Nokia Annual Report on Form 20-F 2017
Creating the technology to connect the world
As filed with the Securities and Exchange Commission on March 22, 2018
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
Commission file number 1-13202
Nokia Corporation
(Exact name of Registrant as specified in its charter)
Republic of Finland
(Jurisdiction of incorporation)
Karaportti 3 FI-02610 Espoo, Finland
(Address of principal executive offices)
Jussi Koskinen, Vice President, Corporate Legal, Telephone: +358 (0) 10 44 88 000, Facsimile: +358 (0) 10 44 81 002,
Karaportti 3, FI-02610 Espoo, Finland
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the “Exchange Act”):
Title of each class
American Depositary Shares
Shares
Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange(1)
(1) Not for trading, but only in connection with the registration of American Depositary Shares representing these shares, pursuant to the requirements of the Securities and Exchange Commission.
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Exchange Act:
5.375% Notes due 2019, 3.375% Notes due 2022, 4.375% Notes due 2027 and 6.625% Notes due 2039.
Indicate the number of outstanding shares of each of the registrant’s classes of capital or common stock as
of the close of the period covered by the annual report. Shares: 5 839 404 303.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Exchange Act.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Yes
No
Yes
No
Yes
No
Non-accelerated filer
(Do not check if a smaller reporting company)
Large accelerated filer
Accelerated filer
Smaller reporting company
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP
International Financial Reporting Standards as issued by the International Accounting Standards Board
Other
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement
item the registrant has elected to follow.
Item 17
Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
Yes
No
Cross-reference table
to Form 20-F
Form 20-F
Item Number Form 20-F Heading
Section in Document
ITEM 1
ITEM 2
ITEM 3
3A
3B
3C
3D
ITEM 4
4A
IDENTITY OF DIRECTORS, SENIOR
MANAGEMENT AND ADVISERS
OFFER STATISTICS AND EXPECTED
TIMETABLE
KEY INFORMATION
Selected Financial Data
Capitalization and Indebtedness
Reasons for the Offer and Use of
Proceeds
Risk Factors
INFORMATION ON THE COMPANY
History and Development of the
Company
4B
Business Overview
4C
Organizational Structure
4D
Property, Plants and Equipment
4A
ITEM 5
5A
UNRESOLVED STAFF COMMENTS
OPERATING AND FINANCIAL REVIEW
AND PROSPECTS
Operating Results
5B
Liquidity and Capital Resources
5C
Research and Development,
Patents and Licenses
5D
Trends Information
N/A
N/A
General facts on Nokia—Selected financial data
N/A
N/A
Operating and financial review and prospects—Risk factors
Cover page, Overview, Introduction and use of certain terms; General facts on Nokia—Our history;
Operating and financial review and prospects—Liquidity and capital resources; Operating and financial
review and prospects—Material subsequent events; Financial statements—Notes to consolidated
financial statements—Note 4, Segment information; Financial statements—Notes to consolidated
financial statements—Note 5, Acquisitions
Business overview; Operating and financial review and prospects—Principal industry trends affecting
operations; Financial statements—Notes to consolidated financial statements—Note 4, Segment
information; General facts on Nokia—Government regulation
Overview—This is Nokia—Organizational structure and reportable segments; Financial statements—
Notes to consolidated financial statements—Note 4, Segment information; Financial statements—Notes
to consolidated financial statements—Note 32, Principal Group companies
Business overview; Financial statements—Notes to consolidated financial statements—Note 2,
Significant accounting policies; Financial statements—Notes to consolidated financial statements—Note
6, Disposals treated as Discontinued operations; Financial statements—Notes to consolidated financial
statements—Note 15, Property, plant and equipment
None
Operating and financial review and prospects—Principal industry trends affecting operations; Financial
statements—Notes to consolidated financial statements—Note 2, Significant accounting policies;
Financial statements—Notes to consolidated financial statements—Note 36, Risk management
Operating and financial review and prospects—Liquidity and capital resources; Financial statements—
Notes to consolidated financial statements—Note 24, Fair value of financial instruments; Financial
statements—Notes to consolidated financial statements—Note 25, Derivative financial instruments;
Financial statements—Notes to consolidated financial statements—Note 30, Commitments and
contingencies; Financial statements—Notes to consolidated financial statements—Note 36, Risk
management
Business overview—Networks business—Research and development; Business overview—Networks
business— Patents and licenses; Business overview—Nokia Technologies—Research and development;
Business overview—Nokia Technologies—Patents and licenses; Operating and financial review and
prospects—Results of operations; Operating and financial review and prospects—Results of segments
Business overview; Operating and financial review and prospects— Principal industry trends affecting
operations
5E
Off-Balance Sheet Arrangements Operating and financial review and prospects—Liquidity and capital resources—Off-Balance Sheet
Arrangements; Financial statements—Notes to consolidated financial statements—Note 36, Risk
management; Financial statements—Notes to consolidated financial statements—Note 30,
Commitments and contingencies
Financial statements—Notes to consolidated financial statements—Note 30, Commitments and
contingencies
Forward-looking statements
5F
5G
ITEM 6
6A
6B
Tabular Disclosure of Contractual
Obligations
Safe Harbor
DIRECTORS, SENIOR MANAGEMENT
AND EMPLOYEES
Directors and Senior Management Corporate governance—Corporate governance statement
Compensation
6C
Board Practices
6D
6E
Employees
Share Ownership
Corporate governance—Compensation; Financial statements—Notes to consolidated financial
statements—Note 35, Related party transactions
Corporate governance—Corporate governance statement; Corporate governance—Compensation—
Remuneration Report; Financial statements—Notes to consolidated financial statements—Note 35,
Related party transactions
Operating and financial review and prospects—Employees
Corporate governance—Compensation—Remuneration Report; Financial statements—Notes to
consolidated financial statements—Note 26, Share-based payment
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Form 20-F
Item Number Form 20-F Heading
Section in Document
ITEM 7
7A
7B
7C
ITEM 8
8A
8B
ITEM 9
9A
9B
9C
9D
9E
9F
ITEM 10
MAJOR SHAREHOLDERS AND
RELATED PARTY TRANSACTIONS
Major Shareholders
Related Party Transactions
Interests of Experts and Counsel
FINANCIAL INFORMATION
Consolidated Statements and
Other Financial Information
Significant Changes
THE OFFER AND LISTING
Offer and Listing Details
Plan of Distribution
Markets
Selling Shareholders
Dilution
Expenses of the Issue
ADDITIONAL INFORMATION
General facts on Nokia—Shares and shareholders
General facts on Nokia—Related party transactions, Financial statements—Notes to consolidated
financial statements—Note 35, Related party transactions
N/A
Financial statements; Report of independent registered public accounting firm; Operating and financial
review and prospects—Dividend
Operating and financial review and prospects—Material subsequent events
General facts on Nokia—Shares and shareholders
N/A
General facts on Nokia—Shares and shareholders
N/A
N/A
N/A
10A Share capital
10B Memorandum and Articles
N/A
General facts on Nokia—Memorandum and Articles of Association; Other information—Exhibits
of Association
Taxation
10C Material Contracts
10D Exchange Controls
10E
10F Dividends and Paying Agents
10G Statement by Experts
10H Documents on Display
Subsidiary Information
10I
QUANTITATIVE AND QUALITATIVE
ITEM 11
DISCLOSURES ABOUT MARKET RISK
DESCRIPTION OF SECURITIES
OTHER THAN EQUITY SECURITIES
ITEM 12
12A Debt Securities
12B Warrants and Rights
12C Other Securities
12D American Depositary Shares
ITEM 13
ITEM 14
ITEM 15
DEFAULTS, DIVIDEND ARREARAGES
AND DELINQUENCIES
MATERIAL MODIFICATIONS TO THE
RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS
CONTROLS AND PROCEDURES
ITEM 16A AUDIT COMMITTEE FINANCIAL
EXPERT
16B CODE OF ETHICS
16C PRINCIPAL ACCOUNTANT FEES AND
SERVICES
16D EXEMPTIONS FROM THE LISTING
STANDARDS FOR AUDIT
COMMITTEES
PURCHASES OF EQUITY SECURITIES
BY THE ISSUER AND AFFILIATED
PURCHASERS
16E
General facts on Nokia—Our history; Other information—Exhibits
General facts on Nokia—Controls and procedures—Exchange controls
General facts on Nokia—Taxation
N/A
N/A
Other information—Investor information—Documents on display
N/A
Financial statements—Notes to consolidated financial statements—Note 36, Risk Management
N/A
N/A
N/A
General facts on Nokia—Shares and shareholders—Depositary fees and charges; General facts on
Nokia—Shares and shareholders—Depositary payments in 2017
None
None
Corporate governance—Regulatory framework—Risk management, internal control and internal audit
functions at Nokia; General facts on Nokia—Controls and procedures
Corporate governance—Corporate governance statement—Members of the Board of Directors—
Committees of the Board of Directors
Corporate governance—Corporate governance statement—Members of the Board of Directors—
Further information
Corporate governance—Corporate governance statement—Auditor fees and services, Corporate
governance—Corporate governance statement—Audit Committee pre-approval policies and procedures
N/A
General facts on Nokia—Shares and shareholders—Authorization to repurchase shares
16F CHANGE IN REGISTRANT’S
CERTIFYING ACCOUNTANT
16G CORPORATE GOVERNANCE
16H MINE SAFETY DISCLOSURE
ITEM 17
ITEM 18
ITEM 19
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS
NOKIA ANNUAL REPORT ON FORM 20-F 2017
None
Corporate governance—Corporate governance statement—Regulatory framework
N/A
N/A
Financial Statements
Other information—Exhibits
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:
L)
statements preceded by or including
“believe”, “expect”, “anticipate”,
“foresee”, “sees”, “target”, “estimate”,
“designed”, “aim”, “plans”, “intends”,
“focus”, “continue”, “project”, “should”,
“is to”, “will” or similar expressions.
A)
B)
C)
our ability to integrate acquired
businesses into our operations and
achieve the targeted business plans and
benefits, including targeted benefits,
synergies, cost savings and efficiencies;
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)
G)
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;
expectations, plans or benefits related to
any future collaboration or to business
collaboration agreements or patent
license agreements or arbitration awards,
including income to be received under any
collaboration or partnership, agreement
or award;
H) timing of the deliveries of our products
and services;
I)
J)
K)
expectations and targets regarding
collaboration and partnering
arrangements, joint ventures or the
creation of joint ventures, and the related
administrative, legal, regulatory and other
conditions, as well as our expected
customer reach;
outcome of pending and threatened
litigation, arbitration, disputes, regulatory
proceedings or investigations by
authorities;
expectations regarding restructurings,
investments, capital structure optimization
efforts, 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,
capital structure optimization efforts,
divestments and acquisitions; and
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)
7)
8)
our strategy is subject to various risks
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;
general economic and market conditions
and other developments in the economies
where we operate;
competition and our ability to effectively
and profitably 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 dependence on a limited number
of customers and large multi-year
agreements;
our ability to maintain our existing sources
of intellectual property-related revenue,
establish new sources of revenue and
protect our intellectual property from
infringement;
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;
our ability to achieve the anticipated
benefits, synergies, cost savings and
efficiencies of acquisitions, including
the acquisition of Alcatel Lucent, and
our ability to implement changes to
our organizational and operational
structure efficiently;
9)
our ability to manage and improve our
financial and operating performance,
cost savings, competitiveness and
synergies generally and after the
acquisition of Alcatel Lucent;
10) exchange rate fluctuations, as well as
hedging activities;
11) our ability to successfully realize the
expectations, plans or benefits related
to any future collaboration or business
collaboration agreements and patent
license agreements or arbitration awards,
including income to be received under any
collaboration, partnership, agreement
or arbitration award;
12) 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;
13) 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;
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;
16) Nokia Technologies’ ability to generate
net sales and profitability through
licensing of the Nokia brand, technology
licensing and the development and sales
of products and services for instance in
digital health, as well as other business
ventures, which may not materialize
as planned;
17) our exposure to various legal frameworks
regulating corruption, fraud, trade
policies, and other risk areas, 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;
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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
on Form 20-F, 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 on Form 20-F,
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. Solely for
the convenience of the reader, this annual
report on Form 20-F contains conversions
of selected euro amounts into U.S. dollars at
specified rates or, if not so specified, at the
year-end rate of 1.1993 U.S. dollars per euro,
which was the European Central Bank
reference rate on December 29, 2017. No
representation is made that the amounts
have been, could have been or could be
converted into U.S. dollars at the rates
indicated or at any other rates.
The information contained in, or accessible
through, the websites linked throughout
this annual report on Form 20-F is not
incorporated by reference into this document
and should not be considered a part of
this document.
Nokia Corporation furnishes Citibank, N.A.,
as Depositary, with its consolidated financial
statements and a related audit opinion of
our independent auditors annually. These
financial statements are prepared on the
basis of International Financial Reporting
Standards as issued by the International
Accounting Standards Board and in
conformity with IFRS as adopted by the
European Union (“IFRS”). In accordance
with the rules and regulations of the SEC,
we do not provide a reconciliation of net
income and shareholders’ equity in our
consolidated financial statements to
accounting principles generally accepted
in the United States, or U.S. GAAP. We also
furnish the Depositary with quarterly reports
containing unaudited financial information
prepared on the basis of IFRS, as well as all
notices of shareholders’ meetings and other
reports and communications that are made
available generally to our shareholders.
The Depositary makes these notices, reports
and communications available for inspection
by record holders of American Depositary
Receipts (“ADRs”), evidencing American
Depositary Shares (“ADSs”), and distributes
to all record holders of ADRs notices
of shareholders’ meetings received by
the Depositary.
In addition to the materials delivered to
holders of ADRs by the Depositary, holders
can access our consolidated financial
statements, and other information included
in our annual reports and proxy materials,
at nokia.com/financials. This annual report
on Form 20-F is also available at nokia.com/
financials as well as on Citibank’s website at
https://app.irdirect.net/company/49733/
hotline/. Holders may also request a hard copy
of this annual report by calling the toll-free
number 1-877-NOKIA-ADR (1-877-665-4223),
or by directing a written request to Citibank,
N.A., Shareholder Services, PO Box 43077,
Providence, RI 02940-3081, United States.
With each annual distribution of our proxy
materials, we offer our record holders of ADRs
the option of receiving all of these documents
electronically in the future.
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 re-establish investment
grade rating or maintain 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 under
“Operating and financial review and
prospects—Risk factors” of this annual
report on Form 20-F and in our other
filings or documents furnished 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 ANNUAL REPORT ON FORM 20-F 2017
Contents
Overview
This is Nokia
Key data
01
02
04
06
Business overview
Letter from our President and CEO
08
Our role as a global technology leader 12
13
Our values
14
Our strategy
20
Our leadership
22
Our businesses
Operating and financial review
and prospects
Principal industry trends affecting
operations
Results of operations
Results of segments
Liquidity and capital resources
Material subsequent events
Sustainability and corporate
40
42
46
53
60
63
responsibility
64
69
Employees
70
Dividend
71
Risk factors
Shares and share capital
90
Board of Directors and management 91
91
Articles of Association
Corporate governance
Corporate governance statement
Compensation
General facts on Nokia
Our history
Memorandum and Articles
of Association
Selected financial data
Shares and shareholders
Depositary payments in 2017
Related party transactions
Production of infrastructure
equipment and products
Key ratios
Controls and procedures
Government regulation
Sales in United States-sanctioned
countries
Taxation
Financial statements
Consolidated primary statements
Notes to consolidated financial
statements
Report of independent registered
public accounting firm
Other information
Exhibits
Glossary of terms
Investor information
Contact information
Signatures
92
94
108
124
126
127
129
131
139
139
139
140
141
142
142
144
147
148
154
214
215
216
217
220
221
222
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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.
Nokia is enabling the infrastructure for 5G and
the Internet of Things, and shaping the future of
technology to transform the human experience.
We have combined global leadership in mobile
and fixed network infrastructure with the
software, services and advanced technologies
to serve customers in approximately 130
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 including
5G, ultra broadband access, IP and
Software Defined Networking (“SDN”),
cloud applications, Internet of Things (“IoT”),
as well as security platforms, data analytics,
and sensors.
Through our six business groups, we have a
global presence with operations in Europe,
the Middle East & Africa, Greater China, North
America, Asia-Pacific, India, and Latin America.
We also have research and development
(“R&D”) facilities in Europe, North America and
Asia, and at the end of 2017, we employed
approximately 103 000 people.
We closed 2017 delivering net sales of
EUR 23.1 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 2017.
Countries of operation
~130
Number of employees as of
December 31, 2017
~103 000
R&D investment in 2017
EUR 4.9bn
02
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Organizational structure and
reportable segments
We have organized our networks-oriented
businesses into five business groups: Mobile
Networks, Fixed Networks, Global Services,
IP/Optical Networks, and Nokia Software
(together the “Networks business”); and have
kept our driver of future innovation and
licensing, Nokia Technologies, as a separate,
sixth business group. For descriptions of
our business groups, refer to “Business
overview—Networks business” and
“Business overview—Nokia Technologies”.
We have four reportable segments:
(i) Ultra Broadband Networks, comprised
of the Mobile Networks and the Fixed
Networks business groups, (ii) Global Services,
comprised of the Global Services business
group, (iii) IP Networks and Applications,
comprised of the IP/Optical Networks and
Nokia Software business groups (all within our
Networks business), and (iv) Nokia Technologies.
On February 1, 2018, we announced that we
would rename our Applications & Analytics
business group as Nokia Software, effective
immediately, to better reflect our strategy and
focus on building a strong, standalone software
business. In this annual report we refer to
Nokia Software throughout the document.
Additionally, we report the results of other
business activities that are not reportable
segments within Group Common and
Other, 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. We are continuing the strategic
reviews of both businesses. Refer to Note 4,
Segment information, of our consolidated
financial statements included in this annual
report on Form 20-F.
