 2016
Consolidated statement
of comprehensive income
For the year ended December 31
Notes
(Loss)/profit for the year
Other comprehensive income
Items that will not be reclassified to profit or loss:
Remeasurements on defined benefit plans
Income tax related to items that will not be reclassified to profit or loss
Items that may be reclassified subsequently to profit or loss:
Translation differences
Net investment hedges
Cash flow hedges
Available-for-sale investments
Other (decrease)/increase, net
Income tax related to items that may be reclassified subsequently to profit or loss
22
Other comprehensive income/(loss), net of tax
Total comprehensive (loss)/income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Total comprehensive (loss)/income for the year
Attributable to equity holders of the parent:
Continuing operations
Discontinued operations
Total attributable to equity holders of the parent
Attributable to non-controlling interests:
Continuing operations
Discontinued operations
Total attributable to non-controlling interests
The notes are an integral part of these consolidated financial statements.
2016
EURm
(927)
613
(269)
251
(103)
14
(75)
(6)
20
445
(482)
(277)
(205)
(482)
(262)
(15)
(277)
(205)
–
(205)
2015
EURm
2014
EURm
2 468
3 476
112
(28)
(1 054)
322
(5)
113
2
(88)
(626)
1 842
1 837
5
1 842
1 513
324
1 837
5
–
5
(275)
96
820
(167)
(30)
106
40
16
606
4 082
4 061
21
4 082
2 350
1 711
4 061
16
5
21
NOKIA IN 2016
127
Financial statements Consolidated statement
of financial position
As of December 31
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Investments in associated companies and joint ventures
Available-for-sale investments
Deferred tax assets
Other non-current financial assets
Defined benefit pension assets
Other non-current assets
Total non-current assets
Current assets
Inventories
Accounts receivable, net of allowances for doubtful accounts
Prepaid expenses and accrued income
Current income tax assets
Other financial assets
Investments at fair value through profit and loss, liquid assets
Available-for-sale investments, liquid assets
Cash and cash equivalents
Total current assets
Assets held for sale
Total assets
SHAREHOLDERS’ EQUITY AND LIABILITIES
Capital and reserves attributable to equity holders of the parent
Share capital
Share issue premium
Treasury shares
Translation differences
Fair value and other reserves
Reserve for invested non-restricted equity
Retained earnings
Total capital and reserves attributable to equity holders of the parent
Non-controlling interests
Total equity
Non-current liabilities
Long-term interest-bearing liabilities
Deferred tax liabilities
Defined benefit pension and post-retirement liabilities
Deferred revenue and other long-term liabilities
Provisions
Total non-current liabilities
Current liabilities
Short-term interest-bearing liabilities
Other financial liabilities
Current income tax liabilities
Accounts payable
Accrued expenses, deferred revenue and other liabilities
Provisions
Total current liabilities
Total liabilities
Total shareholders’ equity and liabilities
The notes are an integral part of these consolidated financial statements.
Notes
2016
EURm
2015
EURm
14, 16
15
34
24
12
24, 36
27
19
17
18, 24, 36
19
24, 25, 36
24, 36
24, 36
24, 36
20
21
21
23, 24, 36
12
27
24, 28
29
23, 24, 36
24, 25, 36
24, 36
28
29
10 960
1 981
116
1 040
5 701
254
3 802
328
24 182
2 506
6 972
1 296
279
296
327
1 502
7 497
20 675
44
44 901
246
439
(881)
483
488
15 731
3 588
20 094
881
20 975
3 657
403
5 000
1 453
808
11 321
370
236
634
3 781
6 412
1 172
12 605
23 926
44 901
560
695
84
1 004
2 634
49
25
51
5 102
1 014
3 913
749
171
128
687
2 167
6 995
15 824
–
20 926
246
380
(718)
292
204
3 820
6 279
10 503
21
10 524
2 023
61
423
1 254
250
4 011
51
114
446
1 910
3 395
475
6 391
10 402
20 926
128
NOKIA IN 2016
Consolidated statement
of cash flows
For the year ended December 31
Cash flow from operating activities
(Loss)/profit for the year
Adjustments, total
Change in net working capital
Cash (used in)/from operations
Interest received
Interest paid
Income taxes paid, net
Net cash (used in)/from operating activities
Cash flow from investing activities
Acquisition of businesses, net of acquired cash
Purchase of current available-for-sale investments, liquid assets(2)
Purchase of investments at fair value through profit and loss, liquid assets
Purchase of non-current available-for-sale investments
Proceeds from/(payment of) other long-term loans receivable
Proceeds from/(payment of) short-term loans receivable
Purchases of property, plant and equipment, and intangible assets
Proceeds from disposal of businesses, net of disposed cash(1)
Proceeds from disposal of shares in associated companies
Proceeds from maturities and sale of current available-for-sale investments, liquid assets(2)
Proceeds from maturities and sale of investments at fair value through profit and loss,
liquid assets
Proceeds from sale of non-current available-for-sale investments
Proceeds from sale of property, plant and equipment and other intangible assets
Dividends received
Net cash from investing activities
Cash flow from financing activities
Proceeds from stock option exercises
Purchase of treasury shares
Purchase of equity instruments of subsidiaries(2)
Proceeds from long-term borrowings
Repayment of long-term borrowings(2)
Repayment of short-term borrowings
Dividends paid and other contributions to shareholders
Net cash used in financing activities
Translation differences
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents as of January 1
Cash and cash equivalents as of December 31
Notes
2016
EURm
2015
EURm
2014
EURm
31
31
(927)
2 407
(2 207)
(727)
85
(309)
(503)
(1 454)
5 819
(4 131)
–
(73)
11
19
(477)
6
10
5 121
368
134
28
1
6 836
6
(216)
(724)
225
(2 599)
(100)
(1 515)
(4 923)
43
502
6 995
7 497
2 468
(261)
(1 377)
830
62
(99)
(290)
503
(98)
(3 133)
(311)
(88)
(2)
(17)
(314)
2 586
–
3 074
48
149
–
2
1 896
4
(173)
(52)
232
(24)
(55)
(512)
(580)
6
1 825
5 170
6 995
3 476
(2 262)
988
2 202
45
(336)
(636)
1 275
(175)
(2 977)
–
(73)
7
20
(311)
2 508
7
1 774
–
62
44
–
886
–
(427)
(45)
79
(2 749)
(42)
(1 392)
(4 576)
(48)
(2 463)
7 633
5 170
(1) In 2014, proceeds from the Sale of the D&S Business are presented net of the amount of principal and accrued interest on the repaid convertible bonds.
(2) In 2016, Alcatel Lucent ordinary shares and ADSs and OCEANEs acquired in cash by Nokia subsequent to the closing of the reopened exchange offer are presented within cash flow from financing
activities as purchase of equity instruments of subsidiaries and repayment of long-term borrowings, respectively. In relation to the Public Buy-Out offer/Squeeze-Out, Nokia’s pledged cash asset of
EUR 724 million to cover the purchase of the remaining Alcatel Lucent securities was recorded within cash flow from investing activities as purchase of current available-for-sale investments, liquid
assets. The amount of pledged cash released upon acquisition of Alcatel Lucent securities of EUR 724 million was recorded within cash flow from investing activities as proceeds from maturities and
sale of current available-for-sale investments, liquid assets.
The consolidated statement of cash flows combines cash flows from both the Continuing and the Discontinued operations. Refer to Note 6, Disposals treated as
Discontinued operations.
The amounts in the consolidated statement of cash flows cannot be directly traced from the consolidated statement of financial position without additional information on
the acquisitions and disposals of subsidiaries and the net foreign exchange differences arising on consolidation.
The notes are an integral part of these consolidated financial statements.
NOKIA IN 2016
129
Financial statements Consolidated statement
of changes in shareholders’ equity
EURm
As of January 1, 2014
Remeasurements of defined
benefit plans, net of tax
Translation differences
Net investment hedge losses,
net of tax
Cash flow hedges, net of tax
Available-for-sale investments,
net of tax
Other increase, net
Profit for the year
Total comprehensive
income/(loss) for the year
Share-based payment
Excess tax benefit on
share-based payment
Settlement of performance
and restricted shares
Acquisition of treasury shares
Stock options exercise
Dividends(1)
Disposal of subsidiaries
Acquisition of non-controlling
interests
Convertible bond—equity
component
Other movements
Total other equity movements
As of December 31, 2014
Remeasurements of defined
benefit plans, net of tax
Translation differences
Net investment hedge gains,
net of tax
Cash flow hedges, net of tax
Available-for-sale investments,
net of tax
Other increase/(decrease), net
Profit for the year
Total comprehensive income/
(loss) for the year
Share-based payment
Excess tax benefit on
share-based payment
Settlement of performance
and restricted shares
Acquisition of treasury shares
Cancellation of treasury shares
Stock options exercise
Dividends(1)
Acquisition of non-controlling
interests
Convertible bond—equity
component
Convertible bond—conversion
to equity
Other movements
Total other equity movements
As of December 31, 2015
Number
of shares
outstanding
(000s)
3 712 427
Notes
Share
capital
Share
issue
premium
Treasury
shares
Translation
differences
Reserve for
invested
non-
restricted
equity
Fair value
and other
reserves
Retained
earnings
Equity
holders of
the parent
Non-
controlling
interests
Total
246
615
(603)
434
80
3 115
2 581
6 468
192
6 660
21
21
21
21
21
21
21
21
(142)
(46)
813
(148)
(30)
103
10
39
3 462
–
665
(59)
–
3 455
47
(427)
(32)
(1 374)
(188)
813
(148)
(30)
103
49
3 462
4 061
4
10
(10)
(427)
–
(1 374)
–
7
14
21
(188)
820
(148)
(30)
103
49
3 476
4 082
4
10
(10)
(427)
–
(9) (1 383)
(109)
(109)
(7)
(7)
(38)
(45)
–
–
4
10
(25)
2 570
(66 904)
50
55
(32) (1 326)
4 710
3 083
(114)
–
(1 918)
8 611
1
(114)
1
(155) (2 073)
8 669
58
(7)
78
(1 057)
78
4 (1 053)
3 648 143
–
246
(114)
(51)
(176)
439
(5)
(385)
(988)
–
1 099
(1 057)
252
1
1
22
85
(4)
95
6
1
2 466
–
(805)
182
–
2 460
24
(174)
427
(16)
4
(427)
(507)
252
(4)
95
7
2 466
1 837
34
(2)
(4)
(174)
–
4
(507)
252
(4)
95
6
2 468
1 842
34
(2)
(4)
(174)
–
4
(512)
(1)
2
5
(5)
(15)
(15)
(37)
(52)
57
–
–
(7)
270
(718)
(2)
(2)
292
–
204
750
(1)
737
3 820
720
(1)
55
10 503
1
(891)
6 279
720
(1)
13
(42)
21 10 524
–
–
34
(2)
(12)
1 281
(24 516)
1 042
313 681
(436)
3 939 195
–
246
(57)
(30)
8
(59)
380
130
NOKIA IN 2016
EURm
As of December 31, 2015
Remeasurements of defined
benefit plans, net of tax
Translation differences
Net investment hedge losses,
net of tax
Cash flow hedges, net of tax
Available-for-sale investments,
net of tax
Other decrease, net
Loss for the year
Total comprehensive (loss)/
income for the year
Share-based payment
Excess tax benefit on
share-based payment
Settlement of performance
and restricted shares
Acquisition of treasury shares
Stock options exercise
Dividends(1)
Acquisitions through business
Number
of shares
outstanding
(000s)
Share
capital
Share
issue
premium
Notes
Treasury
shares
Translation
differences
Reserve for
invested
non-
restricted
equity
Fair value
and other
reserves
Retained
earnings
Equity
holders of
the parent
Non-
controlling
interests
Total
3 939 195
246
380
(718)
292
204
3 820
6 279
10 503
21 10 524
21
21
21
21
289
(83)
348
12
(73)
(1)
(3)
(766)
–
–
117
–
206
286
–
(769)
348
289
(83)
12
(73)
(4)
(766)
(277)
117
(6)
(4)
(38)
344
251
(83)
12
(73)
(6)
(927)
(482)
117
(6)
(2)
(161)
(205)
20
3 408
(54 296)
1 074
(6)
(22)
3
68
(231)
(52)
3
(6)
(231)
6
(1 501)
(6)
(231)
6
(14) (1 515)
(1 501)
combinations
5 1 765 358
11 616
11 616
1 714 13 330
Equity issuance costs related
to acquisitions
Acquisition of non-controlling
interests
Vested portion of share-based
payment awards related to
acquisitions
Convertible bond—equity
component
Other movements
Total other equity movements
As of December 31, 2016
65 778
(15)
(2)
359
(459)
(117)
(635)
(752)
(16)
(16)
(16)
5
(14)
5 720 503
–
246
6
(38)
(1)
59
439
6
6
(163)
(881)
(15)
483
(2)
488
38
1
11 911
15 731
(1 922)
3 588
–
–
9 868
20 094
–
–
1 065 10 933
881 20 975
(1) Dividend declared is EUR 0.17 per share, subject to shareholders’ approval (dividend EUR 0.16 per share for 2015; special dividend EUR 0.10 per share for 2015; and dividend EUR 0.14 per share
for 2014).
The notes are an integral part of these consolidated financial statements.
NOKIA IN 2016
131
Financial statements
Notes to consolidated financial statements
1. Corporate information
Nokia Oyj, a public limited liability company incorporated and domiciled
in Helsinki, Finland, is the parent company (“Parent Company” or
“Parent”) for all its subsidiaries (“Nokia” or “the Group”). The Group’s
operational headquarters are located in Espoo, Finland. The Group
is listed on the Nasdaq Helsinki stock exchange, the New York stock
exchange and the Euronext Paris stock exchange.
The Group is a leading global provider of mobile and fixed network
infrastructure combining hardware, software and services, as well as
advanced technologies and licensing that connect people and things.
On March 23, 2017 the Board of Directors authorized the financial
statements for 2016 for issuance and filing.
2. Significant accounting policies
Basis of presentation and statement of compliance
The consolidated financial statements are prepared in accordance
with International Financial Reporting Standards as issued by the
International Accounting Standards Board (“IASB”) and as adopted by
the European Union (“IFRS”). The consolidated financial statements
are presented in millions of euros (“EURm”), except as otherwise noted,
and are prepared under the historical cost convention, except as
disclosed in the accounting policies below. The notes to the
consolidated financial statements also conform to the Finnish
accounting legislation.
In 2016, comparative presentation of certain items in the consolidated
financial statements has been modified to conform with current
year presentation.
Other information
This paragraph is included in connection with statutory reporting
requirements in Germany. The fully consolidated German subsidiary,
Nokia Solutions and Networks GmbH & Co. KG, registered in the
commercial register of Munich under HRA 88537, has made use of
the exemption available under § 264b of the German Commercial
Code (“HGB”).
Principles of consolidation
The consolidated financial statements comprise the financial
statements of the Parent Company, and each of those companies over
which it exercises control. Control over an entity exists when the Group
is exposed, or has rights, to variable returns from its involvement with
the entity and has the ability to affect those returns through its power
over the entity. When the Group has less than a majority of voting or
similar rights in an entity, the Group considers all relevant facts and
circumstances in assessing whether it has power over an entity,
including the contractual arrangements, and voting rights and
potential voting rights. The Group reassesses whether or not it
controls an entity if facts and circumstances indicate that there are
changes to the elements of control.
Consolidation of a subsidiary begins when the Group obtains
control over the subsidiary and ceases when the Group loses control
over the subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in
the consolidated financial statements from the date the Group gains
control until the date the Group ceases to control the subsidiary.
A change in the ownership interest of a subsidiary, without a loss of
control, is accounted for as an equity transaction. If the Group loses
control in a subsidiary, the related assets, liabilities, non-controlling
interest and other components of equity are derecognized with any
gain or loss recognized in the consolidated income statement. Any
investment retained in the former subsidiary is measured at fair value.
All inter-company transactions are eliminated as part of the
consolidation process. Non-controlling interests are presented
separately as a component of net profit and are shown as a
component of shareholders’ equity in the consolidated statement
of financial position.
Business combinations
Business combinations are accounted for using the acquisition
method. The consideration transferred in a business combination is
measured as the aggregate of the fair values of the assets transferred,
liabilities incurred towards the former owners of the acquired entity or
business and equity instruments issued. Acquisition-related costs are
recognized as expenses in the consolidated income statement in the
period in which the costs are incurred and the related services are
received with the exception of costs directly attributable to the
issuance of equity instruments that are accounted for as a deduction
from equity.
Identifiable assets acquired and liabilities assumed are measured at
the acquisition date fair values. The Group elects whether to measure
the non-controlling interests in the acquiree at fair value or at the
proportionate share of the acquiree’s identifiable net assets on a
business combination by business combination basis. The excess
of the aggregate of the consideration transferred and the amount
recognized for non-controlling interests over the acquisition date fair
values of the identifiable net assets acquired is recorded as goodwill.
Investment in associates and joint ventures
An associate is an entity over which the Group exercises significant
influence. Significant influence is the power to participate in the
financial and operating policy decisions of the entity, but is not control
or joint control over those policies.
A joint venture is a type of joint arrangement whereby the parties that
have joint control of the arrangement have rights to the net assets
of the arrangement. Joint control is the contractually agreed sharing
of control of an arrangement, which exists only when decisions about
relevant activities require the unanimous consent of the parties
sharing control.
The Group’s investments in associates and joint ventures are
accounted for using the equity method. Under the equity method,
the investment in an associate or joint venture is initially recognized at
cost. The carrying amount of the investment is adjusted to recognize
changes in the Group’s share of net assets of the associate or joint
venture since the acquisition date. The Group’s share of profits and
losses of associates and joint ventures is included in the consolidated
income statement outside operating profit or loss. Any change in
other comprehensive income (“OCI”) of associates and joint ventures
is presented as part of the Group’s OCI.
After application of the equity method, as of each reporting date
the Group determines whether there is objective evidence that the
investment in an associate or joint venture is impaired. If there is such
evidence, the Group recognizes an impairment loss that is calculated
as the difference between the recoverable amount of the associate or
joint venture and its carrying value. The impairment loss is presented
in ‘Share of results of associated companies and joint ventures’ in the
consolidated income statement.
Non-current assets held for sale (or disposal groups) and
discontinued operations
Non-current assets or disposal groups are classified as assets held
for sale if their carrying amounts will be recovered principally through a
sale transaction rather than through continuing use. For this to be the
case, the asset, or the disposal group, must be available for immediate
sale in its present condition subject only to terms that are usual and
customary for sales of such assets or disposal groups, and the sale
must be highly probable. These assets, or in the case of disposal
groups, assets and liabilities, are presented separately in the
consolidated statement of financial position and measured at
the lower of the carrying amount and fair value less costs to sell.
132
NOKIA IN 2016
Non-current assets classified as held for sale, or included in a disposal
group classified as held for sale, are not depreciated or amortized.
Discontinued operations are reported when a component of the
Group, comprising operations and cash flows that can be clearly
distinguished both operationally and for financial reporting purposes
from the rest of the Group, is classified as held for sale or has been
disposed of, or the component represents a major line of business or
geographical area of operations, or is a part of a single coordinated
plan to dispose of a separate major line of business or geographical
area of operations. Profit or loss from Discontinued operations is
reported separately from income and expenses from Continuing
operations in the consolidated income statement, with prior periods
presented on a comparative basis. Cash flows for Discontinued
operations are presented separately in the notes to the consolidated
financial statements. Intra-group revenues and expenses between
Continuing and Discontinued operations are eliminated.
Revenue recognition
Revenue is recognized when the following criteria for the transaction
have been met: significant risks and rewards of ownership have
transferred to the buyer; continuing managerial involvement and
effective control usually associated with ownership have ceased; the
amount of revenue can be measured reliably; it is probable that the
economic benefits associated with the transaction will flow to the
Group; and the costs incurred or to be incurred in respect of the
transaction can be measured reliably. Revenue is measured at the
fair value of the consideration received or receivable net of discounts
and excluding taxes and duties.
Recurring service revenue which includes managed services and
maintenance services is generally recognized on a straight-line basis
over the agreed period, unless there is evidence that some other
method better represents the rendering of services.
The Group enters into contracts consisting of any combination of
hardware, services and software. Within these multiple element
arrangements, separate components are identified and accounted for
based on the nature of those components, considering the economic
substance of the entire arrangement. Revenue is allocated to each
separately identifiable component based on the relative fair value of
each component. The fair value of each component is determined by
taking into consideration factors such as the price of the component
when sold separately and the component cost plus a reasonable
margin when price references are not available. The revenue allocated
to each component is recognized when the revenue recognition
criteria for that component have been met.
Revenue from contracts involving the construction of an asset
according to customer specifications is recognized using the
percentage of completion method. Stage of completion for each
contract is measured by either the achievement of contractually
defined milestones or costs incurred compared to total project costs.
Revenue on license fees is recognized in accordance with the
substance of the relevant agreements. Subsequent to the initial
licensing transaction, where the Group has no remaining obligations to
perform and licensing fees are non-refundable, revenue is recognized
after the customer has been provided access to the underlying asset.
Where the Group retains obligations related to the licensed asset after
the initial licensing transaction, revenue is typically recognized over
a period of time during which remaining performance obligations are
satisfied. In some multiple element licensing transactions, the Group
applies the residual method in the absence of reference information.
Net sales includes revenue from all licensing negotiations, litigations
and arbitrations to the extent that the criteria for revenue recognition
have been met.
Government grants
Government grants are recognized when there is reasonable
assurance that the Group will comply with the conditions attached to
them and the grants will be received. Government grants received as
compensation for expenses or losses incurred are recognized in the
consolidated income statement as a deduction against the related
expenses. Government grants related to assets are presented in the
consolidated statement of financial position as deferred income and
recognized as income over the same period the asset is depreciated
or amortized.
Government grants received in the form of R&D tax credits are
recognized as a deduction against R&D expenses if the amount of the
tax credit is linked to the amount of R&D expenditures incurred by the
Group and the tax credit is a fully collectible asset which will be paid
in cash by the government in case the Group is not able to offset it
against its income tax payable. R&D tax credits that do not meet both
conditions are recognized as income tax benefit.
Employee benefits
Pensions and other post-employment benefits
The Group companies have various post-employment plans in
accordance with the local conditions and practices in the countries in
which they operate. The plans are generally funded through payments
to insurance companies or contributions to trustee-administered
funds as determined by periodic actuarial calculations.
In a defined contribution plan, the Group’s legal or constructive
obligation is limited to the amount that it agrees to contribute to
the fund. The Group’s contributions to defined contribution plans,
multi-employer and insured plans are recognized in the consolidated
income statement in the period to which the contributions relate.
If a pension plan is funded through an insurance contract where the
Group does not retain any legal or constructive obligations, the plan
is treated as a defined contribution plan. All arrangements that do
not fulfill these conditions are considered defined benefit plans.
For defined benefit plans, including pension and post-retirement
healthcare and life insurance, costs are assessed using the projected
unit credit method: the cost is recognized in the consolidated income
statement so as to spread the benefit over the service lives of
employees. The defined benefit obligation is measured as the present
value of the estimated future cash outflows using interest rates on
high-quality corporate bonds or government bonds with appropriate
maturities. Actuarial gains and losses arising from experience
adjustments and changes in actuarial assumptions are charged or
credited to equity in other comprehensive income in the period in
which they arise. Past service costs and settlement gains and losses
are recognized immediately in the consolidated income statement
as part of service cost, when the plan amendment, curtailment or
settlement occurs. Curtailment gains and losses are accounted for
as past service costs.
The liability or asset recognized in the consolidated statement of
financial position is the defined benefit obligation as of the closing
date less the fair value of plan assets including effects relating to
any asset ceiling.
Remeasurements, comprising actuarial gains and losses, the effect
of the asset ceiling and the return on plan assets, excluding amounts
recognized in net interest, are recognized immediately in the
consolidated statement of financial position with a corresponding
debit or credit to Fair Value and Other Reserves in Equity through
the consolidated statement of other comprehensive income in the
period in which they occur. Remeasurements are not reclassified
to the consolidated income statement in subsequent periods.
Actuarial valuations for the Group’s defined benefit post-employment
plans are performed annually or when a material curtailment or
settlement of a defined benefit plan occurs.
NOKIA IN 2016
133
Financial statements Notes to consolidated financial statements continued
Termination benefits
Termination benefits are payable when employment is terminated
before the normal retirement date, or whenever an employee accepts
voluntary redundancy in exchange for these benefits. The Group
recognizes termination benefits when it is demonstrably committed
to either terminating the employment of current employees according
to a detailed formal plan without possibility of withdrawal, or providing
termination benefits as a result of an offer made to encourage
voluntary redundancy. Local laws may provide employees with the
right to benefits from the employer upon termination whether the
termination is voluntary or involuntary. For these specific termination
benefits, the portion of the benefit that the Group would be required
to pay to the employee in the case of voluntary termination is treated
as a constructive obligation determined by local law and accounted
for as a defined benefit arrangement as described in the pensions
section above.
Share-based payment
The Group offers three types of global equity-settled share-based
compensation plans for employees: stock options, performance
shares and restricted shares.
Employee services received and the corresponding increase in equity
are measured by reference to the fair value of the equity instruments
as of the grant date, excluding the impact of any non-market
vesting conditions. Non-market vesting conditions attached to the
performance shares are included in assumptions about the number
of shares that the employee will ultimately receive. The Group reviews
the assumptions made on a regular basis and, where necessary,
revises its estimates of the number of performance shares that
are expected to be settled. Plans that apply tranched vesting are
accounted for under the graded vesting model. Share-based
compensation is recognized as an expense in the consolidated
income statement over the relevant service periods.
The Group has issued certain stock options which are accounted for as
cash-settled. The related employee services received and the liabilities
incurred are measured at the fair value of the liability. The fair value of
stock options is estimated based on the reporting date market value
less the exercise price of the stock options. The fair value of the
liability is remeasured as of each reporting date and as of the date of
settlement, with changes in fair value recognized in the consolidated
income statement over the relevant service periods.
Income taxes
The income tax expense comprises current tax and deferred tax.
Tax is recognized in the consolidated income statement except to
the extent that it relates to items recognized in other comprehensive
income, or directly in equity; then the related tax is recognized in
other comprehensive income or equity, respectively.
Current taxes are based on the results of group companies and are
calculated using the local tax laws and tax rates that are enacted
or substantively enacted as of each reporting date. Corporate taxes
withheld at the source of the income on behalf of group companies,
both recoverable and irrecoverable, as well as penalties and interests
on income taxes are accounted for in income taxes.
The Group periodically evaluates positions taken in tax returns with
respect to situations in which applicable tax regulation is subject to
interpretation. It adjusts the amounts recorded, where appropriate,
on the basis of amounts expected to be paid to the tax authorities.
The amount of current income tax liabilities for uncertain income tax
positions is recognized when it is more likely than not that certain tax
positions may not be fully sustained upon review by tax authorities.
The amounts recorded are based upon the estimated future
settlement amount as of each reporting date.
Deferred tax assets and liabilities are determined using the liability
method for all temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the consolidated
financial statements. Deferred tax assets are recognized to the extent
that it is probable that future taxable profit will be available against
which the unused tax losses, unused tax credits or deductible
temporary differences can be utilized before the unused tax losses
or unused tax credits expire. Deferred tax assets are assessed for
realizability as of each reporting date. When circumstances indicate
it is no longer probable that deferred tax assets will be utilized,
adjustments are made as necessary. Deferred tax liabilities are
recognized for temporary differences that arise between the
fair value and the tax base of identifiable net assets acquired
in business combinations.
Deferred tax assets and deferred tax liabilities are offset for
presentation purposes when there is a legally enforceable right to set
off current tax assets against current tax liabilities, and the deferred
tax assets and deferred tax liabilities relate to income taxes levied by
the same taxation authority on either the same taxable entity or
different taxable entities which intend either to settle current tax
liabilities and assets on a net basis, or to realize the assets and settle
the liabilities simultaneously in each future period in which significant
amounts of deferred tax liabilities or deferred tax assets are expected
to be settled or recovered.
Deferred tax liabilities are not recognized if they arise from the initial
recognition of goodwill. Deferred tax liabilities are provided on taxable
temporary differences arising from investments in subsidiaries,
associates and joint arrangements, except for deferred tax liability
where the timing of the reversal of the temporary difference is
controlled by the Group, and it is probable that the temporary
difference will not reverse in the foreseeable future.
The enacted or substantively enacted tax rates as of each reporting
date that are expected to apply in the period when the asset is realized
or the liability is settled are used in the measurement of deferred tax
assets and deferred tax liabilities. Deferred tax assets and liabilities
are not discounted.
Foreign currency translation
Functional and presentation currency
The financial statements of all group companies are measured using
functional currency, which is the currency of the primary economic
environment in which the entity operates. The consolidated financial
statements are presented in euro, the functional and presentation
currency of the Parent Company.
Transactions in foreign currencies
Transactions in foreign currencies are recorded at exchange rates
prevailing as of the dates of the individual transactions. For practical
reasons, a rate that approximates the actual rate as of the date of the
transaction is often used. At the end of the reporting period, monetary
assets and liabilities denominated in foreign currency are valued at the
exchange rates prevailing at the end of the reporting period. Foreign
exchange gains and losses arising from monetary assets and liabilities
as well as fair value changes of related hedging instruments are
recognized in financial income and expenses. Unrealized foreign
exchange gains and losses related to non-current available-for-sale
investments are included in the fair value measurement of these
investments and recognized in other comprehensive income.
Foreign group companies
All income and expenses of foreign group companies where the
functional currency is not the euro are translated into euro at the
average foreign exchange rates for the reporting period. All assets
and liabilities of foreign group companies are translated into euro at
foreign exchange rates prevailing at the end of the reporting period.
134
NOKIA IN 2016
Differences resulting from the translation of income and expenses
at the average rate and assets and liabilities at the closing rate are
recognized as translation differences in consolidated statement of
comprehensive income. On the disposal of all or part of a foreign
group company through sale, liquidation, repayment of share capital
or abandonment, the cumulative amount or proportionate share of
translation differences is recognized as income or expense when the
gain or loss on disposal is recognized.
Intangible assets
Intangible assets acquired separately are measured on initial
recognition at cost. The cost of intangible assets acquired in a
business combination is their fair value as of the date of acquisition.
Internally generated intangibles, except for development costs that
may be capitalized, are expensed as incurred. Development costs are
capitalized only if the Group has the technical feasibility to complete
the asset; has an ability and intention to use or sell the asset; can
demonstrate that the asset will generate future economic benefits;
has resources available to complete the asset; and has the ability
to measure reliably the expenditure during development.
Following initial recognition, intangible assets are carried at cost
less accumulated amortization and accumulated impairment losses.
Intangible assets are amortized over their useful lives, generally three
to ten years, using the straight-line method which is considered
reflecting best the pattern in which the asset’s future economic
benefits are expected to be consumed. The amortization charges are
presented within cost of sales, research and development expenses
and selling, general and administrative expenses in the consolidated
income statement.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and accumulated impairment losses. Depreciation is
recorded on a straight-line basis over the expected useful lives of the
assets as follows:
Buildings and constructions
Buildings and constructions
Light buildings and constructions
Machinery and equipment
Production machinery, measuring
and test equipment
Other machinery and equipment
20–33 years
3-20 years
1-5 years
3-10 years
Land and water areas are not depreciated.
Maintenance, repairs and renewals are generally expensed in the
period in which they are incurred. However, major renovations are
capitalized and included in the carrying amount of the asset when it
is probable that future economic benefits in excess of the originally
assessed standard of performance of the existing asset will flow to
the Group. Major renovations are depreciated over the remaining
useful life of the related asset. Leasehold improvements are
depreciated over the shorter of the lease term and the useful life.
Gains and losses on the disposal of property, plant and equipment
are included in operating profit or loss.
Leases
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards incidental to ownership
to the lessee. All other leases are classified as operating leases.
The Group has entered into various operating lease contracts as
a lessee. The related payments are treated as rental expenses and
recognized in the consolidated income statement on a straight-line
basis over the lease terms unless another systematic approach
is more representative of the pattern of the benefit.
The Group does not have any significant finance lease arrangements.
Impairment of goodwill, other intangible assets and property,
plant and equipment
The Group assesses the recoverability of the carrying value of goodwill,
other intangible assets and property, plant and equipment if events
or changes in circumstances indicate that the carrying value may be
impaired. In addition, the Group tests the carrying value of goodwill
for impairment annually even if there is no indication of impairment.
Factors that the Group considers when it reviews indications of
impairment include, but are not limited to, underperformance of the
asset relative to its historical or projected future results, significant
changes in the manner of using the asset or the strategy for the
overall business, and significant negative industry or economic trends.
For impairment testing purposes, goodwill is allocated to the
cash-generating units or groups of cash-generating units expected
to benefit from the synergies of the business combination.
A cash-generating unit, as determined for the purposes of the Group’s
goodwill impairment testing, is the smallest group of assets, including
goodwill, generating cash inflows that are largely independent of the
cash inflows from other assets or groups of assets. The carrying value
of a cash-generating unit includes its share of relevant corporate
assets allocated to it on a reasonable and consistent basis.
The Group conducts its impairment testing by determining the
recoverable amount for an asset or a cash-generating unit. The
recoverable amount of an asset or a cash-generating unit is the
higher of its fair value less costs of disposal and its value-in-use. The
recoverable amount is compared to the asset’s or cash-generating
unit’s carrying value. If the recoverable amount for the asset or
cash-generating unit is less than its carrying value, the asset is
considered impaired and is written down to its recoverable amount.
Impairment losses are presented in other expenses, or as a separate
line item if significant, in the consolidated income statement.
For more information on the annual impairment testing of goodwill,
including key assumptions used in calculating the recoverable amount
of goodwill, refer to Note 16, Impairment.
Inventories
Inventories are stated at the lower of cost and net realizable value.
Cost is determined using standard cost, which approximates actual
cost on a first-in first-out (“FIFO”) basis. Net realizable value is the
amount that can be realized from the sale of the inventory in the
normal course of business after allowing for the costs of realization.
In addition to the cost of materials and direct labor, an appropriate
proportion of production overhead is included in the inventory values.
An allowance is recorded for excess inventory and obsolescence based
on the lower of cost and net realizable value.
Fair value measurement
A number of financial instruments are measured at fair value as of
each reporting date after initial recognition. Fair value is the price that
would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date. The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest by using quoted market rates, discounted
cash flow analyses and other appropriate valuation models. The Group
uses valuation techniques that are appropriate in the circumstances
and for which sufficient data is available to measure fair value,
maximizing the use of relevant observable inputs and minimizing
the use of unobservable inputs. All assets and liabilities for which fair
values are being measured or disclosed in the consolidated financial
statements are categorized within the fair value hierarchy, described
as follows, based on the lowest level input that is significant to the fair
value measurement as a whole:
NOKIA IN 2016
135
Financial statements Notes to consolidated financial statements continued
Level 1—Quoted (unadjusted) market prices for exchange-traded
products in active markets for identical assets or liabilities;
Level 2—Valuation techniques for which significant inputs other
than quoted prices are directly or indirectly observable; and
Level 3—Valuation techniques for which significant inputs are
unobservable.
The Group categorizes assets and liabilities that are measured at fair
value on a recurring basis into an appropriate level of the fair value
hierarchy at the end of each reporting period.
Financial assets
The Group has classified its financial assets in the following categories:
available-for-sale investments, derivative and other current financial
assets, loans receivable, accounts receivable, financial assets at fair
value through profit or loss, and cash and cash equivalents. Derivatives
are described in the section on derivative financial instruments.
Available-for-sale investments
The Group invests a portion of the cash needed to cover the projected
cash outflows of its ongoing business operations in highly liquid,
interest-bearing investments and certain equity instruments. The
following investments are classified as available-for-sale based on
the purpose of the investment and the Group’s ongoing intentions:
■ Available-for-sale investments, liquid assets consist of highly liquid,
fixed-income and money-market investments with maturities at
acquisition of more than three months, as well as bank deposits
with maturities or contractual call periods at acquisition of more
than three months.
■ Investments in technology-related publicly quoted equity shares
or unlisted private equity shares and unlisted venture funds,
classified in the consolidated statement of financial position
as non-current available-for-sale investments.
Current fixed-income and money-market investments are fair valued
by using quoted market rates, discounted cash flow analyses and other
appropriate valuation models as of the reporting date. Investments
in publicly quoted equity shares are measured at fair value using
exchange quoted bid prices. Other available-for-sale investments
carried at fair value include holdings in unlisted shares. Fair value is
estimated using a number of methods, including, but not limited to:
the current market value of similar instruments; prices established
from a recent arm’s-length financing transaction of target companies;
and analysis of market prospects and operating performance of target
companies, taking into consideration public market comparable
companies in similar industry sectors. The Group uses judgment in
selecting the appropriate valuation methodology as well as underlying
assumptions based on existing market practice and conditions.
Changes in these assumptions may cause the Group to recognize
impairments or losses in future periods.