Our reportable segments and business groups
Ultra Broadband
Networks
IP Networks and
Applications
Global
Services
Nokia
Technologies
Mobile Networks
Higher quality
and more reliable
mobile broadband
experiences
IP/Optical Networks
Massively scalable
networks securely
connecting everyone
and everything
to the cloud
Global Services
Helping customers
navigate through
complexity to
transform their
business
Nokia Technologies
Technology
designed to bring
the human family
closer together
Fixed Networks
Using intelligent
access to create
networks that are
faster, better,
smarter
Nokia Software*
Intelligent software
platforms optimizing
and automating
network performance
* As of February 1, 2018 the Applications & Analytics business group was renamed Nokia Software.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
03
Overview Key data
Net sales 2017
EUR 23.1bn
Gross margin 2017
39.5%
Dividend per share 2017
EUR 0.19
Net cash as of December 31, 2017
EUR 4.5bn
The following table sets
forth summary financial and
non-financial information for
the years ended December 31,
2017 and December 31, 2016
for our Continuing operations.
This data has been derived
from our consolidated financial
statements, which are included in
this annual report on Form 20-F.
For the year ended December 31
Net sales
Nokia’s Networks business
Ultra Broadband Networks
Global Services
IP Networks and Applications
Nokia Technologies
Group Common and Other
Gross margin
Operating profit/(loss)
Nokia’s Networks business
Ultra Broadband Networks
Global Services
IP Networks and Applications
Nokia Technologies
Group Common and Other
Unallocated items(1)
Operating margin
Financial income and expenses, net
Income tax (expense)/benefit
Loss for the year
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
2017
EURm
23 147
20 523
8 970
5 810
5 743
1 654
1 114
39.5%
16
1 711
781
411
519
1 124
(248)
(2 571)
0.1%
(537)
(927)
(1 437)
(0.26)
101 731
4 228
6 833
2 516
1 279
1 907
6 384
23 147
2016
EURm
Change
(2)%
23 641
(6)%
21 830
(8)%
9 758
(4)%
6 036
(5)%
6 036
57%
1 053
(2)%
1 142
343bps
36.1%
–
(1 100)
(12)%
1 943
(15)%
922
1%
406
(16)%
615
94%
579
(29)%
(350)
(3 272)
(21)%
(4.7)% 472bps
87%
(287)
–
457
58%
(912)
100%
(0.13)
(1)%
102 687
4 223
6 410
2 654
1 458
1 872
7 024
23 641
–
7%
(5)%
(12)%
2%
(9)%
(2)%
(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.
04
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Net sales (EURm)
2
3
6
4
1
2
3
1
4
7
1
2
5
6
0
Gross profit (EURm)
and gross margin (%)
9
1
3
9
8
5
2
4
5
5
9
7
44.6%
39.5%
36.1%
Dividend per share (EUR)
.
0
1
9
.
0
1
7
.
0
1
6
2015
2016
2017
2015
2016
2017
2015(1)
2016
2017
Gross profit
Gross margin
Net cash as of December 31 (EURm)
Net sales 2017 by business
Net sales 2017 by region
7
7
7
5
5
2
9
9
4
5
1
4
2015
2016
2017
3
2
C
A
B
1
1
2
6
5
4
3
1 Nokia’s Networks business EUR 20 523m (-6%)
A Ultra Broadband
Networks
B Global Services
C IP Networks
EUR 8 970m (-8%)
EUR 5 810m (-4%)
and Applications
2 Nokia Technologies
3 Group Common and Other EUR 1 114m (-2%)
EUR 5 743m (-5%)
EUR 1 654m (+57%)
1 Asia-Pacific
EUR 4 228m (0%)
2 Europe(2)
EUR 6 833m (+7%)
3 Greater China
EUR 2 516m (-5%)
4 Latin America
EUR 1 279m (-12%)
5 Middle East & Africa EUR 1 907m (+2%)
6 North America
EUR 6 384m (-9%)
(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 ANNUAL REPORT ON FORM 20-F 2017
05
Overview
Business
overview
06
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Contents
IP/Optical Networks
Letter from our President and CEO
08
Our role as a global technology leader 12
13
Our values
14
Our strategy
20
Our leadership
22
Our businesses
23
Networks business
24
Market overview
24
Competition
25
Mobile Networks
26
Fixed Networks
28
Global Services
29
30
32
33
33
34
36
37
Nokia Software
Sales and marketing
Research and development
Patents and licenses
Nokia Bell Labs
Nokia Technologies
Market overview
Business overview
and organization
Sales and marketing
Research and development
Patents and licenses
Competition
37
37
38
38
39
NOKIA ANNUAL REPORT ON FORM 20-F 2017
07
Business overview
Letter from our
President and CEO
“We have a very talented and dedicated
team across our organization; employee
connectedness to our mission is strong;
and that puts Nokia in the driver’s seat
in the transition to 5G and in delivering
further shareholder value.”
Net sales in 2017
EUR 23.1bn
Proposed dividend per share
EUR 0.19
Proposed dividends
EUR 1.1bn
2017 was a solid year of execution for Nokia,
as we delivered on our financial commitments
and gained momentum in driving forward all
four pillars of our strategy.
With that progress, Nokia is in an excellent
position for sharply improving its performance
towards 2020 and for leading the transition
to 5G that is underway.
Financial Highlights
Our Networks business net sales declined
in line with our guidance and it posted an
operating margin of 8.3%, which also met our
guidance. Nokia Technologies had a strong
year, with net sales and operating margin up
57% and 13 percentage points, respectively,
compared to 2016, driven by higher licensing
revenue that highlights the strength of our
patent portfolio. We also closed the year on
track to deliver EUR 1.2 billion in structural
cost savings in full-year 2018.
Looking forward on the Networks side, we
expect our market to decline again in 2018,
although at a slightly lower rate than the
market decline in 2017, given early signs of
improved conditions in North America. For
2019 and 2020, we expect market conditions
to improve markedly, driven by full-scale
rollouts of 5G networks; and, as those rollouts
occur, Nokia is remarkably well-positioned.
With our overall performance, Nokia’s Board
of Directors will propose a dividend of
EUR 0.19 per share for 2017, up 12%
from our 2016 dividend. And, the Board is
committed to proposing a growing dividend,
including for 2018.
Customers
Customer recognition of Nokia’s work in
leading the way to 5G was reflected in our
healthy deal-win rate in 2017. This included
our agreement with ALTÁN Redes in Mexico,
a truly end-to-end project, which underlined
the strength of our complete product offering.
We saw customer support for the progress
in our cross-selling capabilities, with the
multi-business-group opportunity share
of Nokia’s deal pipeline standing at 36%.
That is up substantially from 2016 and
underlines how customers continue to
respond favorably to the broad scope of
our portfolio in preparation for 5G.
We also saw it in the market share we gained
in 2017 in 4G/LTE and small cells; that is
relevant, as the 4G/LTE installed base needs
to be truly 5G ready. Now to the excellent
execution in the four pillars of our strategy.
08
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Strategy
In the first pillar, leading in high-performance
end-to-end networks with CSPs, or
communication service providers, our 5G
readiness progressed on several fronts.
Let me start by saying that CSPs increasingly
realize that, unlike 4G and previous generations
of technology, 5G is very different. It is not
just about radio but spans the full network:
from mobile access, cloud core, and
software-defined networking to backhaul,
front haul, IP routing, fixed networks,
and software.
In the face of fast-rising bandwidth and other
performance demands, customers know
they need to take an architecture-driven,
end-to-end approach that Nokia offers,
with a coordinated, holistic view across all
elements of the network. And, the work is
well underway. In early 2018, we announced
an agreement to deliver 5G equipment to
Japan’s NTT DOCOMO, kickstarting what we
think will be a year of 5G investment and trials
with operators around the globe; followed
potentially by some deployments towards the
end of 2018, with meaningful deployments
in 2019.
Mobile Networks broadened our focus into
multiple areas of early 5G mobility use cases,
including enhanced mobile broadband and
ultra-reliable, ultra-low latency communications.
As part of this, we introduced the 5G NR
(New Radio) air interface standard to support
5G devices and services.
Fixed Networks launched its Intelligent Access
Vision, aimed at making access networks
faster, better and smarter. Faster is about
bringing the most complete network access
toolkit to the market, including copper, fiber,
cable and fixed-wireless solutions; better,
about delivering a gigabit to the home and
throughout the home, as users also expect
optimal connectivity in every corner of
the home; and smarter, about removing
complexity and making the network simpler
and easier to manage. As part of that, we
introduced our Software-Defined Access
Network, or SDAN, solution to bring
customers a set of cloud-native software,
open hardware, automated operations and
integration services. And, we capped all of
that by winning the world’s first major SDAN
project in December, and we see more
progress like that ahead.
Global Services accelerated development of
its service offering and delivery capabilities
by integrating artificial intelligence, machine
learning and automation. It unveiled an
enhanced Analytics Services solution,
powered by our cloud-based cognitive
services platform, AVA (Automation,
Virtualized, Analytics). GS also announced our
Multi-purpose Intuitive Knowledge Assistant,
or MIKA, the world’s first digital assistant for
CSPs that gives engineers faster access to
accurate answers through voice-dictated
automated assistance. Further, it launched
the industry’s first global managed service for
IoT, Nokia WING (worldwide IoT network grid),
to help CSPs enter this market quickly.
In our second pillar, expanding network
sales beyond CSPs to select vertical
markets, Nokia saw double-digit underlying
sales growth compared to 2016. This
reflects our confidence that the need for
mission-critical, high-performance networks
continues to grow as companies and public
sector organizations everywhere digitize
their operations.
In the segments we are targeting—spanning
webscale companies, extra-large enterprises
that use technology as a competitive
advantage, and large players in transportation,
energy and the public sector—we added
almost 100 new customers in 2017, including
Amazon, Fujitsu, and Philips.
Our IP/Optical Networks, or ION, business
group was a key driver in our momentum
in new vertical markets, which represented
roughly 5% of Nokia’s total sales in 2017.
And, with our FP4, silicon-based routing
products starting to ship, ION is well-placed to
fundamentally improve our IP routing position
with webscale companies in 2018 and beyond.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
09
Business overview
Letter from our
President and CEO continued
In our third pillar, building a strong,
standalone software business at scale, our
Applications & Analytics (A&A) business group
built Nokia’s first dedicated software sales
force and re-architected our software on a
common foundation. We introduced several
new products and services, including Nokia
Smart Plan Suite, Nokia Session Border
Controller and Nokia NetGuard Security
Management Center, and we acquired
Comptel to enhance our software intelligence
and automation capabilities. In February
2018, we renamed A&A as Nokia Software,
highlighting our longer-term ambitions
for this business and the opportunities we
see in helping CSPs and our select vertical
markets improve the digital customer
experience, implement innovative business
models, and unlock new revenue
opportunities.
In our fourth pillar, creating new business
and licensing opportunities in the consumer
ecosystem, Nokia did not miss a beat.
Nokia Technologies signed several new
patent licensing agreements and won patent
arbitration awards with companies that
included Apple, Blackberry, and Huawei.
We advanced plans to develop our licensing
business in new areas like automotive, and in
geographies like China and India. We saw early
progress in our brand licensing agreement
with HMD Global, which launched several
Nokia-branded smartphones and feature
phones that have achieved outstanding net
promoter scores.
We also took the decision to stop
development of the OZO virtual reality
camera, as we focus Nokia Technologies’
efforts on our licensing business and lowering
costs. As part of that approach, in early 2018,
we initiated a strategic review of our Digital
Health business. We have a disciplined and
pragmatic approach towards investing in new
growth opportunities in Nokia Technologies.
If we think a bet won’t meet our criteria for
becoming a meaningful business, we will move
on quickly, and you see that in the actions
we have taken.
Innovation
An important dimension to our strategy
progress was the fact that 2017 was
another year in which Nokia Bell Labs and
all our business groups lived up to Nokia’s
innovation prowess.
Among our important product launches were
5G FIRST, which enabled early 5G testing and
incorporates Nokia’s AirScale radio platform
and AirFrame technology, including massive
MIMO Adaptive Antenna, Cloud Packet
Core and mobile transport, to bring new
capabilities to operators.
Just after 2017 closed, we introduced our
end-to-end 5G Future X network architecture
and ReefShark chipset for our radio portfolio.
Together, these innovations provide
significant differentiation for Nokia against
the competition and enable full-scale
commercial deployments of standards-based
5G networks, which we see happening
towards the end of 2018 or early 2019.
And, we launched the most powerful internet
routing platforms, powered by Nokia’s new
FP4 silicon, the world’s first multi-terabit
chipset that is many times faster and smarter
than anything on the market.
People
In 2017, we strengthened awareness and
understanding of our core cultural principles,
which are summarized in the “Drive, Dare
and Care” behaviors we put into place during
the year.
It is especially pleasing to see Nokia
employees’ strong belief in our company’s
direction, as indicated by our internal
Culture Cohesion Tracker survey, along
with particularly good progress in reducing
bureaucracy and hierarchies.
All of this progress is encouraging even as
we continue to deepen our common culture
and ways of working in all six of our business
groups and in geographies across the world.
10
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Sustainability and Corporate
Responsibility
We also continued to do the right things the
right way in delivering on our sustainability
commitments, which are an important
dimension to everything we do at Nokia.
Working with the Science Based Targets
initiative, we set a long term carbon emissions
reduction target of 75%; this target includes
customer use of our products and forms the
largest portion of our carbon footprint. We
also set a science-based emissions reduction
target of 41% for our own operations. Both
targets are set for 2030 against a 2014
baseline. We track these annually and are
progressing against both targets.
Nokia was also again ranked in the top 1%
of suppliers assessed in 2017 as part of
the EcoVadis scorecards, which measure
corporate sustainability performance. We
achieved excellent scores in environmental
performance, sustainable procurement, and
labor practices. And, we were again rated
an industry leader in the Communications
Equipment (“CMT”) sector of the Dow Jones
Sustainability Indices (“DJSI”) and were
awarded a “Gold” level by RobecoSAM in early
2018 for our sustainability performance.
Looking ahead
With our 2017 performance, there is much
to look forward to at Nokia.
Our strategy is working well; our customer
relationships continue to grow and deepen;
and we are taking meaningful steps to further
strengthen our disciplined execution,
including in our customer operations.
Our competitive advantages—from the
strength of our innovation capacity to the
scale and scope of our portfolio—give Nokia
the capabilities to continue to live up to the
rich legacy of our 153-year old company. And,
that is why we are confident about our market
prospects as we move forward.
We have a very talented and dedicated
team across our organization; employee
connectedness to our mission is strong; and
that puts Nokia in the driver’s seat in the
transition to 5G and in delivering further
shareholder value.
Rajeev Suri
President and CEO
NOKIA ANNUAL REPORT ON FORM 20-F 2017
11
Business overview Our role as a global
technology leader
We create the technology
to connect the world
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
creating effortless, simple and dependable
technology for IoT, ultra-broadband, cloud,
IP interconnectivity and digital health.
We optimize performance to
maximize value and customer
satisfaction
We enable our customers to move away
from an economy-of-scale network operating
model to demand-driven operations 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 by provisioning
services in real time while automatically
making optimal use of networks assets.
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. Our research and development
within Nokia Bell Labs creates a future path so
that our customers can successfully navigate
megatrends and challenges to expand and
draw closer to their customers. It is through
these efforts that Nokia grows and enhances
its portfolio, introduces disruptive
technologies and identifies new market
opportunities for its customers.
12
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Our values
Our commitments
What we do to design and deploy
technology in the service of our
customers and 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.
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.
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.
We 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:
learning and embracing new
ways of doing things, and
adapting to the world around us.
Common shared principles and focus on
Drive, Dare and Care is the cultural platform
we use to shape our core common culture.
It means relentlessly driving for excellent
results, and being passionate about good
customer experiences and the quality of
our products. We have the attitude and
Drive of entrepreneurs and do not celebrate
hierarchies. We Dare to innovate, learn
and challenge outdated practices. We Care
about our colleagues, quality and putting
the Nokia team first.
Our core culture empowers people and
teams to deliver on our strategy. It guides our
quest for innovation, as we use our insatiable
curiosity and deep technical knowledge
to paint a picture of the future for our
customers. It also drives our pursuit of
continuous improvement, our ability to
outperform competitors and be a trusted
partner for our customers, partners,
and suppliers.
Our integrity is fundamental to how we
internally work and provide for our customers.
Particularly in the standards-driven world
of network technologies, the choices that
customers make are often less between
different products, and more between
different relationships. Nokia stands out
as a trusted customer partner, sustaining
long-term relationships through our
commitment to deliver, and fostering a level
of trust we work relentlessly to earn and keep.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
13
Business overview Our
strategy
14
NOKIA ANNUAL REPORT ON FORM 20-F 2017
NOKIA ANNUAL REPORT ON FORM 20-F 2017
We are rebalancing for growth, putting
Nokia at the heart of unprecedented
opportunities to create the technology
to connect the world.
We have identified six global megatrends.
These megatrends create massive
technological requirements, impact our
current and potential customers, change the
lives of people, impact business operations
on a global scale and provide opportunities
for Nokia to diversify into new growth areas.
The megatrends we have identified are:
1.
2.
3.
4.
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 as well as
subscription-based and asset-less
business models.
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.
Augmented Intelligence: Artificial
intelligence combined with human
intelligence transforms 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.
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.
6.
Social and trust economics: Ubiquitous
connectivity, compute and storage, as
well as technologies such as blockchain,
enabling new business models based
on sharing assets and distributed trust,
allowing rapid scalability on a global level.
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 entire
supply chains and production processes
by massive-scale automation.
These megatrends are driving new technology
requirements. End-to-end networks are a
central enabler, which create a multitude of
opportunities for us. Nokia Bell Labs has
developed a vision of a future network
architecture that fulfills 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 and the
inherent opportunities. 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 megatrends
and the resulting increasing relevance of
networks, we are seeing a shift in who is
investing in technology. Our primary market,
comprised of communications service
providers (“CSPs”), in which we have a
leadership position, is very large in size, but
expected to remain challenging with a limited
estimated growth opportunity. However, the
megatrends are increasing the demand for
large high-performance networks in other
key industries, 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 transportation,
energy, and public sector digitize their
operations, they will also need high-performing
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 verticals outside our primary market
with CSPs.
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 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
15
Business overview Our strategy continued
Our four pillars
Our strategy builds on our business
portfolio and continued drive to create
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. We are
focused on:
■ establishing leadership in 5G
by being first to market in the
key advanced markets with
key customers and achieving
global technology and
quality leadership;
■ using our unique capability
of offering optical and routing
that work together, a capability
that is increasingly becoming
a customer requirement; and
■ delivering cost savings and
productivity improvements by
realizing synergies and applying
best practices across our
entire portfolio to maintain
the industry’s most profitable
networks business.