The remaining available-for-sale investments are carried at cost less
impairment. These are technology-related investments in private
equity shares and unlisted venture funds for which fair value cannot
be measured reliably due to non-existent public markets or reliable
valuation methods.
when the Group’s right to receive payment is established. When the
investment is disposed of, the related accumulated fair value changes
are released from other comprehensive income and recognized in the
consolidated income statement. The weighted average method is used
to determine the cost basis of publicly listed equities being disposed
of. The FIFO method is used to determine the cost basis of fixed-income
securities being disposed of. An impairment charge is recorded if the
carrying amount of an available-for-sale investment is greater than
the estimated fair value and there is objective evidence that the asset
is impaired including, but not limited to, counterparty default and
other factors causing a reduction in value that can be considered other
than temporary. The cumulative net loss relating to the investment
is removed from equity and recognized in the consolidated income
statement for the period. If, in a subsequent period, the fair value of
the investment in a non-equity instrument increases and the increase
can be objectively related to an event occurring after the loss was
recognized, the loss is reversed and the reversal is recognized in the
consolidated income statement.
Investments at fair value through profit and loss, liquid assets
Certain highly liquid financial assets are designated at inception
as investments at fair value through profit and loss, liquid assets.
These investments must meet one of the following two criteria:
the designation eliminates or significantly reduces an inconsistent
treatment that would otherwise arise from measuring the assets
or recognizing gains or losses on a different basis; or the assets are
part of a group of financial assets, which are managed and their
performance evaluated on a fair value basis in accordance with
a documented risk management or investment strategy. These
investments are initially recognized and subsequently remeasured
at fair value. Fair value adjustments and realized gains and losses
are recognized in the consolidated income statement.
Loans receivable
Loans receivable include loans to customers and suppliers and are
measured initially at fair value and subsequently at amortized cost
less impairment using the effective interest method. Loans are subject
to regular review as to their collectability and available collateral.
A valuation allowance is made if a loan is deemed not to be fully
recoverable. The related cost is recognized in other expenses or
financial expenses, depending on the nature of the receivable to
reflect the shortfall between the carrying amount and the present
value of expected future cash flows. Interest income on loans
receivable is recognized in financial income and expenses in the
consolidated income statement by applying the effective interest rate.
Cash and cash equivalents
Cash and cash equivalents consist of cash at bank and in hand and
available-for-sale investments, cash equivalents. Available-for-sale
investments, cash equivalents consist of highly liquid, fixed-income
and money-market investments that are readily convertible to known
amounts of cash with maturities at acquisition of three months or less,
as well as bank deposits with maturities or contractual call periods at
acquisition of three months or less. Due to the high credit quality and
short-term nature of these investments, there is an insignificant risk
of change in value. Investments in money-market funds that have a
risk profile consistent with the aforementioned criteria are also
classified as cash equivalents.
All purchases and sales of investments are recorded on the trade date,
that is, when the Group commits to purchase or sell the asset.
Changes in the fair value of available-for-sale investments are
recognized in fair value and other reserves as part of other
comprehensive income, with the exception of interest calculated using
the effective interest method and foreign exchange gains and losses
on current available-for-sale investments recognized directly in the
consolidated income statement. Dividends on available-for-sale equity
instruments are recognized in the consolidated income statement
Accounts receivable
Accounts receivable include amounts invoiced to customers,
amounts where revenue recognition criteria have been fulfilled but
the customers have not yet been invoiced, and amounts where the
contractual rights to the cash flows have been confirmed but the
customers have not yet been invoiced. Billed accounts receivable
are carried at the amount invoiced to customers less allowances for
doubtful accounts. Allowances for doubtful accounts are based on a
periodic review of all outstanding amounts, including an analysis of
136
NOKIA IN 2016
historical bad debt, customer concentrations, customer
creditworthiness, past due amounts, current economic trends
and changes in customer payment terms. Impairment charges
on receivables identified as uncollectible are included in other
operating expenses in the consolidated income statement.
Financial liabilities
The Group has classified its financial liabilities into the following
categories: derivative and other current financial liabilities, compound
financial instruments, loans payable, and accounts payable. Derivatives
are described in the section on derivative financial instruments.
Compound financial instruments
Compound financial instruments have both a financial liability and an
equity component from the issuers’ perspective. The components are
defined based on the terms of the financial instrument and presented
and measured separately according to their substance. The financial
liability component is initially recognized at fair value, the residual
being allocated to the equity component. The allocation remains the
same for the life of the compound financial instrument. The financial
liability components of convertible bonds issued by the Group are
accounted for as loan payables.
Loans payable
Loans payable are recognized initially at fair value net of transaction
costs. In subsequent periods, loans payable are presented at
amortized cost using the effective interest method. Transaction costs
and loan interest are recognized in the consolidated income statement
as financial expenses over the life of the instrument.
Accounts payable
Accounts payable are carried at invoiced amount which is considered
to be the fair value due to the short-term nature of the Group’s
accounts payable.
Derivative financial instruments
All derivatives are recognized initially at fair value on the date a
derivative contract is entered into and subsequently remeasured at
fair value. The method of recognizing the resulting gain or loss varies
according to whether the derivatives are designated and qualify under
hedge accounting. Generally, the cash flows of a hedge are classified
as cash flows from operating activities in the consolidated statement
of cash flows as the underlying hedged items relate to the Group’s
operating activities. When a derivative contract is accounted for as
a hedge of an identifiable position relating to financing or investing
activities, the cash flows of the contract are classified in the same
way as the cash flows of the position being hedged.
Derivatives not designated in hedge accounting relationships
carried at fair value through profit and loss
Forward foreign exchange contracts are valued at market-forward
exchange rates. Changes in fair value are measured by comparing
these rates with the original contract-forward rate. Currency options
are valued as of each reporting date by using the Garman & Kohlhagen
option valuation model. Changes in fair value are recognized in the
consolidated income statement.
Fair values of forward rate agreements, interest rate options, futures
contracts and exchange-traded options are calculated based on
quoted market rates as of each reporting date. Discounted cash flow
analyses are used to value interest rate and cross-currency interest
rate swaps. Changes in fair value are recognized in the consolidated
income statement.
For derivatives not designated under hedge accounting but
hedging identifiable exposures such as anticipated foreign currency
denominated sales and purchases, the gains and losses are recognized
in other income or expenses. The gains and losses on all other
derivatives not designated under hedge accounting are recognized
in financial income and expenses in the consolidated income statement.
Embedded derivatives, if any, are identified and monitored by the
Group and measured at fair value as of each reporting date with
changes in fair value recognized in the consolidated income statement.
Hedge accounting
The Group applies hedge accounting on certain forward foreign
exchange contracts, options or option strategies, and interest rate
derivatives. Qualifying options and option strategies have zero net
premium or a net premium paid. For option structures, the critical
terms of the bought and sold options are the same and the nominal
amount of the sold option component is not greater than that of the
bought option.
Cash flow hedges: hedging of forecast foreign currency
denominated sales and purchases
The Group applies hedge accounting for qualifying hedges. Qualifying
hedges are those properly documented cash flow hedges of foreign
exchange rate risk of future forecast foreign currency denominated
sales and purchases that meet the requirements set out in IAS 39,
Financial Instruments: Recognition and Measurement. The hedged
item must be highly probable and present an exposure to variations
in cash flows that could ultimately affect profit or loss. The hedge
must be highly effective, both prospectively and retrospectively.
For qualifying foreign exchange forwards, the change in fair value that
reflects the change in spot exchange rates and, for qualifying foreign
exchange options or option strategies, the change in intrinsic value are
deferred in fair value and other reserves in shareholders’ equity to the
extent that the hedge is effective. The ineffective portion is recognized
immediately in the consolidated income statement. Hedging costs,
expressed either as the change in fair value that reflects the change
in forward exchange rates less the change in spot exchange rates for
forward foreign exchange contracts, or as changes in the time value
for options or options strategies, are recognized in other income or
expenses in the consolidated income statement.
Accumulated changes in fair value from qualifying hedges are released
from fair value and other reserves into the consolidated income
statement as adjustments to sales and cost of sales when the
hedged cash flow affects the consolidated income statement. Forecast
foreign currency sales and purchases affect the consolidated income
statement at various dates up to approximately one year from the
reporting date. If the forecasted transaction is no longer expected to
take place, all deferred gains or losses are released immediately into
the consolidated income statement. If the hedged item ceases to be
highly probable but is still expected to take place, accumulated gains
and losses remain in fair value and other reserves until the hedged
cash flow affects the consolidated income statement.
Cash flow hedges: hedging of foreign currency risk of highly
probable business acquisitions and other transactions
From time to time, the Group hedges cash flow variability caused
by foreign currency risk inherent in highly probable business
acquisitions and other future transactions that result in the
recognition of non-financial assets. When those non-financial assets
are recognized in the consolidated statement of financial position,
the gains and losses previously deferred in fair value and other
reserves are transferred to the initial acquisition cost of the asset.
The deferred amounts are ultimately recognized in the consolidated
income statement as a result of goodwill assessments for business
acquisitions and through depreciation or amortization for other
assets. The application of hedge accounting is conditional on the
forecast transaction being highly probable and the hedge being
highly effective, prospectively and retrospectively.
NOKIA IN 2016
137
Financial statements Notes to consolidated financial statements continued
Cash flow hedges: hedging of cash flow variability
on variable rate liabilities
From time to time, the Group applies cash flow hedge accounting
for hedging cash flow variability on certain variable rate liabilities.
The effective portion of the gain or loss relating to interest rate
swaps hedging variable rate borrowings is deferred in fair value and
other reserves. The gain or loss related to the ineffective portion
is recognized immediately in the consolidated income statement.
If hedging instruments are settled before the maturity date of the
related liability, hedge accounting is discontinued and all cumulative
gains and losses recycled gradually to the consolidated income
statement when the hedged variable interest cash flows affect the
consolidated income statement.
Fair value hedges: hedging of foreign exchange exposure
The Group applies fair value hedge accounting for foreign exchange
risk with the objective to reduce the exposure to fluctuations in the
fair value of firm commitments due to changes in foreign exchange
rates. Changes in the fair value of derivatives designated and
qualifying as fair value hedges, together with any changes in the fair
value of the hedged firm commitments attributable to the hedged
risk, are recorded in financial income and expenses in the consolidated
income statement.
Fair value hedges: hedging of interest rate exposure
The Group applies fair value hedge accounting to reduce exposure to
fair value fluctuations of interest-bearing liabilities due to changes in
interest rates and foreign exchange rates. Changes in the fair value of
derivatives designated and qualifying as fair value hedges, together
with any changes in the fair value of hedged liabilities attributable to
the hedged risk, are recognized in financial income and expenses. If
the hedged item no longer meets the criteria for hedge accounting,
hedge accounting ceases and any fair value adjustments made to the
carrying amount of the hedged item while the hedge was effective are
recognized in financial income and expenses based on the effective
interest method.
Hedges of net investments in foreign operations
The Group applies hedge accounting for its foreign currency
hedging on net investments. Qualifying hedges are those properly
documented hedges of foreign exchange rate risk of foreign currency
denominated net investments that are effective both prospectively
and retrospectively.
The change in fair value that reflects the change in spot exchange
rates for qualifying foreign exchange forwards, and the change in
intrinsic value for qualifying foreign exchange options, are deferred in
translation differences in the consolidated statement of shareholder’s
equity. The change in fair value that reflects the change in forward
exchange rates less the change in spot exchange rates for forwards,
and changes in time value for options are recognized in financial
income and expenses. If a foreign currency denominated loan is
used as a hedge, all foreign exchange gains and losses arising from
the transaction are recognized in translation differences. The
ineffective portion is recognized immediately in the consolidated
income statement.
Accumulated changes in fair value from qualifying hedges are released
from translation differences on the disposal of all or part of a foreign
Group company by sale, liquidation, repayment of share capital or
abandonment. The cumulative amount or proportionate share of
changes in the fair value of qualifying hedges deferred in translation
differences is recognized as income or expense when the gain or loss
on disposal is recognized.
Provisions
Provisions are recognized when the Group has a present legal or
constructive obligation as a result of past events, it is probable that
an outflow of resources will be required to settle the obligation and a
reliable estimate of the amount can be made. When the Group expects
a provision to be reimbursed, the reimbursement is recognized as an
asset only when the reimbursement is virtually certain. The Group
assesses the adequacy of its existing provisions and adjusts the
amounts as necessary based on actual experience and changes in
facts and circumstances as of each reporting date.
Restructuring provisions
The Group provides for the estimated cost to restructure when a
detailed formal plan of restructuring has been completed, approved
by management, and announced. Restructuring costs consist primarily
of personnel restructuring charges. The other main components
are costs associated with exiting real estate locations, and costs of
terminating certain other contracts directly linked to the restructuring.
Warranty provisions
The Group provides for the estimated liability to repair or replace
products under standard warranty at the time revenue is recognized.
The provision is an estimate based on historical experience of the level
of repairs and replacements.
Litigation provisions
The Group provides for the estimated future settlements related
to litigation based on the probable outcome of potential claims.
Environmental provisions
The Group provides for estimated costs of environmental
remediation relating to soil, groundwater, surface water and
sediment contamination when the Group becomes obliged,
legally or constructively, to rectify the environmental damage,
or to perform restorative work.
Project loss provisions
The Group provides for onerous contracts based on the lower of
the expected cost of fulfilling the contract and the expected cost of
terminating the contract. An onerous contract is a contract in which
the unavoidable costs of meeting the obligations under the contract
exceed the economic benefits expected to be received under it.
Divestment-related provisions
The Group provides for indemnifications it is required to make
to the buyers of its disposed businesses.
Material liability provisions
The Group recognizes the estimated liability for non-cancellable
purchase commitments for inventory in excess of forecasted
requirements at each reporting date.
Other provisions
The Group provides for other legal and constructive obligations based
on the expected cost of executing any such commitments.
Treasury shares
The Group recognizes its own equity instruments that are acquired
(“treasury shares”) as a reduction of equity at cost of acquisition.
When cancelled, the acquisition cost of treasury shares is recognized
in retained earnings.
Dividends
Dividends proposed by the Board of Directors are recognized in the
consolidated financial statements when they have been approved
by the shareholders at the Annual General Meeting.
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NOKIA IN 2016
New and amended standards and interpretations adopted
On January 1, 2016, the Group adopted amendments to multiple
IFRS standards, which resulted from the amendments to IAS 1 and
the IASB’s annual improvement project for the 2012-2014 cycles.
They comprise amendments that result in accounting changes for
presentation, recognition or measurement purposes, most visibly
through additional guidance on use of judgment in applying
materiality in aggregation and disaggregation of line items and
more generally in the presentation in the financial statements.
The amendments did not have a material impact on the Group’s
consolidated financial statements.
Standards issued but not yet effective
The Group will adopt the following new and revised standards,
amendments and interpretations to existing standards issued by
the IASB that are expected to be relevant to its operations and
financial position when they become effective and are endorsed by
the EU. Other revisions, amendments and interpretations to existing
standards issued by the IASB that are not yet effective, except what
has been described below, are not expected to have a material impact
on the consolidated financial statements of the Group when adopted.
The Group has not early adopted any standard, interpretation
or amendment that has been issued but is not yet effective.
IFRS 9 Financial Instruments
IFRS 9, Financial Instruments, was issued in July 2014 and replaces
IAS 39, Financial Instruments: Recognition and Measurement. It
addresses the classification and measurement of financial assets
and liabilities, introduces a new impairment model and a new hedge
accounting model. The Group will adopt the standard on the effective
date of January 1, 2018.
The adoption of the new standard will impact the classification and
measurement of the Group’s financial assets. The Group has assessed
the investments currently classified as current available-for-sale, liquid
assets, and will classify certain bank deposits to be measured at
amortized cost and certain investment funds to be measured at fair
value through profit or loss at the adoption of the new standard. The
rest of these investments satisfy the conditions for classification at
fair value through other comprehensive income. Also certain trade
receivables currently carried at the invoiced amount less allowances
for doubtful accounts that are managed with a business model of hold
to collect and occasionally sell would be classified at fair value through
other comprehensive income. The Group’s investments in venture
funds that are currently classified as non-current available-for-sale
investments would by default be classified at fair value through profit
or loss with the election to classify certain investments at fair value
through other comprehensive income being available at the adoption
of the new standard.
The Group has assessed the impact of the new impairment model.
As the credit quality of the Group’s fixed income and money market
investments is high, no significant impact from the new model is
expected. While the Group has not yet assessed in detail the impact
of the new model to its current valuation allowances, there can be
a limited impact to valuation allowances for trade receivables and
loans extended to the Group’s customers as the new model may result
in an earlier recognition of credit losses.
The new hedge accounting rules will align the accounting for hedging
instruments more closely with the Group’s risk management practices.
The Group’s foreign exchange risk management policy and hedge
accounting model have already been aligned with the requirements
from IFRS 9. Accordingly, the Group does not expect a significant
impact on the accounting for its hedging relationships. The new
standard also introduces expanded disclosure requirements and
changes in presentation that are expected to change the nature
and extent of the group’s disclosures about its financial instruments,
particularly in the year of the adoption of the new standard. The Group
continues to assess the detailed impact of IFRS 9.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers was issued in May
2014 and establishes a new five-step model that will apply to revenue
arising from contracts with customers. Under IFRS 15, revenue is
recognized to reflect the transfer of promised goods and services to
customers for amounts that reflect the consideration to which an
entity expects to be entitled in exchange for those goods and services
to a customer. The Group will adopt the standard on the effective date
of January 1, 2018. The new standard replaces IAS 18, Revenue, and
IAS 11, Construction contracts. The Group is currently evaluating
whether the application will be the full retrospective or modified
retrospective method, both permissible under the new standard.
The Group currently believes that the adoption of the new standard
will have a material impact on revenue. Specifically, under some license
transfer contracts, revenue is expected to be recorded earlier at a
point in time instead of over time. Due to the complexity of some
of the Group’s license subscription contracts, the actual revenue
recognition treatment required under the new standard will be
dependent on contract-specific terms. Also, revenue related to certain
software contracts is likely to change from over time under the current
standard to point in time. The Group continues to assess all potential
impacts of IFRS 15.
IFRS 16 Leases
IFRS 16, Leases, issued in January 2016, sets out the requirements for
the recognition, measurement, presentation and disclosure of leases.
The Group expects to adopt the standard on the effective date of
January 1, 2019. The standard provides a single lessee accounting
model, requiring lessees to recognize right-of-use assets and lease
liabilities for substantially all leases on the consolidated statement
of financial position. The Group has started to analyze contracts
containing identified assets and estimates that the standard will
mainly affect the recognition and disclosure of the Group’s operating
leases. The full impact of IFRS 16 is currently being assessed. As of
December 31, 2016 the Group has non-cancellable operating lease
commitments of EUR 1 141 million. Refer to Note 30, Commitments
and contingencies.
3. Use of estimates and critical
accounting judgments
The preparation of consolidated financial statements requires use of
management judgment in electing and applying accounting policies as
well as in making estimates that involve assumptions about the future.
These judgments, estimates and assumptions may have a significant
effect on the consolidated financial statements.
The estimates used in determining the carrying amounts of assets
and liabilities subject to estimation uncertainty are based on historical
experience, expected outcomes and various other assumptions
that were available when these consolidated financial statements
were prepared, and they are believed to be reasonable under the
circumstances. The estimates are revised if changes in circumstances
occur, or as a result of new information or more experience. As
estimates inherently contain a varying degree of uncertainty, actual
outcomes may differ, resulting in additional charges or credits to the
consolidated income statement.
Management considers that the estimates, assumptions and
judgments about the following accounting policies represent the
most significant areas of estimation uncertainty and critical judgment
that may have an impact on the consolidated financial statements.
NOKIA IN 2016
139
Financial statements Notes to consolidated financial statements continued
Business combinations
The Group applies the acquisition method to account for acquisitions
of separate entities or businesses. The determination of the fair value
and allocation thereof to each separately identifiable asset acquired
and liability assumed as well as the determination of the acquisition
date, when the valuation and allocation is to be conducted require
estimation and judgment.
Estimation and judgment are required in determining the fair value of
the acquisition, including the discount rate, the terminal growth rate,
the number of years on which to base the cash flow projections, and
the assumptions and estimates used to determine the cash inflows
and outflows. The discount rate reflects current assessments of the
time value of money, relevant market risk premiums, and industry
comparisons. Risk premiums reflect risks and uncertainties for which
the future cash flow estimates have not been adjusted. Terminal
values are based on the expected life of products and forecasted life
cycle, and forecasted cash flows over that period. The assumptions are
based on information available at the date of acquisition; actual results
may differ materially from the forecast as more information becomes
available. Refer to Note 5, Acquisitions.
Judgment was required in determining the date on which the Group
obtained control of Alcatel Lucent. Nokia and Alcatel Lucent combined
through a public exchange offer in which the Group offered to
exchange all Alcatel Lucent shares, American Depositary Shares and
OCEANE convertible bonds for Nokia shares. The initial offer period
was opened on November 18, 2015 and it was closed on December
23, 2015. On January 4, 2016 the French stock market authority
Autorité des Marchés Financiers (“AMF”) published the interim results
of the successful offer which indicated that the Group held 70.52% of
the Alcatel Lucent share capital on a fully diluted basis. On January 7,
2016 the Group announced that it had settled the offer and registered
the new shares in the Finnish Trade Register, which created legal
standing for the acquisition.
The management concluded that it had obtained control over Alcatel
Lucent on January 4, 2016 when it was announced that the offer had
been successful and the Group had acquired the majority of voting
rights in Alcatel Lucent.
In addition, management judgment was used to determine that
the initial and reopened offers would be accounted for as a linked
transaction. Pursuant to the Article 232-4 of the AMF General
Regulation, any public exchange offer made shall be reopened with
the same terms and conditions within ten trading days of publication
of the final outcome of the offer provided that the offer has been
successful. In conformity to this rule, the offer was reopened on
January 14, 2016 and closed on February 3, 2016. The AMF published
the results of the reopened offer on February 10, 2016 according to
which the Group held 91.25% of the share capital of Alcatel Lucent.
Based on the facts that the reopened offer was compulsory according
to the AMF General Regulation, the same terms and conditions applied
to both the initial and reopened offers, and the reopened offer
followed shortly after the initial offer and was open only for a short
period, the management concluded that the initial and reopened
offers are essentially parts of the same transaction. Therefore, the
ownership interests acquired in the initial and reopened offers were
accounted for as if they were all acquired at the acquisition date as
part of the transaction to gain control. Acquisitions of ownership
interests subsequent to the closing of the reopened offer were
accounted for as equity transactions with the non-controlling interests
in Alcatel Lucent.
Revenue recognition
The Group enters into transactions involving multiple components
consisting of any combination of hardware, services, software and
intellectual property rights where the Group identifies the separate
components and estimates their relative fair values, considering the
economic substance of the entire arrangement. The fair value of each
component is determined by taking into consideration factors such as
the price of the component when sold separately and the component
cost plus a reasonable margin when price references are not available.
The determination of the fair value and allocation thereof to each
separately identifiable component requires the use of estimates
and judgment which may have a significant impact on the timing
and amount of revenue recognized. In some multiple element licensing
transactions, the Group applies the residual method in the absence of
reference information.
Net sales includes revenue from all licensing negotiations, litigations
and arbitrations to the extent that the criteria for revenue recognition
have been met. The final outcome may differ from the current
estimate. Refer to Note 7, Revenue recognition.
Pension and other post-employment benefit obligations
and expenses
The determination of pension and other post-employment benefit
obligations and expenses for defined benefit plans is dependent on
a number of estimates and assumptions, including the discount rate,
future mortality rate, annual rate of increase in future compensation
levels, and healthcare costs trend rates and usage of services in the
United States where the majority of our post-employment healthcare
plans are maintained. A portion of plan assets is invested in debt and
equity securities, which are subject to market volatility. Changes in
assumptions and actuarial estimates may materially affect the benefit
obligation, future expense and future cash flow. Based on these
estimates and assumptions, defined benefit obligations amount
to EUR 28 663 million (EUR 1 840 million in 2015) and the fair value
of plan assets amounts to EUR 27 770 million (EUR 1 451 million
in 2015). The increase in both defined benefit obligations and fair
value of plan assets in 2016 compared to 2015 is due to the
Acquisition of Alcatel Lucent. Refer to Note 27, Pensions and
other post-employment benefits.
Income taxes
The Group is subject to income taxes in the jurisdictions in which it
operates. Judgment is required in determining current tax expense,
uncertain tax positions, deferred tax assets and deferred tax liabilities;
and the extent to which deferred tax assets can be recognized.
Estimates related to the recoverability of deferred tax assets
are based on forecasted future taxable income and tax planning
strategies. Based on these estimates and assumptions, the Group
has EUR 20 952 million (EUR 1 843 million in 2015) of temporary
differences, tax losses carry forward and tax credits for which no
deferred tax assets are recognized due to uncertainty of utilization.
Majority of the unrecognized deferred tax assets relate to France.
Refer to Note 12, Income taxes.
The utilization of deferred tax assets is dependent on future taxable
profit in excess of the profit arising from the reversal of existing
taxable temporary differences. The recognition of deferred tax assets
is based on the assessment of whether it is more likely than not that
sufficient taxable profit will be available in the future to utilize the
reversal of deductible temporary differences, unused tax losses and
unused tax credits before the unused tax losses and unused tax
credits expire. Recognition of deferred tax assets involves judgment
regarding the future financial performance of the particular legal
entity or tax group that has recognized the deferred tax asset.
140
NOKIA IN 2016
Liabilities for uncertain tax positions are recorded based on estimates
and assumptions of the amount and likelihood of outflow of economic
resources when it is more likely than not that certain positions may not
be fully sustained upon review by local tax authorities. Currently, the
Group has ongoing tax investigations in multiple jurisdictions, including
India and Germany. Due to the inherently uncertain nature of tax
investigations, the ultimate outcome or actual cost of settlement
may vary materially from estimates. Refer to Note 12, Income taxes.
Carrying value of cash-generating units (“CGUs”)
The recoverable amounts of the groups of CGUs and the CGU were
based on fair value less costs of disposal that was determined using
market participant assumptions based on a discounted cash flow
calculation. The cash flow projections used in calculating the
recoverable amounts were based on financial plans approved by
management covering an explicit forecast period of five years. Five
additional years of cash flow projections subsequent to the explicit
forecast period reflect a gradual progression towards the steady
state cash flow projections modeled in the terminal year. Estimation
and judgment are required in determining the components of the
recoverable amount calculation, including the discount rate, the
terminal growth rate, estimated revenue growth rates, gross margin
and operating margin. The discount rates reflect current assessments
of the time value of money and relevant market risk premiums
reflecting risks and uncertainties for which the future cash flow
estimates have not been adjusted. The terminal growth rate
assumptions reflect long-term average growth rates for the industry
and economies in which the groups of CGUs and the CGU operate.
The Group allocated a significant proportion of the goodwill arising
from the Acquisition of Alcatel Lucent to the IP/Optical Networks group
of CGUs, which is comprised mainly of businesses acquired in the
acquisition. As a result, the fair value of the IP/Optical Networks group
of CGUs corresponds closely to its respective carrying amount.
The results of the impairment testing indicate significant headroom
for each group of CGUs and CGU, except for the IP/Optical Networks
group of CGUs, where the recoverable amount exceeds its carrying
amount by approximately EUR 1 200 million. Taken in isolation, the
following changes would cause the recoverable amount of IP/Optical
Networks group of CGUs to equal its carrying amount:
■ Increase in discount rate from 8.9% to 10.7%.
■ Reduction in operational profitability in the terminal year by
40% which is equal to the decrease in the operating profit of
EUR 331 million.
Total goodwill amounts to EUR 5 724 million as of December 31, 2016
(EUR 237 million in 2015). Refer to Note 14, Intangible assets and
Note 16, Impairment.
Allowances for doubtful accounts
Allowances for doubtful accounts are recognized for estimated losses
resulting from customers’ inability to meet payment obligations.
Estimation and judgment are required in determining the value of
allowances for doubtful accounts at each reporting date. Management
specifically analyzes accounts receivable and historical bad debt;
customer concentrations; customer creditworthiness; past due
balances; current economic trends; and changes in customer payment
terms when determining allowances for doubtful accounts. Additional
allowances may be required in future periods if financial positions
of customers deteriorate, reducing their ability to meet payment
obligations. Based on these estimates and assumptions, allowances
for doubtful accounts are EUR 168 million (EUR 62 million in 2015),
representing 2% of accounts receivable (2% in 2015). Refer to
Note 18, Allowances for doubtful accounts.
Allowances for excess and obsolete inventory
Allowances for excess and obsolete inventory are recognized for
excess amounts, obsolescence and declines in net realizable value
below cost. Estimation and judgment are required in determining the
value of the allowance for excess and obsolete inventory at each
reporting date. Management specifically analyzes estimates of future
demand for products when determining allowances for excess and
obsolete inventory. Changes in these estimates could result in
revisions to the valuation of inventory in future periods. Based on
these estimates and assumptions, allowances for excess and obsolete
inventory are EUR 456 million (EUR 195 million in 2015), representing
15% of inventory (16% in 2015). Refer to Note 17, Inventories.
Fair value of derivatives and other financial instruments
The fair value of derivatives and other financial instruments that are
not traded in an active market such as unlisted equities is determined
using valuation techniques. Estimation and judgment are required in
selecting an appropriate valuation technique and in determining the
underlying assumptions. Where quoted market prices are not available
for unlisted shares, the fair value is based on a number of factors
including, but not limited to, the current market value of similar
instruments; prices established from recent arm’s-length
transactions; and/or analysis of market prospects and operating
performance of target companies with reference to public market
comparable companies in similar industry sectors. Changes in these
estimates could result in impairments or losses in future periods.
Based on these estimates and assumptions, the fair value of
derivatives and other financial instruments that are not traded
in an active market, using non-observable data (level 3 of the fair
value hierarchy), is EUR 660 million (EUR 688 million in 2015),
representing 24% of total net financial assets measured at fair
value on a recurring basis (19% in 2015). Refer to Note 24, Fair value
of financial instruments.
Provisions
Provisions are recognized when the Group has a present legal or
constructive obligation as a result of past events, it is probable that
an outflow of resources will be required to settle the obligation, and
a reliable estimate of the amount can be made. At times, judgment is
required in determining whether the Group has a present obligation;
estimation is required in determining the value of the obligation.
Whilst provisions are based on the best estimate of unavoidable costs,
management may be required to make a number of assumptions
surrounding the amount and likelihood of outflow of economic
resources, and the timing of payment. Changes in estimates of
timing or amounts of costs to be incurred may become necessary
as time passes and/or more accurate information becomes available.
Based on these estimates and assumptions, provisions amount to
EUR 1 980 million (EUR 725 million in 2015). Refer to Note 29, Provisions.
Legal contingencies
Legal proceedings covering a wide range of matters are pending or
threatened in various jurisdictions. Provisions are recognized for
pending litigation when it is apparent that an unfavorable outcome is
probable and a best estimate of unavoidable costs can be reasonably
estimated. Due to the inherently uncertain nature of litigation, the
ultimate outcome or actual cost of settlement may vary materially
from estimates. Refer to Note 29, Provisions.
NOKIA IN 2016
141
Financial statements Notes to consolidated financial statements continued
4. Segment information
The Group has two businesses: Nokia’s Networks business and Nokia Technologies, and three reportable segments for financial reporting
purposes: (1) Ultra Broadband Networks and (2) IP Networks and Applications within Nokia’s Networks business; and (3) Nokia Technologies.
Segment-level information for Group Common and Other is also presented.
The Group has aggregated Mobile Networks and Fixed Networks operating segments to one reportable segment, Ultra Broadband Networks;
and IP/Optical Networks and Applications & Analytics operating segments to one reportable segment, IP Networks and Applications. The
aggregated operating segments have similar economic characteristics, such as long-term margins; have similar products, production processes,
distribution methods and customers; and operate in a similar regulatory environment.
The current operational and reporting structure was adopted following the Acquisition of Alcatel Lucent on January 4, 2016. Previously
the Group had three operating and reportable segments in its Continuing operations for management reporting purposes: Mobile Broadband
and Global Services within Nokia Networks, and Nokia Technologies. Prior period segment information has been regrouped and recasted for
comparability purposes according to the new operating and reporting structure.
The chief operating decision maker receives monthly financial information for the operating and reportable segments. Key financial
performance measures of the reportable segments include primarily net sales and operating profit. The chief operating decision maker
evaluates the performance of the segments and allocates resources to them based on segment operating profit(1).
Accounting policies of the segments are the same as those described in Note 2, Significant accounting policies. Inter-segment revenues and
transfers are accounted for as if the revenues were to third parties, that is, at current market prices. Certain costs and revenue adjustments(1)
are not allocated to the segments.
No single customer represents 10% or more of revenues.
Segment descriptions
Ultra Broadband Networks
Ultra Broadband Networks comprises Mobile Networks and Fixed Networks operating segments.
The Mobile Networks operating segment offers an industry-leading portfolio of end-to-end mobile networking solutions comprising hardware,
software and services for telecommunications operators, enterprises and related markets/verticals, such as public safety and Internet of
Things (“IoT”).
The Fixed Networks operating segment provides copper and fiber access products, solutions and services. The portfolio allows for a customized
combination of technologies that brings fiber to the most economical point for the customer.
IP Networks and Applications
IP Networks and Applications comprises IP/Optical Networks and Applications & Analytics operating segments.
The IP/Optical Networks operating segment provides the key IP routing and optical transport systems, software and services to build high
capacity network infrastructure for the internet and global connectivity.
The Applications & Analytics operating segment offers software solutions spanning customer experience management, network operations
and management, communications and collaboration, policy and charging, as well as Cloud, IoT, security, and analytics platforms that enable
digital services providers and enterprises to accelerate innovation, monetize services, and optimize their customer experience.
Nokia Technologies
The Nokia Technologies operating segment has two main objectives: to drive growth and renewal in its existing patent licensing business;
and to build new businesses based on breakthrough innovation in key technologies and products, in the areas of Digital Media and Digital Health.
From January 2016, the majority of net sales and related costs and expenses attributable to licensing and patenting the separate patent
portfolios of Nokia Technologies, Nokia’s Networks business, and Nokia Bell Labs are recorded in Nokia Technologies. Each reportable segment
continues to separately record its own research and development expenses.
Group Common and Other
Segment-level information for Group Common and Other is also presented. From January 2016, Group Common and Other includes the
Alcatel-Lucent Submarine Networks and Radio Frequency Systems businesses, both of which are being managed as separate entities.
In addition, Group Common and Other includes Nokia Bell Labs’ operating expenses, as well as certain corporate-level and centrally managed
operating expenses.
(1) Segment results exclude costs related to the Acquisition of Alcatel Lucent and related integration, goodwill impairment charges, intangible asset amortization and other purchase price fair value
adjustments, restructuring and associated charges and certain other items.
142
NOKIA IN 2016
Segment information
EURm
Continuing operations
2016
Net sales to external customers
Net sales to other segments
Depreciation and amortization
Impairment charges
Operating profit/(loss)
Share of results of associated companies
and joint ventures
2015
Net sales to external customers
Net sales to other segments
Depreciation and amortization
Impairment charges
Operating profit/(loss)
Share of results of associated companies
and joint ventures
2014
Net sales to external customers
Net sales to other segments
Depreciation and amortization
Impairment charges
Operating profit/(loss)
Share of results of associated companies
and joint ventures
Ultra
Broadband
Networks(1)
IP Networks
and
Applications(2)
Nokia’s
Networks
business
total(3)
Nokia
Technologies
Group
Common
and Other Eliminations
Segment
total
Unallocated
items(4)
Total
15 770
1
348
9
1 362
6 029
–
151
–
573
21 799
1
499
9
1 935
1 038
15
8
–
579
1 108
37
45
8
(342)
–
(53)
–
–
–
23 945
–
552
17
2 172
(331)
–
1 042
–
(3 272)
23 614
–
1 594
17
(1 100)
18
–
18
–
–
–
18
–
18
10 159
–
158
–
1 211
1 328
–
35
–
138
11 487
–
193
–
1 349
1 012
15
6
–
698
29
–
29
–
9 817
1
131
–
1 251
1 326
–
33
–
188
11 143
1
164
–
1 439
618
14
2
–
389
–
–
8
11
(89)
–
1
–
7
13
(226)
–
(15)
–
–
–
12 499
–
207
11
1 958
–
–
79
–
(261)
12 499
–
286
11
1 697
–
29
–
29
–
(15)
–
–
–
11 762
–
173
13
1 602
–
–
67
–
(188)
11 762
–
240
13
1 414
(12)
–
(12)
–
–
–
(12)
–
(12)
(1) Includes Mobile Networks net sales of EUR 13 406 million (EUR 10 023 million in 2015 and EUR 9 639 million in 2014) and Fixed Networks net sales of EUR 2 365 million (EUR 136 million in 2015
and EUR 179 million in 2014).
(2) Includes IP Routing net sales of EUR 2 940 million (EUR 515 million in 2015 and EUR 523 million in 2014), Optical Networks net sales of EUR 1 562 million and Applications & Analytics net sales
of EUR 1 527 million (EUR 813 million in 2015 and EUR 803 million in 2014).
(3) Includes services net sales of EUR 8 531 million (EUR 5 424 million in 2015 and EUR 5 078 million in 2014).
(4) Excludes costs related to the Acquisition of Alcatel Lucent and related integration, goodwill impairment charges, intangible asset amortization and other purchase price fair value adjustments,
restructuring and associated charges and certain other items.