■ growing in managed services
and systems integration and
innovating in augmented
intelligence, automation,
and robotics to improve
our delivery services;
■ maintaining our leading
market share in copper access,
accelerating momentum in
fiber access, successfully
expanding in the cable market,
and further developing new
smart home solutions;
■ leveraging our superior
products and the next
generation IP routing portfolio
based on our FP4 chipset to
grow in both edge and core
routing, where we have a fully
virtualized portfolio that is
differentiated by performance,
flexibility, security and quality;
16
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Over the next 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 licensing.
2.Expand
Expand network
sales to select
vertical markets
■ For transportation, energy,
and public sector (“TEPS”)
customers, we offer
mission-critical networks,
solutions for digitization
and IoT, and industrial
automation.
We expand into five select vertical
markets with carrier-grade needs:
webscales, TXLEs, transportation,
energy, and public sector. As the
world becomes more digital, the
kind of massive, high-performance
networks once used almost
exclusively in telecommunications
are now needed by other
organizations. We have
implemented a dedicated sales
organization, a customer
segmentation and a targeted
portfolio and entry strategy
to diversify our business and
address this opportunity.
■ Webscale customers will
increasingly require
high-performance networks to
improve customer experiences
and to expand their primary
business models. For webscale
companies we are focusing
on an all-IP-led approach,
providing IP routing and optical
network infrastructure.
■ For TXLE customers, we aspire
to enter with technological
disruptions, like the SD-WAN,
and then expand further
with the remaining portfolio.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
17
Business overview Our strategy continued
Our four pillars
3.Build
Build a strong
standalone
software business
With our existing software
products, we are already today
a strong player in the large and
growing telecoms software
market. Our ambition is to build on
this foundation, strengthen our
position in telecoms software,
and address new customer
segments, thereby creating a
global software player that has
a growth and margin profile like
leading software companies. We
continue to pursue this ambition
along three priorities:
■ Transform our go-to-market:
We have established a
dedicated software sales
organization in the Nokia
Software business group to
work the specific sales cycles
and dynamics in enterprise
software and address more
customers. On this basis,
we will execute a new,
differentiated go-to-market
strategy and leverage alliance
partners for software selling.
We are streamlining and
optimizing our services and
delivery unit for a harmonized
and efficient front to the
customer and setting them
up for growth. To strengthen
our reach, we are establishing
a new messaging for our
software offering around
Connected Intelligence and
digitizing our go-to-market.
■ Strengthen our portfolio
and R&D set-up: We have
complemented our portfolio
with new products and the
Comptel acquisition and
structured it into four segments
reflecting our customers’ needs:
Digital Operations, Digital
Experience, Digital Networks,
and Cognitive Intelligence. We
will expand in these areas based
on the Common Software
Foundation, a cloud-native
middleware component library.
With continuing investment, we
keep evolving this platform to
enable effective and innovative
cutting-edge development and
accelerate our move towards
DevOps and agile development.
In our Emerging Products unit,
we invest in new businesses
and nurture them to scale.
■ Diversify markets and business
models: We are first expanding
our scope within our CSP
customers to address also the
IT, marketing, sales, customer
relationships domains besides
the network domain. Gradually,
we will also address other
sectors with our existing and
upcoming products and
solutions. New business
models, particularly
Software-as-a-Service (“SaaS”)
offerings with subscription
revenues to address general
enterprises, will be crucial to
the achieve this. A strong
business play around open
source components will help
to improve our offering and
expand our reach as well.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
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.
Besides this, we are exploring
opportunities to license our
unique technological capabilities
in the domain of Virtual Reality.
Our brand licensing efforts are
well underway—we see value
creation opportunities in the
mobile devices industry
leveraging our strong Nokia
brand. Our exclusive brand
licensee for mobile phones and
tablets, HMD Global, has already
launched a comprehensive
portfolio of new Nokia branded
feature phones and smartphones.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
19
Business overview Our leadership
Our diverse Group Leadership Team, spanning
several nationalities, reflects the scope of our
technological role—and our business ambition.
The Nokia 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
of Directors. The Group Leadership Team is
chaired by the President and Chief Executive
Officer (the “President and CEO”).
Our Group Leadership Team comprises the
following 15 members:
Rajeev Suri
President and CEO
Marc Rouanne
President of Mobile Networks
Federico Guillén
President of Fixed Networks
Igor Leprince
President of Global Services
Basil Alwan
President of IP/Optical Networks
Bhaskar Gorti
President of Nokia Software
Igor Leprince will step down from the Group Leadership Team as
of March 31, 2018. Sanjay Goel was appointed President of Global
Services and member of the Group Leadership Team as of April 1, 2018.
As of February 1, 2018 the Applications & Analytics
business group was renamed Nokia Software.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
Gregory Lee
President of Nokia Technologies
Kristian Pullola
Chief Financial Officer
Joerg Erlemeier
Chief Operating Officer
Hans-Jürgen Bill
Chief Human Resources Officer
Kathrin Buvac
Chief Strategy Officer
Ashish Chowdhary
Chief Customer Operations Officer
Barry French
Chief Marketing Officer
Maria Varsellona
Chief Legal Officer
Marcus Weldon
Chief Technology Officer
and President of Nokia Bell Labs
NOKIA ANNUAL REPORT ON FORM 20-F 2017
21
Business overview Our businesses
We have two businesses: Nokia’s Networks
business and Nokia Technologies.
Within these two businesses, we had six business
groups in 2017: Mobile Networks, Fixed Networks,
Global Services, IP/Optical Networks, and Nokia
Software* (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
Global Services
IP/Optical Networks
Nokia Software*
* As of February 1, 2018 the Applications
& Analytics business group was
renamed Nokia Software.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
Networks
business
NOKIA ANNUAL REPORT ON FORM 20-F 2017
23
Business overview Networks business
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.
The adjacent market includes customer
segments such as webscale companies,
energy, transport, public sector, and TXLEs.
In the product dimension, this includes our
traditional networking in addition to new
solutions like Nuage Networks, SDN, Analytics,
IoT, and Security. The adjacent market was
estimated at EUR 23 billion in 2017.
We define our primary market as a network
and IP infrastructure, software and CSP
services market. We estimate that our
primary market was EUR 103 billion in 2017.
In addition, we have an adjacent market,
including a vertical market that includes
our Networks businesses expansion areas
in both a customer and a product dimension.
Demand for our portfolio is driven by
exponentially increasing growth in data
traffic as people’s lives and enterprises
become ever more digitalized. This drives
the demand for highly reliable networks
for massive connectivity.
Competition
The competitors in our primary market are
Huawei, Ericsson, and ZTE. We also compete
with technology experts in some of our other
market segments, such as Juniper Networks
and Cisco in the IP networking and security
segments, 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.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
Mobile
Networks
2017 highlights
■ In 2017, Mobile Networks established
a portfolio of enabling technologies
that are central to the infrastructure,
operations, software and services
required in a hyperconnected,
digital world.
■ In February, Nokia launched its 5G
FIRST, a commercial end-to-end
solution for early 5G deployments.
Later in the year, Nokia announced the
5G upgradeability of its existing radio
units as well as inclusion of the 3GPP
standards based 5GNR support of
5G FIRST.
■ For smoothening the evolution of 4G
networks to 5G, Nokia demonstrated
commercial 1.2 Gbps speed with a
commercial chipset device, cloud
radio access network (“RAN”) with
all technologies virtualized, and
eightfold radio cell capacity increase
with massive MIMO technology jointly
with Sprint.
■ In September, Nokia launched the
AirGile cloud-native core—a full
portfolio of network functions built
to execute on the demands brought
by the future 5G and IoT networks.
Market overview
The primary market for our Mobile Networks
business group includes technologies for
mobile access, core networks and microwave
transport. This encompasses access and core
network technologies ranging from 2G to 5G
licensed and unlicensed spectrum for both
macro and small cell deployments. The primary
addressable market for Mobile Networks was
estimated at EUR 27 billion in 2017.
The adjacent market for Mobile Networks
includes solutions for the public sector, TXLEs,
and webscales, and drives expansion into
domains such as LTE for public safety, private
LTE and unlicensed radio access. The adjacent
market, including verticals, was estimated
at EUR 4 billion in 2017.
Business overview
and organization
Providing connectivity is the core business
of our Mobile Networks business group.
Our Mobile Networks strategy focuses on
maintaining the strong business that we
have today, and prudently expanding it to
new customer segments and technologies.
To implement our strategy, and to become
fast and agile in our execution, Mobile
Networks introduced a new organizational
structure and new ways of working in October
2017. We target to lead in high-performance
mobile networks with communications service
providers. In practice, we define leading
with two indicators: customer feedback
and return on investment.
Practically, we aim at being perceived as a
leader in 5G, as well as providing the best
value to our customers as they evolve their
networks towards cloudification. As we move
from 4G to 5G and transform our networks
into a cloud-native environment, we aim
to become a champion of DevOps and
continuous delivery. 5G is more than a mobile
access technology: the full potential of 5G is
only achieved if every part of the network
can perform to the same level, and for this
we have developed our Future X network
architecture blueprint. The capacity, latency,
agility, reliability and speed offered by this
technology make it applicable to CSPs and
other industry verticals.
We believe that 5G will change the way in
which communications 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”).
An important part of our focus is the
transformation of service providers as they
adopt cloud computing technologies to
enable digitalization. Particularly on the Core
networks side, there has been a continuous
evolution from traditional monolithic
products, passing through virtualization and
now into a cloud-native network architecture.
To support this transition, in 2017 Nokia
launched the AirGile cloud-native core which
is a full portfolio of network functions built
to execute on the demands brought by the
future 5G and IoT networks. A proof point
of the maturity of the Telco Cloud market
and of the leadership position that Nokia
has achieved is the strong deal momentum
that we have achieved, with more than
120 commercial cloud references with
operators and enterprises across the world.
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 an
estimated below 10% market share. As
network infrastructure gets virtualized and
cloudified, we expect IT companies, such
as HP Enterprise and Cisco, to emerge
in this field.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
25
Business overview Networks business continued
Fixed
Networks
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 a focus
on transformation of legacy fixed switching
networks. The primary market for Fixed
Networks was estimated at EUR 8.4 billion
in 2017. In this market, we see a shift
from copper to fiber technologies, and
networks increasingly use a combination
of multiple technologies, such as copper,
fiber and wireless.
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 0.2 billion in 2017.
Business overview and
organization
Our Fixed Networks business group creates
Intelligent Access networks that are more
advanced, bringing connectivity to more
people sooner to deliver the best
broadband experience.
The Fixed Networks business group provides
the broadest access networks toolkit including
copper, fiber, coax and fixed-wireless access
technologies 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. Nokia is a market leader in
copper-based solutions to boost capacity on
existing copper infrastructure, such as VDSL2
Vectoring, Vplus, and G.fast. Together with
Nokia Bell Labs, we continue the innovation
and development of even higher-capacity
technologies like XG-Fast, which allows
10 Gb/s over copper. The Fixed Networks
business group is also a market leader
in fiber-to-the-home solutions, with
technologies such as GPON, EPON, Ethernet
point-to-point, as well as the award-winning
10 gigabit next generation fiber technologies
(XGS-PON and TWDM-PON).
Following the acquisition of Gainspeed,
Nokia has been extending its cable operator
portfolio, with a comprehensive Unified Cable
Access solution, including both fiber and coax
solutions, as well as its ground-breaking and
award-winning virtualized distributed access
architecture solution (“vCMTS”). With this
enhanced portfolio, Nokia provides cable
operators with the end-to-end technology
capabilities needed to support growing capacity
requirements today and into the future.
Delivering a gigabit to the home is no longer
enough, when in-home network, especially
Wi-Fi capabilities, is often the pain point. To
ensure carrier-grade in-home connectivity,
Nokia has expanded its smart home portfolio
with its carrier-grade Nokia Wi-Fi solution,
providing coverage in every corner of the
home, supporting communications service
providers to offer enriched customer
experience and diversify their services.
Virtualization will have a key role in keeping
operational costs low as the network gets
more complex. Moving functions to the cloud
makes networks easier to manage and scale.
With its Software Defined Access solution,
Nokia takes a very pragmatic approach
towards fixed access virtualization, working
closely with service providers around
the world to define the use cases that
make the most sense for them. Nokia’s
Software-Defined Access Network (“SDAN”)
solution includes Altiplano cloud-native
software and Lightspan open programmable
hardware, enabling scalable deployment
practices, automated operations and
integration services. Nokia was awarded the
Broadband Award 2017 for Achievement
in Virtualization.
The Fixed Networks services portfolio is
based on our unparalleled expertise and
experience and includes amongst others,
Public Switched Telephone Network
transformation, ultra-broadband network
design, deployment and operation, site
implementation and outside plant, and
multivendor maintenance. With predictive
care, Nokia brings the powerful and proven
intelligent analytics and automation
capabilities of Nokia AVA cognitive services
platform to fixed networks, providing
near-real time monitoring capabilities to
identify network anomalies before they
impact service.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
Competition
The competitive landscape in fixed access
has similar characteristics to mobile access,
where the market is dominated by three
main vendors, Nokia, Huawei, and ZTE,
and a handful of other vendors with
estimated less than 10% market share.
2017 highlights
■ Nokia continued to be the market
leader in copper access and one of
the market leaders in fiber access,
and is the only vendor with a leading
market share in all regions worldwide,
according to Dell’Oro.
■ In October, Nokia launched its
Intelligent Access Vision on how to
build access networks that are faster,
better and smarter. This included a
series of new product launches for
the access network, the cloud and
the home. With this extended
portfolio, Nokia continues to
strengthen its innovation leadership.
■ To complement our portfolio for
the cable operator market, Nokia
announced the virtualized Distributed
Access Architecture, based on its
Gainspeed portfolio, ending the industry
debate between remote PHY and remote
MACPHY, immediately followed by a first
customer announcement with Wide
Open West. Following the acquisition
of Gainspeed in 2016, we have now
built up a strong portfolio to address
cable operators’ needs.
■ Other key launches included Nokia
Wi-Fi, a carrier-grade whole home Wi-Fi
solution; a cloud-native set of Software
Defined Access Network products; the
industry’s first wireless PON solution;
expansions to our existing copper and
fiber portfolio, and Nokia Predictive Care.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
27
Business overview Networks business continued
Global
Services
2017 highlights
■ Global Services expanded its portfolio
with close to 20 new services, including
in 5G, IoT, public safety, and analytics.
■ The new Nokia WING—a managed
service for IoT—provides
communications service providers
with a quick market entry.
■ Our new Analytics Services that draw
from machine learning, augmented
intelligence and the power of Nokia
AVA were recognized by several
industry awards.
■ Our analytics, artificial intelligence
and machine learning capabilities
were also recognized by several
industry awards.
■ We launched MIKA (Multi-purpose
Intuitive Knowledge Assistant), the
first digital assistant to support
telecom services.
Market overview
The Global Services business group’s
market includes network implementation,
care and professional services for mobile
networks in addition to managed services
for the fixed, mobile, applications, IP and
optical domains. The primary market for
mobile networks services was estimated
at EUR 28 billion in 2017. The adjacent
market for Global Services, including services
for Mobile Networks vertical segments,
was estimated at EUR 5 billion.
Business overview and
organization
Our services, solutions and multivendor
capabilities help communications service
providers navigate through the evolving
technology landscape, network complexity
and data growth as well as improve end
user experience while supporting them
also in day-to-day network planning,
implementation, operations and maintenance.
At the same time, we expand our offering in
select attractive verticals as well as for IoT
and cloud by leveraging our innovative
portfolio and telco grade expertise.
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 automation and advanced analytics
powered by Nokia AVA, our cognitive service
delivery platform.
The Global Services business group consists
of five business units.
Network Planning and Optimization
helps customers maximize their network
performance and quality of end users’
experience, while also keeping capital
expenditure under tight control.
Analytics-based services powered by
Nokia AVA are designed to satisfy the
surging need for a use-case driven approach
to addressing customer pain points.
Network Implementation deploys, expands
and modernizes mobile networks of the
communications service providers, enterprise
and public sector customers in growth and
mature markets, thus optimizing customers’
total cost of ownership (both capital
expenditure and operating expenditure) and
deployment schedules while minimizing risks.
Systems Integration offers network
architecture, integration, customization, and
migration services. The portfolio focuses on
core and SDM, data center services, telco
cloud, transformation and prime integration
for communications service providers and
other specific services for vertical customers.
Care assures optimal network availability
by providing network operation support,
maintenance, orchestration and expert
services. With the power of Nokia AVA and its
latest analytics and automation, our offering
includes proactive and predictive solutions
that are fully customizable to local and
customer-specific requirements.
Managed Services provides tailored packages
for its communications service provider,
public sector, transport and utility customers
to help them transform their business and
excel in the fixed, mobile, applications, IP and
optical domains. The full portfolio comprises
of network and service management, a
build-operate-transfer model, hosting,
advanced analytics, IoT, cloud and
security operations.
Competition
In a market segment that combines products
and services, Nokia competes against Huawei,
Ericsson, ZTE, and Cisco, while for the
service-led businesses like managed services
and systems integration we see other
competitors, such as TechMaindra, HPE
and IBM, emerging in addition to Ericsson
and Huawei.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
IP/Optical
Networks
2017 highlights
■ The IP/Optical Networks business
group launched the world’s most
powerful internet routing platforms
powered by Nokia’s new FP4 silicon.
Leading smartphone manufacturer
Xiaomi signed a business collaboration
and multi-year patent agreement
that includes the new FP4 silicon as
well as optical transport solutions
for datacenter interconnect and
a datacenter fabric solution.
■ The Nokia 100G optical portfolio was
chosen to support the massive growth
of Jio’s pan-India 4G network and
was integral to Nokia and Facebook
breaking subsea spectral efficiency
records in transatlantic field tests.
■ The Nuage Networks solution powered
the launch of BT Agile Connect and
TELUS Network as a Service (“NaaS”).
These launches reinforced Nuage
Networks’ SD-WAN leadership following
additional wins with major service
providers including Telefonica and
China Telecom.
■ AT&T teamed with Nokia to offer U.S.
utilities a private LTE solution based on
the new Nokia wireless router, which
will help utility customers modernize
their grid distribution and build
converged field area networks to reap
the benefits of the smart grid.