Reconciliation of total segment operating profit to total operating profit
EURm
Total segment operating profit
Amortization and depreciation of acquired intangible assets and
property, plant and equipment
Release of acquisition-related fair value adjustments to deferred
revenue and inventory
Restructuring and associated charges
Product portfolio strategy costs
Transaction and related costs, including integration costs relating to the
Acquisition of Alcatel Lucent
Other
Total operating (loss)/profit
2016
2 172
(1 026)
(840)
(774)
(348)
(295)
11
(1 100)
2015
1 958
(79)
–
(123)
–
(99)
40
1 697
2014
1 602
(67)
–
(57)
–
(39)
(25)
1 414
NOKIA IN 2016
143
Financial statements Notes to consolidated financial statements continued
Net sales to external customers by geographic location of customer
EURm
Finland(1)
United States
China
India
France
United Kingdom
Australia
Japan
Germany
Saudi Arabia
Other
Total
(1) All Nokia Technologies IPR and licensing net sales are allocated to Finland.
Non-current assets by geographic location(1)
EURm
Finland
United States
France
China
India
Other
Total
2016
1 138
6 635
2 249
1 281
1 055
717
646
627
567
565
8 134
23 614
2015
1 100
1 489
1 323
1 098
207
394
133
877
312
364
5 202
12 499
2016
726
7 946
2 369
458
130
1 312
12 941
2014
680
1 445
994
768
220
296
189
1 194
400
291
5 285
11 762
2015
724
159
2
129
70
171
1 255
(1) Consists of goodwill and other intangible assets and property, plant and equipment.
5. Acquisitions
Alcatel Lucent business combination
On April 15, 2015, the Group and Alcatel Lucent announced their intention to combine through a public exchange offer (“exchange offer”) in
France and the United States. Alcatel Lucent is a global leader in IP networking, ultra-broadband access and Cloud applications. The combined
company leverages the combined scale of operations, complementary technologies, portfolios and geographical presence; and unparalleled
innovation capabilities to lead in the next generation network technology and services, and to create access to an expanded addressable market
with improved long-term growth opportunities.
Acquisition of Alcatel Lucent Securities
The Group obtained control of Alcatel Lucent on January 4, 2016 when the interim results of the successful initial exchange offer were
announced by the French stock market authority, Autorité des Marchés Financiers (“AMF”). On January 14, 2016, as required by the AMF General
Regulation, the Group reopened its exchange offer in France and the United States for the outstanding Alcatel Lucent ordinary shares, Alcatel
Lucent American Depositary Shares (“ALU ADS”) and OCEANE convertible bonds (the “OCEANEs”, collectively “Alcatel Lucent Securities”) not
tendered during the initial exchange offer period. The reopened exchange offer closed on February 3, 2016. The Group has determined that the
initial and the reopened exchange offers are linked transactions that are considered together as a single arrangement, given that the reopened
exchange offer is required by the AMF General Regulation and is based on the same terms and conditions as the initial exchange offer.
As part of the exchange offers, holders of Alcatel Lucent Securities could exchange Alcatel Lucent Securities for Nokia shares and Nokia American
Depositary Shares (“Nokia ADS”) on the basis of 0.55 Nokia share or Nokia ADS for every Alcatel Lucent share or ALU ADS.
Following the initial and reopened exchange offers, the Group held 90.34% of the share capital, and at least 90.25% of the voting rights of
Alcatel Lucent. The Group issued a total of 1 776 379 756 new Nokia shares as consideration for the Alcatel Lucent Securities tendered in the
exchange offers.
Alcatel Lucent ordinary shares and ALU ADSs acquired subsequent to the closing of the reopened exchange offer, including through the Public
Buy-Out Offer and the Squeeze-Out, were accounted for as equity transactions with the remaining non-controlling interests in Alcatel Lucent.
As such, any new Nokia shares or cash consideration paid for these instruments were recorded directly in equity against the carrying amount
of non-controlling interests. The acquisition of OCEANEs subsequent to the transactions linked to the exchange offer was treated both as
extinguishment of debt and equity transaction with remaining non-controlling interests in Alcatel Lucent, with the redemption consideration
allocated to the liability and equity components.
144
NOKIA IN 2016
Subsequent to the exchange offers, the following transactions were carried out relating to the acquisition of the remaining outstanding equity
interests in Alcatel Lucent:
■ On February 12, 2016, the OCEANEs acquired as part of the initial and reopened exchange offers were converted to Alcatel Lucent shares.
■ On February 19, 2016, the Group announced the issue of 6 501 503 new Nokia shares in exchange for Alcatel Lucent shares in a private
transaction at the 0.55 exchange offer provided in the initial and reopened exchange offers. This transaction was based on a Board of
Directors resolution on February 18, 2016.
■ On May 9, 2016, the acquisition of 107 775 949 Alcatel Lucent shares was closed in exchange for 59 276 772 new Nokia shares from
JPMorgan Chase Bank N.A., as depositary, pursuant to the share purchase agreement announced on March 17, 2016. These shares
represented Alcatel Lucent shares that remained in the ALU ADS receipts program after the cancellation period and following the program’s
termination on April 25, 2016.
■ On May 12, 2016, the Group agreed to acquire 72 994 133 of 2019 OCEANEs and 19 943 533 of 2020 OCEANEs through a privately
negotiated transaction in consideration for an aggregate cash payment of EUR 419 million.
■ On June 17, 2016, 24 392 270 Alcatel Lucent shares, 9 614 661 of 2019 OCEANEs and 2 290 001 of 2020 OCEANEs were acquired through
privately negotiated transactions in consideration for an aggregate cash payment of EUR 85 million for the Alcatel Lucent shares
(corresponding to a unit price of EUR 3.50 per share) and EUR 54 million for the OCEANEs (corresponding to a unit price of EUR 4.51 per 2019
OCEANE and EUR 4.50 per 2020 OCEANE).
Following these transactions, the Group held 95.32% of the share capital and 95.25% of the voting rights in Alcatel Lucent, corresponding
to 95.15% of the Alcatel Lucent shares on a fully diluted basis.
On September 6, 2016, a joint offer document was filed with Alcatel Lucent with the AMF relating to the proposed Public Buy-Out Offer, in cash,
for the remaining Alcatel Lucent shares and OCEANEs (the “Public Buy-Out Offer”). The Public Buy-Out Offer was followed by a Squeeze-Out in
accordance with the AMF General Regulation, in cash, for the Shares and OCEANEs not tendered into the Public Buy-Out Offer (the
“Squeeze-Out”, and together with the Public Buy-Out Offer, the “Offer”).
Following the AMF Offer clearance decision on September 20, 2016, the Group commenced the Public Buy-Out Offer on September 22, 2016
pursuant to which it proposed to all holders of the Alcatel Lucent shares and OCEANEs to acquire Nokia securities. The financial terms of the
Public Buy-Out Offer were:
■ EUR 3.50 per Alcatel Lucent share;
■ EUR 4.51 per 2019 OCEANE; and
■ EUR 4.50 per 2020 OCEANE.
On October 4, 2016, the AMF announced that a legal action was filed before the Paris Court of Appeal on September 30, 2016 for the annulment
of the AMF’s Offer clearance decision. Pursuant to the AMF General Regulation, the Group provided a pledge in relation to the Offer to cover the
purchase of the remaining Alcatel Lucent Securities.
On October 25, 2016, the AMF announced the continuation of the Offer timetable. Accordingly, the Public Buy-Out Offer period ended on
October 31, 2016, and the Squeeze-Out was implemented on November 2, 2016, in accordance with the AMF General Regulation. In the
Squeeze-Out, the Alcatel Lucent shares and OCEANEs not tendered into the Public Buy-Out Offer were transferred to the Group for the same
consideration as the above-mentioned consideration of the Public Buy-Out Offer, net of all costs. The remaining outstanding Alcatel Lucent
stock options and performance shares were modified to settle in cash or Nokia shares.
On November 2, 2016, following the Public Buy-Out Offer and the Squeeze-Out, the Group held 100% of the share capital and voting rights
of Alcatel Lucent. Alcatel Lucent shares and OCEANEs were delisted from the Euronext Paris regulated market on the same date.
On December 15, 2016, the plaintiffs withdrew their complaint for the annulment of the AMF’s Offer clearance decision from the Paris Court
of Appeal. Consequently, the commitments, put in place as a precautionary measure, are no longer in force and the funds and Alcatel Lucent
Securities deposited into escrow accounts were released and the Group no longer has an obligation to maintain the integrity of the entity
Alcatel Lucent SA.
Purchase consideration
The purchase consideration comprises the fair value of the consideration paid for the Alcatel Lucent Securities obtained through the exchange
offers, and the fair value of the portion of Alcatel Lucent stock options and performance shares attributable to pre-combination services
that were settled with Nokia shares. The fair value of the purchase consideration is based on the closing price of Nokia share of EUR 6.58
on Nasdaq Helsinki on January 4, 2016, and the exchange offer ratio of 0.55 Nokia share for every Alcatel Lucent share.
NOKIA IN 2016
145
Financial statements Notes to consolidated financial statements continued
Fair value of the purchase consideration:
Alcatel Lucent shares or ADSs
OCEANE convertible bonds
Consideration attributable to the vested portion of replacement share-based payment awards
Total
EURm
10 046
1 570
6
11 622
Fair value of the purchase consideration is based on the results of the initial and the reopened exchange offers.
Purchase accounting
The Group has finalized Alcatel Lucent acquisition-related purchase accounting, including purchase price allocation. The fair values of the
identifiable assets and liabilities, as of the date of acquisition:
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
Defined benefit pension assets
Other non-current assets
Total non-current assets
Current assets
Inventories
Accounts receivable
Other current assets
Cash and cash equivalents
Total current assets
Total assets acquired
Non-current liabilities
Long-term interest-bearing liabilities
Deferred tax liabilities
Defined benefit pension and post-retirement liabilities
Other non-current liabilities
Total non-current liabilities
Current liabilities
Current borrowings and other financial liabilities
Other current liabilities
Total current liabilities
Total liabilities assumed
Net identifiable assets acquired
Attributable to:
Equity holders of the parent
Non-controlling interests
Goodwill
Purchase consideration
EURm
5 711
1 412
2 328
3 201
687
13 339
1 992
2 813
1 360
6 198
12 363
25 702
4 037
425
4 464
601
9 527
671
7 252
7 923
17 450
8 252
6 538
1 714
5 084
11 622
Goodwill arising from the Acquisition of Alcatel Lucent amounts to EUR 5 084 million and is primarily attributable to synergies arising from the
significant economies of scale and scope that the Group is expecting to benefit from as part of the new combined entity. Goodwill was allocated
to the four operating segments within Nokia’s Networks business. Refer to Note 16, Impairment.
The components of non-controlling interests in Alcatel Lucent that are present ownership interests and entitle their holders to a proportionate
share of the entity’s net assets in the event of liquidation, were measured based on the non-controlling interests’ proportionate share of the
fair value of the acquired identifiable net assets. As such, goodwill excludes the goodwill related to the non-controlling interests. The equity
component of the remaining outstanding OCEANEs, as well as the outstanding stock options and performance shares that will be settled in
Alcatel Lucent ordinary shares were measured at fair value within non-controlling interests.
146
NOKIA IN 2016
Fair values of other intangible assets acquired:
Customer relationships
Technologies
Other
Total
Fair value
EURm
2 902
2 170
639
5 711
Amortization period
years
10
4
8
Acquisition-related costs not directly attributable to the issue of shares, recorded in selling, general and administrative expenses and
other expenses in the consolidated income statement, and in operating cash flows in the consolidated statement of cash flows, amount to
EUR 125 million, of which EUR 93 million is recognized in 2016.
From January 4 to December 31, 2016 the acquired business contributed revenues of EUR 12 151 million and a net loss of EUR 508 million
to the consolidated income statement. These amounts have been calculated using the subsidiary’s results, adjusting them for accounting
policy alignments.
Other acquisitions
In 2016 the Group acquired four businesses (two businesses in 2015), which are individually immaterial to the consolidated financial
statements. Goodwill arising on acquisitions is attributable to future derivations of the acquired technology, future customers and assembled
workforce, and has been allocated to cash-generating units or groups of cash-generating units expected to benefit from the synergies of the
combination. Refer to Note 16, Impairment. The majority of goodwill acquired in 2016 is not expected to be deductible for tax purposes.
The acquired intangible assets are primarily technology-based intangible assets.
Acquisitions in 2016 and 2015:
Company/business
Description
2016
Nakina Systems Inc.
Withings S.A.
Gainspeed
ETA Devices
2015
Wireless network
business of Panasonic
Eden Rock
Communications, LLC
Nakina Systems Inc. is a Canadian security and operational systems software company. The Group acquired the
business through an asset transaction on March 31, 2016.
Withings S.A. is a provider of digital health products and services. The Group acquired 100% ownership interest on
May 31, 2016.
Gainspeed is a United States-based start-up specializing in Distributed Access Architecture (“DDA”) solutions for
the cable industry through its Virtual Converged Cable Access Platform (“CCAP”) product line. The Group acquired
100% ownership interest on July 29, 2016.
ETA Devices is a United States-based start-up specializing in power amplifier efficiency solutions for base stations,
access points and devices. The Group acquired 100% ownership interest on October 4, 2016.
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 Group acquired the business through an asset transaction on January 1, 2015.
Eden Rock Communications is a pioneer in SON and creator of Eden-NET, an industry leading multivendor
centralized in SON solution. The Group acquired 100% ownership interest on July 10, 2015.
Total consideration paid, aggregate fair values of intangible assets, other net assets acquired and resulting goodwill as of each acquisition date:
EURm
Other intangible assets
Other net assets
Total identifiable net assets
Goodwill
Total purchase consideration(1)
2016
70
16
86
274
360
2015
56
33
89
7
96
(1) The total purchase consideration does not equal to the acquisition of businesses, net of acquired cash in the consolidated statement of cash flows due to foreign exchange rate differences and the
timing of the consideration payment.
NOKIA IN 2016
147
Financial statements Notes to consolidated financial statements continued
6. Disposals treated as Discontinued operations
Results of Discontinued operations
EURm
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other income and expenses
Operating (loss)/profit
Financial income and expenses
(Loss)/profit before tax
Income tax (expense)/benefit
(Loss)/profit for the year, ordinary activities
Gain on the sale of HERE and D&S Businesses, net of tax(1)
(Loss)/profit for the year
2016
–
–
–
–
(11)
(4)
(15)
14
(1)
(28)
(29)
14
(15)
2015
1 075
(244)
831
(498)
(213)
(23)
97
(9)
88
8
96
1 178
1 274
2014
3 428
(2 325)
1 103
(899)
(628)
(1 354)
(1 778)
10
(1 768)
(277)
(2 045)
2 803
758
(1) In 2016, an additional gain on the sale of EUR 7 million was recognized related to the HERE business as a result of the final settlement of the purchase price, and EUR 7 million related to the D&S
business due to a tax indemnification.
Sale of the HERE Business
On August 3, 2015 the Group announced the Sale of the HERE Business to a consortium of leading automotive companies, comprising AUDI AG,
BMW Group and Daimler AG. Subsequent to the announcement, the Group has presented the HERE business as Discontinued operations.
The HERE business was previously an operating and reportable segment and its business focused on the development of location intelligence,
location-based services and local commerce. The Sale of the HERE Business was completed on December 4, 2015.
Gain on the Sale of the HERE Business
Fair value of sales proceeds less costs to sell(1)
Net assets disposed of
Total
Foreign exchange differences reclassified from other comprehensive income(2)
Gain before tax
Income tax benefit(3)
Total gain
(1) Comprises purchase price of EUR 2 800 million, offset by adjustments for certain defined liabilities of EUR 249 million.
(2) Includes cumulative translation differences for the duration of ownership from translation of mainly U.S. dollar denominated balances into euro.
(3) The disposal was largely tax exempt, the tax benefit is due to hedging-related tax deductible losses.
Assets and liabilities, HERE business
Assets and liabilities disposed of at December 4, 2015:
EURm
2 551
(2 667)
(116)
1 174
1 058
120
1 178
EURm
December 4, 2015
Goodwill and other intangible assets
Property, plant and equipment
Deferred tax assets and non-current assets
Inventories
Trade and other receivables
Prepaid expenses and other current assets
Cash and cash equivalents and current available-for-sale investments, liquid assets
Total assets
Deferred tax liabilities and other liabilities
Trade and other payables
Deferred income and accrued expenses
Provisions
Total liabilities
Net assets disposed of
2 722
115
151
14
174
87
56
3 319
286
55
306
5
652
2 667
148
NOKIA IN 2016
Results of Discontinued operations, HERE business
EURm
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other income and expenses(1)
Operating (loss)/profit
Financial income and expenses
(Loss)/profit before tax
Income tax expense(2)
(Loss)/profit for the year, ordinary activities
Gain on the Sale of the HERE Business, net of tax(3)
Profit/(loss) for the year
Costs and expenses include:
Depreciation and amortization
Impairment charges
2016
–
–
–
–
(1)
–
(1)
–
(1)
(3)
(4)
7
3
–
–
(1) In 2014, includes impairment of goodwill of EUR 1 209 million.
(2) Excludes the tax impact of the disposal.
(3) Represents net gain on disposal. In 2016, includes EUR 7 million recognized as a result of the final settlement of the purchase price.
Cash flows from Discontinued operations, HERE business
EURm
Net cash (used in)/from operating activities
Net cash (used in)/from investing activities
Net cash flow for the year
2016
(2)
(25)
(27)
2015
1 075
(243)
832
(498)
(198)
(18)
118
2
120
–
120
1 178
1 298
(33)
–
2015
12
2 503
2 515
2014
970
(239)
731
(545)
(181)
(1 247)
(1 242)
5
(1 237)
(310)
(1 547)
–
(1 547)
(57)
(1 209)
2014
106
(104)
2
Sale of the D&S Business
In September 2013, the Group announced the Sale of the D&S Business to Microsoft. Subsequent to the approval of the sale in the
Extraordinary General Meeting in November 2013, the Group has presented the Devices & Services business as Discontinued operations
including items outside the final transaction scope; specifically, discontinued manufacturing facilities located in Chennai, India and Masan,
Republic of Korea. The Devices & Services business consisted of two previously reportable segments, Smart Devices and Mobile Phones as
well as Devices & Services Other. Smart Devices focused on more advanced products, including smartphones powered by the Windows Phone
operating system. Mobile Phones focused on the area of mass market entry, feature phones and affordable smartphones. Devices & Services
Other included spare parts, the divested Vertu business and major restructuring programs related to the Devices & Services business.
The Sale of the D&S Business was completed on April 25, 2014. The total purchase price was EUR 5 440 million comprising the Sale of the
D&S Business and a ten-year non-exclusive license to patents and patent applications with an option to extend the mutual patent agreement
in perpetuity. The value allocated to the Sale of the D&S Business was EUR 3 790 million and the fair value of the mutual patent agreement and
the future option was EUR 1 650 million. The gain on disposal was EUR 3 175 million. The gain may change in subsequent periods depending
on the development of certain liabilities for which the Group has indemnified Microsoft.
Gain on the Sale of the D&S Business
Fair value of sales proceeds less costs to sell(1)
Net assets disposed of
Settlement of Windows Phone royalty(2)
Other
Total
Foreign exchange differences reclassified from other comprehensive income
Gain before tax
Income tax expense(3)
Total gain
(1) Comprises purchase price of EUR 3 790 million, net cash adjustment of EUR 1 114 and other adjustments of EUR 263 million.
(2) Recognized when the partnership with Microsoft to license the Windows Phone smartphone platform was terminated in conjunction with the Sale of the D&S Business.
(3) Primarily includes non-resident capital gains taxes in certain jurisdictions, as well as tax impacts of legal entity restructuring carried out in connection with the Sale of the D&S Business.
NOKIA IN 2016
EURm
5 167
(2 347)
383
(28)
3 175
(212)
2 963
(160)
2 803
149
Financial statements Notes to consolidated financial statements continued
Assets and liabilities, Devices & Services business
Assets and liabilities disposed of at April 25, 2014:
EURm
Goodwill and other intangible assets
Property, plant and equipment
Deferred tax assets and non-current assets
Inventories
Trade and other receivables
Prepaid expenses and other current assets
Cash and cash equivalents and current available-for-sale investments, liquid assets
Total assets
Deferred tax liabilities and other liabilities
Trade and other payables
Deferred income and accrued expenses
Provisions
Total liabilities
Non-controlling interests
Net assets disposed of
Results of Discontinued operations, Devices & Services business
EURm
Net sales
Cost of sales
Gross (loss)/profit
Research and development expenses
Selling, general and administrative expenses
Other income and expenses
Operating loss
Financial income and expenses
Loss before tax
Income tax (expense)/benefit(1)
Loss for the year, ordinary activities
Gain on the Sale of the D&S Business, net of tax(2)
(Loss)/profit for the year
Costs and expenses include:
Impairment charges
(1) Excludes the tax impact of the disposal.
(2) Represents net gain on disposal. In 2016, includes EUR 7 million recognized due to a tax indemnification.
Cash flows from Discontinued operations, Devices & Services business
EURm
Net cash used in operating activities
Net cash from investing activities
Net cash used in financing activities
Net cash flow for the year
2016
–
–
–
–
(10)
(4)
(14)
14
–
(25)
(25)
7
(18)
–
2016
(8)
28
–
20
2015
–
(1)
(1)
–
(15)
(5)
(21)
(11)
(32)
8
(24)
–
(24)
–
2015
(6)
50
–
44
April 25, 2014
1 427
534
371
374
541
1 638
1 114
5 999
203
1 340
1 205
795
3 543
109
2 347
2014
2 458
(2 086)
372
(354)
(447)
(107)
(536)
5
(531)
33
(498)
2 803
2 305
(111)
2014
(1 054)
2 480
(9)
1 417
On April 25, 2014, upon completion of the Sale of the D&S Business, EUR 500 million 1.125% convertible bonds due September 2018,
EUR 500 million 2.5% convertible bonds due September 2019 and EUR 500 million 3.625% convertible bonds due September 2020, all issued
by the Group to Microsoft, were repaid and netted against the deal proceeds by the amount of principal and accrued interest.
150
NOKIA IN 2016
7. Revenue recognition
EURm
Continuing operations
Revenue from sale of products and licensing
Revenue from services(1)
Contract revenue recognized under percentage
of completion accounting(2)
Total
2016
14 526
8 156
931
23 614
(1) Excludes services performed as part of contracts under percentage of completion accounting.
(2) In 2016, contract revenue includes submarine projects, which account for the majority of the revenue.
Revenue recognition-related positions for construction contracts in progress as of December 31:
EURm
Contract revenues recorded prior to billings
Billings in excess of costs incurred
Work in progress on construction contracts
Advances received
Retentions
2016
Assets
11
57
1
Liabilities
164
113
2015
7 045
5 395
59
12 499
2015
Assets
16
–
2
2014
6 448
4 961
353
11 762
Liabilities
29
–
Work in progress is included in inventories, other assets are included in accounts receivable, and liabilities are included in accrued expenses in
the consolidated statement of financial position.
The aggregate amount of costs incurred and profits recognized, net of recognized losses, for construction contracts in progress since inception
are EUR 970 million as of December 31, 2016 (EUR 670 million in 2015). For construction contracts acquired in 2016, the amount includes costs
incurred and profits recognized from the acquisition date.
8. Expenses by nature
EURm
Continuing operations
Personnel expenses (Note 9)
Cost of material
Depreciation and amortization (Notes 14, 15)
Rental expenses
Other
Total operating expenses
2016
2015
2014
7 814
7 260
1 594
344
7 818
24 830
3 738
2 907
286
164
3 943
11 038
3 381
2 957
240
154
3 734
10 466
Operating expenses include government grant income and R&D tax credits of EUR 126 million (EUR 20 million in 2015 and EUR 17 million in
2014) that have been recognized in the consolidated income statement as a deduction against research and development expenses.
NOKIA IN 2016
151
Financial statements Notes to consolidated financial statements continued
9. Personnel expenses
EURm
Continuing operations
Salaries and wages
Share-based payment expense(1)
Pension and other post-employment benefit expense, net(2)
Other social expenses
Total
2016
6 275
130
458
951
7 814
2015
3 075
67
223
373
3 738
2014
2 797
53
189
342
3 381
(1) Includes EUR 119 million for equity-settled awards (EUR 43 million in 2015 and EUR 14 million in 2014).
(2) Includes costs related to defined contribution plans of EUR 236 million (EUR 172 million in 2015 and EUR 144 million in 2014) and costs related to defined benefit plans of EUR 222 million
(EUR 51 million in 2015 and EUR 45 million in 2014). Refer to Note 27, Pensions and other post-employment benefits.
The average number of employees is 102 687 (56 690 in 2015 and 51 499 in 2014).
10. Other income and expenses
EURm
2016
2015
2014
Continuing operations
Other income
Interest income from customer receivables and overdue payments
VAT and other indirect tax refunds and social security credits
Realized gains from unlisted venture funds
Subsidies and government grants
Profit on sale of property, plant and equipment
Other
Total
Other expenses
Restructuring, cost reduction and associated charges
Valuation allowances for doubtful accounts and accounts receivable
write-offs
Expenses related to sale of receivables transactions
Foreign exchange loss on hedging forecasted sales and purchases
Impairment charges
Losses and expenses related to unlisted venture funds
Loss on sale of property, plant and equipment
VAT and other indirect tax write-offs and provisions
Contractual remediation costs
Other
Total
29
19
13
11
–
44
116
(759)
(116)
(42)
(26)
(17)
(4)
(3)
1
–
17
(949)
6
17
144
4
8
57
236
(120)
24
(21)
(22)
(11)
(47)
(5)
(3)
5
(23)
(223)
23
7
18
15
15
40
118
(61)
5
(39)
(15)
(13)
–
(12)
(15)
(31)
(48)
(229)
152
NOKIA IN 2016
11. Financial income and expenses
EURm
2016
2015
2014
Continuing operations
Interest income on investments and loans receivable
Net interest expense on derivatives not under hedge accounting
Interest expense on financial liabilities carried at amortized cost(1)
Net interest expense on defined benefit pensions (Note 27)
Net realized gains on disposal of fixed income available-for-sale financial investments
Net fair value (losses)/gains on investments at fair value through profit and loss
Net gains/(losses) on other derivatives designated at fair value through profit and loss
Net fair value gains/(losses) on hedged items under fair value hedge accounting
Net fair value (losses)/gains on hedging instruments under fair value hedge accounting
Net foreign exchange losses
Other financial income(2)
Other financial expenses(3)
Total
84
(18)
(234)
(65)
15
(18)
21
11
(15)
(9)
85
(144)
(287)
31
(4)
(135)
(9)
2
(2)
(5)
7
(12)
(76)
31
(14)
(186)
50
(4)
(387)
(2)
1
20
(20)
(18)
17
(61)
15
(14)
(403)
(1) In 2016, interest expense includes one-time charges of EUR 41 million, primarily related to the redemption of Alcatel-Lucent USA Inc. USD 650 million 4.625% notes due July 2017, USD 500 million
8.875% notes due January 2020 and USD 700 million 6.750% notes due November 2020. In 2014, interest expense included a one-time non-cash charge of EUR 57 million relating to the repayment
of the EUR 1.5 billion convertible bonds issued to Microsoft when the Sale of the D&S Business was completed and one-time expenses of EUR 123 million relating to the redemption of materially all,
then Nokia Networks’ borrowings.
(2) Includes distributions of EUR 66 million (EUR 25 million in 2015 and EUR 14 million in 2014) from private venture funds held as non-current available-for-sale investments.
(3) Includes impairments of EUR 108 million (EUR 2 million in 2014) related to private venture funds held as non-current available-for-sale investments. Refer to Note 16, Impairment.
12. Income taxes
Components of the income tax benefit/(expense)
EURm
Continuing operations
Current tax
Deferred tax
Total
2016
(534)
991
457
2015
(258)
(88)
(346)
Income tax reconciliation
Reconciliation of the difference between income tax computed at the statutory rate in Finland of 20% and income tax recognized in the
consolidated income statement:
EURm
Income tax benefit/(expense) at statutory rate
Permanent differences
Tax impact on operating model changes(1)
Non-creditable withholding taxes
Income taxes for prior years
Effect of different tax rates of subsidiaries operating in other jurisdictions
Effect of deferred tax assets not recognized(2)
Benefit arising from previously unrecognized deferred tax assets(3)
Net (increase)/decrease in uncertain tax positions
Change in income tax rates
Income taxes on undistributed earnings
Other
Total
2016
274
31
439
(42)
3
88
(318)
19
(20)
3
(23)
3
457
2015
(308)
16
–
(17)
6
(50)
(35)
38
4
–
(7)
7
(346)
2014
(300)
2 019
1 719
2014
(200)
(41)
–
(31)
(14)
(47)
(26)
2 081
–
(1)
–
(2)
1 719
(1) In 2016, following the completion of the Squeeze-Out of the remaining Alcatel Lucent Securities, the Group launched actions to integrate the former Alcatel Lucent and Nokia operating models.
In connection with these integration activities, the Group transferred certain intellectual property to its operations in the United States, recording a tax benefit and additional deferred tax assets of
EUR 348 million. In addition, the Group elected to treat the Acquisition of Alcatel Lucent’s operations in the United States as an asset purchase for United States tax purposes. The impact of this election
was to utilize or forfeit existing deferred tax assets and record new deferred tax assets with a longer amortization period than the life of those forfeited assets. As a result of this, EUR 91 million
additional deferred tax assets were recorded in 2016.
(2) In 2016, relates primarily to tax losses and temporary differences in France.
(3) In 2014, relates primarily to tax losses, unused tax credits and temporary differences in Finland for which a deferred tax asset was re-recognized.
NOKIA IN 2016
153
Financial statements Notes to consolidated financial statements continued
Income tax liabilities and assets include a net EUR 495 million liability (EUR 394 million in 2015) relating to uncertain tax positions with inherently
uncertain timing of cash outflows.
Prior period income tax returns for certain Group companies are under examination by local tax authorities. The Group has on-going tax audits
in various jurisdictions, including India, Germany, Finland and Canada. The Group’s business and investments, especially in emerging market
countries, may be subject to uncertainties, including unfavorable or unpredictable tax treatment. Management judgment and a degree of
estimation are required in determining the tax expense or benefit. Even though management does not expect that any significant additional
taxes in excess of those already provided for will arise as a result of these examinations, the outcome or actual cost of settlement may vary
materially from estimates.
In 2013, the tax authorities in India commenced an investigation into withholding tax in respect of payments by Nokia India Private Limited
to Nokia Corporation for the supply of operating software. Subsequently, the authorities extended the investigation to other related tax
consequences and issued orders and made certain assessments. The Group has denied all such allegations and continues defending itself
in various Indian litigation proceedings, under both Indian and international law, while extending its full cooperation to the authorities.
Through the Acquisition of Alcatel Lucent, the Group has an on-going tax audit in Germany relating to the disposal of former Alcatel Lucent
railway signaling business in 2006 to Thales. In the tax audit report issued in 2012, the tax authorities have claimed EUR 140 million before
interest and penalties (being EUR 202 million including interest and penalties as of December 31, 2016). The case is pending with the tax court
of Baden-Wuerttemberg in Stuttgart, Germany. The Group has not recognized a liability for this on-going tax audit as it is considered more
likely than not that the Group will not have to pay these taxes.
Deferred tax assets and liabilities
EURm
Tax losses carried forward and unused tax credits
Undistributed earnings
Intangible assets and property, plant and
equipment
Defined benefit pension assets
Other non-current assets
Inventories
Other current assets
Defined benefit pension and other
post-retirement liabilities
Other non-current liabilities
Provisions
Other current liabilities
Other temporary differences
Total before netting
Netting of deferred tax assets and liabilities
Total after netting (1)
Deferred
tax assets
1 428
–
2016
Deferred
tax liabilities
–
(67)
Net balance
Deferred
tax assets
916
–
2015
Deferred
tax liabilities
–
(15)
Net balance
3 713
3
19
154
81
1 478
12
249
307
16
7 460
(1 759)
5 701
(501)
(1 334)
(52)
(3)
(66)
(29)
(2)
(6)
(56)
(46)
(2 162)
1 759
(403)
5 298
–
5 298
1 321
1
4
85
43
154
1
106
191
29
2 851
(217)
2 634
(154)
(9)
(12)
(6)
(41)
(3)
(2)
(3)
(33)
–
(278)
217
(61)
2 573
–
2 573
(1) The increase, especially in deferred tax assets and liabilities relating to intangible assets and property, plant and equipment; and defined benefit pension assets and defined benefit pension and other
post-retirement liabilities, is primarily due to the Acquisition of Alcatel Lucent.
Movements in the net deferred tax balance during the year:
EURm
As of January 1
Recognized in income statement, Continuing operations
Recognized in income statement, Discontinued operations
Recognized in other comprehensive income
Recognized in equity
Acquisitions through business combinations and disposals
Translation differences
As of December 31
2016
2 573
991
(2)
(255)
(5)
1 914
82
5 298
2015
2 688
(88)
147
(114)
5
(74)
9
2 573
154
NOKIA IN 2016
Amount of temporary differences, tax losses carried forward and tax credits for which no deferred tax asset was recognized due to uncertainty
of utilization:
EURm
Temporary differences
Tax losses carried forward
Tax credits
Total(1)
2016
2 214
18 706
32
20 952
2015
334
1 488
21
1 843
(1) In 2016, the increase is primarily due to the Acquisition of Alcatel Lucent.
The majority of the unrecognized temporary differences and tax losses relate to France. Based on the pattern of losses in the past years and
in the absence of convincing other evidence of sufficient taxable profit in the future years, it is uncertain whether these deferred tax assets can
be utilized in the foreseeable future. A significant portion of the French unrecognized deferred tax assets are indefinite in nature and available
against future French tax liabilities, subject to a limitation of 50% of annual taxable profits.
The recognition of the remaining deferred tax assets is supported by offsetting deferred tax liabilities, earnings history and profit projections
in the relevant jurisdictions. As of December 31, 2016 the majority of recognized net deferred tax assets relate to unused tax losses, tax credits
and deductible temporary differences in the United States of EUR 2.5 billion (EUR 0.1 billion in 2015) and Finland of EUR 2.2 billion (EUR 2.0 billion
in 2015). Based on the recent years’ profitability in the United States and Finland, as well as the latest forecasts of future financial performance,
the Group has been able to establish a pattern of sufficient tax profitability in the United States and Finland to conclude that it is probable that
it will be able to utilize the tax losses, tax credits and deductible temporary differences in the foreseeable future. In 2016, the Group incurred an
accounting loss in Finland due to significant integration and restructuring costs following the Acquisition of Alcatel Lucent, which may delay the
utilization of these tax attributes in Finland.
Expiry of tax losses carried forward and unused tax credits:
EURm
Tax losses carried forward
Within 10 years
Thereafter
No expiry
Total
Tax credits
Within 10 years
Thereafter
No expiry
Total
2016
2015
Recognized
Unrecognized
Total
Recognized
Unrecognized
Total
1 853
79
1 878
3 810
395
94
66
555
1 681
17
17 008
18 706
23
–
9
32
3 534
96
18 886
22 516
418
94
75
587
1 742
174
280
2 196
434
42
–
476
1 171
–
317
1 488
14
–
7
21
2 913
174
597
3 684
448
42
7
497
The Group has undistributed earnings of EUR 1 074 million (EUR 769 million in 2015) for which a deferred tax liability has not been recognized as
these earnings will not be distributed in the foreseeable future.
NOKIA IN 2016
155
Financial statements Notes to consolidated financial statements continued
13. Earnings per share
Basic
(Loss)/profit for the year attributable to equity holders of the parent
Continuing operations
Discontinued operations
Total
Diluted
Effect of profit adjustments
Profit adjustment relating to Alcatel Lucent American Depositary
Shares
Elimination of interest expense, net of tax, on convertible bonds,
where dilutive
Total effect of profit adjustments
(Loss)/profit attributable to equity holders of the parent adjusted
for the effect of dilution
Continuing operations
Discontinued operations
Total
Basic
Weighted average number of shares in issue
Diluted
Effect of dilutive shares
Effect of dilutive equity-based share incentive programs
Restricted shares and other
Performance shares
Stock options
Total effect of dilutive equity-based share incentive programs
Effect of other dilutive shares
Alcatel Lucent American Depositary Shares
Assumed conversion of convertible bonds
Total effect of other dilutive shares
Total effect of dilutive shares
Adjusted weighted average number of shares
Earnings per share attributable to equity holders of the parent
Basic earnings per share
Continuing operations
Discontinued operations
(Loss)/profit for the year
Diluted earnings per share
Continuing operations
Discontinued operations
(Loss)/profit for the year
2016
EURm
(751)
(15)
(766)
(8)
–
(8)
(759)
(15)
(774)
2015
EURm
1 192
1 274
2 466
–
36
36
1 228
1 274
2 502
2014
EURm
2 710
752
3 462
–
60
60
2 770
752
3 522
000s shares
000s shares
000s shares
5 732 371
3 670 934
3 698 723
–
–
–
–
8 746
–
8 746
8 746
5 741 117
EUR
(0.13)
0.00
(0.13)
(0.13)
0.00
(0.13)
4 253
3 179
1 971
9 403
–
268 975
268 975
278 378
3 949 312
EUR
0.32
0.35
0.67
0.31
0.32
0.63
14 419
1 327
3 351
19 097
–
413 782
413 782
432 879
4 131 602
EUR
0.73
0.20
0.94
0.67
0.18
0.85
Basic earnings per share is calculated by dividing the profit/loss attributable to equity holders of the parent by the weighted average number
of shares outstanding during the year, excluding treasury shares. Diluted earnings per share is calculated by adjusting the profit/loss
attributable to equity holders of the parent to eliminate the interest expense of dilutive convertible bonds and other equity instruments; and
by adjusting the weighted average number of shares outstanding with the dilutive effect of stock options, restricted shares and performance
shares outstanding during the period as well as the assumed conversion of convertible bonds and other equity instruments.
5 million restricted shares are outstanding (none in 2015 and 2014) that could potentially have a dilutive impact in the future but are excluded
from the calculation as they are determined to be anti-dilutive.
10 million performance shares are outstanding (none in 2015 and 2014) that could potentially have a dilutive impact in the future but are
excluded from the calculation as they are determined to be anti-dilutive. In addition, 4 million performance shares (4 million in 2015 and fewer
than 1 million in 2014) have been excluded from the calculation of diluted shares as contingency conditions have not been met.
Stock options equivalent to fewer than 1 million shares (fewer than 1 million shares in 2015 and 2 million in 2014) have been excluded from the
calculation of diluted shares as they are determined to be anti-dilutive.
156
NOKIA IN 2016
In 2014, convertible bonds issued to Microsoft in September 2013 were fully redeemed as a result of the closing of the Sale of the D&S Business.
116 million potential shares were included in the calculation of diluted shares to reflect the part-year effect of these convertible bonds.
In 2015, the Group exercised its option to redeem the EUR 750 million convertible bonds at their original amount plus accrued interest. Virtually
all bondholders elected to convert their convertible bonds into Nokia shares before redemption. 269 million potential shares have been included
in the calculation of diluted shares to reflect the part-year effect of these convertible bonds. In 2014, the conversion price was increased and
298 million potential shares were included in the calculation of diluted shares as they were determined to be dilutive. Voluntary conversion of
the entire bond would have resulted in the issue of 307 million shares in 2014.
On May 9, 2016, the Group acquired 107 775 949 Alcatel Lucent shares from JPMorgan Chase Bank N.A., as depositary, pursuant to the share
purchase agreement announced on March 17, 2016. These shares represent Alcatel Lucent shares that remained in the Alcatel Lucent American
Depositary Receipts program after the cancellation period and following the program’s termination on April 25, 2016. On May 10, 2016 the
Group registered with the Finnish Trade Register 59 276 772 new Nokia shares issued to the Alcatel depositary in settlement of the transaction.
9 million potential shares have been included in the calculation of diluted shares from March 16, 2016 to reflect the part-year effect of these
shares, and were included in the calculation as dilutive shares until the registration date.
14. Intangible assets
EURm
Acquisition cost as of January 1, 2015
Translation differences
Additions
Acquisitions through business combinations
Disposals and retirements(1)
Acquisition cost as of December 31, 2015
Accumulated amortization and impairment charges as of January 1, 2015
Translation differences
Disposals and retirements(1)
Amortization
Accumulated amortization and impairment charges as of December 31, 2015
Net book value as of January 1, 2015
Net book value as of December 31, 2015
Acquisition cost as of January 1, 2016
Translation differences
Additions
Acquisitions through business combinations
Disposals and retirements(2)
Acquisition cost as of December 31, 2016
Accumulated amortization and impairment charges as of January 1, 2016
Translation differences
Disposals and retirements(2)
Amortization
Accumulated amortization and impairment charges as of December 31, 2016
Net book value as of January 1, 2016
Net book value as of December 31, 2016
Goodwill
5 770
350
–
7
(4 982)
1 145
(3 207)
–
2 299
–
(908)
2 563
237
1 145
129
–
5 358
–
6 632
(908)
–
–
–
(908)
237
5 724
Other
5 646
382
26
56
(2 973)
3 137
(5 296)
(350)
2 934
(102)
(2 814)
350
323
3 137
424
62
5 781
(22)
9 382
(2 814)
(325)
9
(1 016)
(4 146)
323
5 236
Total
11 416
732
26
63
(7 955)
4 282
(8 503)
(350)
5 233
(102)
(3 722)
2 913
560
4 282
553
62
11 139
(22)
16 014
(3 722)
(325)
9
(1 016)
(5 054)
560
10 960
(1) Included goodwill with acquisition cost of EUR 4 982 million and accumulated impairment of EUR 2 299 million and other intangible assets with acquisition cost of EUR 2 892 million and accumulated
amortization of EUR 2 853 million disposed as part of the Sale of the HERE Business.
(2) Includes impairment charges of EUR 9 million. Refer to Note 16, Impairment.
Net book value of other intangible assets by type of asset:
EURm
Customer relationships
Technologies
Tradenames and trademarks
Other
Total
2016
2 765
1 786
308
377
5 236
The remaining amortization periods are approximately one to nine years for customer relationships, one to seven years for developed
technology and five to seven years for tradenames and trademarks.
NOKIA IN 2016
2015
132
126
9
56
323
157
Financial statements Notes to consolidated financial statements continued
15. Property, plant and equipment
EURm
Acquisition cost as of January 1, 2015
Translation differences
Additions
Acquisitions through business combinations
Reclassifications
Disposals and retirements(1)
Acquisition cost as of December 31, 2015
Accumulated depreciation as of January 1, 2015
Translation differences
Disposals and retirements(1)
Depreciation
Accumulated depreciation as of December 31, 2015
Net book value as of January 1, 2015
Net book value as of December 31, 2015
Acquisition cost as of January 1, 2016
Transfers to assets held for sale
Translation differences
Additions
Acquisitions through business combinations
Reclassifications
Disposals and retirements
Acquisition cost as of December 31, 2016
Accumulated depreciation as of January 1, 2016
Transfers to assets held for sale
Translation differences
Disposals and retirements
Depreciation
Accumulated depreciation as of December 31, 2016
Net book value as of January 1, 2016
Net book value as of December 31, 2016
Buildings and
constructions
438
32
62
2
12
(119)
427
(180)
(18)
71
(47)
(174)
258
253
427
(47)
1
65
587
20
(54)
999
(174)
5
1
46
(94)
(216)
253
783
Machinery and
equipment
1 854
134
186
5
4
(437)
1 746
(1 434)
(114)
365
(168)
(1 351)
420
395
1 746
–
(15)
361
674
75
(148)
2 693
(1 351)
–
13
133
(480)
(1 685)
395
1 008
Other
41
1
15
–
–
(16)
41
(22)
(1)
16
(2)
(9)
19
32
41
–
2
3
68
2
(2)
114
(9)
–
–
–
(4)
(13)
32
101
Assets under
construction
19
–
16
–
(16)
(4)
15
–
–
–
–
–
19
15
15
–
–
87
84
(97)
–
89
–
–
–
–
–
–
15
89
Total
2 352
167
279
7
–
(576)
2 229
(1 636)
(133)
452
(217)
(1 534)
716
695
2 229
(47)
(12)
516
1 413
–
(204)
3 895
(1 534)
5
14
179
(578)
(1 914)
695
1 981
(1) Included buildings and constructions with acquisition cost of EUR 81 million and accumulated depreciation of EUR 35 million, machinery and equipment with acquisition cost of EUR 305 million and
accumulated depreciation of EUR 239 million and assets under construction with acquisition cost of EUR 3 million disposed as part of the Sale of the HERE Business.
In 2014, the tax authorities in India placed a lien which prohibited the Group from transferring the mobile devices-related facility in Chennai
to Microsoft as part of the Sale of the D&S Business.
158
NOKIA IN 2016
16. Impairment
Goodwill
Following the Acquisition of Alcatel Lucent on January 4, 2016, the Group adopted an operational and reporting structure consisting
of two businesses: Nokia’s Networks business and Nokia Technologies, and three reportable segments for financial reporting purposes:
Ultra Broadband Networks and IP Networks and Applications within Nokia’s Networks business, and Nokia Technologies. Based on the current
operational and reporting structure, the Group allocated goodwill to the operating segments within Nokia’s Networks business and to the
Withings cash generating unit within Nokia Technologies corresponding to groups of cash generating units (“group of CGUs”) and cash
generating unit (“CGU”), respectively. The goodwill allocation reflects the lowest level at which goodwill is monitored for internal management
purposes; and is allocated to the group of CGUs or the CGU that is expected to benefit from the synergies of the combination.
Allocation of goodwill
The following table presents the allocation of goodwill to groups of CGUs and the CGU as of the annual impairment testing date October 1, 2016:
EURm
Mobile Networks
Fixed Networks
IP/Optical Networks
Applications & Analytics
Withings (Nokia Technologies)
Global Services
Radio Access Networks (Mobile Broadband)
2016
2 298
896
1 970
240
141
2015
124
115
Recoverable amounts
The recoverable amounts of the groups of CGUs and the CGU were based on fair value less costs of disposal that was determined using a level 3
fair value measurement based on a discounted cash flow calculation. The cash flow projections used in calculating the recoverable amounts
were based on financial plans approved by management covering an explicit forecast period of five years.
Five additional years of cash flow projections subsequent to the explicit forecast period reflect a gradual progression towards the steady state
cash flow projections modeled in the terminal year. The terminal growth rate assumptions reflect long-term average growth rates for the
industry and economies in which the groups of CGUs and the CGU operate. The discount rates reflect current assessments of the time value of
money and relevant market risk premiums reflecting risks and uncertainties for which the future cash flow estimates have not been adjusted.
Other key variables in future cash flow projections include assumptions on estimated sales growth, gross margin and operating margin. All cash
flow projections are consistent with external sources of information, wherever possible.
The key assumptions applied in the impairment testing analysis for the groups of CGUs and the CGU:
Key assumption %
Mobile Networks
Fixed Networks
IP/Optical Networks
Applications & Analytics
Withings (Nokia Technologies)
Global Services
Radio Access Networks (Mobile Broadband)
2016
2015
2016
2015
Terminal growth rate
Post-tax discount rate
0.9
0.9
1.4
1.8
2.1
9.2
8.6
8.9
9.0
12.7
1.0
1.0
8.7
9.2
NOKIA IN 2016
159
Financial statements Notes to consolidated financial statements continued
Sensitivity analysis
The Group allocated a significant proportion of the goodwill arising from the Acquisition of Alcatel Lucent to the IP/Optical Networks group of
CGUs, which is comprised mainly of businesses acquired in the acquisition. As a result, the fair value of the IP/Optical Networks group of CGUs
corresponds closely to its respective carrying amount.
The results of the impairment testing indicate significant headroom for each group of CGUs and CGU, except for the IP/Optical Networks group
of CGUs, where the recoverable amount exceeds its carrying amount by approximately EUR 1 200 million. Taken in isolation, the following
changes would cause the recoverable amount of IP/Optical Networks group of CGUs to equal its carrying amount:
■ Increase in discount rate from 8.9% to 10.7%.
■ Reduction in operational profitability in the terminal year by 40%, which is equal to the decrease in the operating profit of EUR 331 million.
Other non-current assets
Impairment charges by asset category:
EURm
Other intangible assets
Available-for-sale investments
Total
2016
9
116
125
2015
–
11
11
2014
–
15
15
Other intangible assets
The Group recognized an impairment charge of EUR 9 million following the discontinuation of certain technology-related assets acquired with
Mesaplexx Pty Ltd. The impairment charge is recorded in other operating expenses.
Available-for-sale investments
The Group recognized an impairment charge of EUR 116 million (EUR 11 million in 2015 and EUR 15 million in 2014) primarily related to the
performance of certain private funds investing in IPR that are included in non-current available-for-sale equity investments at cost less
impairment. These charges are recorded in other expenses and financial income and expenses.
17. Inventories
EURm
Raw materials, supplies and other
Work in progress
Finished goods
Total
2016
268
1 159
1 079
2 506
2015
102
404
508
1 014
The cost of inventories recognized as an expense during the year and included in the cost of sales is EUR 7 636 million (EUR 3 132 million in
2015 and EUR 3 156 million in 2014).
Movements in allowances for excess and obsolete inventory for the years ended December 31:
EURm
As of January 1
Charged to income statement
Deductions(1)
As of December 31
(1) Deductions include utilization and releases of allowances.
2016
195
354
(93)
456
2015
204
71
(80)
195
2014
178
107
(81)
204
160
NOKIA IN 2016
18. Allowances for doubtful accounts
Movements in allowances for doubtful accounts for the years ended December 31:
EURm
As of January 1
Transfer to Discontinued operations
Charged to income statement
Deductions(1)
As of December 31
(1) Deductions include utilization and releases of allowances.
19. Prepaid expenses and accrued income
Non-current assets
EURm
R&D tax credits and other indirect tax receivables
Other
Total
Current assets
EURm
Social security, R&D tax credits, VAT and other indirect taxes
Deposits
Accrued revenue
Divestment-related receivables
Other
Total
2016
62
–
126
(20)
168
2015
103
(7)
13
(47)
62
2016
254
74
328
2016
560
118
101
90
427
1 296
2014
124
–
24
(45)
103
2015
–
51
51
2015
258
83
21
160
227
749
NOKIA IN 2016
161
Financial statements Notes to consolidated financial statements continued
20. Shares of the Parent Company
Shares and share capital
Nokia Corporation (“Parent Company”) has one class of shares. Each share entitles the holder to one vote at General Meetings. As of December
31, 2016, the share capital of Nokia Corporation is EUR 245 896 461.96 and the total number of shares issued is 5 836 055 012. As of
December 31, 2016, the total number of shares includes 115 551 878 shares owned by Group companies representing 2.0% of share capital
and total voting rights. Under the Nokia Articles of Association, Nokia Corporation does not have minimum or maximum share capital or share
par value.
Authorizations
Authorization to issue shares and special rights entitling to shares
At the Annual General Meeting held on May 5, 2015, the shareholders authorized the Board of Directors to issue a maximum of 730 million shares
through one or more issues of shares or special rights entitling to shares. The Board of Directors was authorized to issue either new shares or
shares held by the Parent Company. The authorization included the right for the Board of Directors to resolve on all the terms and conditions
of such share and special rights issuances, including issuance in deviation from the shareholders’ pre-emptive rights. The authorization may be
used to develop the Parent Company’s capital structure, diversify the shareholder base, finance or carry out acquisitions or other arrangements,
settle the Parent Company’s equity-based incentive plans, or for other purposes resolved by the Board of Directors. The authorization that
would have been effective until November 5, 2016 was terminated by a resolution of Annual General Meeting on June 16, 2016.
At the Extraordinary General Meeting held on December 2, 2015, the shareholders authorized the Board of Directors to issue, in deviation
from the shareholders’ pre-emptive right, a maximum of 2 100 million shares through one or more share issues. The authorization includes
the right for the Board of Directors to resolve on all the terms and conditions of such share issuances. The authorization may be used to issue
Parent Company shares to the holders of Alcatel Lucent shares, American Depositary Shares and convertible bonds as well as to beneficiaries
of Alcatel Lucent employee equity compensation arrangements for the purpose of implementing the transaction with Alcatel Lucent, including
the consummation of the public exchange offers made to Alcatel Lucent shareholders as well as other transactions contemplated by the
memorandum of understanding between the Group and Alcatel Lucent, and/or otherwise to effect the combination. The authorization is
effective until December 2, 2020.
In 2016, under the authorization held by the Board of Directors, the Parent Company issued in deviation from the shareholders’ pre-emptive
right to subscription 1 842 158 031 shares in exchange for the Alcatel Lucent ordinary shares, American Depository Shares and OCEANE
convertible bonds to effect the business combination with Alcatel Lucent. The number of shares issued consisted of 1 831 136 063 new shares
and 11 021 968 shares held by Group companies. On November 2, 2016 the Group reached 100% ownership of Alcatel Lucent. Refer to Note 5,
Acquisitions.
At the Annual General Meeting held on June 16, 2016, the shareholders authorized the Board of Directors to issue a maximum of 1 150 million
shares through one or more issues of shares or special rights entitling to shares. The Board of Directors is authorized to issue either new shares
or shares held by the Parent Company. The authorization included the right for the Board of Directors to resolve on all the terms and conditions
of such share and special rights issuances, including issuance in deviation from the shareholders’ pre-emptive rights. The authorization may be
used to develop the Parent Company’s capital structure, diversify the shareholder base, finance or carry out acquisitions or other arrangements,
settle the Parent Company’s equity-based incentive plans, or for other purposes resolved by the Board of Directors. The authorization is
effective until December 16, 2017.
In 2016, under the authorization held by the Board of Directors, the Parent Company issued 3 408 437 treasury shares to employees,
including certain members of the Group Leadership Team, as settlement under equity-based incentive plans. The shares were issued without
consideration and in accordance with the Plan rules.
In 2016, the Parent Company issued 1 033 265 new shares following the holders of stock options issued in 2011 and 2012 exercising their
option rights.
As of December 31, 2016, the Board of Directors had no other authorizations to issue shares, convertible bonds, warrants or stock options.
Other authorizations
At the Annual General Meeting held on May 5, 2015, the shareholders authorized the Board of Directors to repurchase a maximum of 365 million
shares. The amount corresponded to less than 10% of the total number of Parent Company’s shares. The shares may be repurchased in order
to optimize the capital structure of the Parent Company, in order to finance or carry out acquisitions or other arrangements, to settle the
Parent Company’s equity-based incentive plans or to be transferred for other purposes. The authorization that would have been effective
until November 5, 2016 was terminated by a resolution of the Annual General Meeting on June 16, 2016.
At the Annual General Meeting held on June 16, 2016, the shareholders authorized the Board of Directors to repurchase a maximum of
575 million shares. The amount corresponds to less than 10% of the total number of Parent Company’s shares. The shares may be repurchased
in order to optimize the capital structure of the Parent Company and are expected to be cancelled. In addition, the shares may be repurchased
in order to finance or carry out acquisitions or other arrangements, to settle the Parent Company’s equity-based incentive plans or to be
transferred for other purposes. The authorization is effective until December 16, 2017.
In 2016, under the authorization held by the Board of Directors and in line with the capital structure optimization program, the Parent Company
repurchased 54 296 182 shares representing approximately 0.9% of share capital and total voting rights. The price paid for the shares was
based on the current market price of the Nokia share on the securities market at the time of the repurchase.
162
NOKIA IN 2016
21. Fair value and other reserves
EURm
As of January 1, 2014
Foreign exchange translation differences
Net investment hedging losses
Remeasurements of defined benefit plans
Net fair value (losses)/gains
Transfer to income statement
Disposal of businesses
Movement attributable to non-controlling interests
As of December 31, 2014
Foreign exchange translation differences
Net investment hedging losses
Remeasurements of defined benefit plans
Net fair value (losses)/gains
Transfer to income statement
Disposal of businesses
Movement attributable to non-controlling interests
As of December 31, 2015
Foreign exchange translation differences
Net investment hedging losses
Remeasurements of defined benefit plans
Net fair value losses
Transfer to income statement
Acquisition of non-controlling interests
Movement attributable to non-controlling interests
As of December 31, 2016
Translation
differences
Pension
remeasurements
Hedging reserve
Available-for-sale
investments
434
628
(153)
–
–
197
–
(7)
1 099
672
(207)
–
–
(1 268)
–
(4)
292
265
(83)
–
–
(14)
(15)
38
483
(131)
–
–
(179)
–
–
46
–
(264)
–
–
84
–
–
8
–
(172)
–
–
343
–
–
(2)
4
173
30
–
–
–
(10)
(20)
2
–
2
–
–
–
(53)
49
–
–
(2)
–
–
–
(13)
25
–
–
10
181
–
–
–
117
(14)
–
–
284
–
–
–
225
(131)
–
–
378
–
–
–
(10)
(63)
–
–
305
Translation differences consist of translation differences arising from translation of foreign Group companies’ assets and liabilities into euro,
the presentation currency of the consolidated financial statements, as well as gains and losses related to hedging of net investments in foreign
operations. On disposal of all or a part of a foreign Group company, the cumulative amount of translation differences and related accumulated
changes in fair value of qualifying net investment hedges are recognized as income or expense on the consolidated income statement when
the gain or loss on disposal is recognized. Refer to Note 2, Significant accounting policies.
The Group has defined benefit plans. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions for
these defined benefit plans are charged or credited to the pension remeasurements reserve. Refer to Note 2, Significant accounting policies
and Note 27, Pensions and other post-employment benefits.
The Group applies hedge accounting on certain forward foreign exchange contracts that are designated as cash flow hedges. The change
in fair value that reflects the change in spot exchange rates is deferred to the hedging reserve to the extent that the hedge is effective.
Refer to Note 2, Significant accounting policies.
The Group invests a portion of cash needed to cover the projected cash needs of its ongoing business operations in highly liquid,
interest-bearing investments and certain equity instruments. Changes in the fair value of these available-for-sale investments are recognized
in the fair value and other reserves as part of other comprehensive income, with the exception of interest calculated using the effective interest
method and foreign exchange gains and losses on current available-for-sale investments recognized directly in the consolidated income
statement. Refer to Note 2, Significant accounting policies.
NOKIA IN 2016
163
Financial statements Notes to consolidated financial statements continued
22. Other comprehensive income
EURm
Gross
Tax
Net
Gross
Tax
Net
Gross
Tax
Net
2016
2015
2014
Pension remeasurements
Remeasurements of defined benefit plans
Net change during the year
Translation differences
Exchange differences on translating
foreign operations
Transfer to income statement
Net change during the year
Net investment hedging
Net investment hedging losses
Transfer to income statement
Net change during the year
Cash flow hedges
Net fair value losses
Transfer to income statement
Net change during the year
Available-for-sale investments
Net fair value (losses)/gains
Transfer to income statement on impairment
Transfer to income statement on disposal
Net change during the year
Other (decrease)/increase, net
Total
613
613
(269)
(269)
344
344
112
112
(28)
(28)
84
84
(275)
(275)
96
96
(179)
(179)
265
(14)
251
(103)
–
(103)
(16)
30
14
(9)
25
(91)
(75)
(6)
694
–
–
–
20
–
20
3
(5)
(2)
(1)
(4)
7
2
–
(249)
265
(14)
251
673
(1 727)
(1 054)
–
–
–
673
(1 727)
(1 054)
(83)
–
(83)
(13)
25
12
(10)
21
(84)
(73)
(6)
445
(260)
582
322
(66)
61
(5)
246
11
(144)
113
2
(510)
53
(123)
(70)
13
(12)
1
(21)
–
2
(19)
––
(116)
(207)
459
252
(53)
49
(4)
225
11
(142)
94
2
(626)
628
192
820
(187)
20
(167)
(5)
(25)
(30)
120
15
(29)
106
40
494
–
–
–
34
(15)
19
(5)
5
–
(3)
–
–
(3)
–
112
628
192
820
(153)
5
(148)
(10)
(20)
(30)
117
15
(29)
103
40
606
164
NOKIA IN 2016
23. Interest-bearing liabilities
Instrument
Revolving Credit Facility(1)
6.625% Senior Notes
Issuer/borrower
Nokia Corporation
Nokia Corporation
Alcatel-Lucent USA Inc. 6.45% Senior Notes
Alcatel-Lucent USA Inc. 6.5% Senior Notes
Alcatel Lucent SA
Nokia Corporation
Nokia Corporation
Alcatel Lucent SA
Nokia Corporation and
Currency
EUR
USD
USD
USD
0.125% OCEANE Convertible Bond EUR
USD
5.375% Senior Notes
EUR
6.75% Senior Notes
EUR
0% OCEANE Convertible Bond
various subsidiaries Other liabilities(2)
Total
Nominal (million)
1 579
500
1 360
300
–
1 000
500
–
Final maturity
June 2019
May 2039
March 2029
January 2028
January 2020
May 2019
February 2019
January 2019
Carrying amount EURm
2016
–
482
1 306
287
–
961
527
–
464
4 027
2015
–
467
–
–
–
940
539
–
128
2 074
(1) In June 2016, the Group exercised its option to increase the size of the EUR 1 500 million revolving credit facility to EUR 1 579 million and to extend the maturity date from June 2018 to June 2019.
The facility has a remaining one-year extension option, no financial covenants and remains undrawn.
(2) Includes liabilities related to the French R&D tax credits (Crédits d’Impôt Recherche) of EUR 132 million that have been sold to banks on a recourse basis and hence remain on the consolidated
statement of financial position.
Transactions relating to borrowings acquired as part of the Acquisition of Alcatel Lucent
As part of the public exchange offer to acquire Alcatel Lucent 2018 OCEANE, 2019 OCEANE and 2020 OCEANE convertible bonds with nominal
amounts of EUR 381 million, EUR 238 million and EUR 293 million respectively, were tendered for exchange into Nokia shares. As a result, less
than 15% of the 2018 OCEANE convertible bonds remained outstanding, and the Group caused Alcatel Lucent SA to redeem at par value
plus accrued interest, all of the outstanding 2018 OCEANE convertible bonds pursuant to the terms and conditions of the bonds. Subsequently
during 2016 the remaining outstanding 2019 OCEANE and 2020 OCEANE convertible bonds with nominal amounts EUR 402 million and
EUR 136 million respectively, were either put back, acquired in privately negotiated transactions, or acquired through the Public Buy-Out Offer
followed by a Squeeze-Out for an aggregate cash payment of EUR 562 million. Refer to Note 5, Acquisitions.
In January 2016, Alcatel Lucent SA repaid its EUR 190 million 8.50% senior notes. In February, 2016, Alcatel-Lucent USA Inc. redeemed its
USD 650 million 4.625% notes due July 2017, USD 500 million 8.875% notes due January 2020 and USD 700 million 6.750% notes due
November 2020 in accordance with their respective terms and conditions. In February 2016, Alcatel Lucent SA terminated its EUR 504 million
revolving credit facility. In March 2016, the Alcatel-Lucent Submarine Networks’ credit facility of EUR 74 million was repaid.
All of the remaining borrowings are senior unsecured and have no financial covenants.
NOKIA IN 2016
165
Financial statements Notes to consolidated financial statements continued
24. Fair value of financial instruments
Carrying amounts
Fair
value(1)
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
EURm
2016
Available-for-sale investments, carried at fair value
Available-for-sale investments, carried at cost
less impairment
Other non-current financial assets
Accounts receivable
Other current financial assets
Investments at fair value through profit and loss,
liquid assets
Available-for-sale investments, liquid assets
carried at fair value
Cash and cash equivalents carried at fair value
Total financial assets
Long-term interest-bearing liabilities
Short-term interest-bearing liabilities
Other financial liabilities
Accounts payable
Total financial liabilities
2015
Available-for-sale investments, carried at fair value
Available-for-sale investments, carried at cost
less impairment
Other non-current financial assets
Accounts receivable
Other current financial assets
Investments at fair value through profit and loss,
liquid assets
Available-for-sale investments, publicly quoted
equity shares
Available-for-sale investments, liquid assets
carried at fair value
Cash and cash equivalents carried at fair value
Total financial assets
Long-term interest-bearing liabilities
Short-term interest-bearing liabilities
Other financial liabilities
Accounts payable
Total financial liabilities
838
202
143
6 972
61
111
235
327
1 040
673
7 176
250
250
96
687
–
49
3 913
32
–
703
285
16
1 004
783
3 994
1 502
7 497
8 999
–
2 167
6 995
9 162
–
–
114
114
–
Total
Total
838
838
202
254
6 972
296
202
228
6 972
296
327
327
1 502
7 497
17 888
3 657
370
284
3 781
8 092
1 502
7 497
17 862
3 821
370
284
3 781
8 256
–
3 657
370
34
3 781
7 842
703
703
285
49
3 913
128
285
39
3 913
128
687
687
16
16
2 167
6 995
14 943
2 023
51
122
1 910
4 106
2 167
6 995
14 933
2 100
51
122
1 910
4 183
–
2 023
51
8
1 910
3 992
(1) The following fair value measurement methods are used for items not carried at fair value: the fair value is estimated to equal the carrying amount for available-for-sale investments carried at cost less
impairment for which it is not possible to estimate fair value reliably. These assets are tested for impairment using a discounted cash flow analysis if events or changes in circumstances indicate that the
carrying amounts may not be recoverable. The fair values of long-term interest-bearing liabilities are primarily based on quotes from third-party pricing services (level 2). The fair values of other assets
and liabilities, including loans receivable and loans payable are primarily based on discounted cash flow analysis (level 2). The fair value is estimated to equal the carrying amount for short-term financial
assets and financial liabilities due to limited credit risk and short time to maturity. Refer to Note 2, Significant accounting policies.
166
NOKIA IN 2016
Fair value hierarchy
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 for exchange traded products, level 2 being primarily based on quotes from third-party pricing
services, and level 3 requiring most management judgment. At the end of each reporting period, the Group categorizes its financial assets and
liabilities to appropriate level of fair value hierarchy.
Items measured at fair value on a recurring basis as of December 31:
EURm
2016
Available-for-sale investments, carried at fair value
Other current financial assets, derivatives(1)
Investments at fair value through profit and loss
Available-for-sale investments, liquid assets carried at fair value
Total assets
Other financial liabilities, derivatives(1)
Total liabilities
2015
Available-for-sale investments, carried at fair value
Other current financial assets, derivatives(1)
Investments at fair value through profit and loss
Available-for-sale investments, publicly quoted equity shares
Available-for-sale investments, liquid assets carried at fair value
Total assets
Other financial liabilities, derivatives(1)
Total liabilities
Instruments with
quoted prices in
active markets
(level 1)
Valuation
technique using
observable data
(level 2)
Valuation
technique using
non-observable
data (level 3)
–
–
–
–
–
–
–
–
–
–
16
–
16
–
–
164
235
438
1 502
2 339
236
236
15
96
687
–
2 167
2 965
114
114
674
–
–
–
674
14
14
688
–
–
–
–
688
–
–
Total
838
235
438
1 502
3 013
250
250
703
96
687
16
2 167
3 669
114
114
(1) Refer to Note 25, Derivative financial instruments for the allocation between hedge accounted and non-hedge accounted derivatives.
The level 1 category includes financial assets and liabilities that are measured in whole by reference to published quotes in an active market.
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, and those
prices represent actual and regularly occurring market transactions on an arm’s-length basis. This category includes only exchange traded
products. Comparative presentation has been updated accordingly.
The level 2 category includes financial assets and liabilities measured using a valuation technique based on assumptions that are supported by
prices from observable current market transactions. These include assets and liabilities with fair values based on quotes from third-party pricing
services, financial assets with fair values based on broker quotes and assets that are valued using the Group’s own valuation models whereby
the material assumptions are market observable. The majority of listed bonds and other securities, over-the-counter derivatives and certain
other products are included in this category.
The level 3 category includes a large number of investments in unlisted equities and unlisted venture funds, including investments managed
by Nokia Growth Partners specializing in growth-stage investing and by BlueRun Ventures focusing on early-stage opportunities. The level 3
fair value is determined 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 expected 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.
NOKIA IN 2016
167
Financial statements Notes to consolidated financial statements continued
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. The 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 impact the resulting fair value of individual investments, although no individual input has a significant impact on the total fair value
of the level 3 investments.
Reconciliation of the opening and closing balances on level 3 financial assets and liabilities:
EURm
As of January 1, 2015
Net gain in income statement
Net gain in other comprehensive income
Purchases
Sales
Other
As of December 31, 2015
Net gains in income statement
Net loss recorded in other comprehensive income
Acquisitions through business combination
Purchases
Sales
Other
As of December 31, 2016
Level 3 financial
assets and liabilities
556
96
83
70
(146)
29
688
52
(48)
(14)
72
(101)
11
660
The gains and losses from financial assets and liabilities 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.
168
NOKIA IN 2016
25. Derivative financial instruments
EURm
2016
Hedges on net investment in foreign subsidiaries
Forward foreign exchange contracts
Cash flow hedges
Forward foreign exchange contracts
Fair value hedges
Interest rate swaps
Forward foreign exchange contracts
Firm commitments
Cash flow and fair value hedges(3)
Cross-currency interest rate swaps
Derivatives not designated in hedge accounting relationships
carried at fair value through profit and loss
Forward foreign exchange contracts
Currency options bought
Interest rate swaps
Other derivatives
Total
2015
Hedges on net investment in foreign subsidiaries
Forward foreign exchange contracts
Currency options bought
Currency options sold
Cash flow hedges
Forward foreign exchange contracts
Fair value hedges
Interest rate swaps
Cash flow and fair value hedges(3)
Cross-currency interest rate swaps
Derivatives not designated in hedge accounting relationships
carried at fair value through profit and loss
Forward foreign exchange contracts
Currency options bought
Currency options sold
Interest rate swaps
Other derivatives
Total
Assets
Liabilities
Fair value(1)
Notional(2)
Fair value(1)
Notional(2)
20
12
42
21
34
42
61
3
–
–
235
2
–
–
4
52
17
17
4
–
–
–
96
1 829
382
300
350
633
1 002
3 777
569
–
–
8 842
223
106
–
844
301
355
2 117
350
–
–
–
4 296
(1)
(9)
–
(51)
(6)
–
(135)
–
(29)
(5)
(236)
(5)
–
–
255
185
–
689
311
–
7 526
–
329
157
9 452
464
–
114
(19)
880
–
(5)
(31)
–
–
(50)
(4)
(114)
–
646
2 296
–
48
646
37
5 131
(1) Included in other financial assets and other financial liabilities in the consolidated statement of financial position.
(2) Includes the gross amount of all notional values for contracts that have not yet been settled or cancelled. The amount of notional value outstanding is not necessarily a measure or indication of market
risk as the exposure of certain contracts may be offset by that of other contracts.
(3) Cross-currency interest rate swaps have been designated partly as fair value hedges and partly as cash flow hedges.
NOKIA IN 2016
169
Financial statements Notes to consolidated financial statements continued
26. Share-based payment
The Group has several equity-based incentive programs for employees. The programs consist of performance share plans, restricted share
plans and employee share purchase plans. New stock option plans are no longer granted, although the 2011 stock option plan remains in force.
Both executives and other eligible employees participate in these programs. The equity-based incentive grants are generally conditional on
continued employment as well as the fulfillment of the performance, service and other conditions determined in the relevant plan rules. The
share-based payment expense for all equity-based incentive grants for Continuing operations amounts to EUR 130 million (EUR 67 million in
2015 and EUR 53 million in 2014).
Performance shares
In 2016, the Group administered four global performance share plans, the Performance Share Plans of 2013, 2014, 2015 and 2016. The
performance shares represent a commitment by the Group to deliver Nokia shares to employees at a future point in time, subject to the
fulfillment of predetermined performance criteria. In the Performance Share Plan of 2016, performance shares were granted with pre-defined
performance criteria and included a minimum payout guarantee. As a result of the minimum payout defined in the terms and conditions of the
2016 Plan, the number of shares to be settled following the restriction period will start at 25% of the granted amount at target. The number of
performance shares at target is the amount of performance shares granted to an individual that will be settled if the target performance with
respect to performance criteria is achieved. Any additional payout beyond the minimum amount will be determined based on the financial
performance against the established performance criteria during the two-year performance period. At maximum performance, the settlement
amounts to two times the amount at target.
Global performance share plans as of December 31:
Plan
2013
2014
2015
2016
Performance shares
outstanding at target
–
10 247 152
10 818 660
22 351 738
Confirmed payout
(% of target)
86
126
124
Performance period
2013–2014
2014–2015
2015–2016
2016–2017
Restriction period(1)
2015
2016
2017
2018
Settlement year
2016
2017
2018
2019
(1) The restriction period will be no less than one year from the end of the performance period.
Performance criteria for the year ended December 31:
Performance criteria
2016 Plan
2015 Plan(2)
Average annual net sales(1) 2016-2017
Average annual diluted(1) EPS 2016-2017
Annual net sales(1) in 2015
Annual net sales(1) in 2016
Average annual diluted(1) EPS 2015-2016
Threshold performance
EUR
24 097 million
0.23
11 892 million
23 421 million
0.18
Maximum performance
EUR
27 724 million
0.34
14 144 million
27 852 million
0.29
Weight
%
50
50
25
25
50
(1) Excludes costs related to the Acquisition of Alcatel Lucent and related integration, goodwill impairment charges, intangible asset amortization and other purchase price fair value adjustments,
restructuring and associated charges and certain other items.
(2) The performance criteria of the Performance Share Plan 2015 were modified in 2016 to reflect the new structure and size of the Group following the Sale of the HERE Business and the Acquisition of
Alcatel Lucent. The net sales metric is weighted equally each year, instead of calculating an average over the two-year performance period due to significant difference between the metrics for Nokia
in 2015 and the new combined company in 2016.
Until the Nokia shares are delivered, the participants do not have any shareholder rights, such as voting or dividend rights, associated with the
performance shares. The performance share grants are generally forfeited if the employment relationship with the Group terminates prior
to vesting.
170
NOKIA IN 2016
Restricted shares
In 2016, the Group administered four global restricted share plans: the Restricted Share Plan 2013, 2014, 2015 and 2016. The vesting schedule
for plans prior to the 2015 Plan was 36 months following the grant quarter. The vesting schedule for the 2015 and 2016 Plans introduce
tranche vesting and vest in three equal tranches on the first, second and the third anniversary of the award subject to continued employment
with the Group. Restricted shares are granted on a limited basis for exceptional purposes related to retention and recruitment of individuals
deemed critical to the Group’s future success. Until the Nokia shares are delivered, the participants do not have any shareholder rights, such
as voting or dividend rights, associated with the restricted shares. The restricted share grants are generally forfeited if the employment
relationship with the Group terminates prior to vesting of the applicable tranche or tranches.