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 aggregation, edge and core routing,
mobile packet core, Wave Division Multiplex,
and packet optical transport networking
solutions. We also have analytics and
end-to-end Software-Defined Network
(“SDN”) solutions. The primary market
for IP/ Optical Networks was estimated at
EUR 25 billion in 2017.
A growing portion of IP/Optical Networks
revenue is derived from its adjacent market,
which includes customer segments like
webscales and enterprise. In the enterprise
segment, we address verticals like energy,
transport, public sector, and TXLEs. We
address this mission-critical market with
our IP, Optical and Nuage Networks portfolios.
The adjacent market was estimated at
EUR 6 billion in 2017.
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
analytics and 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 time-
to-market and risk in CSPs launching new
services, enabling rapid scaling to meet
surging demands in the most optimized
configurations. Our insight-driven network
automation 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 webscales,
energy, transport, public sector 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 universal
broadband access modality to any clouds
and edge clouds 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;
■ analytics and carrier SDN solutions for
insight-driven network automation 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;
■ 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 includes Cisco,
Juniper Networks, Huawei, and Nokia
in addition to various specialized players
in optical, such as Ciena.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
29
Business overview Networks business continued
Nokia Software*
Market overview
Nokia Software’s primary solution segments
include software for 1) digital experience and
monetization (i.e., Business Support Systems),
2) digital operations (i.e., Operational
Support Systems), 3) digital networks (i.e.,
Session Border Controllers, Authentication,
Authorization, and Accounting (“AAA”), and
Diameter Routing), and 4) digital intelligence
(i.e., big data analytics, augmented and
artificial intelligence, etc.). The primary
addressable market for Nokia Software
and associated professional services
was estimated at EUR 14 billion in 2017.
The adjacent market for Nokia Software
includes emerging software and services for
Network Function Virtualization (“NFV”) and
NFV Management Orchestration (“MANO”),
Self-Organizing Networks, IoT platforms,
and security. This market also includes digital
enterprises and IoT verticals. The adjacent
market, including verticals, was estimated
at EUR 8 billion in 2017.
Business overview
and organization
The Nokia Software business group serves
communications service providers by helping
them harness the power of connected
intelligence to enrich and monetize
experiences. Nokia is helping customers
move from the slow, siloed, and monolithic
systems they have today to agile, scalable
and lightweight solutions that are built to
work in digital time. Each solution is designed
to provide intelligence, automation, security,
cloud readiness and multi-vendor capabilities
over a common software foundation.
The Nokia Software portfolio contains:
■ Digital experience and monetization: helps
service providers identify and act upon the
small windows of digital time where the
opportunities to enrich and monetize are
the best. Our portfolio includes solutions
for omni-channel customer engagement,
autonomous customer care, fixed and
mobile device management, and policy
and charging software that can be utilized
across all network types from any vendor.
Today, we have more than 300 digital
experience and monetization customers,
* As of February 1, 2018 the Applications & Analytics business
group was renamed Nokia Software.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
Operational and organizational highlights
include:
■ Established a dedicated software
salesforce with new leadership. The
team invested in recruitment and
enablement to ensure our team
provides high value customer
engagements.
■ Modernized software R&D with
improved portfolio management;
creating a Common Software
Foundation to make our software easier
for customers to use, rely on and
integrate; strengthening our DevOps
capabilities to get features to market
faster; and standardizing performance
and reliability testing to ensure our
products meet telco-grade standards.
■ Increased the value of our service
practice with a Common Delivery
Framework, investment in key skills like
data science, NFV on-boarding, security,
and monetization.
2017 highlights
As part of Nokia’s strategy to build a
standalone software business at scale,
the Nokia Software business group has
been driving a major change agenda to
strengthen the business.
Product highlights include:
■ Acquired Comptel Corporation and
gained the ability to provide closed loop
fulfillment and assurance along with
catalogue driven orchestration which are
essential for fully automated operations.
The acquisition also bolstered our
monetization and analytics capabilities.
■ Continued to add machine learning,
analytics and automation capabilities
with the launches of Autonomous
Customer Care, Nokia Cognitive
Analytics for Crowd Insight, Nokia
Analytics Office Services, Nokia
NetGuard Security Management Center
solution, New Nokia evolved Service
Operations Center, and Nokia IMPACT,
our IoT platform.
■ Introduced 5G-ready Nokia Smart Plan
Suite in a cloud-native lightweight solution.
■ Launched NetAct Archive Cloud, the first
automated real-time monitoring cloud
backup system and the industry’s first
cloud-native Session Border Controller.
we are the market leader in both fixed and
mobile device management, and we have
one of the industry’s first 5G charging
solutions.
■ Digital operations: helps service providers
simplify, automate and optimize their
service and network operations. Our portfolio
includes solutions for service fulfilment,
assurance, orchestration, and network
management. We have more than 500
digital operations customers globally, hold
leading market positions in NFV MANO and
service assurance and have been recognized
as the “one stop shop for Operations
Support Systems” by Analysys Mason.
■ Digital networks: software that creates
an elastic, programmable, and secure
cloud-based foundation to address
performance and reliability requirements.
Our products include one of the industry’s
first cloud-native session border
controllers, a portfolio of active security
solutions, and market-leading mobile
network management solutions.
■ Our digital intelligence portfolio provides
a complete 360-degree view on the market.
We use artificial intelligence to provide
advanced summarization, correlation,
and prediction to determine sentiment,
marketing targets, and the next best actions.
We are the market leader in network
analytics and have over 350 customers.
Competition
Nokia is one of the leading providers of
telecom software products according to
Analysys Mason. As the market is highly
fragmented, the top six vendors all hold less
than 10% market share while the remaining
market is shared across several niche players.
Our competitors fall into two categories:
Independent Software Vendors (“ISVs”)
and Network Equipment Providers (“NEPs”).
The main ISV competitors are Amdocs,
Netcracker, and Oracle. The main NEP
competitors are Huawei and Ericsson, selling
software as part of large infrastructure deals.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
31
Business overview Networks business continued
Within our
Networks business
we also closed our biggest ever deal in
the market—the nationwide wholesale
LTE network in Mexico known as ‘Red
Compartida’, for Altán Redes, and the
largest LTE 700 MHz deployment in Brazil
with TIM.
■ In Middle-East and Africa, we see strong
opportunities for Nokia, and we are closely
working with all key global and regional
operators. We have been laying the
foundation for early 5G adoption and Smart
Cities deployments in the Middle-East
region, and continue to see strong growth
in the number of mobile broadband users
in Africa, driven by increasing affordability
of smartphones and commercial LTE
deployments across the continent.
■ 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
our most important and thriving innovation
practices―from the renowned Nokia Bell
Labs headquarters in Murray Hill, New
Jersey, to the development labs in
Silicon Valley.
Sales and marketing
The Customer Operations (“CO”) organization
is responsible for sales and account
management across the five network-oriented
business groups. The CO teams are represented
worldwide (in approximately 130 countries) to
ensure that we are close to our customers and
have a deep understanding of local markets.
In this way, we strive to create and maintain
deep customer intimacy across our
customer base.
Geographically, 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 South Korea, to
developing markets including Philippines,
Bangladesh, Myanmar, Vietnam and others.
In 2017, we worked with all the leading
operators in the market, and collaborated
on 5G, IoT and other leading network
evolution topics with operators from Japan
and the Republic of South Korea. We also
run a major Service Delivery Hub in Japan.
Furthermore, we work across a wide range
of vertical markets in Asia-Pacific and Japan
including public sector, transportation and
energy enabling solutions through its
end-to-end portfolio.
■ In Europe, we engaged with all the major
operators serving millions of customers.
We have extensive R&D expertise in Europe,
and some of our largest Technology
Centers, which are developing future
technologies, are based in this market.
We also have a Global Delivery Center
(across two locations: Portugal and
Romania) and three regional Service
Delivery Hubs in Europe (one in Russia and
two in Poland). With our strong end-to-end
portfolio, Nokia is well positioned in Europe
to help maximize the benefits of 5G,
IoT and the digital transformation in
the local digital ecosystems.
■ In Greater China, we are the leading
player among companies headquartered
outside China, and work with all the major
operators. We have also extended
our market presence to the public and
enterprise sectors, including energy,
railways and public security. In 2017,
we worked with numerous China-based
webscale companies, and all the major
operators in Taiwan. In China, we have six
Technology Centers, one regional Service
Delivery Hub and more than 80 offices
spread over megacities and provinces. A
major achievement in 2017 was the closing
of our agreement with our Chinese partner,
which resulted in the formation of the joint
venture—Nokia Shanghai Bell. This was the
last major organizational step in Nokia and
Alcatel Lucent integration, bringing together
approximately 8 000 colleagues from both
companies into a single organization.
■ In India, we are a strong supplier and
service provider to the leading public and
private operators. Collectively, our networks
for these operators serve 418 million
subscribers across some 459 000 sites
with Nokia managing networks supporting
154 million subscribers. In addition, we are
a key telecom infrastructure supplier to
non-operator segments, including large
enterprises, utilities companies, and the
Indian defense sector. We are also a
strategic telecommunications partner in
GSM-Railways technology in India. Nokia’s
operations in the country include a Global
Delivery Center, a Service Delivery Hub
and a Global Technology Center.
■ In Latin America, an estimated 24% of
mobile subscribers use LTE services, almost
double from a year ago, due to accelerated
adoption in Brazil, Mexico and Argentina.
High-speed fixed broadband, meanwhile,
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 supplied ultra-competitive
solutions to all major operators. In 2017,
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
As Nokia executes its strategy to expand
beyond our traditional telecom operator
customer base, Customer Operations is
leading the way with a strong go-to-market
strategy for our non-telco target segments.
Our ambition is to drive the sale of business
and mission-critical communications networks
and services to organizations in several
carefully chosen markets.
These efforts are led by two teams within
Customer Operations. These are Global
Enterprise TEPS (transportation, energy
and public sector) and Global Enterprise
Webscale/TXLE.
Within TEPS, we focus on the needs of public
sector customers for technology in public
safety, government driven broadband
initiatives and smart city projects. For
example, we work with Nedaa (the Dubai
government security networks operator) in
both public safety and smart city; as a key
supplier to AT&T, Nokia will play a significant
part in building the FirstNet nationwide U.S.
Public Safety broadband network; we supply
the Shanghai Oriental Pearl Group with
technology for smart city services and work
with the Digital Poland Operational Program,
in which, together with Infracapital, we formed
a joint venture to design, deploy and operate
GPON fiber-optic networks to serve more
than 400 000 residences and 2 500 schools
in 13 regions in central and northern Poland.
In transportation, Nokia is the market
leader in GSM for railway customers (“GSMR”)
world-wide. And in aviation, we are working
with Skyguide on modernizing Switzerland’s
nationwide mission-critical communications
network for air traffic control, managing both
civil and military air traffic. We also supply
Air2Ground private LTE solutions for major
airline corporations, in cooperation with
Deutsche Telekom and Inmarsat, among
others. In energy, we are the global leader in
Private LTE solutions for the mining industry.
In 2017, we also added our first water utility
with Placer County Water Authority in the
United States, where our technology is helping
to control water quality, prevent water loss
and more effectively manage hydro-electric
power generation. We also work with the
world’s largest utility companies, including the
world’s largest utility by production—EDF—the
world’s largest utility by customers—SGCC
in China—Tata Power in India and the major
utilities for both generation and distribution
across the United States, including Ameren.
Our Webscale / TXLE business saw significant
progress during 2017. In Webscale, our
business has grown steadily and we now
count Facebook, Amazon Web Services
(“AWS”), Apple, Xiaomi Baidu, Alibaba and
Tencent among our customers and we also
work with some of these as partners. We
announced a partnership with Amazon Web
Services, providing a full suite of services to
support service providers in their migration
to AWS, a patent agreement with Xiaomi and
a business and patent license and business
collaboration agreement with Apple. Among
our TXLE customers, we include international
banks—such as BBVA, Santander, and Crèdit
Andorrà—to which we supply software-
defined networking and / or software-defined
WAN solutions.
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 five 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.
All of our Networks business groups, and also
Nokia Technologies, are committed to the
Future X network architecture defined by
Nokia Bell Labs. The Future X network is based
on a vision of a massively distributed,
cognitive, continuously adaptive, learning and
optimizing network connecting humans,
senses, things, systems, infrastructure, and
processes. The Future X network aims to
provide a 10-fold improvement across key
technology domains in response to the six
megatrends identified by Nokia as driving new
technological requirements. For a more detailed
description refer to “Our strategy” section.
Patents and licenses
Intellectual property assets are fundamental
to Nokia, and we own a large patent portfolio
of approximately 20 000 patent families. 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 our patent
licensing activities.
Industry leading R&D in our Networks
business including Nokia Bell Labs in fields such
as wireless, IP networking, ultra-broadband
access and cloud technologies and applications
continues to generate valuable new,
patentable innovations.
Our Networks business has patent license
agreements in place with a number of third
parties as part of its ordinary course
of business.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
33
Business overview Networks business continued
Nokia Bell Labs
34
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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 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 human and 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.
Three functions create the Nokia Bell Labs’
foundation to disrupt and transform
the future:
(1) Chief Technology Office which defines
the technological and architectural vision
for the future of human needs.
(2) Nokia Bell Labs Research which understands
the key challenges in the future vision
and invents solutions that are 10x better
than what is currently possible.
(3) Bell Labs Consulting which advises the
industry on the economics of the vision
and how to efficiently achieve this future
goal from the current starting point.
Nokia Bell Labs and Facebook achieved a
record spectral efficiency of 7.46 b/s/Hz
and 2.5 times capacity breakthrough for
massive undersea cable transmission
during a submarine field trial using Bell
Labs’ Probabilistic Constellation Shaping
(“PCS”) technology, a ground-breaking
novel modulation technique that
maximizes the distance and capacity
of high-speed transmission in
optical networks.
Nokia Bell Labs introduced “skim
storage,” a unique innovation that
decreases storage needs by five times
using innovative advanced video
transcoding technology allowing TV and
video providers to serve programming to
time-shifted viewers at a fraction of the
storage and compute now required.
In a world’s first, Nokia Bell Labs
demonstrated it is now possible to use
a commercial next generation 10G PON
to transport ultra-low latency Common
Public Radio Interfaces (“CPRI”) streams
showing how operators can re-use
existing fiber-to-the-home (“FTTH”)
massive-scale deployments to satisfy
the strict latency constraints and capacity
needs for mobile transport in 4G and
future 5G networks.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
35
Business overview Nokia
Technologies
36
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Sales and marketing
Our Patent Business manages intellectual
property as a technology asset and seeks
a return on our investments by making
our innovations available to the markets
through licensing activities and transactions.
Nokia Technologies currently has more than
100 licensees, mainly for our standards
essential patents (“SEPs”).
Nokia Technologies also continues to engage
in global sales and marketing activities
supporting the technology licensing solutions
stemming from the OZO VR camera, as well
as our portfolio of connected health products
in both regulated and non-regulated markets.
Nokia Technologies sees further
opportunities in licensing its proprietary
technologies, intellectual property and
brand assets into telecommunications
and vertical industries.
Market overview
Building on decades of innovation and R&D
leadership in technologies used in virtually
all mobile devices used today, Nokia
Technologies is expanding our patent
licensing business, reintroducing the Nokia
brand to smartphones through brand
licensing, and establishing a technology
licensing business.
Smartphones, feature phones, and tablets
had a global estimated wholesale market
of over EUR 360 billion in 2017. Global
smartphone wholesale revenues alone are
forecasted to increase by 12% in 2018 and
total over EUR 350 billion. 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 is determined to explore,
discover and develop the ways in which
technology can transform our lives.
Nokia Technologies makes our vision for
a connected future today’s reality. Nokia
Technologies’ mission is to create effortless
and impactful technological products and
solutions that expand human possibilities.
Nokia Technologies currently consists of
a portfolio of four businesses.
With the acquisition of Withings in 2016,
our Digital Health business entered the
market with a portfolio of premium, intuitive
consumer products designed to inspire the
individual to take control of their own health.
Since then, we expanded this business into
corporate wellness and elder care and
developed an innovative patient care platform
focused on remote patient care monitoring.
In the future, we plan to reduce our focus on
consumer incubation in Nokia Technologies
to allow us to prioritize our core strengths in
business-to- business and licensing patents,
technologies and the Nokia brand. In February
2018, Nokia announced a strategic review of
options for the Digital Health consumer
products business.
Our Brand Partnerships business works with
our exclusive licensee for the Nokia brand for
phones and tablets, HMD Global, which has
launched six new Android smartphones
and five new feature phones during 2017.
Our Patent Business continues to grow its
successful patent licensing and monetization
activities, which drive most of Nokia
Technologies’ net sales today, giving us
the ability to invest in our new businesses
in a disciplined, venture capital-like manner.
We have launched a Technology Licensing
business, focused on innovative spatial audio
and visual technologies stemming from
our OZO VR camera, which is no longer in
production.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
37
Business overview Nokia Technologies continued
Breakdown of patent filings in 2017
by technology
4
3
2
1
1 Connectivity
2 Fixed & optical networks
3 Services, applications
& multimedia
4 Emerging technologies
& hardware
610 (47%)
159 (12%)
320 (24%)
221 (17%)
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, such as audio and
video standardization, sensing technologies
and advanced machine learning-based
health analytics.
Nokia Technologies has R&D centers in
Finland and France.
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.
With the acquisitions of Nokia Siemens
Networks in 2013 and Alcatel Lucent in 2016,
we added the results of their sustained
innovation, including that of Bell Labs,
creating a larger and more valuable IP
portfolio than ever before. 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. Through a series
of structured divestments in 2017, we have
enabled product companies to access Nokia
innovations. At the end of 2017, our portfolio
stands at around 20 000 patent families, built
on combined R&D investments of more than
EUR 123 billion over the last two decades.
We continue to refresh our portfolio from R&D
activities across all Nokia businesses, filing
patent applications on more than 1 300 new
inventions in 2017. Continuing our focus on
communications standards, we also expect to
have a leading position in 5G. Through 2017,
we continued to be a leading contributor to
the development of emerging 5G standards.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
Competition
In the digital health market, our competitors
range from large multinationals to innovative
smaller specialist vendors. Until recently,
our focus was on higher growth segments of
the total market, including consumer health
and wellness products such as hybrid smart
watches, blood pressure monitors, scales
and thermometers, as well as remote patient
monitoring. Fitbit, Garmin, Xiaomi, and Apple
compete in personal wellness products, along
with players like Omron, Qardio, and iHealth.