Active share-based payment plans by instrument
Performance shares outstanding at target(1)
Restricted shares outstanding(1)
Number of
performance
shares at target
Weighted average grant
date fair value
EUR(2)
Number of
restricted
shares outstanding
Weighted average grant
date fair value
EUR(2)
As of January 1, 2014
Granted
Forfeited
Vested
As of December 31, 2014
Granted
Forfeited
Vested
As of December 31, 2015
Granted
Forfeited
Vested
As of December 31, 2016(3)
21 980 408
13 934 730
(18 676 072)
(5 000)
17 234 066
13 553 992
(7 859 208)
–
22 928 850
23 110 479
(1 489 070)
(1 132 709)
43 417 550
6.07
5.78
4.70
30 356 850
1 013 466
(19 546 605)
(4 228 306)
7 595 405
342 200
(3 880 221)
(1 952 910)
2 104 474
5 406 682
(255 023)
(1 286 596)
5 969 537
5.62
6.22
4.73
(1) Includes performance and restricted shares granted under other than global equity plans.
(2) The fair values of performance and restricted shares are estimated based on the grant date market price of the Nokia share less the present value of dividends expected to be paid during the
vesting period.
(3) Includes 10 247 152 performance shares for the Performance Share Plan 2014 and 521 685 Restricted Shares that vested on January 1, 2017.
Employee share purchase plan
The Group offers a voluntary Employee Share Purchase Plan to its employees. Employees make contributions from their salary to purchase
Nokia shares on a monthly basis during a 12-month savings period. The Group intends to deliver one matching share for every two purchased
shares the employee still holds as of the end of the Plan cycle. In 2016, 1 661 951 matching shares were issued as a settlement to the participants
of the Employee Share Purchase Plan 2015 (140 436 matching shares issued in 2015). Additionally in 2016, according to the terms and
conditions of the plan, the Group issued 20 free shares to the participants of the Employee Share Purchase Plan, being 601 408 shares in total.
NOKIA IN 2016
171
Financial statements
Notes to consolidated financial statements continued
Legacy equity compensation programs
Stock options
In 2016, the Group administered two global stock option plans, the Stock Option Plans 2007 and 2011, approved by the shareholders at the
Annual General Meeting in the year when the plan was launched. Stock option plans have not been granted since 2013 as compensation to
Group employees. The Stock Option Plan 2007 lapsed on January 1, 2016.
Each stock option entitles the holder to subscribe for one new Nokia share. The stock options are non-transferable and may be exercised for
shares only. Shares will be eligible for dividends for the financial year in which the share subscription takes place. Other shareholder rights will
commence on the date on which the subscribed shares are entered in the Trade Register. The stock option grants are generally forfeited if the
employment relationship with the Group is terminated.
Reconciliation of stock options outstanding and exercisable:
Shares under option(1)
As of January 1, 2014
Exercised
Forfeited
Expired
As of December 31, 2014
Exercised
Forfeited
Expired
As of December 31, 2015
Exercised
Forfeited
Expired
As of December 31, 2016
Number
of shares
28 000 192
(56 623)
(16 839 593)
(3 759 953)
7 344 023
(1 242 381)
(2 215 216)
(246 140)
3 640 286
(832 900)
(17 875)
(1 188 490)
1 601 021
Weighted
average exercise
price
EUR
Weighted
average share
price
EUR
6.69
6.44
4.87
4.47
5.75
3.39
9.94
4.81
3.79
2.48
8.07
4.67
2.52
2.57
7.81
3.34
Number of
options
exercisable
4 339 341
Weighted
average exercise
price
EUR
9.66
1 913 537
10.43
2 318 911
5.97
1 197 771
3.56
(1) Includes stock options granted under other than global equity plans, excluding the 2012 Nokia Networks Equity Incentive Plan.
Nokia Networks equity incentive plan
In 2012, the Board of Nokia Siemens Networks established the Nokia Networks Equity Incentive Plan (”the Plan”), a share-based incentive
program under which options for Nokia Solutions and Networks B.V. shares were granted to selected key employees and senior management.
In 2015, 30% of the options became exercisable and the remaining 70% became exercisable in 2016. The exercise price of the options is based
on a per share value on grant as determined for the purposes of the Plan. The options are accounted for as a cash-settled share-based payment
liability as of December 31, 2016. The fair value of the liability is determined based on the estimated fair value of shares less the exercise price
of the options on the reporting date. The total carrying amount of the Plan is EUR 9 million (EUR 73 million in 2015) and is included in accrued
expenses and other liabilities in the consolidated statement of financial position.
Alcatel Lucent equity incentive plan
Following the Acquisition of Alcatel Lucent, plans previously granted to former Alcatel Lucent employees that remained outstanding and
exercisable were transferred to the Group with original vesting terms and conditions. Multiple liquidity agreements were offered in limited
circumstances as part of the transaction to support the delivery of specific awards at the point of vesting with settlement in Nokia shares. For
the primary liquidity arrangement (applied to the 2015 performance share grant), the performance conditions are market-driven and the terms
were modified to acknowledge the change from Alcatel Lucent share-related measure to Nokia share measure. All shares granted that are
covered under the liquidity agreements are accounted for as replacement plans.
At the time of the Squeeze-Out, the remaining plans were modified to allow for the completion of the Squeeze-Out. Modifications to remaining
outstanding share and option grants not already covered by liquidity agreements, included mandatory acceleration of unvested performance
shares, and modification of plan terms for outstanding stock options that result in options delivered in cash rather than equity, keeping all other
terms of the plan constant. The options are accounted for as a cash-settled share-based payment liability as of December 31, 2016. EUR 8 million
was included in the total share-based compensation expense in the consolidated income statement in relation to these legacy Alcatel Lucent
plans. The fair value of the liability is determined based on the estimated fair value of shares less the exercise price of the options on the
reporting date. The total carrying amount of the liability is EUR 19 million and is included in accrued expenses and other liabilities in the
consolidated statement of financial position.
172
NOKIA IN 2016
27. Pensions and other post-employment benefits
The Group operates a number of post-employment plans in various countries including both defined contribution and defined benefit plans.
Defined benefit plans expose the Group to actuarial risks such as investment risk, interest rate risk, and life expectancy risk. The characteristics
and associated risks of the defined benefit plans vary depending on legal, fiscal, and economic requirements in each country. These
characteristics and risks are further described below and relate to the plans included in Continuing operations.
The total net defined benefit liability is EUR 1 198 million (EUR 398 million in 2015) consisting of net pension and other post-employment
benefit liabilities of EUR 5 000 million (EUR 423 million in 2015) and net pension and other post-employment benefit assets of EUR 3 802 million
(EUR 25 million in 2015).
Defined benefit plans
The Group’s most significant defined benefit pension plans are in the United States, Germany, and the United Kingdom. Together they account
for 93% (80% in 2015) of the Group’s total defined benefit obligation and 92% (81% in 2015) of the Group’s total plan assets.
The defined benefit obligations, the fair value of plan assets, the effects of the asset ceiling and the net defined benefit balance as of December 31:
EURm
United States
Germany
United Kingdom
Other
Total
2016
2015
Defined
benefit
obligation
(22 845)
(2 680)
(1 265)
(1 873)
(28 663)
Fair value
of plan assets
22 880
1 160
1 485
2 245
27 770
Effects of
asset ceiling
(265)
–
–
(40)
(305)
Net defined
benefit
balance
(230)
(1 520)
220
332
(1 198)
Defined
benefit
obligation
(59)
(1 279)
(128)
(374)
(1 840)
Fair value
of plan assets
57
980
136
278
1 451
Effects of
asset ceiling
–
–
–
(9)
(9)
Net defined
benefit
balance
(2)
(299)
8
(105)
(398)
United States
The Group has significant defined benefit pension plans and a significant post-retirement welfare benefit plan (“Opeb”), providing
post-retirement healthcare benefits and life insurance coverage, in the United States. The pension plans include both traditional service-based
programs as well as cash-balance plans. The management plan for salaried, non-union member employees was closed to new entrants after
December 31, 2007 and fully frozen as of December 31, 2009. The Group, then Alcatel Lucent, adopted a new cash-balance program for
salaried, non-union member employees from January 1, 2015. The program was extended to all United States-based salaried employees,
except the employees of Nokia Technologies, from January 1, 2017. For union-represented employees, the Group maintains two United States
Occupational plans which are traditional service-based pension programs. The larger of the two, which represents 95% of the obligation, is
a closed plan. Post-retirement welfare benefit plans are maintained for certain retired former employees. An agreement was made with the
Communications Workers of America (“CWA”) and the International Brotherhood of Electrical Workers (“IBEW”) unions to continue to provide
post-retirement healthcare benefits and life-insurance coverage for employees formerly represented by these two unions.
The defined benefit obligations, the fair value of plan assets, the effects of the asset ceiling and the net defined benefit balance as of December 31:
EURm
Pension benefits
Management
Occupational
Supplemental
Total
Post-retirement benefits
Health (non-union represented)
Health (formerly union
represented)
Group life (non-union
represented)
Group life (formerly union
represented)
Other
Total
Defined
benefit
obligation
(15 855)
(3 528)
(401)
(19 784)
(126)
(1 343)
(1 040)
(551)
(1)
(3 061)
2016
2015
Fair value
of plan assets
Effects of
asset ceiling
Net defined
benefit
balance
Defined
benefit
obligation
Fair value
of plan assets
Effects of
asset ceiling
Net defined
benefit
balance
(59)
–
–
(59)
57
–
–
57
–
–
–
–
(2)
–
–
(2)
16 861
5 440
–
22 301
(2)
(263)
–
(265)
–
270
220
89
–
579
–
–
–
–
–
–
1 004
1 649
(401)
2 252
(126)
(1 073)
(820)
(462)
(1)
(2 482)
NOKIA IN 2016
173
Financial statements Notes to consolidated financial statements continued
Germany
The Group maintains two primary plans in Germany which cover the majority of active employees: the cash balance plan Beitragsorientierter
Alterversorgungs Plan (“BAP”) and a similar cash balance program for the Group’s former Alcatel Lucent employees. Individual benefits are
generally dependent on eligible compensation levels, ranking within the Group and years of service. These plans are partially funded defined
benefit pension plans, the benefits being subject to a minimum return guaranteed by the Group. The funding vehicle for the BAP plan is the
NSN Pension Trust e.V. The funding vehicle for the former Alcatel Lucent cash balance plan is the Alcatel SEL Unterstützungs-GmbH. The trusts
are legally separate from the Group and manage the plan assets in accordance with the respective trust agreements.
All other plans have been previously frozen and replaced by the cash balance plans. Benefits are paid in annual installments, as monthly
retirement pension, or as a lump sum on retirement in an amount equal to accrued pensions and guaranteed interest. The risks specific to the
German defined benefit plans are related to changes in mortality of covered members and return on investment on plan assets.
United Kingdom
The Group has three plans in the United Kingdom. The defined benefit for the legacy Nokia employees is divided into two sections: the money
purchase section and the final salary section, both being closed to future contributions and accruals as of April 30, 2012. Individual benefits
are generally dependent on eligible compensation levels and years of service for the defined benefit section of the plan and on individual
investment choices for the defined contribution section of the plan. The funding vehicle for the pension plan is the NSN Pension Plan that is run
on a trust basis. The other two defined benefit pension plans are the Alcatel Pension Plan and the Lucent Technologies Retirement Benefits
Plan. Both plans were closed to new entrants in 2002 and 2001, respectively, although active employees still accrue benefits. These plans are
both final salary-based programs.
Impact on the consolidated financial statements
Movements in the defined benefit obligation, fair value of plan assets and the impact of the asset ceiling
The movements in the present value of the defined benefit obligation for the years ended December 31:
2016
2015
EURm
As of January 1
Transfer to Discontinued operations
Current service cost
Interest expense
Past service cost and gains on curtailments
Settlements
Total
Remeasurements:
Gain/(loss) from change in demographic assumptions
(Loss)/gain from change in financial assumptions
Experience gain/(loss)
Total
Exchange differences
Contributions from plan participants
Benefit payments from plans
Acquisitions through business combinations
Other
Total
As of December 31
United States
pension
United States
Opeb
(58)
–
(63)
(711)
(13)
5
(782)
79
(301)
227
5
(615)
–
1 595
(19 919)
(10)
(18 949)
(19 784)
–
–
–
(111)
–
–
(111)
15
(60)
205
160
(91)
(124)
366
(3 243)
(18)
(3 110)
(3 061)
Other
pension
(1 782)
–
(92)
(150)
11
6
(225)
(13)
(593)
(74)
(680)
166
(20)
243
(3 431)
(89)
(3 131)
(5 818)
Total
(1 840)
–
(155)
(972)
(2)
11
(1 118)
81
(954)
358
(515)
(540)
(144)
2 204
(26 593)
(117)
(25 190)
(28 663)
United States
pension
(71)
16
–
(3)
–
–
(3)
1
2
1
4
(6)
–
2
–
–
(4)
(58)
Other
pension
(1 813)
–
(46)
(46)
5
–
(87)
(1)
112
(1)
110
(29)
(16)
58
(4)
(1)
8
(1 782)
Total
(1 884)
16
(46)
(49)
5
–
(90)
–
114
–
114
(35)
(16)
60
(4)
(1)
4
(1 840)
174
NOKIA IN 2016
The movements in the fair value of plan assets for the years ended December 31:
EURm
As of January 1
Transfer to Discontinued operations
Interest income
Administrative expenses and interest on asset ceiling
Settlements
Total
Remeasurements:
Return on plan assets, excluding amounts
included in interest income
Total
Exchange differences
Contributions:
Employers
Plan participants
Benefit payments from plans
Acquisitions through business combinations
Other(1)
Total
As of December 31
2016
United States
pension
United States
Opeb
57
–
774
(19)
(5)
750
947
947
709
32
–
(1 595)
21 571
(170)
20 547
22 301
–
–
18
–
–
18
6
6
16
10
124
(366)
599
172
555
579
Other
pension
1 394
–
135
(1)
(6)
128
387
387
(207)
74
20
(164)
3 182
76
2 981
4 890
Total
1 451
–
927
(20)
(11)
896
1 340
1 340
518
116
144
(2 125)
25 352
78
24 083
27 770
United States
pension
59
(5)
2
–
–
2
(3)
(3)
6
–
–
(2)
–
–
4
57
2015
Other
pension
1 328
–
38
(1)
–
37
5
5
22
26
16
(45)
4
1
24
1 394
(1) Includes Section 420 asset transfer between United States pension and United States Opeb.
The movements in the funded status for the years ended December 31:
2016
2015
EURm
As of January 1
Transfer to Discontinued operations
Current service cost
Interest income/(expense)
Past service cost and gains on curtailments
Settlements
Total
Remeasurements:
Return on plan assets, excluding amounts included
in interest income
Gain/(loss) from change in demographic assumptions
(Loss)/gain from change in financial assumptions
Experience gain/(loss)
Total
Exchange differences
Employer contributions
Benefit payments from plans
Acquisitions through business combinations
Other(1)
Total
As of December 31
United States
pension
United States
Opeb
Other
pension
(1)
–
(63)
44
(13)
–
(32)
947
79
(301)
227
952
94
32
–
1 652
(180)
1 598
2 517
–
–
–
(93)
–
–
(93)
6
15
(60)
205
166
(75)
10
–
(2 644)
154
(2 555)
(2 482)
(388)
–
(92)
(16)
11
–
(97)
387
(13)
(593)
(74)
(293)
(41)
74
79
(249)
(13)
(150)
(928)
(1) Includes Section 420 asset transfer between United States pension and United States Opeb.
Total
(389)
–
(155)
(65)
(2)
–
(222)
1 340
81
(954)
358
825
(22)
116
79
(1 241)
(39)
(1 107)
(893)
United States
pension
Other
pension
(12)
11
–
(1)
–
–
(1)
(3)
1
2
1
1
–
–
–
–
–
–
(1)
(485)
–
(46)
(8)
5
(1)
(50)
5
(1)
112
(1)
115
(7)
26
13
–
–
32
(388)
NOKIA IN 2016
Total
1 387
(5)
40
(1)
–
39
2
2
28
26
16
(47)
4
1
28
1 451
Total
(497)
11
(46)
(9)
5
(1)
(51)
2
–
114
–
116
(7)
26
13
–
–
32
(389)
175
Financial statements
Notes to consolidated financial statements continued
The movements in the impact of the asset ceiling limitation for the years ended December 31:
2016
2015
EURm
As of January 1
Interest expense
Remeasurements:
Change in asset ceiling, excluding amounts
included in interest (expense)/income
Acquisitions through business combinations
Exchange differences
As of December 31
Net balances as of December 31:
United States
pension
United States
Opeb
Other
pension
–
(1)
(251)
–
(13)
(265)
(9)
(1)
(7)
(22)
(1)
(40)
–
–
–
–
–
–
2016
Total
(9)
(2)
(258)
(22)
(14)
(305)
United States
pension
Other
pension
–
–
–
–
–
–
(3)
–
(6)
–
–
(9)
Total
(3)
–
(6)
–
–
(9)
EURm
Total as of December 31
United States
pension
United States
Opeb
Other
pension
Total
United States
pension
2 252
(2 482)
(968)
(1 198)
(1)
2015
Other
pension
(397)
Total
(398)
Present value of obligations includes EUR 21 271 million (EUR 428 million in 2015) of wholly funded obligations, EUR 6 122 million (EUR 1 337 million
in 2015) of partly funded obligations and EUR 1 270 million (EUR 75 million in 2015) of unfunded obligations.
Recognized in the income statement
Recognized in personnel expenses in the consolidated income statement for the years ended December 31:
EURm
Current service cost
Past service cost and gains and losses on curtailments
Net interest cost
Settlements
Other
Total
Of which relates to:
United States pensions
United States Opeb
Other pensions
Recognized in comprehensive income
Recognized in other comprehensive income for the years ended December 31:
EURm
Return on plan assets (excluding interest income), gain
Changes in demographic assumptions, gain/(loss)
Changes in financial assumptions, (loss)/gain
Experience adjustments, gain/(loss)
Current year change in asset ceiling
Total
Of which relates to:
United States pensions
United States Opeb
Other pensions
2016
155
2
65
–
–
222
32
92
98
2016
1 340
81
(954)
358
(259)
566
701
166
(301)
2015
46
(5)
9
–
1
51
1
–
50
2015
2
–
114
–
(6)
110
–
–
110
2014
39
–
7
(1)
–
45
–
–
45
2014
44
(1)
(321)
(16)
4
290
–
–
290
176
NOKIA IN 2016
Actuarial assumptions and sensitivity analysis
Actuarial assumptions
Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in each country.
The discount rates and mortality tables used for the significant plans:
United States
Germany
United Kingdom(1)
Total weighted average for all countries
(1) Tables are adjusted with 1.5% long-term rate of improvement.
2016
2015
2016
Discount rate %
3.7
1.6
2.7
3.3
Mortality table
RP–2014 w/MP–2016
mortality projection scale
Heubeck Richttafeln
2005G S2PA Light
4.5
2.5
3.6
3.0
The principal actuarial weighted average assumptions used for determining the defined benefit obligation:
%
Discount rate for determining present values
Annual rate of increase in future compensation levels
Pension growth rate
Inflation rate
Weighted average duration of defined benefit obligations
United States defined benefit plans
Actuarial assumptions used for determining the defined benefit obligation:
%
Benefit obligation, discount rate
Pension
Post–retirement healthcare and other
Post–retirement group life
Annual rate of increase in future compensation levels
Assumed healthcare cost trend rates
Healthcare costs trend rate assumed for next year
Healthcare cost trend rate assumed for next year (excluding post-retirement dental benefits)
Terminal growth rate
Year that the rate reaches the terminal growth value
Sensitivity analysis
The sensitivity of the defined benefit obligation to changes in the principal assumptions:
2015
3.0
2.6
1.3
1.4
15yrs
2015
4.5
–
–
–
2016
3.3
1.9
0.3
2.0
11yrs
2016
3.7
3.4
3.8
2.08
7.5
7.7
4.9
2028
Discount rate for determining present values
Annual rate of increase in future compensation levels
Pension growth rate
Inflation rate
Healthcare cost trend rate
Life expectancy
Change in assumption
1.0%
1.0%
1.0%
1.0%
1.0%
1 year
Increase in assumption(1)
Decrease in assumption(1)
EURm
2 766
(126)
(580)
(581)
(74)
(826)
EURm
(3 361)
112
481
471
67
773
(1) Positive movement indicates a reduction in the defined benefit obligation; a negative movement indicates an increase in the defined benefit obligation.
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant and may not be
representative of the actual impact of changes. If more than one assumption is changed simultaneously, the combined impact of changes would
not necessarily be the same as the sum of the individual changes. If the assumptions change to a different level compared with that presented
above, the effect on the defined benefit obligation may not be linear. The methods and types of assumptions used in preparing the sensitivity
analyses are the same as in the previous period.
When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method has been applied
as when calculating the post-employment benefit obligation recognized in the consolidated statement of financial position; specifically, the
present value of the defined benefit obligation is calculated with the projected unit credit method. Increases and decreases in the discount rate,
rate of increase in future compensation levels, pension growth rate and inflation, which are used in determining the defined benefit obligation,
do not have a symmetrical effect on the defined benefit obligation primarily due to the compound interest effect created when determining
the net present value of the future benefit.
NOKIA IN 2016
177
Financial statements Notes to consolidated financial statements continued
Investment strategies
The overall investment objective is to preserve or enhance the plans’ funded status through the implementation of an investment strategy that
maximizes return within the context of minimizing surplus risk. In formulating the asset allocation for the Plans, multiple factors are considered,
including, but not limited to the long-term risk and return expectations for a variety of asset classes as well as current and multi-year projections
of the Plans’ demographics, benefit payments, contributions and funded status. The results of the Asset-Liability framework are implemented
on a plan level.
The Group’s pension governance does not allow the pension funds themselves to make direct investments and requires all investments to be
placed either in funds partnerships or separate accounts managed by professional asset managers. The investment advisors may use derivative
financial instruments including futures contracts, forward contracts, options and interest rate swaps to manage market risk. The performance
and risk profile of investments is constantly monitored on a stand-alone basis as well as in the broader portfolio context. One major risk is a
decline in the plan’s funded status as a result of the adverse performance of plan assets and/or defined benefit obligations. The application
of the Asset-Liability Model study focuses on minimizing such risks.
Disaggregation of plan assets
EURm
Equity securities
Debt securities
Insurance contracts
Real estate
Short-term investments
Other
Total
2016
2015
Quoted
2 777
18 329
–
–
1 110
–
22 216
Unquoted
–
–
833
1 389
–
3 332
5 554
Total
2 777
18 329
833
1 389
1 110
3 332
27 770
%
10
66
3
5
4
12
100
Quoted
348
627
–
–
124
–
1 099
Unquoted
–
98
78
77
9
90
352
Total
348
725
78
77
133
90
1 451
%
24
51
5
5
9
6
100
All short-term investments including cash, equities and nearly all fixed-income securities have quoted market prices in active markets. Equity
securities represent investments in equity funds and direct investments, which have quoted market prices in an active market. Debt securities
represent investments in government and corporate bonds, as well as investments in bond funds, which have quoted market prices in an active
market. Debt securities may also comprise investments in funds and direct investments. Insurance contracts are customary pension insurance
contracts structured under domestic law in the respective countries. Real estate investments are investments in commercial properties or real
estate funds which invest in a diverse range of real estate properties. Short-term investments are liquid assets or cash which are being held for
a short period of time, with the primary purpose of controlling the tactical asset allocation. Other includes commodities as well as alternative
investments, including derivative financial instruments.
United States plan
United States plan asset target and actual allocation range of the pension and post-retirement trust by asset category as of December 31,
2016:
%
Equity securities
Fixed income securities
Real estate
Private equity and other
Cash
Total
Pension target
allocation range
7–13
62–83
5–9
8–15
–
Percentage of
plan assets
10
73
6
11
–
100
Post retirement
target allocation
45
15
–
–
40
100
Percentage of post
employment plan assets
45
15
–
–
40
100
The majority of the Group’s United States pension plan assets are held in a master pension trust. The post-retirement plan assets are held in
two separate trusts in addition to the amount set aside in the master pension trust for retiree healthcare. The Pension & Benefits Investment
Committee formally approves the target allocation ranges every few years on the completion of the Asset-Liability Model study by external
advisors and internal investment management. The overall United States pension plan asset portfolio reflects a balance of investments split
about 27.0/73.0 between equity, including alternative investments for this purpose, and fixed income securities.
United States pension plan assets included EUR 15 million Nokia bonds as of December 31, 2016 (EUR 8 million in 2015).
178
NOKIA IN 2016
Future cash flows
Contributions
Group contributions to the pension and other post-retirement benefit plans are made to facilitate future benefit payments to plan participants.
The funding policy is to meet minimum funding requirements as set forth in the employee benefit and tax laws, as well as any such additional
amounts as the Group may determine to be appropriate. Contributions are made to benefit plans for the sole benefit of plan participants.
Employer contributions expected to be made in 2017 are EUR 123 million.
United States pension plans
Funding methods
Funding requirements for the three major United States qualified pension plans are determined by the applicable statutes, namely the
Employee Retirement Income Security Act of 1974 (“ERISA”), the Internal Revenue Code of 1986, and regulations issued by the Internal Revenue
Service (“IRS”).
In determining funding requirements, ERISA allows assets to be either market value or an average value over a period of time; and liabilities to be
based on average interest rates over a period of time. A preliminary assessment indicates that no funding is required for the active management
and occupational pension plans until, at least 2018. For the inactive occupational pension plan, the Group does not foresee any future funding
requirement for regulatory funding purposes, given the plan’s asset allocation, and the level of assets compared to liabilities.
Section 420 transfer
Section 420 of the of the IRS (“Section 420”) allows for the transfer of pension assets in excess of specified thresholds (“excess pension assets”)
over the plan’s funding obligation to be used to fund the healthcare benefits and life insurance coverage of that plan’s retired participants.
Section 420 regulations require the Group to continue to provide healthcare benefits or life insurance coverage to those retirees for a certain
period of time (“cost maintenance period”), at levels prescribed by the regulations. Section 420 is currently set to expire on December 31, 2025.
On December 1, 2016, the Group made EUR 180 million Section 420 transfer of excess pension assets from the inactive occupational pension
plan to fund healthcare benefits and life insurance coverage for retirees who, when actively employed were represented by CWA and IBEW. The
Group expects to make a further Section 420 transfer during 2017 from the inactive occupational pension plan to fund healthcare benefits and
group life insurance coverage.
Contributions
The following table summarizes expected contributions to the pension and post-retirement plans until 2026. These figures include the
reimbursements the Group will receive from the coverage provided to plan participants eligible for the Medicare Prescription drug benefit. The
Group did not make contributions to its qualified pension plans during 2016, nor does it expect to make any contributions until, at least 2018.
Actual contributions may differ from expected contributions due to various factors, including performance of plan assets, interest rates and
legislative changes.
EURm
2017
2018
2019
2020
2021
2022-2026
Pension
Post-retirement
Non-qualified plans
28
28
28
28
27
128
Non-represented
12
12
12
12
12
60
Other benefit plans
4
4
4
4
4
255
Medicare subsidy(1) for
formerly union represented
(21)
(21)
(20)
(19)
(18)
(79)
(1) Medicare Subsidy is recorded within other movements in the reconciliation of the present value of the defined benefit obligation.
Certain actuarial assumptions used to determine whether pension plan funding is required differ from those used for accounting purposes,
which may cause significant differences in volatile markets. While the basis for developing discount rates in both cases is by corporate bond
yields, for accounting purposes, a yield curve developed by CitiGroup is used as of the close of the last business day of the financial year;
whereas the ERISA funding rules allow the use of either a daily average yield curve for the last month of the financial year, or a two-year average
yield curve. When measuring assets, fair values of plan assets as of the last business day of the financial year are used for accounting purposes;
whereas ERISA funding rules allow for “asset smoothing” that averages fair values over periods as long as two years with limited expected
returns included in the averaging. The approach applied by ERISA for the regulatory funding valuation minimizes the impact of sharp changes
in asset values and corporate bond yields in volatile markets.
Healthcare benefits for both management and formerly union represented retirees’ benefits are capped for those who retired after February
28, 1990. The benefit obligation associated with this group of retirees is approximately 49% of the total United States retiree healthcare
obligation as of December 31, 2016. Medicare is the primary payer for those aged 65 and older, comprising almost all of uncapped retirees.
NOKIA IN 2016
179
Financial statements Notes to consolidated financial statements continued
Benefit payments
The following table summarizes expected benefit payments from the pension and post-retirement plans and other post-employment benefit
plans until 2026. Actual benefit payments may differ from expected benefit payments. The amounts for the United States plans are net of
expected plan participant contributions, as well as the annual Medicare Part D subsidy of approximately EUR 21 million.
EURm
2017
2018
2019
2020
2021
2022-2026
United States direct benefit payments
Other countries
Total
Qualified
management
1 302
1 232
1 196
1 160
1 124
5 069
Pension
Qualified
occupational
324
311
299
286
274
1 182
Non-qualified
plans
29
28
28
27
27
128
Formerly union
represented
127
114
109
139
131
514
Post-retirement
Non-union
represented
12
12
12
12
12
59
Other
85
86
88
89
90
462
299
256
259
262
285
1 450
2 178
2 039
1 991
1 975
1 943
8 864
Benefit payments are paid from plan assets where plans are fully funded. Funding mechanisms, such as the Section 420 transfer, are further
utilized to minimize direct benefit payments for underfunded United States Opeb liabilities. Direct benefit payments expected to be paid in
2017 total EUR 119 million.
28. Accrued expenses, deferred revenue and other liabilities
Non-current liabilities
EURm
Advance payments and deferred revenue(1)
Salaries, wages and social charges
Other
Total
2016
1 171
138
144
1 453
(1) Includes a prepayment of EUR 1 080 million (EUR 1 235 million in 2015) relating to a ten-year mutual patent license agreement with Microsoft. Refer to Note 6, Disposals treated as
Discontinued operations.
Current liabilities
EURm
Advance payments and deferred revenue
Salaries, wages and social charges
VAT and other indirect taxes
Other
Total
2016
3 178
1 576
362
1 296
6 412
2015
1 235
–
19
1 254
2015
1 857
891
164
483
3 395
Other accruals include accrued royalties, research and development expenses, marketing expenses and interest expenses, as well as various
amounts which are individually insignificant.
180
NOKIA IN 2016
29. Provisions
EURm
Restructuring
Warranty
Litigation Environmental
Project
losses
Divestment-
related
Material
liability
As of January 1, 2015
Disposal of businesses
Translation differences
Reclassification
Charged to income statement:
Additional provisions
Changes in estimates
Total charged to income statement
Utilized during year(1)
As of December 31, 2015
Acquisitions through business
combinations
Translation differences
Reclassification
Charged to income statement:
Additional provisions
Changes in estimates
Total charged to income statement
Utilized during year(2)
As of December 31, 2016
247
–
(4)
(15)
105
(14)
91
(125)
194
291
2
–
874
(123)
751
(525)
713
117
–
2
–
31
(21)
10
(35)
94
135
1
–
121
(38)
83
(106)
207
68
(3)
(11)
15
24
(11)
13
(13)
69
100
22
8
75
(31)
44
(60)
183
16
–
–
–
–
–
–
–
16
114
4
–
28
(2)
26
(26)
134
107
–
–
–
5
(25)
(20)
(25)
62
180
–
–
44
(31)
13
(124)
131
137
–
(12)
(6)
49
(22)
27
(17)
129
26
9
(2)
16
(24)
(8)
(44)
110
24
–
–
–
46
(20)
26
(21)
29
31
2
1
57
(21)
36
(22)
77
Other
157
(2)
7
–
42
(18)
24
(54)
132
366
1
(7)
325
(104)
221
(288)
425
Total
873
(5)
(18)
(6)
302
(131)
171
(290)
725
1 243
41
–
1 540
(374)
1 166
(1 195)
1 980
(1) The utilization of restructuring provision includes items transferred to accrued expenses, of which EUR 7 million remained in accrued expenses as of December 31, 2015.
(2) The utilization of restructuring provision includes items transferred to accrued expenses, of which EUR 62 million remained in accrued expenses as of December 31, 2016. The utilization of project
losses includes EUR 7 million transferred to inventory write-downs. The utilization of other provisions includes items transferred to accrued expenses, of which EUR 7 million remained in accrued
expenses as of December 31, 2016.
The restructuring provision includes personnel and other restructuring-related costs, such as real estate exit costs. On April 6, 2016, the Group
expanded its restructuring activities and launched a new cost savings program, recognizing a EUR 677 million restructuring provision. The
utilization during the year was EUR 210 million, of which EUR 58 million remained in accrued expenses as of December 31, 2016. In addition,
the restructuring provision includes EUR 257 million relating to previously announced restructuring programs. The majority of the restructuring
related cash outflows are expected to occur over the next two years.
The warranty provision relates to sold products. Cash outflows related to the warranty provision are generally expected to occur within the next
18 months.
The litigation provision includes estimated potential future settlements for litigation. Cash outflows related to the litigation provision are
inherently uncertain and generally occur over several periods.
The environmental provision includes estimated costs to sufficiently clean and refurbish contaminated sites, to the extent necessary, and where
necessary, continuing surveillance at sites where the environmental remediation exposure is less significant. Cash outflows related to the
environmental liability are inherently uncertain and generally occur over several periods.
The project loss provision is based on IAS 11, Construction Contracts, and relates to onerous customer contracts. Cash outflows related to the
project loss provision are generally expected to occur over the next 12 months.
The divestment-related provision relates to the sale of businesses, and includes certain liabilities where the Group is required to indemnify the
buyer. Cash outflows related to the divestment-related provision are inherently uncertain.
The material liability provision relates to non-cancellable purchase commitments with suppliers. Cash outflows related to the material liability
provision are expected to occur over the next 12 months.
Other provisions include provisions for various contractual obligations and other obligations. Cash outflows related to other provisions are
generally expected to occur over the next two years.
NOKIA IN 2016
181
Financial statements Notes to consolidated financial statements continued
Legal matters
A number of Group companies are and will likely continue to be subject to various legal proceedings and investigations that arise from time to
time, including proceedings regarding intellectual property, product liability, sales and marketing practices, commercial disputes, employment,
and wrongful discharge, antitrust, securities, health and safety, environmental, tax, international trade, and privacy matters. As a result, the
Group may incur substantial costs that may not be covered by insurance and could affect business and reputation. While management does not
expect any of these legal proceedings to have a material adverse effect on the Group’s financial position, litigation is inherently unpredictable
and the Group may in the future incur judgments or enter into settlements that could have a material adverse effect on the results of operations
and cash flows.
Litigation and proceedings
Irish Broadband
In 2010, the Imagine group (IBB Internet Services & Irish Broadband Internet Services trading as Imagine Networks) (“IBB”) served a claim
in the commercial court of Ireland for breach of contract and tort against Motorola Limited. The claim was later amended to add Imagine
Communications Group as an additional plaintiff. In 2011, Nokia Siemens Networks acquired certain assets and liabilities including this matter
from Motorola Solutions Inc. (“Motorola”). Among other things, IBB claims that WiMax network equipment purchased from Motorola failed to
perform as promised. The Group disputes these allegations. In 2015, the same claim was made against the Group directly for any amount of the
claim that is deemed irrecoverable against Motorola by virtue of the assignment. The case was settled in 2016.
Vertu
The Group divested the United Kingdom-based luxury handset business, Vertu, to Crown Bidco Ltd in 2013. In 2014, Crown Bidco Ltd served a
claim in the Commercial Court in London alleging breach of contract in relation to the transfer of IT assets and breach of warranties under the
sale agreement. The Group disputes these allegations. In January 2016, the Group discovered material which allowed it to serve a counterclaim
naming Crown Bidco and other third parties from EQT (the financier behind Crown Bidco) as defendants. The trial is expected in 2017.
Mass labor litigation Brazil
The Group is defending against a substantial number of labor claims in various Brazilian labor courts. Plaintiffs are former employees whose
contracts were terminated after the Group exited from certain managed services contracts. The claims mainly relate to payments made under,
or in connection with, the terminated labor contracts. The Group has closed the majority of the court cases through settlement or judgement.
Closure of the remaining open cases is expected to occur within the next several years.
Asbestos litigation in the United States
The Group is defending approximately 400 asbestos-related matters, at various stages of litigation, originating from Alcatel Lucent entities.
The claims are based on premises liability, products liability, and contractor liability. The claims also involve plaintiffs allegedly diagnosed with
various diseases, including but not limited to asbestosis, lung cancer, and mesothelioma.
Intellectual property rights litigation
Apple
On December 21, 2016 , the Group commenced patent infringement proceedings against Apple in Asia, Europe and the United States. Across
actions in 11 countries, more than 50 Nokia patents are now in suit, covering a range of technologies, such as display, user interface, software,
antenna, chipsets and video coding as well as 3G and 4G cellular standards. Schedules for the various actions are yet to be set.
LG Electronics
In 2015, LG Electronics agreed to take a royalty-bearing smartphone patent license from Nokia Technologies. The detailed royalty payment
obligations are subject to arbitration, which is expected to conclude by the end of 2018. Terms of the agreement are confidential.
182
NOKIA IN 2016
30. Commitments and contingencies
Contractual obligations
Payments due for contractual obligations as of December 31, 2016 by due date:
EURm
Purchase obligations(1)
Operating leases(2)
Total
Within 1 year
2 075
259
2 334
1 to 3 years
616
386
1 002
4 to 5 years
122
236
358
More than 5 years
3
260
263
(1) Includes inventory purchase obligations, service agreements and outsourcing arrangements.
(2) Includes leasing costs for office, manufacturing and warehouse space under various non-cancellable operating leases. Certain contracts contain renewal options for various periods of time.
Guarantees and other contingent commitments
EURm
Collateral for own commitments
Assets pledged
Contingent liabilities on behalf of Group companies(1)
Guarantees issued by financial institutions
Other guarantees
Contingent liabilities on behalf of associated companies and joint ventures
Financial guarantees
Contingent liabilities on behalf of other companies
Financial guarantees
Other guarantees
Financing commitments
Customer finance commitments(2)
Venture fund commitments(3)
2016
5
1 805
794
11
–
135
223
525
Total
2 816
1 141
3 957
2015
7
398
129
15
6
137
180
230
(1) Includes guarantees to third parties in the normal course of business. These are mainly guarantees given by financial institutions to the Group’s customers for the performance of the Group’s
obligations under supply agreements, including tender bonds, performance bonds, and warranty bonds issued by financial institutions on behalf of the Group. Depending on the nature of the
guarantee, compensation is either payable on demand, or subject to verification of non-performance. Additionally, the Group has issued corporate guarantees with primary obligation given directly
to customers. These guarantees have been issued by Nokia Corporation for EUR 88 million (EUR 74 million at December 31, 2015), as well as by certain Alcatel Lucent entities for EUR 1 520 million.
In Other guarantees, the Group reports guarantees related to non-commercial contracts that support business activities. As a result of internal policies and active management of outstanding
guarantee exposure, the Group has not been subject to any material guarantee claims during recent years.
(2) Customer finance commitments are available under loan facilities negotiated with customers. Availability of the facility is dependent upon the borrower’s continuing compliance with the agreed
financial and operational covenants, and compliance with other administrative terms of the facility. The loan facilities are primarily available to fund capital expenditure relating to purchases of network
infrastructure equipment and services. Refer to Note 36, Risk management.
(3) On February 21, 2016, Nokia Growth Partners announced the closing of a new USD 350 million fund for investments in Internet of Things companies. The Group sponsors the fund and will serve
to identify new opportunities to grow the ecosystem in these solutions. As a limited partner in Nokia Growth Partners and certain other funds making technology-related investments, the Group
is committed to capital contributions and entitled to cash distributions according to the respective partnership agreements and underlying fund activities.
The amounts represent the maximum principal amount for commitments and contingencies.
NOKIA IN 2016
183
Financial statements Notes to consolidated financial statements continued
31. Notes to the consolidated statement of cash flows
EURm
Adjustments for (1)
Depreciation and amortization
Share-based payment
Impairment charges
Restructuring charges(3)
Profit on sale of property, plant and equipment
and available-for-sale investments
Transfer from hedging reserve to sales and cost of sales
Share of results of associated companies and joint ventures (Note 34)
Financial income and expenses
Income tax (benefit)/expense
Gain on the sale of businesses(2)
Other income and expenses
Total
Change in net working capital
Decrease/(increase) in short-term receivables
Decrease/(increase) in inventories
(Decrease)/increase in interest-free short-term liabilities
Total
2016
1 594
113
125
751
(82)
27
(18)
308
(429)
(14)
32
2 407
18
533
(2 758)
(2 207)
2015
320
49
11
48
(132)
61
(29)
211
338
(1 178)
40
(261)
(728)
341
(990)
(1 377)
2014
297
37
1 335
115
(56)
(10)
12
600
(1 281)
(3 386)
75
(2 262)
52
(462)
1 398
988
(1) Includes Continuing and Discontinued operations. Refer to Note 6, Disposals treated as Discontinued operations.
(2) In 2014, impairment charges, foreign exchange differences, taxes and other adjustments relating to the Sale of the D&S Business were presented separately from the gain.
(3) Adjustments represent the non-cash portion of the restructuring charges recognized in the consolidated income statement.
In 2016, the purchase consideration in relation to the Acquisition of Alcatel Lucent comprises the issuance of new Nokia shares in addition to
cash payments. Refer to Note 5, Acquisitions. In 2015, the Group exercised its option to redeem EUR 750 million convertible bonds at their
principal amount outstanding plus accrued interest. Virtually all bondholders elected to convert their convertible bonds into Nokia shares before
redemption. The conversion did not have a cash impact. In 2014, the convertible bonds issued to Microsoft in 2013 have been netted against
the proceeds from the Sale of the D&S Business.
32. Principal Group companies
The Group’s significant subsidiaries as of December 31, 2016:
Company name
Nokia Solutions and Networks B.V.
Nokia Solutions and Networks Oy
Nokia Solutions and Networks US LLC
Nokia Solutions and Networks Japan Corp.
Nokia Solutions and Networks India Private Limited New Delhi, India
Nokia Solutions and Networks System Technology
Country of incorporation
and place of business
The Hague, Netherlands
Helsinki, Finland
Delaware, USA
Tokyo, Japan
(Beijing) Co., Ltd.
Beijing, China
Primary nature of business
Holding company
Sales and manufacturing company
Sales company
Sales company
Sales and manufacturing company
Parent
holding
%
–
–
–
–
–
Group ownership
interest
%
100.0
100.0
100.0
100.0
100.0
Sales company
Sales company
Sales company
Sales company
Sales company
Nokia Solutions and Networks Branch Operations Oy Helsinki, Finland
PT Nokia Solutions and Networks Indonesia
Nokia Solutions and Networks Taiwan Co., Ltd.
Nokia Solutions and Networks Spain S.L.
Alcatel Lucent SA
Alcatel-Lucent Participations SA
Alcatel-Lucent USA Inc.
Alcatel-Lucent Shanghai Bell Co., Ltd(1)
Alcatel-Lucent International SAS
Alcatel-Lucent Submarine Networks SAS
Alcatel-Lucent Bell NV
Alcatel-Lucent Telecom Limited
Alcatel-Lucent Canada Inc.
Alcatel-Lucent España S.A.
Alcatel-Lucent Italia SPA
Nokia Finance International B.V.
Nokia Technologies Oy
Jakarta, Indonesia
Taipei, Taiwan
Madrid, Spain
Boulogne-Billancourt, France Holding company
Boulogne-Billancourt, France Holding company
Delaware, USA
Shanghai, China
Boulogne-Billancourt, France Sales company
Boulogne-Billancourt, France Sales and manufacturing company
Antwerp, Belgium
Bristol, UK
Ottawa, Canada
Madrid, Spain
Milan, Italy
Haarlem, Netherlands
Helsinki, Finland
Sales company
Sales company
Sales company
Sales company
Sales company
Holding company
Sales and development company
Sales company
Sales and manufacturing company
–
–
–
–
100.0
–
–
–
–
–
–
–
–
–
–
100.0
100.0
100.0
100.0
100.0
100.0
99.9
100.0
100.0
100.0
50.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
(1) The Group owns 50% plus one share in Alcatel-Lucent Shanghai Bell Co., Ltd, the other shareholder being China Huaxin, an entity controlled by the Chinese government. Refer to Note 33, Significant
partly-owned subsidiaries.
184
NOKIA IN 2016
33. Significant partly-owned subsidiaries
In 2016, the Group acquired a partly owned consolidated subsidiary, Alcatel-Lucent Shanghai Bell Co., Ltd, which has a non-controlling interest
(50% less one share) that is material to the Group. Alcatel-Lucent Shanghai Bell Co., Ltd, a company incorporated in China, which, with its
subsidiaries in China and in the rest of the world, including the RFS Group, make up the Alcatel-Lucent Shanghai Bell Group.
Financial information for the Alcatel-Lucent Shanghai Bell Group(1):
EURm
Summarized income statement
Net sales(2)
Operating loss
Loss for the year
Loss for the year attributable to:
Equity holders of the parent
Non-controlling interests
Summarized statement of financial position
Non-current assets
Non-current liabilities
Non-current net assets
Current assets(3)
Current liabilities
Current net assets
Net assets(4)
Non-controlling interests
Summarized statement of cash flows
Net cash used in operating activities
Net cash from investing activities
Net cash used in financing activities
Net decrease in cash and cash equivalents
2016
1 806
(136)
(89)
(45)
(45)
424
(128)
296
2 841
(1 657)
1 184
1 480
775
(182)
89
(24)
(117)
(1) Financial information for the Alcatel-Lucent Shanghai Bell Group is presented before eliminations of intercompany transactions with the rest of the Group but after eliminations of intercompany
transactions between entities within the Alcatel-Lucent Shanghai Bell Group.
(2) Includes EUR 483 million net sales to other Group entities.
(3) Includes a total of EUR 1 284 million of cash and cash equivalents and available-for-sale investments, liquid assets.
(4) The distribution of the profits of Alcatel-Lucent Shanghai Bell Co., Ltd requires the passing of a special resolution by more than two-thirds of its shareholders, subject to a requirement that at least
50% of the after-tax distributable profits are distributed as dividends each year.
34. Investments in associated companies and joint ventures
EURm
Net carrying amount as of January 1
Translation differences
Acquisitions through business combinations
Disposals
Share of results
Dividends
Net carrying amount as of December 31
2016
84
(1)
20
(4)
18
(1)
116
2015
51
6
–
–
29
(2)
84
Shareholdings in associated companies and joint ventures comprise investments in unlisted companies.
NOKIA IN 2016
185
Financial statements Notes to consolidated financial statements continued
35. Related party transactions
The Group has related party transactions with a pension fund, associated companies, joint ventures and other entities where the Group has
significant influence, as well as the management and the Board of Directors. Transactions and balances with companies over which the Group
exercises control are eliminated on consolidation. Refer to Note 2, Significant accounting policies, and Note 32, Principal Group companies.
Transactions with pension fund
The Group has borrowings of EUR 69 million (EUR 69 million in 2015) from Nokia Unterstützungsgesellschaft GmbH, the Group’s German
pension fund, a separate legal entity. The loan bears interest at the rate of 6% per annum and its duration is pending until further notice
by the loan counterparties even though they have the right to terminate the loan with a 90-day notice. The loan is included in short-term
interest-bearing liabilities in the consolidated statement of financial position.
Transactions with associated companies, joint ventures and other entities where the Group has significant influence
EURm
Share of results
Dividend income
Share of shareholders' equity
Sales
Purchases
Receivables
Payables
2016
18
1
116
62
(322)
13
(38)
2015
29
2
84
(1)
(233)
–
(37)
2014
(12)
–
51
1
(305)
–
(35)
The Group has guaranteed a loan of EUR 11 million (EUR 15 million in 2015) for an associated company.
Management compensation
Compensation information for the President and CEO:
EUR
2016
Rajeev Suri, President and CEO
2015
Rajeev Suri, President and CEO
2014
Rajeev Suri, President and CEO from May 1, 2014
Risto Siilasmaa, Interim CEO from September 3, 2013 to May 1, 2014(3)
Timo Ihamuotila, Interim President from September 3, 2013 to May 1, 2014(4)
Base salary/
fee(1)
Cash incentive
payments
Share-based
payment
expenses(2)
Pension
expenses
1 049 044
780 357
5 296 960
469 737
1 000 000
1 922 195
4 604 622
491 641
666 667
1 126 323
100 000
1 778 105
–
–
3 896 308
–
72 643
366 989
191 475
17 000
(1) Base salaries are pro-rated for the time in role. Incentive payments represent full-year incentive payment earned under the Group’s short-term incentive programs. For interim roles,
the base salary/fee is for role-related responsibilities only.
(2) Represents the expense for all outstanding equity grants recorded during 2016.
(3) Represents the value of 200 000 shares awarded as compensation for additional responsibilities, the balance of which was given in shares after deducting associated taxes and social security contributions.
(4) Includes EUR 100 000 as compensation for additional responsibilities. Also includes an equity grant with an approximate aggregate grant date value of EUR 250 000 in the form of Nokia stock
options and Nokia restricted shares. These grants are subject to the standard terms and conditions and vesting schedules of the Group’s equity plans. Refer to Note 26, Share-based payment.
Total remuneration awarded to the Group Leadership Team for their time as members of the Group Leadership Team:
EURm
Short-term benefits
Post-employment benefits(1)
Share-based payment(2)
Termination benefits(3)
Total
2016
26
1
15
1
43
2015
9
1
9
3
22
2014
8
1
(3)
36
42
(1) The members of the Group Leadership Team participate in the local retirement programs applicable to employees in the country where they reside.
(2) Due to the significant changes in the Group Leadership Team during 2014, following the Sale of the D&S Business, share-based payment for 2014 reflects cumulative expense reversal for lapsed
equity awards.
(3) Includes both termination payments and payments made under exceptional contractual arrangements for lapsed equity awards. Includes payments to former leadership members that left the Group
in 2015.
186
NOKIA IN 2016
Board of Directors’ compensation
The annual remuneration paid to the members of the Board of Directors, as decided by the Annual General Meetings in the respective years:
Risto Siilasmaa, Chair(2)
Olivier Piou, Vice Chair(3)
Vivek Badrinath(4)
Bruce Brown(5)
Elisabeth Doherty(6)
Louis R. Hughes(7)
Simon Jiang(8)
Jouko Karvinen(9)
Mårten Mickos(10)
Jean C. Monty(11)
Elizabeth Nelson(12)
Carla Smits-Nusteling(13)
Kari Stadigh(14)
Dennis Strigl(10)
Total
2016
2015
2014
Gross annual
fee(1)
EUR
440 000
255 082
175 000
190 000
–
240 410
–
–
–
225 410
190 000
175 000
160 000
–
2 050 902
Shares
received
number
35 001
19 892
13 921
15 114
–
18 752
–
–
–
17 558
15 114
13 921
12 727
–
Gross annual
fee(1)
EUR
440 000
–
140 000
155 000
140 000
–
130 000
175 000
–
–
140 000
–
130 000
–
1 450 000
Shares
received
number
29 339
–
9 333
10 333
9 333
–
8 666
11 667
–
–
9 333
–
8 666
–
Gross annual
fee(1)
EUR
440 000
–
140 000
155 000
140 000
–
–
175 000
130 000
–
140 000
–
130 000
130 000
1 580 000
Shares
received
number
31 186
–
9 922
10 986
9 922
–
–
12 403
9 214
–
9 922
–
9 214
9 214
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Approximately 40% of each Board member’s annual compensation is paid in Nokia shares purchased from the market, and the remaining approximately 60% is paid in cash. The meeting fees,
as resolved by the Annual General Meeting in 2016, will be paid in cash in 2017 and are not included in the table above.
Represents compensation paid for services as the Chair of the Board. Excludes compensation paid for services as the Interim CEO in 2014. Refer to the management compensation section above.
Consists of EUR 70 082 for services as the Vice Chair of the Board from January 8, 2016 until the Annual General Meeting in 2016 and EUR 185 000 for services as the Vice Chair of the Board from the
Annual General Meeting in 2016.
Consists of EUR 160 000 for services as a member of the Board and EUR 15 000 for services as a member of the Audit Committee. Mr. Badrinath resigned on July 29, 2016 and has returned the
compensation paid to him.
Consists of EUR 160 000 for services as a member of the Board and EUR 30 000 for services as the Chair of the Personnel Committee.
Served as a member of the Audit Committee and a member of the Board until January 8, 2016.
Consists of EUR 60 738 for services as a member of the Board and EUR 4 672 for services as a member of the Audit Committee from January 8, 2016 until the Annual General Meeting in 2016;
and EUR 160 000 for services as a member of the Board and EUR 15 000 for services as a member of the Audit Committee from the Annual General Meeting in 2016.
Served as a member of the Board until the Annual General Meeting in 2016.
Served as the Vice Chair of the Board until January 8, 2016, the Chair of the Audit Committee until April 1, 2016, and as a member of the Board until the Annual General Meeting in 2016.
(8)
(9)
(10) Served as a member of the Board until the Annual General Meeting in 2015.
(11) Consists of EUR 60 738 for services as a member of the Board and EUR 4 672 for services as a member of the Audit Committee from January 8, 2016 until the Annual General Meeting in 2016;
and EUR 160 000 for services as a member of the Board from the Annual General Meeting in 2016.
(12) Consists of EUR 160 000 for services as a member of the Board and EUR 30 000 for services as the Chair of the Audit Committee.
(13) Consists of EUR 160 000 for services as a member of the Board and EUR 15 000 for services as a member of the Audit Committee from the Annual General Meeting in 2016.
(14) Consists of EUR 160 000 for services as a member of the Board.
Transactions with the Group Leadership Team and the Board of Directors
No loans were granted to the members of the Group Leadership Team and the Board of Directors in 2016, 2015 or 2014.
Terms of termination of employment of the President and CEO
The President and CEO, Rajeev Suri, may terminate his service contract at any time with six months’ prior notice. The Group may terminate his
service contract for reasons other than cause at any time with an 18 months’ notice period. If there is a change of control event as defined in
Mr. Suri’s service contract and the service contract is terminated either by the Group or its successor without cause, or by him for “good reason”,
he would be entitled to a severance payment equaling up to 18 months of compensation and cash payment of the pro-rated value of his
outstanding unvested equity awards, if he is dismissed within 18 months of the change in control event.
NOKIA IN 2016
187
Financial statements Notes to consolidated financial statements continued
36. Risk management
General risk management principles
The Group has a systematic and structured approach to risk management across business operations and processes. Key risks and
opportunities are identified primarily against business targets either in business operations or as an integral part of financial planning. Key risks
and opportunities are analyzed, managed, monitored and identified as part of business performance management with the support of risk
management personnel. The Group’s overall risk management concept is based on managing the key risks that would prevent the Group from
meeting its objectives, rather than solely focusing on eliminating risks. The principles documented in the Nokia Enterprise Risk Management
Policy, approved by the Audit Committee of the Board of Directors, require risk management and its elements to be integrated into key
processes. One of the main principles is that the business or function head is also the risk owner, although all employees are responsible for
identifying, analyzing and managing risks as appropriate to their roles and duties. Risk management covers strategic, operational, financial and
hazard risks. Key risks and opportunities are reviewed by the Group Leadership Team and the Board of Directors in order to create visibility on
business risks as well as to enable prioritization of risk management activities. In addition to the principles defined in the Nokia Enterprise Risk
Management Policy, specific risk management implementation is reflected in other key policies.
Financial risks
The objective for treasury activities is to guarantee sufficient funding at all times and to identify, evaluate and manage financial risks. Treasury
activities support this aim by mitigating the adverse effects on the profitability of the underlying business caused by fluctuations in the financial
markets, and by managing the capital structure by balancing the levels of liquid assets and financial borrowings. Treasury activities are governed
by the Nokia Treasury Policy approved by the Group President and CEO which provides principles for overall financial risk management and
determines the allocation of responsibilities for financial risk management activities. Operating procedures approved by the Group CFO cover
specific areas such as foreign exchange risk, interest rate risk, credit and liquidity risk as well as the use of derivative financial instruments in
managing these risks. The Group is risk averse in its treasury activities.
Financial risks are divided into market risk covering foreign exchange risk, interest rate risk and equity price risk; credit risk covering
business-related credit risk and financial credit risk; and liquidity risk.
Market risk
Foreign exchange risk
The Group operates globally and is exposed to transaction and translation foreign exchange risks. Transaction risk arises from foreign currency
denominated assets and liabilities together with foreign currency denominated future cash flows. Transaction exposures are managed in the
context of various functional currencies of Group companies. Material transactional foreign exchange exposures are hedged, unless hedging
would be uneconomical due to market liquidity and/or hedging cost. Exposures are defined using transaction nominal values. Exposures are
mainly hedged with derivative financial instruments, such as forward foreign exchange contracts and foreign exchange options. The majority
of financial instruments hedging foreign exchange risk have a duration of less than a year. The Group does not hedge forecast foreign currency
cash flows beyond two years.
As the Group has entities where the functional currency is other than the euro, the shareholders’ equity is exposed to fluctuations in foreign
exchange rates. Equity changes caused by movements in foreign exchange rates are shown as currency translation differences in the
consolidated financial statements. The Group may use forward foreign exchange contracts, foreign exchange options and foreign currency
denominated loans to hedge its foreign exchange exposure arising from foreign net investments.
Currencies that represent a significant portion of the currency mix in outstanding financial instruments as of December 31 are as follows:
EURm
USD
JPY
CNY
GBP
2016
Foreign exchange derivatives used as cash flow hedges, net(1)
Foreign exchange derivatives used as fair value hedges, net(2)
Foreign exchange derivatives used as net investment hedges, net(3)
Foreign exchange exposure from statement of financial position items, net
Foreign exchange derivatives not designated in a hedge relationship,
carried at fair value through profit and loss, net(4)
Cross-currency/interest rate hedges
2015
Foreign exchange derivatives used as cash flow hedges, net(1)
Foreign exchange derivatives used as net investment hedges, net(3)
Foreign exchange exposure from statement of financial position items, net
Foreign exchange derivatives not designated in a hedge relationship, carried at fair
value through profit and loss, net(4)
Cross-currency/interest rate hedges
–
(397)
(1 418)
(2 172)
1 747
1 051
(465)
(296)
(1 004)
(226)
1 001
(158)
–
–
434
(174)
(328)
(262)
–
910
(559)
(311)
–
–
–
(227)
(587)
–
–
–
32
18
–
–
103
(249)
(322)
259
–
–
–
(97)
90
–
(1) Used to hedge the foreign exchange risk from forecasted highly probable cash flows related to sales, purchases and business acquisition activities. In some currencies, especially the U.S. dollar,
the Group has substantial foreign exchange risks in both estimated cash inflows and outflows. The underlying exposures for which these hedges are entered into are not presented in the table as
they are not financial instruments.
(2) Used to hedge foreign exchange risk from contractual firm commitments. The underlying exposures for which these hedges are entered into are not presented in the table as they are not
financial instruments.
(3) Used to hedge net investment exposure. The underlying exposures for which these hedges are entered into are not presented in the table as they are not financial instruments.
(4) Items on the statement of financial position and some probable forecasted cash flows denominated in foreign currencies are hedged by a portion of foreign exchange derivatives not designated in a
hedge relationship and carried at fair value through profit and loss.
188
NOKIA IN 2016
The methodology for assessing market risk exposures: Value-at-risk
The Group uses the Value-at-Risk (“VaR”) methodology to assess exposures to foreign exchange risks. The VaR-based methodology provides
estimates of potential fair value losses in market risk-sensitive instruments as a result of adverse changes in specified market factors, at a
specified confidence level over a defined holding period. The Group calculates the foreign exchange VaR using the Monte Carlo method which
simulates random values for exchange rates in which the Group has exposures and takes the non-linear price function of certain derivative
instruments into account. The VaR is determined using volatilities and correlations of rates and prices estimated from a sample of historical
market data, at a 95% confidence level, using a one-month holding period. To put more weight on recent market conditions, an exponentially
weighted moving average is performed on the data with an appropriate decay factor. This model implies that within a one-month period, the
potential loss will not exceed the VaR estimate in 95% of possible outcomes. In the remaining 5% of possible outcomes the potential loss will
be at minimum equal to the VaR figure and, on average, substantially higher. The VaR methodology relies on a number of assumptions which
include the following: risks are measured under average market conditions, changes in market risk factors follow normal distributions, future
movements in market risk factors are in line with estimated parameters and the assessed exposures do not change during the holding period.
Thus, it is possible that, for any given month, the potential losses at a 95% confidence level are different and could be substantially higher than
the estimated VaR.
The VaR figures for the Group’s financial instruments which are sensitive to foreign exchange risks are presented in the table below. The VaR
calculation includes foreign currency denominated monetary financial instruments, such as available-for-sale investments, loans and accounts
receivable, investments at fair value through profit and loss, cash, loans and accounts payable; foreign exchange derivatives carried at fair value
through profit and loss which are not in a hedge relationship and are mostly used to hedge the statement of financial position foreign exchange
exposure; and foreign exchange derivatives designated as forecasted cash flow hedges and net investment hedges. Most of the VaR is caused
by these derivatives as forecasted cash flow and net investment exposures are not financial instruments as defined in IFRS 7, Financial
Instruments: Disclosures, and thus not included in the VaR calculation.
EURm
As of December 31
Average for the year
Range for the year
2016
2015
VaR from financial instruments
83
111
73–149
54
145
54–217
Interest rate risk
The Group is exposed to interest rate risk either through market value fluctuations of items on the consolidated statement of financial position
(“price risk”) or through changes in interest income or expenses (“refinancing” or “reinvestment risk”). Interest rate risk mainly arises through
interest-bearing liabilities and assets. Estimated future changes in cash flows and the structure of the consolidated statement of financial
position also expose the Group to interest rate risk. The objective of interest rate risk management is to mitigate adverse impacts arising from
interest rate fluctuations on the consolidated income statement, cash flow, and financial assets and liabilities while taking into consideration the
Group’s target capital structure and the resulting net interest rate exposure.
Interest rate profile of interest-bearing assets and liabilities as of December 31:
EURm
Assets
Liabilities
Assets and liabilities before derivatives
Interest rate derivatives
Assets and liabilities after derivatives
2016
Fixed rate
2 107
(3 845)
(1 738)
1 358
(380)
Floating rate(1)
7 410
(113)
7 297
(1 328)
5 969
2015
Fixed rate
3 453
(2 038)
1 415
981
2 396
Floating rate(1)
6 428
(31)
6 397
(986)
5 411
(1) All investments and credit support-related liabilities with initial maturity of three months or less are considered floating rate for the purposes of interest rate risk management. Comparatives have been
adjusted to conform to current year presentation.
NOKIA IN 2016
189
Financial statements Notes to consolidated financial statements continued
Interest rate exposure is monitored and managed centrally. The Group uses selective sensitivity analyses to assess and measure interest rate
exposure arising from interest-bearing assets, interest-bearing liabilities and related derivatives. Sensitivity analysis determines an estimate of
potential fair value changes in market risk-sensitive instruments by varying interest rates in currencies in which the Group has material amounts
of financial assets and liabilities while keeping all other variables constant. The Group’s sensitivity to interest rate exposure in the investment
and debt portfolios is presented in the table below. Sensitivities to credit spreads are not reflected in the numbers.
EURm
Interest rates – increase by 100 basis points
Interest rates – decrease by 50 basis points
Impact on
fair value
181
(99)
2016
Impact
on profit
(3)
2
Impact
on OCI
Impact on
fair value
(2)
1
6
(5)
2015
Impact
on profit
(8)
4
Impact
on OCI
(32)
17
Equity price risk
In 2016, the Group does not have exposure to equity price risk as it does not have significant investments in publicly listed equity shares
(EUR 16 million in 2015). The private funds where the Group has investments may, from time to time, have investments in public equity.
Such investments have not been included in the above number.
Other market risk
In certain emerging market countries there are local exchange control regulations that provide for restrictions on making cross-border transfers
of funds as well as other regulations that impact the Group’s ability to control its net assets in those countries.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk arises
from credit exposures to customers, including outstanding receivables, financial guarantees and committed transactions, as well as financial
institutions, including bank and cash, fixed income and money-market investments, and derivative financial instruments. Credit risk is managed
separately for business-related and financial credit exposures.
The maximum exposure to credit risk for outstanding customer finance loans is limited to the book value of financial assets as included in the
consolidated statement of financial position:
EURm
Financial guarantees given on behalf of customers and other third parties
Loan commitments given but not used
Outstanding customer finance loans(1)
Total
(1) Includes acquired customer loans on a fair value basis which excludes EUR 33 million considered to be uncollectible.
2016
–
223
129
352
2015
6
180
33
219
Business-related credit risk
The Group aims to ensure the highest possible quality in accounts receivable and loans due from customers and other third parties. The
Credit Policy, approved by the Group President and CEO, and the related procedures approved by the Group CFO, lay out the framework for
the management of the business-related credit risks. The Credit Policy and related procedures set out that credit decisions are based on credit
evaluation in each business, including credit rating for larger exposures, according to defined rating principles. Material credit exposures require
Group-level approval. Credit risks are monitored in each business and, where appropriate, mitigated with the use of letters of credit, collateral,
insurance, and the sale of selected receivables.
Credit exposure is measured as the total of accounts receivable and loans outstanding due from customers and committed credits. Accounts
receivable do not include any major concentrations of credit risk by customer. The top three customers account for approximately 3.5%,
3.0% and 2.4% (9.6%, 5.9% and 3.5% in 2015) of accounts receivable and loans due from customers and other third parties as of December
31, 2016. The top three credit exposures by country account for approximately 19.1%, 8.6% and 7.4% (19.6%, 12.1% and 10.8% in 2015) of
the Group’s accounts receivable and loans due from customers and other third parties as of December 31, 2016. The 19.1% credit exposure
relates to accounts receivable in China (19.6% in 2015).
The Group has provided allowances for doubtful accounts on accounts receivable and loans due from customers and other third parties not
past due based on an analysis of debtors’ credit ratings and credit histories. The Group establishes allowances for doubtful accounts that
represent an estimate of expected losses at the end of the reporting period. All receivables and loans due from customers are considered
on an individual basis to determine the allowances for doubtful accounts. The total of accounts receivable and loans due from customers
is EUR 7 101 million (EUR 3 946 million in 2015). The gross carrying amount of accounts receivable, related to customer balances for which
valuation allowances have been recognized, is EUR 2 439 million (EUR 1 150 million in 2015). The allowances for doubtful accounts for these
accounts receivable as well as amounts expected to be uncollectible for acquired receivables are EUR 301 million (EUR 62 million in 2015).
190
NOKIA IN 2016
Aging of past due receivables not considered to be impaired as of December 31:
EURm
Past due 1-30 days
Past due 31-180 days
More than 180 days
Total
2016
102
141
223
466
2015
25
53
124
202
Financial credit risk
Financial instruments contain an element of risk resulting from changes in the market price due to counterparties becoming less creditworthy or
risk of loss due to counterparties being unable to meet their obligations. Financial credit risk is measured and monitored centrally by Treasury.
Financial credit risk is managed actively by limiting counterparties to a sufficient number of major banks and financial institutions, and by
monitoring the creditworthiness and the size of exposures continuously. Additionally, the Group enters into netting arrangements with all major
counterparties, which give the right to offset in the event that the counterparty would not be able to fulfill its obligations. The Group enters into
collateral agreements with certain counterparties, which require counterparties to post collateral against derivative receivables.
Investment decisions are based on strict creditworthiness and maturity criteria as defined in the Treasury-related policies and procedures.
As a result of this investment policy approach and active management of outstanding investment exposures, the Group has not been subject
to any material credit losses in its financial investments in the years presented.
Breakdown of outstanding fixed income and money-market investments by sector and credit rating grades ranked as per Moody’s rating
categories as of December 31:
EURm
2016
Banks
Governments
Other
Total
2015
Banks
Governments
Other
Total
Rating(1)
Aaa
Aa1-Aa3
A1-A3
Baa1-Baa3
Ba1-Ba3
Non-rated
A1-A3
Aa1-Aa3
A1-A3
Baa1-Baa3
Aaa
Aa1-Aa3
A1-A3
Baa1-Baa3
Non-rated
Aaa
Aa1-Aa3
A1-A3
Baa1-Baa3
Baa1-Baa3
Due within
3 months
Due between 3
and 12 months
Due between
1 and 3 years
Due between
3 and 5 years
Due beyond
5 years
Total(2)(3)(4)
1 054
410
1 405
893
15
42
–
45
52
6
3 922
3 269
93
280
738
12
–
–
309
12
–
4 713
–
201
211
728
–
–
–
30
61
13
1 244
–
94
320
475
–
267
–
198
–
–
1 354
–
35
387
–
–
–
274
1
13
5
715
–
–
–
90
–
252
10
257
23
–
632
–
–
116
–
–
–
53
–
–
–
169
–
–
100
–
–
444
140
50
–
12
746
–
–
–
–
–
–
–
–
–
–
–
–
–
–
50
–
113
–
–
–
–
163
1 054
646
2 119
1 621
15
42
327
76
126
24
6 050
3 269
187
700
1 353
12
1 076
150
814
35
12
7 608
(1) Bank Parent Company ratings are used here for bank groups. In some emerging markets countries, actual bank subsidiary ratings may differ from the Parent Company rating.
(2) Fixed income and money-market investments include term deposits, structured deposits, investments in liquidity funds and investments in fixed income instruments classified as available-for-sale
investments and investments at fair value through profit and loss. Liquidity funds invested solely in government securities are included under Governments. Other liquidity funds are included
under Banks.
(3) Instruments that include a call feature have been presented at their final maturities, if any. Instruments that are contractually due beyond 3 months include EUR 566 million (EUR 510 million in 2015)
of instruments that have a call period of less than 3 months.
(4) Includes EUR 5 million of restricted investments (EUR 5 million in 2015) within fixed income and money-market investments. These are restricted financial assets under various contractual or
legal obligations.
97% (98% in 2015) of the Group’s cash at bank of EUR 3 276 million (EUR 2 242 million in 2015) is held with banks of investment grade
credit rating.
NOKIA IN 2016
191
Financial statements
Notes to consolidated financial statements continued
Financial assets and liabilities subject to offsetting under enforceable master netting agreements and similar arrangements as of December 31:
EURm
2016
Derivative assets
Derivative liabilities
Total
2015
Derivative assets
Derivative liabilities
Total
Gross amounts of
financial assets/
(liabilities)
Gross amounts of
financial liabilities/
(assets) set off in the
statement of financial
position
Net amounts of
financial assets/
(liabilities) presented
in the statement of
financial position
Related amounts not set off in the
statement of financial position
Financial instruments
assets/(liabilities)
Cash collateral
received/(pledged)
Net amount
235
(236)
(1)
96
(114)
(18)
–
–
–
–
–
–
235
(236)
(1)
96
(114)
(18)
153
(128)
25
67
(65)
2
73
(96)
(23)
24
(34)
(10)
9
(12)
(3)
5
(15)
(10)
The financial instruments subject to enforceable master netting agreements and similar arrangements are not offset in the consolidated
statement of financial position where there is no intention to settle net or realize the asset and settle the liability simultaneously.
Liquidity risk
Liquidity risk is defined as financial distress or extraordinarily high financing costs arising from a shortage of liquid funds in a situation where
outstanding debt needs to be refinanced or where business conditions unexpectedly deteriorate and require financing. Transactional liquidity
risk is defined as the risk of executing a financial transaction below fair market value or not being able to execute the transaction at all within a
specific period of time. The objective of liquidity risk management is to maintain sufficient liquidity, and to ensure that it is available fast enough
without endangering its value in order to avoid uncertainty related to financial distress at all times.
The Group aims to secure sufficient liquidity at all times through efficient cash management and by investing in short-term liquid
interest-bearing securities and money-market investments. Depending on its overall liquidity position, the Group may pre-finance or refinance
upcoming debt maturities before contractual maturity dates. The transactional liquidity risk is minimized by entering into transactions where
proper two-way quotes can be obtained from the market.
Due to the dynamic nature of the underlying business, the Group aims to maintain flexibility in funding by maintaining committed and uncommitted
credit lines. As of December 31, 2016 committed revolving credit facilities totaled EUR 1 579 million (EUR 1 500 million in 2015).
Significant current long-term funding programs as of December 31, 2016:
Issuer:
Nokia Corporation
Program:
Euro Medium-Term Note Program, totaling EUR 5 000 million
Significant current short-term funding programs as of December 31, 2016:
Issuer:
Nokia Corporation
Program:
Local commercial paper program in Finland, totaling EUR 750 million
Issued
–
Issued
–
192
NOKIA IN 2016
The following table presents an undiscounted cash flow analysis for financial liabilities and financial assets that are presented on the
consolidated statement of financial position, and “off-balance sheet” instruments such as loan commitments, according to their remaining
contractual maturity. The line-by-line analysis does not directly reconcile with the consolidated statement of financial position.
Total
Due within
3 months
Due between 3
and 12 months
Due between
1 and 3 years
Due between
3 and 5 years
Due beyond
5 years
EURm
2016
Non-current financial assets
Long-term loans receivable
Current financial assets
Short-term loans receivable
Investments at fair value through profit and loss
Available-for-sale investments, including cash equivalents(1)
Bank and cash
Cash flows related to derivative financial assets net settled:
150
62
326
5 753
3 276
–
2
32
–
3 935
3 276
28
1
1 248
–
Derivative contracts—receipts
42
18
(6)
Cash flows related to derivative financial assets gross settled:
86
2
272
453
–
30
32
–
53
117
–
–
13
(5)
5
30
–
–
–
–
–
205
(131)
–
Derivative contracts—receipts
Derivative contracts—payments
Accounts receivable(2)
Non-current financial liabilities
Long-term interest-bearing liabilities
Current financial liabilities
Short-term borrowings
Cash flows related to derivative financial liabilities
gross settled:
Derivative contracts—receipts
Derivative contracts—payments
Accounts payable
Contingent financial assets and liabilities
Loan commitments given undrawn(3)
Loan commitments obtained undrawn(4)
6 473
(6 404)
4 430
492
(440)
1 354
1 038
(962)
106
8 221
(7 942)
5 895
(5 807)
(85)
(140)
(1 955)
(269)
(3 358)
(372)
(255)
(116)
(1)
–
8 948
(9 187)
(3 781)
(223)
1 564
7 727
(7 867)
(3 600)
(30)
(1)
925
(995)
(152)
(83)
(3)
248
(272)
(29)
(110)
1 568
48
(53)
–
–
–
–
–
–
–
–
–
(1) Instruments that include a call feature have been presented at their final maturities, if any. Instruments that are contractually due beyond 3 months include EUR 566 million of instruments that have
a call period of less than 3 months.