Philips, Honeywell Life Care Solutions,
Medtronic, and Vivify Health are active
around remote patient monitoring.
New patent filings in 2017
1 300+
R&D investment over the last two decades
~EUR 123bn
Patent licensees
100+
2017 highlights
■ At Mobile World Congress in February,
Nokia Technologies launched its
Patient Care Platform to enable
doctors to remotely monitor patients
with their smart devices. The platform,
which is being used in a trial by the UK’s
National Health Service, aims to better
prevent and manage chronic health
conditions and drive timely and
targeted patient care.
■ During the year, Nokia signed
a number of patent licensing
agreements, including with Apple,
Huawei, LG Electronics and Xiaomi.
Our agreements with Apple and
Xiaomi also include broader business
collaborations.
■ Our exclusive brand licensee for
phones and tablets, HMD Global,
launched six new Nokia branded
Android smartphones and five new
Nokia branded feature phones during
its first year of operations. The new
products have achieved outstanding
net promoter (NPS) scores.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
39
Business overview Operating
and financial
review and
prospects
40
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Operating and financial review
and prospects
Contents
Principal industry trends
affecting operations
Business-specific trends
Networks business
Nokia Technologies
Trends affecting our businesses
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
responsibility
Materiality assessment and
sustainability performance
Improving people’s lives
through technology
Protecting the environment
Conducting our business
42
42
42
44
45
46
46
52
53
53
57
59
60
60
60
61
62
62
63
63
63
64
64
65
66
with integrity
67
68
Respecting our people
68
Making change happen together
69
Employees
70
Dividend
71
Risk factors
Shares and share capital
90
Board of Directors and management 91
91
Articles of Association
NOKIA ANNUAL REPORT ON FORM 20-F 2017
41
Operating and financial review and prospects
Principal industry trends
affecting operations
Business-specific trends
Networks business
We are a leading vendor in the network
and IP infrastructure, software, and the
related services market. We provide a
broad range of different products, from
the hardware components of networks used
by communications service providers 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 five business
groups: Mobile Networks, Fixed Networks,
Global Services, IP/Optical Networks and Nokia
Software. 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 five
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 our long-
term value creation. For more information
on the Networks business refer to “Business
overview—Networks business” above.
Industry trends
The network and IP infrastructure, software
and related services 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 to be efficient and cost
competitive for both communications service
providers and network infrastructure and
services vendors.
Second, we are witnessing continued
consolidation among communications service
providers, driven by their desire 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, communications service providers
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. Our end-to-end
portfolio of products and services can be
utilized to address both the fixed mobile
convergence and the transition to all-IP
architectures.
Third, we see an increasing demand for large
high-performance networks in some key
areas outside the traditional communications
service provider space, which we define as
our adjacent markets. Webscale companies
and extra-large enterprises—such as Apple,
Facebook, Google, Alibaba and Amazon—are
investing in cloud technology and network
infrastructure to build these high-performing,
secure networks. In addition, other target
vertical markets such as energy, transportation
and the public sector 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 2017, while we did not witness a
widespread change in the overall pricing
environment, we saw robust competition
in China in the second half of the year,
where early positioning for 5G is underway.
Product mix
The profitability of our Networks business
is affected by our product mix, including the
share of software in the sales mix. Products
and services also have varying profitability
profiles. For instance, our Ultra Broadband
Networks and IP Networks and Applications
reportable segments offer a combination
of hardware and software, which generally
have higher gross margins, but also require
significant R&D investment, whereas the
Global Services reportable segment has
offerings that are typically labor-intensive,
while carrying low R&D investment, and have
relatively low gross margins compared to
the hardware and software products.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
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, followed by generally lower
sales in the first quarter. 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
deployments have been largely completed.
The next major technology cycle is expected
to be the transition from 4G to 5G, with
trials beginning in 2018, commercial
deployments in lead markets in 2019
and large-scale deployments in 2020.
Continued operational efficiency
improvements
In 2017, our Networks business continued
to focus on operational improvements 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 through strong
operational discipline.
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 ANNUAL REPORT ON FORM 20-F 2017
43
Operating and financial review and prospects 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 spatial audio and video
technologies to enable our customers to build
better products; 3) brand licensing, to help
our customers leverage the value of the Nokia
brand in consumer devices; and 4) developing
new products and technologies in digital
health. 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
these opportunities: on the one hand, we
seek to license our patent portfolio, and
new technological innovations that can be
integrated into other companies’ products
and services. We also engage in brand
licensing to leverage the Nokia brand
in consumer devices. In digital health,
Nokia announced on February 15, 2018 that
it had initiated a review of strategic options
for this business. This strategic review of
the Digital Health business may or may not
result in any transaction or other changes.
In digital media, the slower-than-expected
development of the virtual reality market has
led Nokia Technologies to reduce investments
in this area and focus more on technology
licensing opportunities.
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 such as
automotive and consumer electronics.
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.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
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. For example,
under a strategic agreement covering
branding rights and intellectual property
licensing, in 2016, Nokia Technologies granted
HMD Global, a company based in Finland,
an exclusive global license to create
Nokia-branded phones and tablets for ten
years. During 2017, HMD Global launched
11 new phones, including six Android
smartphones.
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.
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 global and
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
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 a hedging horizon of approximately
12 months. For the majority of these hedges,
hedge accounting is applied to reduce
income statement volatility.
In 2017, approximately 25% of Continuing
operations net sales and approximately
30% of Continuing operations costs
were denominated in euro. In 2017,
approximately 45% of Continuing operations
net sales were denominated in U.S. dollars
and approximately 10% in Chinese yuan.
During 2017, the U.S. dollar depreciated
against the euro and this had a slightly
negative impact on our net sales expressed
in euros. However, the weaker U.S. dollar also
contributed to slightly lower cost of sales and
operating expenses, as approximately 45% of
our total cost base was in U.S. dollars. In total,
before hedging, the depreciation of the U.S.
dollar had a slightly negative effect on our
operating profit in 2017.
During 2017, the Chinese yuan depreciated
against the euro and this had a slightly
negative impact on our net sales expressed in
euros. However, the weaker Chinese yuan also
contributed to slightly 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 2017.
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 on Form 20-F. Refer
also to “Operating and financial review
and prospects—Risk factors”.
The average currency mix for net sales and total costs:
Currency
EUR
USD
CNY
Other
Total
2017
2016
Net sales
~25%
~45%
~10%
~20%
100%
Total costs
~30%
~45%
~10%
~15%
100%
Net sales
~25%
~50%
~10%
~15%
100%
Total costs
~25%
~45%
~10%
~20%
100%
NOKIA ANNUAL REPORT ON FORM 20-F 2017
45
Operating and financial review and prospects Results of operations
The financial information included in this “Operating and financial review and prospects” section as of December 31, 2017 and 2016 and for
each of the three years ended December 31, 2017, 2016 and 2015 has been derived from our audited consolidated financial statements
included in this annual report on Form 20-F. The financial information as of December 31, 2017 and 2016 and for each of the three years ended
December 31, 2017, 2016 and 2015 should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated
financial statements.
On April 1, 2017 we revised our financial reporting structure. We have two businesses: Nokia’s Networks business and Nokia Technologies,
and four reportable segments for financial reporting purposes: Ultra Broadband Networks, Global Services 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 2017, 2016 and 2015. Certain
adjustments and reclassifications have been necessary. Refer to Note 4, Segment information, of our consolidated financial statements
included in this annual report on Form 20-F.
Continuing operations
For the year ended December 31, 2017 compared to the year ended December 31, 2016
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/(loss)
Share of results of associated companies and joint ventures
Financial income and expenses
Loss before tax
Income tax (expense)/benefit
Loss for the year
Net sales
Continuing operations net sales in 2017 were EUR 23 147 million, a
decrease of EUR 494 million, or 2%, compared to EUR 23 641 million
in 2016. The decrease in Continuing operations net sales was primarily
due to a decrease in Nokia’s Networks business net sales, partially
offset by an increase in Nokia Technologies net 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
2017
EURm
4 228
6 833
2 516
1 279
1 907
6 384
23 147
2016
EURm
4 223
6 410
2 654
1 458
1 872
7 024
23 641
Year-on-year
change %
–
7
(5)
(12)
2
(9)
(2)
(1) All Nokia Technologies IPR and licensing net sales are allocated to Finland.
2017
EURm % of net sales
2016
EURm % of net sales
Year-on-year
change %
23 147
(14 008)
9 139
(4 916)
(3 615)
(592)
16
11
(537)
(510)
(927)
(1 437)
100.0
(60.5)
39.5
(21.2)
(15.6)
(2.6)
0.1
–
(2.3)
(2.2)
(4.0)
(6.2)
23 641
(15 117)
8 524
(4 997)
(3 767)
(860)
(1 100)
18
(287)
(1 369)
457
(912)
100.0
(63.9)
36.1
(21.1)
(15.9)
(3.6)
(4.7)
0.1
(1.2)
(5.8)
1.9
(3.9)
(2)
(7)
7
(2)
(4)
(31)
–
(39)
87
(63)
–
58
Gross profit
Gross profit for Continuing operations in 2017 was EUR 9 139 million,
an increase of EUR 615 million, or 7%, compared to EUR 8 524 million
in 2016. The increase in gross profit was primarily due to lower
working capital-related purchase price allocation adjustments and
higher gross profit in Nokia Technologies, partially offset by lower
gross profit in Nokia’s Networks business and higher product portfolio
integration-related costs. Gross margin for Continuing operations in
2017 was 39.5%, compared to 36.1% in 2016. In 2017, gross profit
included product portfolio integration-related costs of EUR 453 million
and working capital-related purchase price allocation adjustments of
EUR 55 million. In 2016, gross profit included working capital-related
purchase price allocation adjustments of EUR 840 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.
46
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Operating expenses
Our R&D expenses for Continuing operations in 2017 were
EUR 4 916 million, a decrease of EUR 81 million, or 2%, compared to
EUR 4 997 million in 2016. R&D expenses represented 21.2% of our
net sales in 2017 compared to 21.1% in 2016. The decrease in R&D
expenses were due to decreases in Nokia’s Networks business,
Group Common and Other and Nokia Technologies R&D expenses.
In 2017, R&D expenses included amortization and depreciation
of acquired intangible assets and property, plant and equipment
of EUR 633 million, compared to EUR 619 million in 2016, as well
as product portfolio integration-related costs of EUR 57 million,
compared to EUR 62 million in 2016.
Our selling, general and administrative expenses for Continuing
operations in 2017 were EUR 3 615 million, a decrease of
EUR 152 million, or 4%, compared to EUR 3 767 million in 2016.
Selling, general and administrative expenses represented 15.6% of
our net sales in 2017 compared to 15.9% in 2016. The decrease in
selling, general and administrative expenses was primarily due to
lower transaction and integration-related costs, a decrease in Nokia’s
Networks business selling, general and administrative expenses and,
to a lesser extent, Group Common and Other selling, general and
administrative expenses, partially offset by an increase in Nokia
Technologies selling, general and administrative expenses. Selling,
general and administrative expenses included amortization and
depreciation of acquired intangible assets, and property, plant and
equipment of EUR 394 million in 2017 compared to EUR 386 million
in 2016, as well as transaction and integration-related costs of
EUR 194 million, compared to EUR 294 million in 2016.
Other income and expenses for Continuing operations in 2017
was a net expense of EUR 592 million, a change of EUR 268 million,
compared to a net expense of EUR 860 million in 2016. The net
positive fluctuation in our other income and expenses was primarily
due to lower restructuring and associated charges and a net positive
fluctuation in Nokia’s Networks business and Group Common and
Other other income and expenses, partially offset by impairment
charges. Other income and expenses included restructuring and
associated charges of EUR 576 million in 2017 compared to
EUR 759 million in 2016.
In 2017, as a result of challenging business conditions, we recorded
a non-cash charge to other income and expenses of EUR 141 million,
due to the impairment of goodwill related to our Digital Health
business, which is part of Nokia Technologies. The impairment charge
was allocated to the carrying amount of goodwill held within the digital
health cash generating unit, which was reduced to zero. In 2017, we
also recorded a non-cash impairment charge to other income and
expenses of EUR 32 million related to acquired intangible assets in
Nokia’s Networks business.
Operating profit/loss
Our operating profit for Continuing operations in 2017 was
EUR 16 million, a change of EUR 1 116 million, compared to an
operating loss of EUR 1 100 million in 2016. The change in operating
result was primarily due to a higher gross profit and, to a lesser extent,
a net positive fluctuation in other income and expenses and lower
selling, general and administrative and R&D expenses. Our operating
margin in 2017 was approximately break even compared to negative
4.7% in 2016.
The following table sets forth the impact of unallocated items on
operating profit/loss:
EURm
Total segment operating profit(1)
Amortization and depreciation of acquired
intangible assets and property, plant
and equipment
Restructuring and associated charges
Product portfolio strategy costs
Transaction and related costs, including
integration costs relating to the acquisition
of Alcatel Lucent
Impairment of intangible assets
Release of acquisition-related fair value
adjustments to deferred revenue and
inventory
Other
Total operating profit/(loss)
2017
2016
2 587
2 172
(1 033)
(579)
(536)
(1 026)
(774)
(348)
(206)
(173)
(295)
–
(55)
11
16
(840)
11
(1 100)
(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 537 million in 2017 compared to a net expense of
EUR 287 million in 2016, an increase of EUR 250 million, or 87%.
The net negative fluctuation in financial income and expenses was
primarily due to costs of EUR 220 million related to the offer to
purchase the 6.50% notes due January 15, 2028, the 6.45% notes
due March 15, 2029, the 6.75% notes due February 4, 2019 and
the 5.375% notes due May 15, 2019; losses from foreign exchange
fluctuations; a non-recurring interest expense related to a change
to uncertain tax positions; and a loss on the sale of financial assets.
This was partially offset by a change in the fair value of the financial
liability to acquire Nokia Shanghai Bell non-controlling interest and
the absence of costs related to the early redemption of Alcatel Lucent
high yield bonds, which adversely affected full year 2016.
Refer to “—Liquidity and capital resources” below.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
47
Operating and financial review and prospects Results of operations continued
Loss before tax
Our loss before tax for Continuing operations in 2017 was
EUR 510 million, a change of EUR 859 million compared to a loss
of EUR 1 369 million in 2016.
Income tax
Income taxes for Continuing operations was a net expense of
EUR 927 million in 2017, a change of EUR 1 384 million compared to a
net benefit of EUR 457 million in 2016. The change in net income taxes
was primarily due to increased profitability, deferred tax expenses of
EUR 777 million from re-measurement of deferred tax assets resulting
from the tax rate change in the United States, a non-recurring tax
expense of EUR 245 million (EUR 439 million tax benefit in 2016)
related to the integration of the former Alcatel Lucent and Nokia
operating models; as well as income taxes for prior years primarily
from to the disposal of the former Alcatel Lucent railway signaling
business in 2006 to Thalès. This was partially offset by three factors:
lower income taxes due to our regional profit mix in 2017 compared
to 2016, lower losses than in 2016 in countries for which we do not
recognize deferred tax assets, and a deferred tax benefit from
re-measurement of deferred tax assets resulting from the tax rate
changes (in countries other than the United States). Refer to Note 12,
Income taxes, of our consolidated financial statements included in this
annual report on Form 20-F.
On December 22, 2017, the United States passed a comprehensive
set of tax reforms into law. The new law, known as the Tax Cuts and
Jobs Act, includes numerous changes to prior tax law, including a
permanent reduction in the federal corporate income tax rate from
35% to 21%. Our deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the consolidated income
statement in the period in which the law is substantively enacted.
We concluded that the United States federal income tax rate reduction
causes our United States deferred tax assets and liabilities to be
revalued in 2017 and, therefore, recognized an additional tax provision
of EUR 777 million related to such revaluation. The new tax law also
contains several other changes, in addition to the reduction in the
federal corporate tax rate, many of which become effective for tax
years beginning in 2018. We continue to consider the impact all the tax
reform provisions will have on us and have made reasonable estimates
for certain effects in our December 31, 2017 consolidated financial
statements, as appropriate.
Loss attributable to equity holders of the parent and earnings
per share
The loss attributable to equity holders of the parent in 2017 was
EUR 1 494 million, an increase of EUR 728 million, compared to a loss
of EUR 766 million in 2016. The change in profit attributable to equity
holders of the parent was primarily due to an income tax expense,
compared to an income tax benefit in 2016 and a net negative
fluctuation in financial income and expenses. This was partially offset
by an operating profit in 2017, compared to an operating loss in 2016.
Our total basic EPS in 2017 decreased to negative EUR 0.26 (basic)
and negative EUR 0.26 (diluted) compared to negative EUR 0.13 (basic)
and negative EUR 0.13 (diluted) in 2016.
Cost savings program
On April 6, 2016, we launched a new cost savings program, targeting
approximately EUR 1 200 million of recurring annual cost savings to
be achieved in full year 2018. In 2017, we recognized restructuring
and associated charges of approximately EUR 550 million related
to the cost savings program. Cumulative recognized restructuring
and associated charges are approximately EUR 1 300 million and we
expect total restructuring and associated charges to be approximately
EUR 1 900 million.
In 2017, we had restructuring and associated cash outflows of
approximately EUR 550 million related to the cost savings program.
Cumulative restructuring and associated cash outflows are
approximately EUR 950 million and we expect total restructuring
and associated cash outflows to be approximately EUR 2 250 million,
including approximately EUR 550 million related to previous Nokia
and Alcatel Lucent restructuring and cost savings programs.
48
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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 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 (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 23 641 million, an
increase of EUR 11 081 million, or 88%, compared to EUR 12 560 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.
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
4 223
6 410
2 654
1 458
1 872
7 024
23 641
2015
EURm
3 248
3 817
1 718
979
1 195
1 603
12 560
Year-on-year
change %
30
68
54
49
57
338
88
(1) All Nokia Technologies net sales are allocated to Finland.