(2) Accounts receivable maturity analysis does not include accrued receivables of EUR 1 077 million.
(3) Loan commitments given undrawn have been included in the earliest period in which they could be drawn or called.
(4) Loan commitments obtained undrawn have been included based on the period in which they expire. These amounts include related commitment fees.
NOKIA IN 2016
193
Financial statements Notes to consolidated financial statements continued
Derivative contracts—receipts
51
18
(7)
Cash flows related to derivative financial assets gross settled:
EURm
2015
Non-current financial assets
Long-term loans receivable
Current financial assets
Short-term loans receivable
Investments at fair value through profit and loss
Available-for-sale investments, including cash equivalents(1)
Bank and cash
Cash flows related to derivative financial assets net settled:
Derivative contracts—receipts
Derivative contracts—payments
Accounts receivable(2)
Non-current financial liabilities
Long-term interest-bearing liabilities
Current financial liabilities
Short-term borrowings
Cash flows related to derivative financial liabilities net settled:
Derivative contracts—payments
Cash flows related to derivative financial liabilities gross settled:
Derivative contracts—receipts
Derivative contracts—payments
Accounts payable
Contingent financial assets and liabilities
Loan commitments given undrawn(3)
Loan commitments obtained undrawn(4)
4 203
(4 078)
2 628
(3 070)
(52)
(78)
4 901
(4 924)
(1 910)
(180)
1 487
Total
Due within
3 months
Due between 3
and 12 months
Due between
1 and 3 years
Due between
3 and 5 years
Due beyond
5 years
58
–
8
22
742
6 938
2 242
4
–
4 714
2 242
18
256
1 105
–
3 441
(3 431)
2 014
221
(209)
586
28
–
265
403
–
22
42
(23)
25
4
–
57
663
–
18
295
(277)
3
18
–
164
53
–
–
204
(138)
–
(34)
(50)
–
3 114
(3 162)
(1 835)
(17)
(1)
(84)
(244)
(1 549)
(1 159)
(2)
(5)
760
(753)
(75)
(39)
(4)
–
(8)
318
(302)
–
(124)
1 492
–
(6)
709
(707)
–
–
–
–
(59)
–
–
–
–
–
(1) Instruments that include a call feature have been presented at their final maturities, if any. Instruments that are contractually due beyond 3 months included EUR 510 million of instruments that have a
call period of less than 3 months in 2015.
(2) Accounts receivable maturity analysis did not include accrued receivables of EUR 1 285 million in 2015.
(3) Loan commitments given undrawn have been included in the earliest period in which they could be drawn or called.
(4) Loan commitments obtained undrawn have been included based on the period in which they expire. These amounts include related commitment fees.
194
NOKIA IN 2016
37. Subsequent events
Non-adjusting events after the reporting period
Acquisition of Deepfield Networks Inc.
On January 31, 2017 the Group acquired 100% ownership interest in Deepfield Networks Inc., a United States-based leader in real-time
analytics for IP network performance management and security. The acquisition does not have a material impact to the consolidated statement
of financial position, comprehensive income or cash flows.
Offer to acquire Comptel Corporation
On February 8, 2017 the Group and Comptel Corporation entered into a Transaction Agreement whereby the Group undertakes to make
a voluntary public cash tender offer to purchase all of the issued and outstanding shares and option rights in Comptel Corporation that are
not owned by Comptel Corporation, or any of its subsidiaries. The price offered for each share validly tendered in the Tender Offer will be
EUR 3.04 in cash. The Tender Offer values Comptel at approximately EUR 347 million, on a fully diluted basis.
Offer to purchase outstanding notes
On February 22, 2017 the Group announced that it commenced an offer to purchase the outstanding EUR 500 million 6.75% notes due
February 4, 2019 (the “2019 Euro Notes”) issued by Nokia Corporation; and the outstanding USD 300 million 6.50% notes due January 15,
2028 (the “2028 Dollar Notes”) and USD 1 360 million 6.45% notes due March 15, 2029 (the “2029 Dollar Notes”), issued by Lucent
Technologies Inc. (the predecessor to Alcatel-Lucent Inc., the Group’s wholly-owned subsidiary), up to a maximum cash consideration of
USD 1 000 million (the “Tender Offer”). The purpose of the Tender Offer is to manage the overall indebtedness of the Group. Following the
settlement of the Tender Offer, the Group expects to cancel any euro-denominated notes purchased pursuant to the Tender Offer and to hold
any US dollar-denominated notes purchased pursuant to the Tender Offer.
On March 21, 2017, the Tender Offer expired. The Group received tenders for 53.76% (EUR 268.8 million) of the 2019 Euro Notes, 28.66%
(USD 86.0 million) of the 2028 Dollar Notes and 29.48% (USD 400.9 million) of the 2029 Dollar Notes. The Group expects to settle the Tender
Offer on March 23, 2017.
New euro-denominated notes
On March 15, 2017, the Group issued EUR 500 million 1.00% Senior Notes due 2021 and EUR 750 million 2.00% Senior Notes due 2024 under
our 5 000 000 000 Euro Medium-Term Note Programme. The proceeds of the new notes are intended to fund the Tender Offer and for general
corporate purposes.
Income taxes
In January 2017, as part of continuing changes to its operating model, the Group transferred certain intellectual property between its
operations in Finland and the United States, which is expected to result in approximately EUR 250 million negative non-recurring impact on tax
expenses in the first quarter of 2017 but no material cash tax outflow.
Changes in organizational structure
On March 17, 2017, the Group announced changes in the organizational structure, effective from April 1, 2017. The organizational changes
include the separation of the current Mobile Networks business group into two distinct, but closely linked, organizations: (1) Mobile Networks,
focused on products and solutions and (2) Global Services, focused on services. The Group will continue to report financial information for
Ultra Broadband Networks, IP Networks and Applications and Nokia Technologies. Ultra Broadband Networks will be composed of the Mobile
Networks, Global Services and Fixed Networks business groups. IP Networks and Applications is composed of the IP/Optical Networks and
Applications & Analytics business groups.
NOKIA IN 2016
195
Financial statements Parent Company income statement
For the year ended December 31
Net sales(1)
Cost of sales
Gross profit
Selling, general and administrative expenses
Other income
Other expenses
Operating profit
Financial income and expenses
Income from long-term investments
Interest and other financial income
Foreign exchange losses, net
Impairment on investments in subsidiaries and other shares
Interest and other financial expenses
Gain from sale of shares and businesses(2)
Total financial income and expenses
Profit before appropriations and tax
Appropriations
Group contributions(2)
Profit before tax
Income tax expense
Profit for the year
Notes
4
5
5
5
6
7
2016
EURm
836
(7)
829
(128)
17
(23)
695
3
96
(148)
(54)
(125)
7
(221)
474
(60)
414
(93)
321
2015
EURm
949
(8)
941
(183)
27
(20)
765
42
33
(249)
(24)
(166)
695
331
1 096
82
1 178
(91)
1 087
(1) Nokia Technologies segment net sales.
(2) Due to changes to the Accounting Act extraordinary items are no longer presented in the income statement in 2016, and therefore the comparative information has been reclassified accordingly to the
financial income and expenses and appropriations.
The notes are an integral part of these financial statements.
196
NOKIA IN 2016
Parent Company statement
of financial position
As of December 31
ASSETS
Non-current assets
Intangible assets
Intangible rights
Total intangible assets
Property, plant and equipment
Land and water areas
Buildings
Machinery and equipment
Other tangible assets
Advance payments and assets under construction
Total property, plant and equipment
Investments
Investments in subsidiaries
Investments in associated companies
Available-for-sale investments
Total investments
Other non-current assets
Other non-current receivables
Long-term loan receivables Group companies
Deferred tax assets
Total other non-current assets
Total non-current assets
Current assets
Deferred tax assets
Accounts receivable from Group companies
Accounts receivable from other companies
Current loans receivable from Group companies
Other financial assets from Group companies
Other financial assets from other companies
Prepaid expenses and accrued income from Group companies
Prepaid expenses and accrued income from other companies
Short-term investments
Cash and cash equivalents
Total current assets
Total assets
The notes are an integral part of these financial statements.
Notes
2016
EURm
2015
EURm
8
8
8
8
8
9
9
9
7
7
10
10
3
3
8
96
3
14
1
122
18 596
1
65
18 662
84
637
139
860
19 647
–
552
154
4 375
69
155
49
118
1 625
2 132
9 229
28 876
3
3
8
98
3
15
1
125
6 292
3
132
6 427
84
–
138
222
6 777
25
252
478
4 541
12
96
4
177
2 813
6 033
14 431
21 208
NOKIA IN 2016
197
Financial statements Parent Company statement
of financial position continued
As of December 31
SHAREHOLDERS’ EQUITY AND LIABILITIES
Capital and reserves
Share capital
Share issue premium
Treasury shares
Fair value and other reserves
Reserve for invested non-restricted equity
Retained earnings
Profit for the year
Total equity
Provisions
Non-current liabilities
Long-term interest-bearing liabilities
Advance payments from other companies
Total non-current liabilities
Current liabilities
Current interest-bearing liabilities to Group companies
Current interest-bearing liabilities to other companies
Current liabilities to Group companies
Other financial liabilities to Group companies
Other financial liabilities to other companies
Advance payments from other companies
Accounts payable to Group companies
Accounts payable to other companies
Accrued expenses and deferred revenue to Group companies
Accrued expenses and deferred revenue to other companies
Total current liabilities
Total liabilities
Total shareholders’ equity and liabilities
The notes are an integral part of these financial statements.
Notes
11
11
11, 12
11, 13
11, 12
11, 12
11, 12
16
17
18
18
2016
EURm
246
46
(874)
17
15 322
4 859
321
19 937
104
1 972
1 080
3 052
4 108
62
700
19
144
176
361
46
13
154
5 783
8 939
28 876
2015
EURm
246
46
(711)
25
3 805
5 275
1 087
9 773
119
1 946
1 234
3 180
6 937
30
270
16
111
348
201
45
13
165
8 136
11 435
21 208
198
NOKIA IN 2016
Parent Company statement
of cash flows
Notes
21
21
For the year ended December 31
Cash flow from operating activities
Profit for the year
Adjustments, total
Change in net working capital
Cash from/(used in) operations
Interest received
Interest paid
Other financial income and expenses, net paid
Income taxes, net paid
Net cash from/(used in) operating activities
Cash flow from investing activities
Purchases of shares in subsidiary companies and available-for-sale investments
Purchases of property, plant and equipment and intangible assets
(Payments of)/proceeds from disposal of shares and business
Proceeds from sale of property, plant and equipment and other intangible assets
Payments of other long-term receivables
Proceeds from short-term receivables
Dividends received and other proceeds from Group companies
Purchase of short-term investments, liquid assets
Proceeds from short-term investments, liquid assets
Net cash from investing activities
Cash flow from financing activities
Purchase of treasury shares
Stock option exercise
Proceeds of long-term borrowings
Payment of short-term borrowings
Dividends paid
Group contributions
Net cash (used in)/from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents as of January 1
Cash and cash equivalents as of December 31
The notes are an integral part of these financial statements.
2016
EURm
321
410
(161)
570
70
(95)
(216)
(83)
246
(664)
(6)
(2)
1
(644)
438
3
(3 493)
4 714
347
(216)
3
(19)
(2 841)
(1 503)
82
(4 494)
(3 901)
6 033
2 132
2015
EURm
1 087
(347)
(819)
(79)
33
(115)
(198)
(21)
(380)
(15)
(34)
2 601
8
–
1 705
154
(4 861)
2 098
1 656
(173)
4
(273)
6 087
(507)
(728)
4 410
5 686
347
6 033
NOKIA IN 2016
199
Financial statements Notes to Parent Company financial statements
Investments
Investments in subsidiaries are stated at cost less accumulated
impairment. Majority of non-current available-for-sale investments
are carried at cost less accumulated impairment. Available-for-sale
investments are technology-related investments in private equity
shares and unlisted funds for which fair value cannot be measured
reliably due to non-existent public markets or reliable valuation methods.
Loans receivable
Loans receivable include loans to customers and suppliers and are
measured initially at fair value and subsequently at amortized cost
less impairment using the effective interest method. Loans are subject
to regular review as to their collectability and available collateral.
An allowance is made if a loan is deemed not to be fully recoverable.
The related cost is recognized in other expenses or financial expenses,
depending on the nature of the receivable to reflect the shortfall
between the carrying amount and the present value of the expected
future cash flows. Interest income on loans receivable is recognized in
financial income and expenses by applying the effective interest rate.
Short-term investments
Short-term investments primarily consist of highly liquid, fixed-income
and money-market investments that are readily convertible to known
amounts of cash with maturities at acquisition of longer than three
months.
Cash and cash equivalents
Cash and cash equivalents consist of cash at bank and in hand and
available-for-sale investments, cash equivalents. Available-for-sale
investments, cash equivalents consist of highly liquid, fixed-income
and money-market investments that are readily convertible to known
amounts of cash with maturities at acquisition of three months or less,
as well as bank deposits with maturities or contractual call periods at
acquisition of three months or less. Due to the high credit quality and
short-term nature of these investments, there is an insignificant risk of
change in value. Investments in money market funds that have a risk
profile consistent with the aforementioned criteria are also classified
as cash equivalents.
1. Accounting principles
Basis of presentation
The Parent Company financial statements are prepared in accordance
with the Finnish Accounting Standards (“FAS”).
On January 4, 2016 the Parent Company obtained the control of
Alcatel Lucent after it had acquired the majority of the voting rights
in Alcatel Lucent. Refer to Note 5, Acquisitions in the consolidated
financial statements.
The parent company is responsible for arranging a significant portion
of group internal financing. Changes in the internal and external
financing needs arising from changes in operative and organizational
models affect the parent company’s financial position.
Revenue recognition
Revenue is recognized when the following criteria for the transaction
have been met: significant risks and rewards of ownership have
transferred to the buyer; continuing managerial involvement and
effective control usually associated with ownership have ceased; the
amount of revenue can be measured reliably; it is probable that the
economic benefits associated with the transaction will flow to the
Company; and the costs incurred or to be incurred in respect of the
transaction can be measured reliably.
Foreign currency translation
Receivables and payables denominated in foreign currencies are
converted into euro using the exchange rate prevailing on the
statement of financial position date.
Pensions
Contributions to pension plans are expensed in the income
statements in the period to which the contributions relate.
Intangible assets and property, plant and equipment
Intangible assets and property, plant and equipment are stated at
cost less accumulated depreciation according to plan. Depreciation
according to plan is recorded on a straight-line basis over the expected
useful lives of the assets as follows:
Intangible assets
Buildings
Machinery and equipment
3–7 years
20–33 years
1–10 years
Land and water areas are not depreciated. The accumulated
depreciation according to plan and the change in the depreciation
reserve comply with the Finnish Business Tax Act. The change in the
depreciation reserve has been treated as appropriations.
200
NOKIA IN 2016
Hedge accounting
The Parent Company applies hedge accounting on certain forward
foreign exchange contracts, certain options or option strategies,
and certain interest rate derivatives. Qualifying options and option
strategies have zero net premium or a net premium paid. For option
structures, the critical terms of the bought and sold options are the
same and the nominal amount of the sold option component is no
greater than that of the bought option.
Fair value hedges
The Parent Company applies fair value hedge accounting to reduce
exposure to fair value fluctuations of interest-bearing liabilities due to
changes in interest rates and foreign exchange rates. Changes in the
fair value of derivatives designated and qualifying as fair value hedges,
together with any changes in the fair value of hedged liabilities
attributable to the hedged risk, are recognized in financial income and
expenses. If the hedged item no longer meets the criteria for hedge
accounting, hedge accounting ceases and any fair value adjustments
made to the carrying amount of the hedged item while the hedge was
effective are recognized in financial income and expenses based on
the effective interest method.
Deferred tax
Deferred tax liabilities and deferred tax assets are calculated for
temporary differences between book values and tax bases using an
enacted or substantively enacted tax rate at each statement of
financial position date that are expected to apply in the period when
the asset is realized or the liability is settled. Non-current and current
deferred tax liabilities and deferred tax assets are presented
separately on balance sheet. Deferred tax assets are recognized at the
probable amount estimated to be received. Deferred tax assets and
deferred tax liabilities are offset for presentation purposes, because
a company has a legally enforceable right to set off current tax assets
against current tax liabilities.
Accounts receivable
Accounts receivable include both amounts invoiced to customers and
amounts where the Parent Company’s revenue recognition criteria
have been fulfilled but the customers have not yet been invoiced.
Accounts receivable are carried at the original amount invoiced to
customers less allowances for doubtful accounts. Allowances for
doubtful accounts are based on a periodic review of all outstanding
amounts, including an analysis of historical bad debt, customer
concentrations, customer creditworthiness, past due amounts,
current economic trends and changes in customer payment terms.
Impairment charges on receivables identified as uncollectible are
included in other operating expenses. The Parent Company
derecognizes an accounts receivable balance only when the
contractual rights to the cash flows from the asset expire or it
transfers the financial asset and substantially all the risks and rewards
of the asset to another entity.
Loans payable
Loans payable are recognized initially at fair value net of transaction
costs. In subsequent periods, loans payable are presented at
amortized cost using the effective interest method. Transaction costs
and loan interest are recognized in the income statement as financial
expenses over the life of the instrument.
Accounts payable
Accounts payable are carried at invoiced amount which is considered
to be the fair value due to the short-term nature of the Parent
Company’s accounts payable.
Derivative financial instruments
Interest income or expense on interest rate derivatives is accrued
in the income statement during the financial year. In the financial
statements, outstanding interest rate forward contracts, interest
rate future contracts, interest rate option contracts and interest
rate swap contracts are stated at market values and included in the
income statement.
Forward foreign exchange contracts are valued using the forward
exchange rate of the statement of financial position date. The
exchange differences arising from outstanding derivative contracts
are reported in financial items. Foreign exchange option contracts are
valued using an option valuation model on the statement of financial
position date and reported in financial items.
Fair values of forward rate agreements, interest rate options, futures
contracts and exchange traded options are calculated based on
quoted market rates at each statement of financial position date.
Discounted cash flow analyses are used to value interest rate and
cross-currency interest rate swaps.
NOKIA IN 2016
201
Financial statements Notes to Parent Company financial statements continued
2. Personnel expenses
EURm
Salaries and wages
Share-based payment expense
Pension expense
Other social expenses
Total
Average number of employees
Marketing
Administration
Total average
As of December 31
Management compensation
Refer to Note 35, Related party transactions of the consolidated financial statements.
3. Auditor’s fees
EURm
Audit of financial statements
Total
2016
47
28
4
2
81
2016
70
211
281
273
2016
4
4
Total annual group fees paid to the auditor are EUR 36.5 million in 2016 (EUR 18.4 million in 2015), including audit fees of EUR 31.3 million
(EUR 13.5 million in 2015).
4. Other income
EURm
Rental income
Profit on the sale of property, plant and equipment
Compensation for litigation costs
Other
Total
2016
2
–
–
15
17
2015
37
16
2
2
57
2015
61
183
244
280
2015
4
4
2015
2
7
6
12
27
202
NOKIA IN 2016
5. Financial income and expenses
EURm
Income from long-term investments
Dividend income from Group companies
Total
Interest and other financial income
Interest income from Group companies
Interest income from other companies
Other financial income from other companies
Total
Interest and other financial expenses
Interest expenses to Group companies
Interest expenses to other companies
Other financial expenses
Total
2016
2015
3
3
55
1
40
96
(10)
(73)
(42)
(125)
42
42
14
9
10
33
(11)
(113)
(42)
(166)
Financial income and expenses includes EUR 15 million expenses for derivative financial instruments designated in hedge accounting relationships
(EUR 13 million expense in 2015) and EUR 11 million income for liabilities under fair value hedge accounting (EUR 2 million expense in 2015).
6. Group contributions
EURm
Granted
Received
Total
7. Income taxes
EURm
Current tax
Deferred tax
Total
Income tax from operations
Income tax from appropriations
Income tax relating to previous financial years
Total
Deferred taxes
EURm
Non-current deferred tax assets
Current deferred tax assets
Total
2016
2016
(700)
640
(60)
2016
(65)
(28)
(93)
(93)
12
(12)
(93)
2016
139
-
139
2015
2015
(270)
352
82
2015
(48)
(43)
(91)
(76)
(16)
1
(91)
2015
138
25
163
EURm
Deferred tax assets
Deferred tax liabilities
Deferred tax assets
Deferred tax liabilities
Total before netting
Netting of deferred tax assets and liabilities
Total after netting
146
(7)
139
(7)
7
–
171
(8)
163
NOKIA IN 2016
(8)
8
–
203
Financial statements Notes to Parent Company financial statements continued
8. Property, plant and equipment
EURm
Acquisition cost as of January 1, 2015
Additions
Disposals and retirements
Reclassifications
Acquisition cost as of December 31, 2015
Accumulated depreciation as of January 1, 2015
Disposals and retirements
Depreciation(1)
Accumulated depreciation as of December 31, 2015
Net book value as of January 1, 2015
Net book value as of December 31, 2015
Acquisition cost as of January 1, 2016
Additions
Disposals and retirements
Acquisition cost as of December 31 , 2016
Accumulated depreciation as of January 1, 2016
Disposals and retirements
Depreciation(1)
Accumulated depreciation as of December 31, 2016
Net book value as of January 1, 2016
Net book value as of December 31, 2016
(1) Recognized in selling, general and administrative expenses.
9. Investments
EURm
Investments in subsidiaries
Net carrying amount as of January 1
Additions(1)
Impairment
Disposals(2)
Net carrying amount as of December 31
Investments in associated companies
Net carrying amount as of January 1
Impairment
Net carrying amount as of December 31
Available-for-sale investments
Net carrying amount as of January 1
Additions
Impairment(3)
Other changes
Disposals
Net carrying amount as of December 31
Buildings
143
3
(1)
14
159
(56)
–
(5)
(61)
87
98
159
4
(1)
162
(61)
–
(5)
(66)
98
96
Machinery
and equipment
23
–
(2)
–
21
(17)
1
(2)
(18)
6
3
21
–
(1)
20
(18)
1
–
(17)
3
3
Other tangible
assets
1
15
(1)
–
15
(1)
1
–
–
–
15
15
–
–
15
–
–
(1)
(1)
15
14
Advance
payments and
assets
under
construction
2
16
(3)
(14)
1
–
–
–
–
2
1
1
–
–
1
–
–
–
–
1
1
Land and
water areas
8
–
–
–
8
–
–
–
–
8
8
8
–
–
8
–
–
–
–
8
8
Total
177
34
(7)
–
204
(74)
2
(7)
(79)
103
125
204
4
(2)
206
(79)
1
(6)
(84)
125
122
2016
2015
6 292
12 304
–
–
18 596
3
(2)
1
132
5
(66)
3
(9)
65
10 151
–
(24)
(3 835)
6 292
3
–
3
105
16
–
12
(1)
132
(1) In 2016, the Parent Company acquired 100% of the shares in Alcatel Lucent SA, a parent company to the Alcatel Lucent Group, partially through a share exchange and partially in cash. The fair value of
the shares issued by the Parent Company as a purchase consideration amounted to EUR 11 566 million and was recognized as an increase in reserve for invested non-restricted equity. The cash
consideration amounted to EUR 738 million including the capitalized transaction costs. As part of the Alcatel Lucent SA acquisition, the Parent Company also acquired OCEANE convertible bonds issued
by Alcatel Lucent SA, amounting to EUR 525 million. Each OCEANE convertible bond represents right to one Alcatel Lucent SA ordinary share. The Parent Company may exercise its conversion right ,if it
so decides.
(2) In 2015, related to the Sale of the HERE Business.
(3) In 2016, relates to certain private funds investing in intellectual property rights.
204
NOKIA IN 2016
Investments in associated companies
Associated company
Sapura-Nokia Telecommunication Sdn Bhd
Noksel A.S
Sapura Nokia Software Sdn Bhd
10. Prepaid expenses and accrued income
Ownership
%
40
20
50
Carrying amount
EURm
–
1
–
EURm
Prepaid and accrued royalty income
Current tax asset
Accrued interest
Divestment-related receivables
Other
Total
11. Shareholders’ equity
EURm
As of January 1, 2015
Settlement of performance and restricted shares
Stock options exercise
Acquisition of treasury shares
Cancellation of treasury shares
Convertible bond conversion
Fair value reserve, increase
Dividends
Profit for the year
As of December 31, 2015
Settlement of performance and restricted shares
Stock options exercise
Acquisition of treasury shares
Acquisition of Alcatel Lucent shares
FAS adjustment to Acquisition of Alcatel Lucent
shares
Fair value reserve, decrease
Dividends
Profit for the year
As of December 31, 2016
12. Distributable earnings
EURm
Reserve for invested non-restricted equity
Retained earnings
Profit for the year
Total retained earnings
Treasury shares
Total
2016
108
1
10
44
4
167
Share capital
Share issue
premium
Treasury
shares
Fair value
and other
reserves
Reserve
for invested
non-restricted
equity
246
–
–
–
–
–
–
–
–
246
–
–
–
–
–
–
–
–
246
46
–
–
–
–
–
–
–
–
46
–
–
–
–
–
–
–
–
46
(988)
23
–
(173)
427
–
–
–
–
(711)
68
–
(231)
–
–
–
–
–
(874)
11
–
–
–
–
–
14
–
–
25
–
–
–
–
–
(8)
–
–
17
3 067
(16)
4
–
–
750
–
–
–
3 805
(52)
3
–
11 975
(409)
–
–
–
15 322
Retained
earnings
6 209
–
–
–
(427)
–
–
(507)
1 087
6 362
–
–
–
–
–
–
(1 503)
321
5 180
2016
15 322
4 859
321
20 502
(874)
19 628
2015
12
15
13
135
6
181
Total
8 591
7
4
(173)
–
750
14
(507)
1 087
9 773
16
3
(231)
11 975
(409)
(8)
(1 503)
321
19 937
2015
3 805
5 275
1 087
10 167
(711)
9 456
NOKIA IN 2016
205
Financial statements Notes to Parent Company financial statements continued
13. Fair value and other reserves
Hedging reserve
Available-for-sale investments
EURm
Gross
As of January 1, 2015
Cash flow hedges
Net fair value gains
Available-for-sale investments
Net fair value gains
Transfer to income statement on disposal
As of December 31, 2015
Cash flow hedges
Net fair value losses
Available-for-sale investments
Net fair value losses
Transfer to income statement on disposal
As of December 31, 2016
2
7
–
–
9
(1)
–
–
8
Tax
–
(2)
–
–
(2)
–
–
–
(2)
Net
2
5
–
–
7
(1)
–
–
6
Gross
Tax
Net
9
–
14
(1)
22
–
(1)
(9)
12
–
–
(4)
–
(4)
–
1
2
(1)
9
–
10
(1)
18
–
–
(7)
11
Total
Tax
–
Gross
11
7
14
(1)
31
(1)
(1)
(9)
20
(2)
(4)
–
(6)
–
1
2
(3)
Net
11
5
10
(1)
25
(1)
–
(7)
17
14. Fair value of financial instruments
Carrying amounts
Fair value(1)
EURm
2016
Available-for-sale investments
Long-term loan receivable from Group
companies
Accounts receivable from Group companies
Accounts receivable from other companies
Current loans receivable from Group
companies
Other financial assets from Group companies,
derivatives
Other financial assets from other companies,
derivatives
Short-term investments
Cash and cash equivalents
Total financial assets
Long-term interest-bearing liabilities to
other companies(2)
Current interest-bearing liabilities to Group
companies
Current interest-bearing liabilities to other
companies
Current liabilities to Group companies, other
Other financial liabilities to Group companies,
derivatives
Other financial liabilities to other companies,
derivatives
Accounts payable to Group companies
Accounts payable to other companies
Total financial liabilities
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
65
Total
65
637
552
154
Total
65
637
552
154
4 375
4 375
69
69
155
1 625
2 132
9 764
155
1 625
2 132
9 764
637
552
154
4 375
5 718
–
1 972
1 972
2 080
4 108
4 108
4 108
62
700
361
46
7 249
62
700
19
144
361
46
7 412
62
700
19
144
361
46
7 520
1 298
2 132
3 430
65
69
155
327
551
19
144
–
–
163
–
206
NOKIA IN 2016
Carrying amounts
Fair value(1)
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
132
252
478
4 541
EURm
2015
Available-for-sale investments
Accounts receivable from Group companies
Accounts receivable from other companies
Current loans receivable from Group
companies
Other financial assets from Group companies,
derivatives
Other financial assets from other companies,
derivatives
Short-term investments
Cash and cash equivalents
Total financial assets
Long-term interest-bearing liabilities to
other companies
Current interest-bearing liabilities to Group
companies
Current interest-bearing liabilities to other
companies
Current liabilities to Group companies, other
Other financial liabilities to Group companies,
derivatives
Other financial liabilities to other companies,
derivatives
Accounts payable to Group companies
Accounts payable to other companies
Total financial liabilities
2 126
6 033
8 159
132
12
96
687
795
16
111
5 271
–
Total
132
252
478
Total
132
252
478
4 541
4 541
12
12
96
2 813
6 033
14 357
96
2 813
6 033
14 357
1 946
1 946
2 017
6 937
6 937
6 937
30
270
201
45
9 429
30
270
16
111
201
45
9 556
30
270
16
111
201
45
9 627
–
–
127
–
(1) For items not carried at fair value, the following fair value measurement methods are used. The fair value is estimated to equal the carrying amount for available-for-sale investments carried at cost less
impairment for which it is not possible to estimate fair value reliably as there is no active market for these private fund investments. These assets are tested for impairment annually using a discounted
cash flow analysis. The fair value of loans receivable and loans payable is estimated based on the current market values of similar instruments (level 2). The fair values of long-term interest bearing
liabilities are primarily based on quotes from third-party pricing services (level 2). The fair value is estimated to equal the carrying amount for short-term financial assets and financial liabilities due to
limited credit risk and short time to maturity.
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 for exchange traded products, level 2 being primarily based on quotes from third-party pricing services,
and level 3 requiring most management judgment. At the end of each reporting period, the Group categorizes its financial assets and liabilities to
appropriate level of fair value hierarchy.
NOKIA IN 2016
207
Financial statements Notes to Parent Company financial statements continued
15. Derivative financial instruments
EURm
2016
Fair value hedges
Interest rate swaps
Cash flow and fair value hedges(3)
Cross currency interest rate swaps
Derivatives not designated in hedge accounting relationships carried at fair value
through profit and loss
Forward foreign exchange contracts, Group companies
Forward foreign exchange contracts
Currency options bought
Currency options sold, Group companies
Interest rate swaps
Total
2015
Fair value hedges
Interest rate swaps
Cash flow and fair value hedges(3)
Cross-currency interest rate swaps
Derivatives not designated in hedge accounting relationships carried at fair value
through profit and loss
Forward foreign exchange contracts, Group companies
Forward foreign exchange contracts
Currency options bought
Currency options sold, Group companies
Currency options sold
Interest rate swaps
Total
Assets
Liabilities
Fair value(1)
Notional(2)
Fair value(1)
Notional(2)
42
42
69
68
3
–
–
224
51
17
12
24
4
–
–
–
108
300
1 002
5 806
5 868
569
–
–
13 545
300
355
1 046
3 185
456
–
–
–
5 342
–
–
(16)
(115)
–
(3)
(29)
(163)
–
(5)
(13)
(56)
–
(3)
–
(50)
(127)
–
–
1 458
7 804
–
498
324
10 084
–
646
3 334
3 642
–
286
162
646
8 716
(1) Included in other financial assets and other financial liabilities in the statement of financial position.
(2) Includes the gross amount of all notional values for contracts that have not yet been settled or cancelled. The amount of notional value outstanding is not necessarily a measure or indication of market
risk as the exposure of certain contracts may be offset by that of other contracts.
(3) Cross-currency interest rate swaps have been designated partly as fair value hedges and partly as cash flow hedges.
In 2015, the Company became the centralized external dealing entity in the Group. The Parent Company executes all significant external
derivative transactions with banks based on the Group’s risk management strategy, and executes identical opposite internal derivative
transactions with Group Companies as required. Derivative financial instrument designation to hedging relationships in the table above
presents the use of and accounting for derivative financial instruments from the perspective of the Company’s standalone financial statements,
which may differ from the designation in the consolidated financial statements. Refer to Note 25, Derivative financial instruments in the
consolidated financial statements.
208
NOKIA IN 2016
16. Provisions
EURm
Divestment-related
Other
Total
17. Long-term interest-bearing liabilities
Bonds
2009–2019
2009–2019
2009–2039(1)
Total
(1) Repayable after 5 years
Nominal value
million
Nominal interest
%
1 000 USD
500 EUR
500 USD
5.375
6.750
6.625
All of these borrowings are senior unsecured and have no financial covenants.
18. Accrued expenses and deferred revenue
EURm
VAT and other indirect taxes
Accrued interest
Salaries and social expenses
Divestment-related
Other to Group companies
Other to other companies
Total
19. Commitments and contingencies
EURm
Contingent liabilities on behalf of Group companies
Financial guarantees
Leasing guarantees
Other guarantees
Contingent liabilities on behalf of associated companies
Financial guarantees
Contingent liabilities on behalf of other companies
Financial guarantees
Other guarantees
2016
92
12
104
2016
EURm
962
527
483
1 972
2016
47
41
15
12
13
39
167
2016
–
64
871
11
131
2015
106
13
119
2015
EURm
941
538
467
1 946
2015
16
41
16
63
12
30
178
2015
7
68
404
15
6
133
Certain India-related accounts receivable are under payment restrictions due to on-going tax proceedings.
As of December 31, 2016 operating lease commitments amounted to EUR 2 million (EUR 0.4 million in 2015).
20. Loans granted to the management of the company
There were no loans granted to the members of the Group Leadership Team and Board of Directors as of December 31, 2016 or 2015.
NOKIA IN 2016
209
Financial statements Notes to Parent Company financial statements continued
21. Notes to the statement of cash flows
EURm
Adjustments for
Depreciation and amortization
Profit on disposal of property, plant and equipment and available-for-sale investments
Income tax expense
Financial income and expenses
Impairment charges
Loss/(gain) on sale of shares and businesses
Asset retirements
Share-based payment
Other income and expenses, net
Total
Change in net working capital
Decrease/(increase) in accounts receivable
Decrease in interest-free short-term liabilities
Increase in interest-free long-term liabilities
Total
2016
8
–
93
172
54
7
–
16
60
410
128
(343)
54
(161)
2015
7
(7)
91
340
24
(718)
4
8
(96)
(347)
(417)
(402)
–
(819)
In 2016, the Parent Company acquired 100% of the shares in Alcatel Lucent SA, a parent company of the Alcatel Lucent Group, partially through
a share exchange offer and partially in cash. The fair value of the shares issued by the Parent Company as a purchase consideration amounted to
EUR 11 566 million and was recognized as an increase in reserve for invested non-restricted equity.
In 2015, the Parent Company exercised its option to redeem EUR 750 million convertible bonds at their principal amount outstanding plus
accrued interest. The redemption led to materially all convertible bonds being converted to Nokia shares, resulting in no cash impact.
22. Principal Group companies
Refer to Note 32, Principal Group companies of the consolidated financial statements.
The full list of Group companies is included in the Financial statements filed with the Registrar of Companies.
23. Shares of the Parent Company
Refer to Note 20, Shares of the Parent Company in the consolidated financial statements.
24. Risk management
The Group has a systematic and structured approach to risk management across business operations and processes. Risk management policies
and procedures are Group-wide, there are no separate or individual risk management policies or procedures for the Parent Company. Hence,
internal and external risk exposures and transactions are managed only in the context of the Group risk management strategy. Refer to Note 36,
Risk management in the consolidated financial statements.
25. Subsequent events
Refer to Note 37, Subsequent events in the consolidated financial statements.
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NOKIA IN 2016
Signing of the Annual Accounts 2016
and proposal by the Board of Directors
for distribution of profit
The distributable funds in the statement of financial position of the Parent company at December 31, 2016 amounted to EUR 19 628 million.
The Board proposes to the Annual General Meeting that from the retained earnings a dividend of EUR 0.17 per share be paid out on the shares
of the company. At December 31, 2016 the total number of shares of the company was 5 836 055 012, based on which the maximum amount
to be distributed as dividend would be EUR 992 million.
The proposed dividend is in line with the company’s distribution policy.
Risto Siilasmaa
Chair of the Board
Louis R. Hughes
Elizabeth Nelson
Carla Smits-Nusteling
March 23, 2017
Rajeev Suri
President and CEO
Bruce Brown
Jean C. Monty
Olivier Piou
Kari Stadigh
NOKIA IN 2016
211
Financial statements Auditor’s report
To the Annual General Meeting of Nokia Oyj
Report on the audit of the financial statements
Opinion
In our opinion,
■ The consolidated financial statements of Nokia Oyj give a true and
fair view of the financial position, financial performance, and cash
flows of the Group in accordance with International Financial
Reporting Standards (IFRS) as adopted by the EU; and,
■ The consolidated financial statements and the standalone parent
company financial statements of Nokia Oyj give a true and fair view
of the company’s financial performance and financial position in
accordance with the laws and regulations governing the preparation
of the financial statements in Finland and comply with statutory
requirements.
What we have audited
We have audited the financial statements of Nokia Oyj for the year
ended 31 December, 2016. The financial statements comprise:
■ The Group’s consolidated statement of financial position, income
statement, statement of comprehensive income, statement of
changes in shareholders’ equity and statement of cash flows,
and notes to the consolidated financial statements; and,
■ The parent company’s statement of financial position, income
statement, statement of cash flows and notes to the financial
statements.
Basis for opinion
We conducted our audit in accordance with good auditing practice in
Finland. Our responsibilities under good auditing practice are further
described in the Auditor’s responsibilities for the Audit of the Financial
Statements section of our report.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We are independent of the parent company and of the Group in
accordance with the ethical requirements that are applicable in
Finland and are relevant to our audit, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
Our audit approach
Overview
Materiality
Group
scoping
Key audit
matters
Materiality
■ Overall group materiality: EUR 125 million,
which represents 0.53% of consolidated
net sales
Group scoping
■ We performed specific audit procedures
at 44 reporting components, in addition
to group level procedures over specific
consolidated accounts and analytical
procedures to assess unusual
movements across all entities
Key audit matters
■ Acquisition accounting for Alcatel Lucent
■ Revenue recognition on complex contracts
■ Accounting for significant income
tax transactions
■ Fair value of pension and post-retirement
plan assets
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements. In particular, we considered where management
made subjective judgements; for example, in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain.
Materiality
The scope of our audit was influenced by our application of materiality.
An audit is designed to obtain reasonable assurance whether the
financial statements are free from material misstatement.
Misstatements may arise due to fraud or error. They are considered
material if individually or in aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the
basis of the financial statements.
Based on our professional judgement, we determined certain
quantitative thresholds for materiality, including the overall group
materiality for the consolidated financial statements as set out in the
table below. These, together with qualitative considerations, helped us
to determine the scope of our audit and the nature, timing and extent
of our audit procedures and to evaluate the effect of misstatements
on the financial statements as a whole.
Overall group materiality EUR 125 million
How we determined it
0.53% of consolidated net sales
Rationale for
the materiality
benchmark applied
We chose net sales as the benchmark
because, in our view, it is the most
appropriate benchmark given the nature
of the business this year in which the
acquisition and integration of Alcatel
Lucent is a significant transaction
impacting the financial statements. The
Group‘s profit before tax was a substantial
loss based on non-recurring charges
related to the acquisition and therefore
an earnings based measure is not an
appropriate basis to determine our
materiality. We chose 0.53% which is based
on perspectives and expectations of the
users of the financial statements in the
context of our understanding of the entity
and the environment in which it operates.
How we tailored our Group audit scope
We tailored the scope of our audit in order to perform sufficient work
to enable us to provide an opinion on the consolidated financial
statements as a whole, taking into account the structure of the Group,
the accounting processes and controls, and the industry in which the
Group operates.
The Group operates in a significant number of legal entities or
“reporting components” globally. We determined the type of work that
needed to be performed at reporting components by us, as the group
engagement team, or component auditors from other PwC network
firms operating under our instruction. Where the work was performed
by component auditors, we issued specific instructions to those
auditors which included our risk analysis, materiality and global
audit approach to centralized processes and systems. We visited all
significant reporting components and communicated regularly with
all reporting component auditors throughout our audit.
We performed audits of reporting component financial information
at each of the nine reporting components which are considered
significant based on our overall risk assessment and materiality.
We also performed targeted audit procedures at an additional 35
less significant reporting components in order to provide further
coverage over the Group’s revenue and consolidation process.
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NOKIA IN 2016
None of the remaining reporting components individually
contributed greater than 1% of either Group net sales or Group
total assets. In addition to the audit work performed on internal
controls which operate on a Group-wide basis, we performed
analytical procedures over these components, which corroborated
our assessment that these components did not present a reasonable
risk of material misstatement.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period. These matters were addressed
in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
By performing the procedures above at reporting components,
combined with additional procedures at the Group level, we have
obtained sufficient and appropriate evidence regarding the financial
information of the Group as a whole to provide a basis for our opinion
on the consolidated financial statements.
As in all of our audits, we also addressed the risk of management
override of internal controls, including among other matters
consideration of whether there was evidence of bias that represented
a risk of material misstatement due to fraud.
Key audit matter in the audit of the Group
How our audit addressed the Key audit matter
Acquisition accounting for Alcatel Lucent
Refer to Note 3, Use of estimates and critical accounting judgments,
and Note 5, Acquisitions of the consolidated financial statements
Alcatel Lucent SA was acquired on 4 January, 2016 for aggregate
purchase consideration of EUR 11.6 billion. Due to the relative size
of the acquisition to the Group and the significant management
judgements required in accounting for the transaction, we considered
this a key audit matter. Those judgements include the identification
and valuation of all assets and liabilities acquired. The valuation of
certain of the assets involves the use of estimates regarding future
cash flows and taxable profits.
A purchase price allocation has been performed by management,
assisted by an external expert. The primary element of the valuation
exercise assessed the fair value of identifiable intangible assets in
the form of customer relationships (EUR 2.9 billion), technologies
(EUR 2.2 billion), and other assets (EUR 0.6 billion).
As part of the allocation, management performed a recoverability
assessment of Alcatel Lucent’s deferred taxes and recognized
EUR 2.3 billion of deferred tax assets, with significant remaining
unrecognized deferred tax assets. The primary considerations in
determining recoverability included Alcatel Lucent’s history of tax
losses in France and the expiration of tax attributes in the U.S.
The allocation also considered the fair values of property, plant and
equipment, current assets and current and non-current liabilities.
We obtained an understanding of how management approached
the accounting for the acquisition and methods used in making the
significant judgements involved.
We evaluated the design and tested the operating effectiveness
of controls over the acquisition accounting, in particular around
management’s review of the work of its valuation expert, review
of the cash flow forecasts used in the model, and review of the
valuation of deferred tax assets.
Our audit work on the valuation of the intangible assets acquired,
with the involvement of our valuation specialists, included:
■ Examining the relevant contracts, agreements and board minutes
to identify the terms that are relevant to appropriately accounting
for the transaction;
■ Evaluating whether the methodology adopted by management
and its appointed expert for calculating fair values was appropriate
for the judgements required under IFRS;
■ Benchmarking the key market-related valuation assumptions such
as the discount rates applicable to the transaction to industry
comparatives; and,
■ Validating and challenging key inputs and data used in valuation
models such as revenue growth, royalty rates, customer attrition,
technology obsolescence, and market participant synergies by
reference to historical data and our expectations based on our
experience of comparable businesses.
Our audit work on the valuation of deferred tax assets acquired,
with the involvement of our tax specialists, included:
■ Validating the completeness and accuracy of tax attributes;
■ Confirming the appropriate application of tax rules related to
the acquisition, including the expiry of those attributes; and,
■ Evaluating whether the profit history in each jurisdiction supports
the recognition of deferred tax assets.
We tested the valuation of other assets and liabilities, particularly
deferred revenue, inventory, and provisions by evaluating the
appropriateness of the methodology adopted by management
and its expert for calculating the fair value.
Using our knowledge of the industry we assessed the completeness
of the identification of the assets acquired and assessed the
appropriateness of the assets’ useful lives.
NOKIA IN 2016
213
Financial statements Auditor’s report continued
Key audit matter in the audit of the Group
How our audit addressed the Key audit matter
Revenue recognition
Refer to Note 3, Use of estimates and critical accounting
judgments, and Note 7, Revenue recognition of the
consolidated financial statements
Certain revenue contracts in the Networks business and Nokia
Technologies involve multiple deliverables or elements; for example,
a revenue arrangement may combine the delivery of hardware,
software, and rendering of services. Such agreements require
management to identify all of the deliverables in the arrangement
and record revenue based on the fair value of the deliverables at
the appropriate time, generally upon delivery of equipment or
acceptance of products and services. These complex contracts
give rise to the risk of material misstatement due to the incorrect
identification of revenue elements and timing of revenue
recognition for each element.
Accounting for significant income tax transactions
Refer to Note 3, Use of estimates and critical accounting judgments,
and Note 12, Income taxes of the consolidated financial statements
The Group conducts business in a significant number of jurisdictions
and as a result of the acquisition of Alcatel Lucent, the group acquired
material tax loss carry forwards and other deferred tax assets and
liabilities in a number of entities. The Group continues to integrate
the operations of the acquired entities and in doing so made a tax
election and inter-company transfer of assets in 2016 which resulted
in a tax benefit and additional deferred tax assets of EUR 91 million
and EUR 348 million, respectively. The election and transaction
give rise to the risk of material misstatement due to the need for
management to correctly interpret and apply tax laws in relevant
jurisdictions as well as apply supportable business valuation principles.
Fair value of pension and post-retirement plan assets
Refer to Note 3, Use of estimates and critical accounting judgments,
and Note 27, Pensions and other post-employment benefits
The fair value of the Group’s pension and post-retirement plan
assets is EUR 27.8 billion, primarily in the United States and including
EUR 5.6 billion in unquoted investments for which the valuation
requires the use of estimates and significant judgement. A small
change in the assumptions used could have a material impact on the
consolidated financial statements.
Audit procedures were performed over revenue recognition
globally, including at each of the 42 revenue-generating reporting
components that were in scope for the Group audit.
We evaluated the design and tested the operating effectiveness
of controls over revenue recognition, with a particular focus on the
controls executed globally for the initial identification of multiple
elements within revenue contracts and determination of the timing
of recognition for each revenue element.
We assessed the Group’s revenue recognition accounting policies
for compliance with the applicable accounting standards.
We completed detailed testing procedures over revenue
arrangements that we selected based on size and complexity to
assess the appropriateness of judgements made by management
regarding revenue elements and recognition triggers.
We tested a sample of revenue transactions entered into during
the year by tracing them to supporting evidence of delivery and
acceptance and assessed the revenue recognized in the period
by comparing it to the contractual terms.
We obtained an understanding of how management approached
the accounting for the transactions and methods used in making
the significant judgements involved.
We obtained an understanding of management’s interpretation and
application of tax laws underlying the election and transfer made
in the year and assessed management’s conclusions with the
assistance of tax specialists in the appropriate jurisdictions.
In addition and where applicable, we assessed management’s
estimates of fair value for the election and transaction with the
assistance of valuation and tax specialists. We tested management’s
future cash flow estimates used to establish the valuation.
We evaluated the design and tested the operating effectiveness
of certain controls in respect to the determination and review of
the valuation of plan assets.
We tested the existence of a sample of unquoted investments
by obtaining confirmations from investment custodians including
administrators, investment managers, and trustees. Our audit work
on the valuation of these investments, with the involvement of our
valuation specialists, included:
■ Assessing the appropriateness of the valuation method, estimates
and judgements used by the Group to value these investments;
■ Testing the inputs used in the valuations; and,
■ Confirming the valuation of net asset value of investment funds
with the investment custodian.
We have no key audit matters to report with respect to our audit of the parent company financial statements.
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NOKIA IN 2016
Responsibilities of the Board of Directors and management
for the financial statements
The Board of Directors and management are responsible for the
preparation of consolidated financial statements that give a true
and fair view in accordance with International Financial Reporting
Standards (IFRS) as adopted by the EU, and for the preparation of
financial statements that give a true and fair view in accordance with
the laws and regulations governing the preparation of the financial
statements in Finland. The Board of Directors and management
are also responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors and
management are responsible for assessing the parent company’s
and the Group’s ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going
concern basis of accounting. The financial statements are prepared
using the going concern basis of accounting unless there is an
intention to liquidate the parent company or the group or cease
operations, or there is no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in
accordance with good auditing practice will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
As part of an audit in accordance good auditing practice, we exercise
professional judgement and maintain professional skepticism
throughout the audit. We also:
■ Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis
for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
■ Obtain an understanding of internal control relevant to the audit
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the parent company’s or the group’s
internal control.
■ Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures
made by management.
■ Conclude on the appropriateness of the Board of Directors’ and
management’s use of the going concern basis of accounting and
based on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may cast
significant doubt on the parent company’s or the group’s ability
to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial statements or,
if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the
date of our auditor’s report. However, future events or conditions
may cause the parent company or the group to cease to continue
as a going concern.
■ Evaluate the overall presentation, structure and content of the
financial statements, including the disclosures, and whether the
financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
■ Obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the group to
express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the
group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships
and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the financial statements of the current
period and are therefore the key audit matters. We describe these
matters in our auditor’s report unless law or regulation precludes
public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences
of doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
NOKIA IN 2016
215
Financial statements Auditor’s report continued
Other reporting requirements
Other information
The Board of Directors and management are responsible for the other
information. The other information comprises information included in
the report of the Board of Directors and in the annual report, but does
not include the financial statements and our auditor’s report thereon.
We obtained the report of the Board of Directors prior to the date of
this auditor’s report and the Annual report was made available to us
on the date of this auditor’s report.
Our opinion on the financial statements does not cover the
other information.
In connection with our audit of the financial statements, our
responsibility is to read the other information identified above and,
in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained
in the audit, or otherwise appears to be materially misstated. With
respect to the report of the Board of Directors our responsibility also
includes considering whether the report of Board of Directors has
been prepared in accordance with the applicable legal requirements.
In our opinion,
■ The information in the report of the Board of Directors is consistent
with the information in the financial statements; and,
■ The report of the Board of Directors has been prepared in
accordance with the applicable legal requirements.
If, based on the work we have performed, we conclude that there is
a material misstatement of the other information, we are required
to report that fact. We have nothing to report in this regard.
Other Opinions
We support that the financial statements and the consolidated
financial statements should be adopted. The proposal by the Board of
Directors regarding the use of profit shown in the balance sheet is in
compliance with the Limited Liability Companies Act. We support that
the Members of the Board of Directors and management should be
discharged from liability for the financial period audited by us.
Espoo March 23, 2017
PricewaterhouseCoopers Oy
Authorised Public Accountants
Heikki Lassila
Authorised Public Accountant
216
NOKIA IN 2016
Other information
Contents
Forward-looking statements
Glossary of terms
Investor information
Contact information
218
220
223
224
NOKIA IN 2016
217
Other information Forward-looking statements
It should be noted that Nokia and its businesses are exposed to
various risks and uncertainties and certain statements herein that are
not historical facts are forward-looking statements, including, without
limitation, those regarding:
A)
B)
C)
our ability to integrate Alcatel Lucent into our operations and
achieve the targeted business plans and benefits, including
targeted synergies in relation to the Acquisition of Alcatel Lucent;
expectations, plans or benefits related to our strategies and
growth management;
expectations, plans or benefits related to future performance of
our businesses;
D) expectations, plans or benefits related to changes in
organizational and operational structure;
E)
F)
expectations regarding market developments, general economic
conditions and structural changes;
expectations and targets regarding financial performance, results,
operating expenses, taxes, currency exchange rates, hedging, cost
savings and competitiveness, as well as results of operations
including targeted synergies and those related to market share,
prices, net sales, income and margins;
G)
timing of the deliveries of our products and services;
H) expectations and targets regarding collaboration and partnering
arrangements, joint ventures or the creation of joint ventures, as
well as our expected customer reach;
I)
J)
K)
outcome of pending and threatened litigation, arbitration,
disputes, regulatory proceedings or investigations by authorities;
expectations regarding restructurings, investments, uses of
proceeds from transactions, acquisitions and divestments and our
ability to achieve the financial and operational targets set in
connection with any such restructurings, investments,
divestments and acquisitions; and
statements 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 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. Factors, including risks and
uncertainties that could cause these differences include, but are not
limited to:
1)
2)
3)
4)
5)
6)
our ability to execute our strategy, sustain or improve the
operational and financial performance of our business and
correctly identify and successfully pursue business opportunities
or growth;
our ability to achieve the anticipated benefits, synergies, cost
savings and efficiencies of the Acquisition of Alcatel Lucent, and
our ability to implement our organizational and operational
structure efficiently;
general economic and market conditions and other developments
in the economies where we operate;
competition and our ability to effectively and profitably compete
and invest in new competitive high-quality products, services,
upgrades and technologies and bring them to market in a timely
manner;
our dependence on the development of the industries in which we
operate, including the cyclicality and variability of the information
technology and telecommunications industries;
our global business and exposure to regulatory, political or other
developments in various countries or regions, including emerging
markets and the associated risks in relation to tax matters and
exchange controls, among others;
7)
our ability to manage and improve our financial and operating
performance, cost savings, competitiveness and synergies after
the Acquisition of Alcatel Lucent;
8)
our dependence on a limited number of customers and large
multi-year agreements;
9)
exchange rate fluctuations, as well as hedging activities;
10) Nokia Technologies’ ability to protect its IPR and to maintain and
establish new sources of patent licensing income and IPR-related
revenues, particularly in the smartphone market;
11) our dependence on IPR technologies, including those that we
have developed and those that are licensed to us, and the risk of
associated IPR-related legal claims, licensing costs and restrictions
on use;
12) our exposure to direct and indirect regulation, including economic
or trade policies, and the reliability of our governance, internal
controls and compliance processes to prevent regulatory penalties
in our business or in our joint ventures;
13) our ability to identify and remediate material weaknesses in our
internal control over financial reporting;
14) our reliance on third-party solutions for data storage and service
distribution, which expose us to risks relating to security,
regulation and cybersecurity breaches;
15) inefficiencies, breaches, malfunctions or disruptions of
information technology systems;
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NOKIA IN 2016
Introduction and use
of certain terms
Nokia Corporation is a public limited liability company incorporated
under the laws of the Republic of Finland. In this annual report, any
reference to “we,” “us,” “the Group,” “the company” or “Nokia” means
Nokia Corporation and its consolidated subsidiaries and generally to
Nokia’s Continuing operations, except where we separately specify
that the term means Nokia Corporation or a particular subsidiary or
business segment only or our Discontinued operations. References
to “our shares”, matters relating to our shares or matters of
corporate governance refer to the shares and corporate governance
of Nokia Corporation.
Nokia Corporation has published its consolidated financial statements
in euro for periods beginning on or after January 1, 1999. In this
annual report, references to “EUR,” “euro” or “€” are to the common
currency of the European Economic and Monetary Union, and
references to “dollars”, “U.S. dollars”, “USD” or “$” are to the currency
of the United States.
16) Nokia Technologies’ ability to generate net sales and profitability
through licensing of the Nokia brand, particularly in digital media
and digital health, and the development and sales of products
and services, as well as other business ventures which may not
materialize as planned;
17) our exposure to various legislative frameworks and jurisdictions
that regulate fraud and enforce economic trade sanctions and
policies, and the possibility of proceedings or investigations that
result in fines, penalties or sanctions;
18) adverse developments with respect to customer financing or
extended payment terms we provide to customers;
19) the potential complex tax issues, tax disputes and tax obligations
we may face in various jurisdictions, including the risk
of obligations to pay additional taxes;
20) our actual or anticipated performance, among other factors,
which could reduce our ability to utilize deferred tax assets;
21) our ability to retain, motivate, develop and recruit appropriately
skilled employees;
22) disruptions to our manufacturing, service creation, delivery,
logistics and supply chain processes, and the risks related
to our geographically-concentrated production sites;
23) the impact of litigation, arbitration, agreement-related disputes
or product liability allegations associated with our business;
24) our ability to optimize our capital structure as planned and
re-establish our investment grade credit rating or otherwise
improve our credit ratings;
25) our ability to achieve targeted benefits from or successfully
implement planned transactions, as well as the liabilities related
thereto;
26) our involvement in joint ventures and jointly-managed companies;
27) the carrying amount of our goodwill may not be recoverable;
28) uncertainty related to the amount of dividends and equity return
we are able to distribute to shareholders for each financial period;
29) pension costs, employee fund-related costs, and healthcare
costs; and
30) risks related to undersea infrastructure, as well as the risk factors
specified on pages 72 and 73 of this annual report under “Board
review-Risk factors” and in other filings with the U.S. Securities and
Exchange Commission. 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 statements. We do 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.
NOKIA IN 2016
219
Other information Glossary of terms
3G (Third Generation Mobile Communications): The third generation
of mobile communications standards designed for carrying both
voice and data generally using WCDMA or close variants.
4G (Fourth Generation Mobile Communications): The fourth
generation of mobile communications standards based on LTE,
offering IP data connections only and providing true broadband
internet access for mobile devices. Refer also to LTE.
4.5G Pro: Our next step in a technology path that will optimize the
journey to 5G. Powered by the 5G-ready AirScale, 4.5G Pro delivers
ten times the speeds of initial 4G networks, enabling operators to
offer gigabit peak data rates to meet growing demands from the
programmable world. Using extended carrier aggregation techniques
across up to five frequency bands, operators will be able to leverage
their diverse paired (FDD) and unpaired (TDD) licensed spectrum as
well as unlicensed spectrum.
4.9G: Our evolutionary step to enable future service continuity
with 5G network fabric. Expected by the end of 2017, 4.9G will
provide significant increases in capacity and several gigabits of
speed-per-second on the path to 5G. This will include allowing
additional numbers of carriers to be aggregated, opening the door to
additional licensed and unlicensed spectrum, and advancing the radio
systems to allow highly directional antennas to be used and to allow
signals sent via multiple transmit/receive paths to be added together.
5G (Fifth Generation Mobile Communications): The next major
phase of mobile telecommunications standards. 5G will be the
set of technical components and systems needed to handle new
requirements and overcome the limits of current systems.
Access network: A telecommunications network between a local
exchange and the subscriber station.
ADSL (Asymmetric Digital Subscriber Line): A data communications
technology that enables faster data transmission over copper
telephone lines than a conventional modem can provide; the
technology that introduced broadband to the masses.
Airframe: Our 5G-ready, end-to-end data center solution that
combines the benefits of Cloud computing technologies with the
requirements of the core and radio telecommunications world. It is
available in Rackmount and Open Compute Project (OCP) form factors.
This enables the solution to be very scalable: from small distributed
latency-optimized data centers, all the way to massive centralized
hyper scale data center deployment.
AirScale Radio Access: A 5G-ready complete radio access generation
that helps operators address the increasing demands of today and
tomorrow. The solution comprises: Nokia AirScale Base Station with
multiband RF elements and system modules; Nokia AirScale Active
Antennas; Cloud RAN with Nokia AirScale Cloud Base Station Server
and the Cloud-based AirScale RNC for 3G; Nokia AirScale Wi-Fi;
common software; and services which use intelligent analytics and
extreme automation to maximize the performance of hybrid networks.
Alcatel Lucent SA: Alcatel Lucent, a subsidiary of Nokia Corporation.
API (Application Programming Interface): A set of routines, protocols,
and tools for building software applications, specifying how software
components should interact.
Applications & Analytics: Our business group offering carrier-grade
software applications and platforms to provide operations and
business support systems, build, deliver, and optimize services,
enable their monetization, and to improve customer experience.
Base station: A network element in a mobile network responsible
for radio transmission and reception to or from the mobile station.
Broadband: The delivery of higher bandwidth by using transmission
channels capable of supporting data rates greater than the primary
rate of 9.6 Kbps.
CDMA (Code Division Multiple Access): A technique in which radio
transmissions using the same frequency band are coded in a way
that a signal from a certain transmitter can be received only by
certain receivers.
Churn: Churn rate is a measure of the number of customers or
subscribers who leave their service provider, e.g. a mobile operator,
during a given time period.
Cloud: Cloud computing is a model for enabling ubiquitous,
convenient, on-demand network access to a shared pool of
configurable computing resources (e.g., networks, servers, storage,
applications and services) that can be rapidly provisioned and released
with minimal management effort.
CloudBand: Our Cloud management and orchestration solutions
enabling a unified Cloud engine and platform for NFV.
Cloud Native Core: Optimizes Cloud core applications and
architecture to support massive IoT, mobile broadband and the
5G programmable world.
Continuing operations: Refers to the Continuing operations following
the Acquisition of Alcatel Lucent, the Sale of the HERE Business in
2015 and the Sale of the D&S Business in 2014. Our Continuing
operations in 2016 included two businesses: our Networks business
and Nokia Technologies.
Converged Core: A business unit of our Mobile Networks business
group providing solutions for the core network of the future.
Convergence: The coming together of two or more disparate
disciplines or technologies. Convergence types are, for example,
IP convergence, fixed-mobile convergence and device convergence.
Core network: A combination of exchanges and the basic transmission
equipment that together form the basis for network services.
CSPs: Communication service providers.
Customer Experience Management: Software suite used to manage
and improve the customer experience, based on customer, device
and network insights.
Devices & Services: Our former mobile device business, substantially
all of which was sold to Microsoft.
Digital: A signaling technique in which a signal is encoded into digits
for transmission.
Discontinued operations: Mainly refers to the divestment of
our HERE business to an automotive consortium and the sale of
substantially all of our Devices & Services business to Microsoft.
Ecosystem: An industry term to describe the increasingly large
communities of mutually beneficial partnerships that participants
such as hardware manufacturers, software providers, developers,
publishers, entertainment providers, advertisers and ecommerce
specialists form in order to bring their offerings to market. At the heart
of the major ecosystems in the mobile devices and related services
industry is the operating system and the development platform
upon which services are built.
Bandwidth: The width of a communication channel, which affects
transmission speeds over that channel.
Engine: Hardware and software that perform essential core functions
for telecommunication or application tasks.
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ETSI (European Telecommunications Standards Institute):
Standards produced by the ETSI contain technical specifications laying
down the characteristics required for a telecommunications product.
IP Multimedia Subsystem (IMS): Architectural framework designed
to deliver IP-based multimedia services on telecommunications
networks; standardized by 3GPP.
FD-LTE (Frequency Division Long-Term Evolution) also known
as FDD (Frequency Division Duplex): A standard for LTE mobile
broadband networks. Frequency Division means that separate,
parallel connections are used to carry data from the base station
to the mobile device (“downlink”) and from the mobile device to the
base station (“uplink”).
Fixed Networks: Our Fixed Networks business group provides copper
and fiber access products, solutions, and services.
Future X: A network architecture—a massively distributed, cognitive,
continuously adaptive, learning and optimizing network connecting
humans, senses, things, systems, infrastructure, processes.
G.fast: A fixed broadband technology able to deliver up to 1Gbps
over very short distances (for example, for in-building use, also
called “Fiber-to-the-Building”). Launched in 2014, G.fast uses more
frequencies and G.fast Vectoring techniques to achieve higher speeds.
Global Delivery Center: A remote service delivery center with a pool
of services experts, automated tools and standardized processes to
ensure that services across the entire network life cycle are delivered
to operators globally.
Global Services: A business unit within the Networks business, Global
Services provides mobile operators with a broad range of services,
including professional services, network implementation and customer
care services.
GPON (Gigabit Passive Optical Networking): A fiber access
technology that delivers 2.5Gbps over a single optical fiber to
multiple end points including residential and enterprise sites.
GSM (Global System for Mobile Communications): A digital system for
mobile communications that is based on a widely-accepted standard
and typically operates in the 900 MHz, 1800 MHz and 1900 MHz
frequency bands.
HERE: A former Nokia company focused on mapping and location
intelligence services, which was divested to an automotive consortium
in 2015.
IFRS (International Financial Reporting Standards): International
Financial Reporting Standards as issued by the International
Accounting Standards Board and in conformity with IFRS as adopted
by the European Union.
Implementation patents: Implementation patents include
technologies used to implement functionalities in products or
services which are not covered by commitments to standards-setting
organizations, so they typically offer product differentiation by giving
competitive advantage, such as increased performance, smaller size
or improved battery life, and the patent owner has no obligation to
license them to others.
Internet of Things (IoT): All things such as cars, the clothes we wear,
household appliances and machines in factories connected to the
Internet and able to automatically learn and organize themselves.
Industrial design: Design process applied for products that will
be manufactured at mass scale.
Internet Protocol: A network layer protocol that offers a
connectionless internet work service and forms part of the
TCP/IP protocol.
IP (Intellectual Property): Intellectual property results from original
creative thought, covering items such as patents, copyright material
and trademarks, as well as business models and plans.
IPR (Intellectual Property Right): Legal right protecting the economic
exploitation of intellectual property, a generic term used to describe
products of human intellect, for example patents, that have an
economic value.
IPR licensing: Generally refers to an agreement or an arrangement
where a company allows another company to use its intellectual
property (such as patents, trademarks or copyrights) under
certain terms.
IP/Optical Networks: Our IP/Optical Networks business group
provides the key IP routing and optical transport systems, software
and services to build high capacity network infrastructure for the
internet and global connectivity.
LTE (Long-Term Evolution): 3GPP radio technology evolution
architecture and a standard for wireless communication of high-speed
data. Also referred to as 4G, refer to 4G above.
LTE-M: An IoT radio technology addressing demanding IoT applications
needs with low to mid-volume data use of up to about 1Mbps.
The technology also simplifies modems by about 80%.
Mobile broadband: Refers to high-speed wireless internet connections
and services designed to be used from arbitrary locations.
Mobile Broadband: A segment within Nokia Networks in 2015. Mobile
Broadband provided mobile operators with radio and core network
software together with the hardware needed to deliver mobile voice
and data services.
Mobile Networks: Our Mobile Networks business group offers an
industry-leading portfolio of end-to-end mobile networking solutions
comprising hardware, software, and services for telecommunications
operators, enterprises, and related markets/verticals such as public
safety and IoT.
Networks business: Comprised the Mobile Networks, Fixed Networks,
Applications & Analytics, and IP/Optical Networks business groups
in 2016.
NFC (Near Field Communication): A short-range wireless technology
that enables people to connect one NFC-enabled device with another,
or to read an NFC tag. By bringing one NFC-enabled mobile device
close to another NFC device, or to an NFC tag, people can easily
share content, access information and services, or pay for goods.
NFV (Network Functions Virtualization): Principle of separating
network functions from the hardware they run on by using virtual
hardware abstraction.
Nokia Bell Labs: Our research arm discovering and developing the
technological shifts needed for the next phase of human existence
as well as exploring and solving complex problems to radically
redefine networks.
Nokia Networks: Our former business focused on mobile network
infrastructure software, hardware and services.
Nokia Technologies: Our business focused on advanced technology
development and licensing.
NSN (Nokia Solutions and Networks): The former name of our
Networks business. From 2007, NSN was known as Nokia Siemens
Networks until we acquired Siemens’ 50% stake in the joint venture
in 2013.
Nuage Networks: A wholly owned subsidiary of Alcatel Lucent, delivers
a SDN solution to eliminate key data center network constraints that
hinder Cloud services adoption.
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Other information Glossary of terms continued
Operating system (OS): Software that controls the basic operation of
a computer or a mobile device, such as managing the processor and
memory. The term is also often used to refer more generally to the
software within a device, including, for instance, the user interface.
OZO: Our professional Virtual Reality camera, crafted by
Nokia Technologies.
OZO Live: Software product, running on reference hardware, that
enables real-time 3D 360 stitching for VR broadcasting at scale.
Packet: Part of a message transmitted over a packet switched network.
Picocell: A small cellular base station typically covering a small area
typically up to 200 meters wide. Typically used to extend coverage
to indoor areas or to add network capacity in areas with very dense
phone usage, such as train stations.
Platform: Software platform is a term used to refer to an operating
system or programming environment, or a combination of the two.
PON (Passive Optical Networking): A fiber access architecture in
which unpowered Fiber Optic Splitters are used to enable a single
optical fiber to serve multiple end-points without having to provide
individual fibers between the hub and customer.
Programmable World: A world where connectivity will expand
massively, linking people as well as billions of physical objects—from
cars, home appliances and smartphones, to wearables, industrial
equipment and health monitors. What distinguishes the
Programmable World from the Internet of Things is the intelligence
that is added to data to allow people to interpret and use it, rather
than just capture it.
RAN (Radio Access Network): A mobile telecommunications system
consisting of radio base stations and transmission equipment.
SDN (Software Defined Networking): An approach to computer
networking that decouples the network control and forwarding
functions enabling the network control to become programmable
and the underlying hardware to be abstracted.
SEPs (Standard-Essential Patents): Generally, patents needed
to produce products which work on a standard, which companies
declare as essential and agree to license on fair, reasonable and
non-discriminatory (FRAND) terms.
Service Delivery Hub: Smaller service delivery centers, typically
focused on specific technology or language.
Shared Data Layer (SDL): A highly reliable, scalable and
readily-available data store in the Cloud. Moving subscribers and
session data to SDL and using this shared data in an open ecosystem
enable rapid innovations of services and faster revenue growth due
to better insight into subscriber behavior.
Single RAN: Single RAN allows different radio technologies to be
provided at the same time from a single base station, using a
multi-purpose platform.
Small cells: Low-powered radio access nodes (micro cells or picocells)
that are a vital element in handling very dense data traffic demands.
3G and LTE small cells use spectrum licensed by the operator; WiFi
uses unlicensed spectrum which is therefore not under the operator’s
exclusive control.
SON (Self-Organizing Network): An automation technology designed
to make the planning, configuration, management, optimization and
healing of mobile radio access networks simpler and faster.
TD-LTE (Time Division Long-Term Evolution, also known as TDD
(Time Division Duplex)): An alternative standard for LTE mobile
broadband networks. Time Division means that a single connection
is used alternately to carry data from the base station to the mobile
device (“downlink”) and then from the mobile device to the base
station (“uplink”).
Technology licensing: Generally refers to an agreement or
arrangement where under certain terms a company provides
another company with its technology and possibly know-how,
whether protected by intellectual property or not, for use in
products or services offered by the other company.
Telco Cloud: Applying Cloud computing, SDN and NFV principles in
telecommunications environment, e.g. separating application software
from underlying hardware with automated, programmable interfaces
while still retaining telecommunications requirements such as high
availability and low latency.
Transmission: The action of conveying signals from one point to one
or more other points.
TWDM-PON (Time Wavelength Division Multiplexing Passive Optical
Network): The latest generation fiber access technology, which uses
multiple wavelengths to deliver up to 40Gbps total capacity to homes,
businesses, and base stations. Also known as NG-PON2.
TXLEs (Technical extra-large enterprises): Technically sophisticated
companies, such as banks, that invest heavily in their own network
infrastructures to gain a key competitive advantage.
VDSL2 (Very High Bit Rate Digital Subscriber Line 2): A fixed
broadband technology, the successor of ADSL. Launched in 2007,
it typically delivers a 30Mbps broadband service from a street
cabinet (also called a “Fiber-to-the-Node” deployment) over existing
telephone lines.
VDSL2 Vectoring: A fixed broadband technology launched in 2011,
able to deliver up to 100Mbps over a VDSL2 line by applying noise
cancellation techniques to remove cross-talk between neighboring
VDSL2 lines.
Virtual Reality (VR): The simulation of a three-dimensional image or
environment that can be interacted with in a seemingly real or physical
way by a person using special electronic equipment, such as a helmet
with a screen inside or gloves fitted with sensors.
VoLTE (Voice over LTE): Required to offer voice services on an all-IP
LTE network and generally provided using IP Multimedia Subsystem.
Vplus: A fixed broadband technology, between VDSL2 Vectoring and
G.fast in terms of bandwidth and distances, typically used in FTTN
(ode) deployments. Launched in 2015, it delivers up to 300Mbps
and has been standardized as VDSL2 35b.
WAN (Wide Area Networking): A geographically distributed private
telecommunications network that interconnects multiple local
area networks.
WCDMA (Wideband Code Division Multiple Access): A third-generation
mobile wireless technology that offers high data speeds to mobile
and portable wireless devices.
Webscales: Companies—such as Google, Microsoft, and
Alibaba—which are investing in Cloud technology and network
infrastructure on an increasing scale to fulfill their needs for massive,
mission-critical networks.
WLAN (Wireless Local Area Network): A local area network using
wireless connections, such as radio, microwave or infrared links,
in place of physical cables.
XG-FAST: A Nokia Bell Labs extension of G.fast technology, using even
higher frequencies. Capable of delivering over 10Gbps, over 2 bonded
telephone lines, over very short distances.
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Investor information
Information on the internet
www.nokia.com
Available on the internet: financial reports, members of the Group
Leadership Team, other investor-related materials and events, press
releases as well as environmental and social information, including
our Sustainability Report, Code of Conduct, Corporate Governance
Statement and Remuneration Statement.
Investor Relations contacts
investor.relations@nokia.com
Annual General Meeting
May 23, 2017
Date:
Place:
Helsinki, Finland
Dividend
The Board proposes to the Annual General Meeting a dividend
of EUR 0.17 per share for the year 2016.
Financial reporting
Our interim reports in 2017 are planned to be published on April 27,
2017, July 27, 2017 and October 26, 2017. The full-year 2017 results
are planned to be published in February 2018.
Information published in 2016
All our global press releases and statements published in 2016
are available on the internet at www.nokia.com/en_int/news/releases.
Stock exchanges
The Nokia Corporation share is quoted on the following stock exchanges:
Nasdaq Helsinki (since 1915)
New York Stock Exchange (since 1994)
Euronext Paris (since 2015)
Symbol
NOKIA
NOK
NOKIA
Trading currency
EUR
USD
EUR
NOKIA IN 2016
223
Other information Contact information
Nokia Head Office
Karaportti 3
FI-02610 Espoo, Finland
FINLAND
Tel. +358 (0) 10 44 88 000
Fax +358 (0) 10 44 81 002
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NOKIA IN 2016
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