2016
EURm % of net sales
2015
EURm % of net sales
Year-on-year
change %
23 641
(15 117)
8 524
(4 997)
(3 767)
(860)
(1 100)
18
(287)
(1 369)
457
(912)
100.0
(63.9)
36.1
(21.1)
(15.9)
(3.6)
(4.7)
0.1
(1.2)
(5.8)
1.9
(3.9)
12 560
(6 963)
5 597
(2 080)
(1 772)
(48)
1 697
29
(186)
1 540
(346)
1 194
100.0
(55.4)
44.6
(16.6)
(14.1)
(0.4)
13.5
0.2
(1.5)
12.3
(2.8)
9.5
88
117
52
140
113
–
–
(38)
54
–
–
–
Gross profit
Gross profit for Continuing operations in 2016 was EUR 8 524 million,
an increase of EUR 2 927 million, or 52%, compared to EUR 5 597 million
in 2015. The increase in gross profit was primarily due to Nokia’s
Networks business, partially offset by working capital-related purchase
price allocation adjustments, which resulted in higher cost of sales and
lower gross profit when the inventory was sold; and product portfolio
integration-related costs, all of which primarily related to the acquisition
of Alcatel Lucent. Gross margin for Continuing operations in 2016 was
36.1% compared to 44.6% in 2015. 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
49
Operating and financial review and prospects Results of operations continued
Operating expenses
Our R&D expenses for Continuing operations in 2016 were
EUR 4 997 million, an increase of EUR 2 917 million, or 140%,
compared to EUR 2 080 million in 2015. R&D expenses represented
21.1% 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. 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 3 767 million, an increase of
EUR 1 995 million, or 113%, compared to EUR 1 772 million in 2015.
Selling, general and administrative expenses represented 15.9% of
our net sales in 2016 compared to 14.1% 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. 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.
Other income and expenses for Continuing operations in 2016 was
a net expense of EUR 860 million, a change of EUR 812 million,
compared to a net expense of EUR 48 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 13.5% in 2015.
The following table sets forth the impact of unallocated items on
operating 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.
50
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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.
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.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
51
Operating and financial review and prospects Results of operations continued
Discontinued operations
Background
The two businesses below are presented as Discontinued operations
in this annual report on Form 20-F. Refer to Note 6, Disposals treated
as Discontinued operations, of our consolidated financial statements
included in this annual report on Form 20-F.
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, 2017 compared to the year ended
December 31, 2016
Discontinued operations loss for the year on ordinary activities was
EUR 27 million compared to a loss of EUR 29 million in 2016.
Discontinued operations loss for the year was EUR 21 million
compared to a loss of EUR 15 million in 2016. Loss for the year in 2017
included EUR 5 million gain on the Sale of the HERE Business. Loss for
the year in 2016 included EUR 7 million gain on the Sale of the HERE
Business and EUR 7 million gain on the Sale of the D&S Business.
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
(Loss)/profit for the year
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 profit
Discontinued operations did not generate gross profit in 2016. In
2015, Discontinued operations gross profit was EUR 831 million and
gross margin 77.3%. The decrease in gross profit 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.
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
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.
52
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Results of segments
Networks business
For the year ended December 31, 2017 compared to the year ended December 31, 2016
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)
2017
EURm % of net sales
2016
EURm % of net sales
Year-on-year
change %
20 523
(12 590)
7 933
(3 730)
(2 587)
95
1 711
100.0
(61.3)
38.7
(18.2)
(12.6)
0.5
8.3
21 830
(13 370)
8 460
(3 777)
(2 664)
(76)
1 943
100.0
(61.2)
38.8
(17.3)
(12.2)
(0.3)
8.9
(6)
(6)
(6)
(1)
(3)
–
(12)
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
Ultra
Broadband
Networks(2)
2017
EURm
8 970
(4 723)
4 247
Global
Services
2017
EURm
5 810
(4 697)
1 113
IP Networks
and
Applications(3)
2017
EURm
5 743
(3 170)
2 573
Networks
total(4)
2017
EURm
20 523
(12 590)
7 933
Ultra
Broadband
Networks(2)
2016
EURm
9 758
(5 210)
4 548
Global
Services
2016
EURm
6 036
(4 825)
1 211
IP Networks
and
Applications(3)
2016
EURm
6 036
(3 335)
2 701
Networks
total(4)
2016
EURm
21 830
(13 370)
8 460
(2 361)
(85)
(1 284)
(3 730)
(2 393)
(96)
(1 288)
(3 777)
(1 162)
57
781
(631)
14
411
(794)
24
519
(2 587)
95
1 711
(1 212)
(21)
922
(679)
(30)
406
(773)
(25)
615
(2 664)
(76)
1 943
(1) Refer to Note 4, Segment information, of our consolidated financial statements included in this annual report.
(2) Net sales include EUR 6 895 million (EUR 7 357 million in 2016) attributable to Mobile Networks and EUR 2 075 million (EUR 2 401 million in 2016) attributable to Fixed Networks.
(3) Net sales include EUR 2 694 million (EUR 2 941 million in 2016) attributable to IP Routing; EUR 1 499 million (EUR 1 564 million in 2016) attributable to Optical Networks; and EUR 1 550 million
(EUR 1 531 million in 2016) attributable to Nokia Software.
(4) Includes Total Services net sales of EUR 8 221 million (EUR 8 531 million in 2016) which consists of all the services sales of Nokia’s Networks business, including Global Services of EUR 5 810 million
(EUR 6 036 million in 2016) and the services of Fixed Networks, IP/Optical Networks and Nokia Software.
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
2017
EURm
4 197
4 442
2 466
1 245
1 897
6 276
20 523
2016
EURm
4 237
4 884
2 640
1 446
1 891
6 732
21 830
Year-on-year
change %
(1)
(9)
(7)
(14)
–
(7)
(6)
Net sales
Nokia’s Networks business net sales in 2017 were EUR 20 523 million, a
decrease of EUR 1 307 million, or 6%, compared to EUR 21 830 million
in 2016. The decrease in Nokia’s Networks business net sales was
primarily due to Ultra Broadband Networks and, to a lesser extent,
IP Networks and Applications and Global Services. Ultra Broadband
Networks net sales were EUR 8 970 million in 2017, a decrease of
EUR 788 million, or 8%, compared to EUR 9 758 million in 2016.
Global Services net sales were EUR 5 810 million in 2017, a decrease
of EUR 226 million, or 4%, compared to EUR 6 036 million in 2016.
IP Networks and Applications net sales were EUR 5 743 million in 2017,
a decrease of EUR 293 million, or 5%, compared to EUR 6 036 million
in 2016.
The decrease in Ultra Broadband Networks net sales is comprised
of a decrease in Mobile Networks net sales of EUR 462 million and
a decrease in Fixed Networks net sales of EUR 326 million.
In 2017, Mobile Networks net sales were adversely affected by
challenging market conditions. The decrease in Mobile Networks
net sales was primarily due to radio networks and, to a lesser extent,
converged core networks, partially offset by growth in advanced
mobile networks solutions. From a growth perspective, small cells
continued to deliver strong performance. Also, within radio networks,
LTE net sales grew, despite weakness in the global LTE market. For
radio networks, the decrease was primarily related to Greater China,
Europe and, to a lesser extent, North America and Latin America.
This was partially offset by growth in Asia-Pacific. For converged
core networks, the decrease was primarily related to North America,
partially offset by growth in Asia-Pacific. For advanced mobile networks
solutions, the increase was primarily related to North America and
Greater China, partially offset by a decrease in Middle East & Africa.
The net sales performance in Fixed Networks was in comparison to
a particularly strong year 2016. The decrease in Fixed Networks net
sales was primarily due to broadband access and services. The
decrease was primarily related to three specific customers, which
led to declines in Asia-Pacific, North America and Latin America. For
broadband access, the decrease was primarily related to Asia-Pacific
and, to a lesser extent, North America, partially offset by Europe.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
53
Operating and financial review and prospects Results of segments continued
For services, the decrease was primarily related to North America,
Europe and Latin America, partially offset by growth in Middle East &
Africa and Greater China.
The decrease in Global Services net sales in 2017 was primarily due
to systems integration, care and managed services, partially offset
by growth in network implementation. For systems integration, the
decrease was primarily related to Europe and, to a lesser extent, North
America. The decrease in systems integration was attributable to the
winding down of a specific set of legacy Alcatel Lucent contracts. For
care, the decrease was primarily related to North America, Europe and
Asia-Pacific, partially offset by growth in Greater China. For managed
services, the decrease was primarily related to Asia-Pacific, partially
offset by growth in Europe. For network implementation, the increase
was primarily related to North America, Latin America and Asia-Pacific,
partially offset by Middle East & Africa and Europe.
The decrease in IP Networks and Applications net sales is comprised
of decrease in IP/Optical Networks net sales of EUR 312 million, partly
offset by an increase in Nokia Software net sales of EUR 19 million.
The decrease in IP/Optical Networks net sales was due to both
IP routing and optical networks, primarily due to weakness in the
communications service provider market in preparation for a new
product portfolio launch in IP routing. For IP routing, the decrease was
primarily related to North America and, to a lesser extent, Europe and
Latin America, partially offset by growth in Greater China. In addition,
IP routing net sales were adversely affected by lower resale of third
party IP routers. For optical networks, the decrease was primarily
related to Latin America, North America and Europe, partially offset
by Middle East & Africa and Asia-Pacific.
The increase in Nokia Software net sales was primarily due to growth
in network management, services and emerging businesses, partially
offset by service delivery platforms and operational support systems.
The year-on-year performance of Nokia Software benefitted from the
acquisition of Comptel. 2017 was a year of transformation for our
software business. It announced and executed plans to: 1) build our
first standalone software sales force, 2) strengthen its services and
care practices, 3) increase R&D velocity through modern software
development, including the introduction of a Common Software
Foundation that will improve the user experience for Nokia Software
software, 4) acquire and integrate Comptel and 5) introduce new
products and services that provide customers with increased
intelligence and ability to push automation to new levels.
Gross profit
Nokia’s Networks business gross profit in 2017 was EUR 7 933 million,
a decrease of EUR 527 million, or 6%, compared to EUR 8 460 million
in 2016. Nokia’s Networks business gross margin in 2017 was 38.7%,
compared to 38.8% in 2016. The decrease in Nokia’s Networks
business gross profit was primarily due to Ultra Broadband Networks
and, to a lesser extent, IP Networks and Applications and Global Services.
Ultra Broadband Networks gross profit in 2017 was EUR 4 247 million,
a decrease of EUR 301 million, or 7%, compared to EUR 4 548 million
in 2016. The decrease in Ultra Broadband Networks gross profit was
due to both Mobile Networks and Fixed Networks. The lower gross
profit in both Mobile Networks and Fixed Networks was primarily due
to lower net sales. Ultra Broadband Networks gross margin in 2017
was 47.3%, compared to 46.6% in 2016.
Global Services gross profit in 2017 was EUR 1 113 million, a decrease
of EUR 98 million, or 8%, compared to EUR 1 211 million in 2016.
The decrease in Global Services gross profit was primarily due to
network implementation, care and network planning and optimization,
partially offset by systems integration. Global Services gross profit
was negatively affected by the absence of a benefit related to lower
incentive accruals in 2016. Global Services gross margin in 2017
was 19.2%, compared to 20.1% in 2016.
IP Networks and Applications gross profit in 2017 was EUR 2 573 million,
a decrease of EUR 128 million, or 5%, compared to EUR 2 701 million
in 2016. The decrease in IP Networks and Applications gross profit was
primarily due to IP/Optical Networks, partially offset by Nokia Software.
The lower gross profit in IP/Optical Networks was primarily due to
lower net sales. The higher gross profit in Nokia Software was due to
higher net sales. IP Networks and Applications gross margin in 2017
was 44.8%, compared to 44.7% in 2016.
Operating expenses
Nokia’s Networks business R&D expenses were EUR 3 730 million
in 2017, a slight decrease of EUR 47 million, or 1%, compared to
EUR 3 777 million in 2016. The decrease in Nokia’s Networks business
R&D expenses was primarily attributable to Ultra Broadband Networks
R&D expenses, and to a lesser extent, Global Services R&D expenses.
Ultra Broadband Networks R&D expenses were EUR 2 361 million in
2017, a decrease of EUR 32 million, compared to EUR 2 393 million in
2016. The decrease in Ultra Broadband Networks R&D expenses was
primarily due to Mobile Networks, partially offset by Fixed Networks.
The lower R&D expenses in Mobile Networks was primarily due to lower
personnel expenses, reflecting progress related to our cost savings
program, with reduced R&D related to legacy technologies, partially
offset by an increase in R&D related to 5G. The higher R&D expenses
in Fixed Networks was primarily related to investments to drive growth
and higher returns in our current addressable market, as well as to
expand into adjacent markets, both of which are priorities for Fixed
Networks. Related to our current addressable market, Fixed Networks
has increased its investments to enhance its portfolio of offerings
towards the digital home and software defined access markets.
Related to adjacent markets, Fixed Networks has increased its
investments towards the cable access market, and is now offering a
disruptive cable solution which gives operators the flexibility to choose
from a full range of options across both fiber and cable to meet their
unique network needs. Ultra Broadband Networks R&D expenses
were negatively affected by the absence of a benefit related to lower
incentive accruals for full year 2016. Global Services R&D expenses
were EUR 85 million in 2017, a decrease of EUR 11 million, compared
to EUR 96 million in 2016. The decrease in Global Services R&D
expenses was primarily due to lower personnel expenses, reflecting
progress related to our cost savings program. IP Networks and
Applications R&D expenses were EUR 1 284 million in 2017, a
decrease of EUR 4 million, compared to EUR 1 288 million in 2016.
Nokia’s Networks business selling, general and administrative expenses
were EUR 2 587 million in 2017, a decrease of EUR 77 million, or 3%,
compared to EUR 2 664 million in 2016. The decrease in Nokia’s
Networks business selling, general and administrative expenses was
attributable to decreases in both Ultra Broadband Networks and
Global Services selling, general and administrative expenses, partially
offset by an increase in IP Networks and Applications selling, general
and administrative expenses.
54
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Ultra Broadband Networks selling, general and administrative
expenses were EUR 1 162 million in 2017, a decrease of EUR 50 million,
compared to EUR 1 212 million in 2016. The decrease in Ultra
Broadband Networks selling, general and administrative expenses
was primarily due to Mobile Networks. The lower selling, general and
administrative expenses in Mobile Networks was primarily due to lower
personnel expenses reflecting progress related to our cost savings
program and lower consultancy costs. Ultra Broadband Networks
selling, general and administrative expenses were negatively affected
by the absence of a benefit related to lower incentive accruals for
full year 2016. Global Services selling, general and administrative
expenses were EUR 631 million in 2017, a decrease of EUR 48 million,
compared to EUR 679 million in 2016. The decrease in Global Services
selling, general and administrative expenses was primarily due to
lower personnel expenses, reflecting progress related to our cost
savings program. IP Networks and Applications selling, general and
administrative expenses were EUR 794 million in 2017, an increase
of EUR 21 million, compared to EUR 773 million in 2016. The increase
in IP Networks and Applications selling, general and administrative
expenses was primarily due to Nokia Software. The higher selling,
general and administrative expenses in Nokia Software was primarily
due to investments to build an independent, dedicated software
sales organization.
Nokia’s Networks business other income and expenses was an income
of EUR 95 million in 2017, a change of EUR 171 million compared to an
expense of EUR 76 million in 2016. The change in other income and
expenses was attributable to Ultra Broadband Networks, IP Networks
and Applications and Global services other income and expenses.
The net positive fluctuation in Ultra Broadband Networks other income
and expenses was primarily related to foreign exchange hedging.
The net positive fluctuation in Global Services other income and
expenses was primarily related to foreign exchange hedging and lower
doubtful accounts allowances. The net positive fluctuation in IP
Networks and Applications other income and expenses was primarily
due to lower doubtful accounts allowances and a settlement with a
component supplier.
Operating profit
Nokia’s Networks business operating profit was EUR 1 711 million in
2017, a decrease of EUR 232 million compared to EUR 1 943 million in
2016. Nokia’s Networks business operating margin in 2017 was 8.3%
compared to 8.9% in 2016. The decrease in operating margin was
attributable to decreases in both Ultra Broadband Networks and IP
Networks and Applications operating margin, partly offset by a slight
increase in Global Services operating margin. Ultra Broadband
Networks operating margin decreased from 9.4% in 2016 to 8.7%
in 2017. IP Networks and Applications operating margin decreased
from 10.2% in 2016 to 9.0% in 2017. The decreases in both Ultra
Broadband Networks and IP Networks and Applications operating
margins in 2017 were primarily attributable to lower gross profit.
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)
2016
EURm % of net sales
2015
EURm % of net sales
Year-on-year
change %
21 830
(13 370)
8 460
(3 777)
(2 664)
(76)
1 943
100.0
(61.2)
38.8
(17.3)
(12.2)
(0.3)
8.9
11 548
(7 006)
4 542
(1 738)
(1 420)
(35)
1 349
100.0
(60.7)
39.3
(15.0)
(12.3)
(0.3)
11.7
89
91
86
117
88
–
44
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
Ultra
Broadband
Networks(2)
2016
EURm
9 758
(5 210)
4 548
Global
Services
2016
EURm
6 036
(4 825)
1 211
IP Networks
and
Applications(3)
2016
EURm
6 036
(3 335)
2 701
Networks
total(4)
2016
EURm
21 830
(13 370)
8 460
Ultra
Broadband
Networks(2)
2015
EURm
5 333
(2 716)
2 617
Global
Services
2015
EURm
4 887
(3 638)
1 249
IP Networks
and
Applications(3)
2015
EURm
1 328
(652)
676
Networks
total(4)
2015
EURm
11 548
(7 006)
4 542
(2 393)
(96)
(1 288)
(3 777)
(1 405)
(65)
(268)
(1 738)
(1 212)
(21)
922
(679)
(30)
406
(773)
(25)
615
(2 664)
(76)
1 943
(674)
(46)
492
(472)
7
719
(274)
4
138
(1 420)
(35)
1 349
(1) Refer to Note 4, Segment information, of our consolidated financial statements included in this annual report on Form 20-F.
(2) Net sales include EUR 7 357 million (EUR 5 197 million in 2015) attributable to Mobile Networks and EUR 2 401 million (EUR 136 million in 2015) attributable to Fixed Networks.
(3) Net sales include EUR 2 941 million (EUR 515 million in 2015) attributable to IP Routing; EUR 1 564 million attributable to Optical Networks; and EUR 1 531 million (EUR 813 million in 2015) attributable
to Nokia Software.
(4) Includes Total Services net sales of EUR 8 531 million (EUR 5 424 million in 2015) which consists of all the services sales of Nokia’s Networks business, including Global Services of EUR 6 036 million
(EUR 4 887 million in 2015) and the services of Fixed Networks, IP/Optical Networks and Nokia Software.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
55
Operating and financial review and prospects Results of segments continued
Net sales
Nokia’s Networks business net sales in 2016 were EUR 21 830 million,
an increase of EUR 10 282 million, or 89%, compared to
EUR 11 548 million in 2015. 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 9 758 million in 2016,
an increase of EUR 4 425 million, or 83%, compared to EUR 5 333 million
in 2015. Global Services net sales were EUR 6 036 million in 2016, an
increase of EUR 1 149 million, or 24%, compared to EUR 4 887 million
in 2015. IP Networks and Applications net sales were EUR 6 036 million
in 2016, an increase of EUR 4 708 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 2 160 million and
an increase in Fixed Networks net sales of EUR 2 265 million. The
increase in Mobile Networks net sales was primarily attributable to
the acquisition of Alcatel Lucent, which drove higher net sales in Radio
Networks. 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 Global Services net sales of EUR 1 149 million was
primarily attributable to the acquisition of Alcatel Lucent, affecting all
services business units.
The increase in IP Networks and Applications net sales is comprised of
an increase in IP/Optical Networks net sales of EUR 3 990 million and
an increase in Nokia Software net sales of EUR 718 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 2 426 million and an increase in Optical
Networks net sales of EUR 1 564 million. The increase in Nokia Software
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
4 237
4 884
2 640
1 446
1 891
6 732
21 830
2015
EURm
3 249
2 809
1 716
976
1 195
1 603
11 548
Year-on-year
change %
30
74
54
48
58
320
89
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, Europe 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 increase in Global Services net sales was primarily attributable
to the acquisition of Alcatel Lucent, resulting in increases in North
America, Europe, the Middle East & Africa, Greater China and
Asia-Pacific regions, partially offset by revenue decreases in
Latin America.
The increases in both IP/Optical Networks net sales and Nokia Software
net sales were primarily attributable to significant increases in
North America following the acquisition of Alcatel Lucent.
Gross profit
Nokia’s Networks business gross profit in 2016 was EUR 8 460 million,
an increase of EUR 3 918 million, or 86%, compared to EUR 4 542 million
in 2015. The higher gross profit was due to both IP Networks and
Applications and Ultra Broadband Networks, primarily related to the
acquisition of Alcatel Lucent, partly offset by slightly lower gross profit
in Global Services. Nokia’s Networks business gross margin in 2016
was 38.8%, compared to 39.3% in 2015.
Ultra Broadband Networks gross profit in 2016 was EUR 4 548 million,
an increase of EUR 1 931 million, or 74%, compared to EUR 2 617 million
in 2015. The increase in Ultra Broadband Networks gross profit was
primarily due to the acquisition of Alcatel Lucent. Ultra Broadband
Networks gross margin in 2016 was 46.6%, compared to 49.1%
in 2015.
Global Services gross profit in 2016 was EUR 1 211 million, a slight
decrease of EUR 38 million, or 3%, compared to EUR 1 249 million
in 2015. Global Services gross margin in 2016 was 20.1%,
compared to 25.6% in 2015.
IP Networks and Applications gross profit in 2016 was EUR 2 701 million,
an increase of EUR 2 025 million compared to EUR 676 million in 2015.
The increase in IP Networks and Applications gross profit was primarily
due to the acquisition of Alcatel Lucent. IP Networks and Applications
gross margin in 2016 was 44.7%, compared to 50.9% in 2015.
56
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Operating expenses
Nokia’s Networks business R&D expenses were EUR 3 777 million
in 2016, an increase of EUR 2 039 million, or 117%, 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 primarily attributable to Ultra Broadband
Networks and IP Networks and Applications. Ultra Broadband Networks
R&D expenses were EUR 2 393 million in 2016, an increase of
EUR 988 million, compared to EUR 1 405 million in 2015. IP Networks
and Applications R&D expenses were EUR 1 288 million in 2016, an
increase of EUR 1 020 million, compared to EUR 268 million in 2015.
Nokia’s Networks business selling, general and administrative expenses
were EUR 2 664 million in 2016, an increase of EUR 1 244 million, or
88%, 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 Ultra
Broadband Networks, Global Services and IP Networks and
Applications. Ultra Broadband Networks selling, general and
administrative expenses were EUR 1 212 million in 2016, an
increase of EUR 538 million, compared to EUR 674 million in 2015.
Global Services selling, general and administrative expenses were
EUR 679 million in 2016, an increase of EUR 207 million, compared to
EUR 472 million in 2015. IP Networks and Applications selling, general
and administrative expenses were EUR 773 million in 2016, an increase
of EUR 499 million, compared to EUR 274 million in 2015.
Nokia’s Networks business other income and expenses was an expense
of EUR 76 million in 2016, a change of EUR 41 million compared to an
expense of EUR 35 million in 2015. The change was attributable to
Global Services and IP Networks and Applications, primarily related to
doubtful accounts allowances, partially offset by Ultra Broadband
Networks.
Operating profit
Nokia’s Networks business operating profit was EUR 1 943 million in
2016, an increase of EUR 594 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 Global Services. Global Services operating
margin decreased from 14.7% in 2015 to 6.7% in 2016. IP Networks
and Applications operating margin decreased from 10.4% in 2015 to
10.2% in 2016. The decreases in both Global Services and IP Networks
and Applications operating margins in 2016 were attributable to lower
gross margin and higher operating expenses.
Nokia Technologies
For the year ended December 31, 2017 compared to the year ended December 31, 2016
The following table sets forth selective line items and the percentage of net sales for the years indicated.
2017
EURm % of net sales
2016
EURm % of net sales
Year-on-year
change %
1 654
(71)
1 583
(235)
(218)
(6)
1 124
100.0
(4.3)
95.7
(14.2)
(13.2)
(0.4)
68.0
1 053
(42)
1 011
(249)
(184)
1
579
100.0
(4.0)
96.0
(23.6)
(17.5)
0.1
55.0
57
69
57
(6)
18
–
94
Gross profit
Nokia Technologies gross profit in 2017 was EUR 1 583 million, an
increase of EUR 572 million, or 57%, compared to EUR 1 011 million
in 2016. The higher gross profit in Nokia Technologies was primarily
due to higher net sales.
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 2017 were EUR 1 654 million, an
increase of EUR 601 million, or 57%, compared to EUR 1 053 million
in 2016. In 2017, EUR 1 602 million of net sales related to patent and
brand licensing and EUR 52 million of net sales related to digital health
and digital media. The increase in Nokia Technologies net sales was
primarily due to recurring net sales related to new license agreements
and settled arbitrations, non-recurring net sales related to settled
arbitrations and new license agreements and, to a lesser extent, our
brand partnership with HMD. This was partially offset by lower licensing
income from certain existing licensees. In 2017, Nokia Technologies
net sales included approximately EUR 300 million of non-recurring
catch-up net sales related to prior years, compared to approximately
zero in 2016.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
57
Operating and financial review and prospects Results of segments continued
Operating expenses
Nokia Technologies R&D expenses in 2017 were EUR 235 million,
a decrease of EUR 14 million, or 6%, compared to EUR 249 million
in 2016. The decrease in Nokia Technologies R&D expenses was
primarily due to lower patent portfolio costs.
Nokia Technologies selling, general and administrative expenses in
2017 were EUR 218 million, an increase of EUR 34 million, or 18%,
compared to EUR 184 million in 2016. The increase in Nokia
Technologies selling, general and administrative expenses was
primarily due to a non-recurring licensing cost and the ramp-up
of digital health. This was partially offset by lower licensing-related
litigation costs, which benefitted from a reimbursement related to a
settled arbitration, as well as lower business support costs. The higher
selling, general and administrative expenses in digital health were
primarily due to the acquisition of Withings in 2016.
Nokia Technologies other income and expense in 2017 was a net
expense of EUR 6 million, a change of EUR 7 million compared to a net
income of EUR 1 million in 2016.
Operating profit
Nokia Technologies operating profit in 2017 was EUR 1 124 million,
an increase of EUR 545 million, or 94%, compared to an operating
profit of EUR 579 million in 2016. The increase in Nokia Technologies
operating profit was primarily attributable to higher gross profit.
Nokia Technologies operating margin in 2017 was 68.0% compared
to 55.0% in 2016.
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
2016
EURm % of net sales
2015
EURm % of net sales
Year-on-year
change %
1 053
(42)
1 011
(249)
(184)
1
579
100.0
(4.0)
96.0
(23.6)
(17.5)
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)
13
69
(86)
(17)
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 Technologies selling, general and administrative expenses in
2016 were EUR 184 million, an increase of EUR 75 million, or 69%,
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.
Gross profit
Nokia Technologies gross profit in 2016 was EUR 1 011 million, a
slight decrease of EUR 9 million, or 1%, compared to EUR 1 020 million
in 2015.
Operating expenses
Nokia Technologies R&D expenses in 2016 were EUR 249 million,
an increase of EUR 29 million, or 13%, 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 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.
58
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Group Common and Other
For the year ended December 31, 2017 compared to the year ended
December 31, 2016
The following table sets forth selective line items for the years indicated.
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
2017
EURm
1 114
(956)
158
(260)
(219)
73
(248)
2016
EURm
1 142
(957)
185
(287)
(235)
(13)
(350)
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
1 142
(957)
185
(287)
(235)
(13)
(350)
2015
EURm
–
–
–
(84)
(97)
92
(89)
Net sales
Group Common and Other net sales in 2017 were EUR 1 114 million,
a decrease of EUR 28 million, or 2%, compared to EUR 1 142 million
in 2016. The decrease in Group Common and Other net sales was
primarily due to Alcatel Submarine Networks, partially offset by
Radio Frequency Systems.
Gross profit
Group Common and Other gross profit in 2017 was EUR 158 million,
a decrease of EUR 27 million, or 15%, compared to EUR 185 million in
2016. The lower gross profit was primarily due to Alcatel Submarine
Networks. Group Common and Other gross margin in 2017 was 14.2%
compared to 16.2% in 2016.
Operating expenses
Group Common and Other R&D expenses in 2017 were EUR 260 million,
an decrease of EUR 27 million, or 9%, compared to EUR 287 million in
2016. The decrease in Group Common and Other R&D expenses was
primarily due to lower personnel expenses, reflecting progress related
to our cost savings program.
Group Common and Other selling, general and administrative
expenses in 2017 were EUR 219 million, a decrease of EUR 16 million,
or 7%, compared to EUR 235 million in 2016. The decrease in Group
Common and Other selling, general and administrative expenses was
primarily due to lower personnel expenses, reflecting progress related
to our cost savings program.
Group Common and Other other income and expense in 2017 was a
net income of EUR 73 million, a change of EUR 86 million compared to
a net expense of EUR 13 million in 2016. The net positive fluctuation
in other income and expenses was primarily due to the unwinding of
a reinsurance contract, gains in venture fund investments and an
expiration of a former Alcatel Lucent stock option liability.
Operating loss
Group Common and Other operating loss in 2017 was EUR 248 million,
a change of EUR 102 million, compared to an operating loss of
EUR 350 million in 2016. The change in Group Common and Other
operating loss was primarily attributable to a positive fluctuation in
other income and expense, and to a lesser extent, lower R&D and
selling, general and administrative expenses, partly offset by lower
gross profit.
Net sales
Group Common and Other net sales in 2016 were EUR 1 142 million,
an increase of EUR 1 142 million, compared to approximately zero
in 2015. The increase in Group Common and Other net sales was
primarily due to Alcatel Submarine Networks and Radio Frequency
Systems net sales, both of which related to the acquisition of
Alcatel Lucent.
Gross profit
Group Common and Other gross profit in 2016 was EUR 185 million,
compared to approximately zero in 2015. The Group Common and
Other gross profit was attributable to gross profit from Alcatel
Submarine Networks and Radio Frequency Systems, both of which
related to the acquisition of Alcatel Lucent. Group Common and
Other gross margin in 2016 was 16.2%.
Operating expenses
Group Common and Other R&D expenses in 2016 were EUR 287 million,
an increase of EUR 203 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 235 million, an increase of EUR 138 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 13 million, a change of EUR 105 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 350 million,
an increase of EUR 261 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
59
Operating and financial review and prospects Liquidity and
capital resources
Financial position
As of December 31, 2017, 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 8 280 million, a
decrease of EUR 1 047 million, compared to EUR 9 327 million as
of December 31, 2016. The decrease was primarily attributable
to shareholder distributions, including payment of dividends of
EUR 970 million and repurchases of shares of EUR 785 million;
EUR 394 million cash outflow related to the acquisitions of
businesses, and capital expenditures of EUR 601 million. The decrease
was partially offset by EUR 1 811 million positive cash flow from
operating activities, including EUR 597 million total cash inflows
from net working capital. As of December 31, 2015, our total cash
and other liquid assets equaled EUR 9 849 million.
As of December 31, 2017, 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 4 514 million, a decrease of EUR 785 million, compared to
EUR 5 299 million as of December 31, 2016. The decrease was mainly
attributable to drivers affecting our total cash and other liquid assets
as described above. Our interest-bearing liabilities decreased by
EUR 262 million primarily attributable to changes in foreign exchange
rates and the issuance of senior notes and repurchases of selected
outstanding senior notes during 2017. As of December 31, 2015,
our net cash and other liquid assets equaled EUR 7 775 million.
As of December 31, 2017, our cash and cash equivalents equaled
EUR 7 369 million, a decrease of EUR 128 million compared to
EUR 7 497 million as of December 31, 2016. As of December 31,
2015, our cash and cash equivalents equaled EUR 6 995 million.
Cash flow
2017
Our cash inflow from operating activities in 2017 of EUR 1 811 million
increased by EUR 3 265 million compared to a cash outflow of
EUR 1 454 million in 2016. The increase was primarily attributable to a
EUR 597 million cash release from net working capital in 2017 compared
to a EUR 2 207 million cash being tied-up in 2016; and net profit,
adjusted for non-cash items, of EUR 2 125 million, an increase of
EUR 645 million compared to EUR 1 480 million in 2016. The primary
driver for the decrease in net working capital was related to an
increase in liabilities of EUR 1 314 million compared to a decrease
of EUR 2 758 million in 2016. The increase in liabilities was primarily
attributable to an up-front cash payment of approximately
EUR 1 700 million, part of which has been recognized as net sales in
2017, and an increase in accounts payable partially offset by restructuring
and associated cash outflows of approximately EUR 550 million. The
increase in liabilities was partially offset by an increase in receivables
of EUR 421 million and an increase in inventories of EUR 296 million.
Cash flow from operating activities also included interest paid
of EUR 409 million, an increase of EUR 100 million compared to
EUR 309 million in 2016; paid taxes of EUR 555 million, an increase
of EUR 52 million compared to EUR 503 million in 2016; and interest
received of EUR 53 million, a decrease of EUR 32 million compared
to EUR 85 million in 2016. In 2017, out of EUR 555 million paid taxes,
approximately EUR 260 million were non-recurring in nature and related
to the disposal of the former Alcatel Lucent railway signaling business
in 2006 to Thalés and the integration of the former Alcatel Lucent and
Nokia operating models. In 2017, out of EUR 409 million interest paid,
EUR 250 million were non-recurring in nature and related primarily to
our offer to purchase selected outstanding notes.
In 2017, our cash inflow from investing activities equaled EUR 10 million,
a decrease of EUR 6 826 million compared to EUR 6 836 million cash
inflow in 2016. The decrease in cash inflow from investing activities was
primarily driven by cash outflow due to the acquisition of businesses
of EUR 394 million, mainly related to the acquisition of Comptel,
compared to EUR 5 819 million cash inflow in 2016, which included cash
and cash equivalents acquired as part of the acquisition of Alcatel Lucent.
In 2017, cash outflow from acquisition of businesses was offset
by proceeds from maturities and sale of current available-for-sale
investments, liquid assets of EUR 3 265 million partially offset by
purchase of current available-for-sale investments, liquid assets
of EUR 2 729 million.
In 2017, our capital expenditure equaled EUR 601 million, an increase
of EUR 124 million compared to EUR 477 million in 2016. Major items
of capital expenditure in 2017 included investments in R&D equipment,
test equipment, hardware for telco and cloud environment, plants,
buildings and construction for transformation projects, and repair
or improvements of sites.
In 2017, our cash outflow from financing activities of EUR 1 749 million
decreased by EUR 3 174 million in comparison to EUR 4 923 million cash
outflow in 2016. The decrease in cash outflows was primarily driven by
proceeds from long-term borrowings of EUR 2 129 million, an increase
of EUR 1 904 million compared to 2016, mainly related to issued new
bonds; repayment of long-term borrowings of EUR 2 044 million, a
decrease of EUR 555 million compared to 2016; and paid dividends of
EUR 970 million, a decrease of EUR 545 million compared to 2016. The
decrease in cash outflow was partially offset by purchase of treasury
shares of EUR 785 million representing an increase of EUR 569 million
compared to 2016.
60
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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 included 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 included 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.
Financial assets and debt
As of December 31, 2017, our net cash and other liquid assets equaled
EUR 4 514 million and consisted of EUR 8 280 million in total cash and
other liquid assets and EUR 3 766 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.
As of December 31, 2017, our interest-bearing liabilities consisted of
EUR 231 million notes due in 2019, USD 581 million notes due in 2019,
EUR 500 million notes due 2021, USD 500 million notes due 2022,
EUR 750 million notes due 2024, USD 500 million notes due 2027,
USD 74 million notes due in 2028, USD 206 million notes due in 2029,
USD 500 million notes due in 2039 and EUR 326 million of other
liabilities. The notes maturing in 2019, 2021, 2022, 2024, 2027 and
2039 are issued by Nokia Corporation, while the notes maturing in
2028 and 2029 are issued by Lucent Technologies Inc., a predecessor
to Nokia of America Corporation (Nokia’s wholly-owned subsidiary,
formerly known as Alcatel-Lucent USA Inc.). Refer to Note 23,
Interest-bearing liabilities, of our consolidated financial statements
included in this annual report on Form 20-F for further information
regarding our interest-bearing liabilities.
In March 2017, we executed capital markets transactions, including
issuances of EUR 500 million notes due in 2021 and EUR 750 million
notes due 2024 and, pursuant to cash tender offers, purchases of
EUR 269 million of notes due 2019, USD 86 million of notes due 2028
and USD 401 million of notes due 2029. In June 2017, we executed
additional capital market transactions, including issuances of
USD 500 million notes due 2022 and USD 500 million notes due 2027
and, pursuant to cash tender offers, purchases of USD 419 million
of notes due 2019, USD 140 million of notes due 2028 and
USD 753 million of notes due 2029.
In June 2017, we exercised our option to extend our EUR 1 579 million
revolving credit facility from June 2019 to June 2020. The facility
has no financial covenants and remains undrawn.
We consider that with EUR 8 280 million of cash and other liquid
assets as well as our EUR 1 579 million revolving credit facility, we have
sufficient funds to satisfy our future working capital needs, capital
expenditures, R&D investments, structured finance, venture fund
commitments, acquisitions and debt service requirements, at least
through 2018. We further consider that with our current credit ratings
of BB+ by Standard & Poor’s and Ba1 by Moody’s, we have access
to the capital markets should any funding needs arise in 2018.
We aim to re-establish our investment grade credit rating.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
61
Operating and financial review and prospects Liquidity and capital resources continued
Off-balance sheet arrangements
There are no material off-balance sheet arrangements that have,
or are reasonably likely to have, a current or future effect on our
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures
or capital resources that are material to investors, except for the
purchase obligations and leasing commitments, as well as guarantees
and financing commitments disclosed in Note 30, Commitments
and contingencies, of our consolidated financial statements included
in this annual report on Form 20-F.
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.
In 2017, we completed the following shareholder distributions as part
of the capital structure optimization program:
■ ordinary dividend for 2016 of EUR 0.17 per share, totaling
EUR 963 million, paid in June 2017; and
■ share repurchases totaling EUR 785 million to complete our
EUR 1 billion share repurchase program commenced in
November 2016.
Thereafter, we consider that the Capital Structure Optimization
Program announced in 2015 has been completed.
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, 2017, our total customer financing, outstanding
and committed, equaled EUR 655 million, an increase of EUR 303 million
as compared to EUR 352 million in 2016. As of December 31, 2015,
our total customer financing, outstanding and committed, equaled
EUR 213 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 on Form 20-F 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, 2017, guarantees of our performance consisted
of bank guarantees given on behalf of Nokia to its customers for
EUR 1 678 million (EUR 1 805 million as of December 31, 2016).
In addition, Nokia Corporation issued corporate guarantees directly
to our customers with primary obligation for EUR 1 114 million
(EUR 1 608 million as of December 31, 2016). These instruments
entitle our customers to claim payments as compensation for
non-performance by Nokia of its obligations under supply agreements.
Depending on the nature of the instrument, compensation is either
payable on demand, or is subject to verification of non-performance.
Financial guarantees and any collateral pledged that we may give on
behalf of customers, represent guarantees relating to payment by
certain 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
on Form 20-F for further information regarding commitments
and contingencies.
62
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Material
subsequent events
After December 31, 2017 no material subsequent events have
taken place.
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, 2017, our unlisted venture fund investments
equaled EUR 661 million, as compared to EUR 819 million as of
December 31, 2016. Refer to Note 24, Fair value of financial
instruments, of our consolidated financial statements included in
this annual report on Form 20-F for further information regarding
fair value of our unlisted venture fund investments.
As of December 31, 2017, our venture fund commitments equaled
EUR 396 million, as compared to EUR 525 million as of December 31,
2016. 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 on
Form 20-F 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 we have sufficient liquidity to go through unfavorable
periods without being severely constrained by the availability of funds
to execute Nokia’s business plans and implement Nokia’s long-term
business strategy. We are risk-averse in our treasury activities.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
63
Operating and financial review and prospects
Sustainability and
corporate responsibility
We create the technology to connect
the world and we aim to do this in
a responsible way.
We work together with key stakeholders to
drive change and enable better lives, greater
access to opportunity and a healthier planet.
We design, create and deliver technology
that can have a positive impact on people and
the world around us. We align with globally
recognized ethical and responsible business
practices and frameworks, putting in place the
processes, policies and programs to achieve
our aim.
We believe we can achieve our greatest impact
on the world’s sustainability challenges by
developing and enhancing solutions and
technology that improve lives and provide
greater opportunities for people. The
continued development and rollout of 5G
and IoT has the potential to socially and
economically empower any individual. These,
and other technologies can bring about
smart efficiencies and improvements in cities,
homes, and industry as well as improved
access to digital health, greater public safety
and a better climate. Our main business of
delivering networks, technology solutions
and services to operators, enterprises and
institutions provides the greatest potential
positive impact on sustainable development.
Materiality assessment and
sustainability performance
Our sustainability approach is aligned with
both our business strategy and focus, as well
as the key material issues identified in our
materiality analysis. Our sustainability
priorities remain: to improve people’s lives
with technology, to protect the environment,
to conduct our business with integrity, and
to respect our people. Sustainability and
corporate responsibility issues are reviewed
regularly at all levels within Nokia, including
review and feedback from the Board of
Directors and the Group Leadership Team.
In 2017, we revisited and updated our
materiality analysis. We analyzed current
stakeholder requirements, our influence on
sustainable development throughout the
value chain, and further embedded the UN
Sustainable Development Goals (“SDGs”).
We believe the technology we create can have
a positive impact on all 17 SDGs, but place
special focus on the areas where we can
achieve the greatest positive outcomes.
1 bn
We have set the target of helping our
customers to connect the next billion by 2022
44%
The networks we modernized brought on
average energy savings of 44% for our
customers
Based on the materiality analysis, we
concentrate our efforts on the benefits
of connectivity and sustainable products,
environmental impact and climate change
challenges. We work hard to ensure ethical
business practices and support the increasing
need for data privacy and freedom of
expression, supply chain responsibility and
transparency, health & safety, and employee
engagement as well as increased diversity.
More details on our materiality assessment,
including how we support the UN SDGs can
be found in our People & Planet Report at
www.nokia.com/people&planet.
Setting concrete targets
In May 2017, we published our achievements
against 25 targets in our People & Planet
sustainability report online and set 46 short
and long-term targets for the period 2017
to 2030. We also specifically set and received
approval for our science based targets on
carbon emissions both for our products in
use and for our operations. We were the first
major telecoms vendor to set these targets,
showing our true commitment to take action
in the fight against climate change.
EcoVadis is one of the evaluation platforms
through which we provide annual sustainability
information for evaluation which is then
shared with customers as requested. In 2017,
we were in the top 1% of suppliers assessed,
achieving excellent scores in environment,
sustainable procurement, and labor practices.
We also retained for a second consecutive
year our listing as Industry leader in the
Communications Equipment (“CMT”) sector
of the Dow Jones Sustainability Indices
(“DJSI”). We are listed in both the World
and European DJSI indices.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
Other recognitions included being ranked at
leadership level in the CDP for our work on
and disclosure of climate change data and
being listed in the Europe 120 and Eurozone
120 indices of Euronext Vigeo. We were also
reconfirmed as a constituent of Ethibel
Sustainability Indices and were among
Corporate Knights Global 100 Most
Sustainable Corporations in the world in 2017.
We implement a variety of mitigation
processes and procedures to deal with any
day-to-day potential environmental, social
and ethical risks in our daily business. Potential
external global environmental, social, and
ethical risks are discussed in more detail
under the relevant topic areas below.
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, which is prepared in accordance with
the GRI and UN Global Compact sustainability
reporting guidelines, at http://www.nokia.
com/en_int/about-us/sustainability.
Improving people’s lives
through technology
Our radio networks’ customers provide service
for around 5.7 billion subscriptions worldwide.
We have set a public target of helping our
customers connect the next billion measured
by number of subscriptions in our radio
customers’ networks and by number of
fixed lines shipped to our customers.
We have continued to develop our public
safety portfolio and Nokia Saving Lives
project demonstrates the power of
technology to save lives by combining mobile
communications technology with drones and
applications like real-time high-definition
video and infrared camera. We have also now
included a humanitarian aid category into
the Nokia Open Innovation Challenge 2017.
Nokia ViTrust, using LTE, enables public safety
networks to deliver real time video and data
services that greatly enhance situational
awareness and response time in emergencies
when every second counts.
We also work closely with Non-Governmental
Organizations (“NGOs”), customers, and
communities in our corporate community
investment. Our strategic social themes are:
connecting the unconnected, empowering
women, and saving lives. In 2017, as part of
our community programs we collaborated
with others to realize programs in gender
diversity that encourage girls into Science
Technology Engineering and Mathematics and
technology careers, such as greenlight4girls
(see www.greenlightforgirls.org) and CodeBus
Africa (www.finland100africa.fi).
We look for initiatives where technology can
make a positive contribution to people’s lives.
For example, in India we support the Save
the Children led Forecast Application for
Risk Management (“FARM”) initiative which
is a pioneering initiative that would enable
farmers to reduce input costs and risks of
crop failure by taking informed farming
decisions and investing the savings in their
children and families. This technology aims to
galvanize the farmers against the ill-effects
of changing climatic patterns. It is currently
being implemented in Nagapattinam district,
Tamil Nadu.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
65
Operating and financial review and prospects Sustainability and
corporate responsibility continued
Protecting the environment
We believe that we have more opportunities
than risks related to the environment. Our key
potential environmental risks are the adverse
effects resulting from climate change as
well as natural and man-made disasters in
countries where we have manufacturing
or suppliers. These effects could include
a material adverse impact on our ability to
supply products and services, and therefore
on our potential sales.
We are committed to protecting the
environment and to the fight against climate
change by making our operations eco-friendly
and reducing the energy usage of the products
we deliver to our customers. We have in place
a mature, robust environmental management
system, and company-wide environmental
policy and procedures. We also provide for
estimated costs of environmental remediation
relating to soil, groundwater, surface water
and sediment contamination when we
become obliged, legally or associatively, to
perform restorative work on current and/or
legacy sites.
Our greatest environmental contribution
comes from improving the energy efficiency
of our products and solutions in use, as well as
driving the positive impact digital technology
can have in the world. 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. We apply a circular economy
approach, for example, offering an Asset
Recovery Service, including remanufacturing,
reuse and recycling of older equipment as
part of product lifecycle management.
In 2017, through our voluntary programs,
we sent around 2 600 metric tons of old
telecommunications equipment for materials
recovery and we remanufactured or reused
approximately 68 000 units.
Energy efficiency and responsible waste
management remain key objectives in our
operations. Working with the Science Based
Targets (“SBT”) initiative we have set the
long-term target of reducing emissions
from our operations by 41% by 2030,
against 2014 baseline year. Read more at
www.sciencebasedtargets.org. In 2017,
we were well on track towards the target.
As a main element of the Scope 1 and 2
emissions, our total energy consumption
across our facilities decreased by 3% as
compared to 2016.
Targeting zero emissions
In terms of our products in use, we have also
set an SBT target for scope 3 emissions – and
particularly for emissions from customer use
of our products. We target to reduce these
emissions by 75% by 2030 compared to 2014
baseline, and are currently on track. We also
further developed our zero-emissions radio
network offering, which now includes some
20 products and services. We explored the
use of liquid cooling for base station sites as
well as investigating the capacity to capture
waste heat from the base stations and use
it as useful heat e.g. for heating buildings.
We have delivered zero emission products
to 120 customers around the world, helping
them reduce their emissions. Modernization
is a key component to enable greater energy
efficiency. In 2017, the customer base-station
sites we modernized used on average 44%
less energy than those where our customers
did not modernize. This reduces the
environmental impact of electricity
consumption and is directly reflected as
increased financial benefits for our customers.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
Conducting our business
with integrity
We apply our Code of Conduct across our
operations which allows us to build and
maintain personal integrity and protect our
reputation. The Code of Conduct includes
key business policy statements for 14 topics,
including Improper Payments/Anti-Corruption,
Fair Employment Practices, Human Rights,
Environment and Working with Suppliers.
We emphasize the implementation and
understanding of the Code of Conduct across
our workforce, sales and supplier interactions.
Our employees are expected to comply with
our Code of Conduct. In addition, employees
are expected to successfully complete a
training module on ethical business practices.
In 2017, 86% of our employees completed
this training against our target of 95%.
We will continue and strengthen our efforts
to increase the completion percentage of
this training in order to meet or exceed this
target in 2018.
Anti-corruption and bribery
Our Code of Conduct covers, for example,
anti-corruption and bribery issues and is
further supported by our internal
Anti-Corruption Policy. As a global company
working in many countries around the world,
we naturally can face risks related to
corruption and bribery. To mitigate those risks
we have instigated a Compliance Controls
Framework (“CCF”). This is a bottom-up
exercise which includes internal gap-analysis
workshops and localized risk mitigation plans.
As per target for 2017, the Ethics & Compliance
team together with relevant senior leaders
carried out 20 CCF reviews during 2017.
We also use face-to-face training, open
communication and leadership roundtables.
For example, we held specific anti-corruption
training targeting supplier and customer
facing employee groups which have been
identified as groups who may face the
greatest potential risk. We perform risk-based
due diligence procedures for different
categories of third parties (suppliers and
business partners) to assess and to manage
potential risks related to engaging and
working with them. We also screen new
suppliers as part of our anti-corruption
supplier program, using two levels of
screening according to perceived risk. If issues
are identified during screening, additional
information or actions are required of the
supplier, or the supplier is rejected and
cannot be used.
Oversight and grievance mechanisms
Leadership involvement and oversight
of ethics and compliance are provided by
the Board via the Audit Committee, which
convened nine times in 2017, and covered
ethics and compliance topics in five of
those meetings. 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 dedicated
Nokia EthicsPoint channels via email,
phone or online, anonymously if desired.
In 2017, our Ethics & Compliance office
received 678 concerns, of which 257
were investigated by Ethics & Compliance
Investigations as alleged violations of our
Code of Conduct. We also implemented
corrective actions including 47 dismissals
and 45 written warnings following these
and other investigations.
Human rights
Our human rights work is guided by the Code
of Conduct and the Human Rights Policy. We
feel that more connectivity is better than less
and that the technologies we provide are a
social good that can support human rights
by enabling free expression, access to
information, exchange of ideas and economic
development. However, we have identified
the potential misuse of the products and
technology we provide, as the most salient
human rights risk in our operations. We aim to
ensure the technologies we provide are used
to respect, and not to infringe human rights.
We have also identified potential human rights
related risks in our supply chain. Please read
more about how we manage our supply chain,
including the KPI on conflict-free smelters,
in the “Responsible sourcing” section.
Freedom of expression and privacy
In 2017, to increase transparency, we became
the first telecoms vendor to publish real
human rights due diligence cases to increase
the dialogue and understanding of the issues
vendors can face. We run human rights due
diligence processes as part of our global sales
process, to further mitigate the potential risks
of product misuse. In March 2017, we took
a seat on the board of the Global Network
Initiative (“GNI”) as a full member and as the
first and only telecommunications equipment
provider. The former Telecommunications
Industry Dialogue was disbanded as the
majority of its members have taken up
membership in the GNI.
In June 2017, we published our Modern
Slavery Statement. While it is often perceived
that ICT may enable many activities related to
modern slavery, it is our mission to help find
ways in which the technology we provide can
be used to eradicate modern slavery. We work
with others in the industry to identify ways
through which we can, as an industry,
contribute with concrete solutions to tackling
some of the issues related to modern slavery.
To this end we co-hosted a multi-stakeholder
event to increase the cooperation and
dialogue around the role of digital technology
in tackling modern slavery. Moving forward,
we will also continue to call on other ICT
companies to join us in this dialogue.
Responsible sourcing
Whereas our Code of Conduct primarily
directs how we work in Nokia, our Supplier
Requirements, common to all Nokia suppliers,
is part of the contract appendices with
suppliers and details related requirements
from suppliers. Nokia Supplier Requirements
contain requirements on such responsibility
related domains as environment, security,
privacy, risk management, human resources
management, and health. We run robust
assessments as well as training with our
supplier network to support them in meeting
our ethical standards and improving
performance where necessary.
In 2017, we implemented 393 supply
chain audits (390 in 2016), which included
72 on-site audits on Corporate Responsibility
topics; 47 were on-site audits against our
supplier requirements and 274 suppliers
were assessed using the EcoVadis scorecards.
Additionally, we run training workshops for
suppliers operating in high-risk countries.
In 2017, we organized online training on
management of climate change and conflict
minerals, and we arranged face-to-face
training workshops establishing improvement
plans and actions for 253 suppliers. An extract
from the Nokia Supplier Requirements
document showing a summary of the corporate
responsibility requirements is available online
at www.nokia.com/people&planet.
We also carry out Health & Safety Maturity
Assessments with those high-risk suppliers
who for example work at height or with
electricity. In 2017, we assessed 975 suppliers
delivering high-risk activity using our H&S
Maturity Assessment Process and 81% of
assessed suppliers met “H&S compliant
supplier”-status. By the end of 2018 we
target to increase the percentage of suppliers
meeting H&S compliant supplier status to 90%.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
67
Operating and financial review and prospects Sustainability and
corporate responsibility continued
The traceability of our materials and ensuring
our products are conflict-free is a priority for
us, which is also reflected in our Conflict
Minerals Policy. In 2017, 83% (84% in 2016) of
smelters identified as part of our supply chain
have been validated as conflict-free or are
active in the validation process. In our Mobile
Networks business we target to achieve full
traceability of the smelters in our supply chain
and their conflict-free status by the end of
2018, and achieve full traceability at the
Nokia Group level by the end of 2020. Refer
to our conflict minerals report available at
http://www.nokia.com/en_int/about-us/
sustainability/downloads.
We work closely with our supply chain through
the CDP Supply Chain Program to jointly
create environmental improvement programs
and better our upstream indirect emissions
that occur in our value chain. In 2017, 292
of our key suppliers responded to the CDPs
request to disclose their climate performance
information and 153 (127 in 2016) also
provided emission reduction targets. With this
result, we have achieved our target to have
150 suppliers setting emission reduction
targets by end of 2018.
Respecting our people
The market for skilled employees in our
business is extremely competitive. Our
workforce has fluctuated over recent years
as we have introduced changes in our strategy
to respond to our business targets and our
endeavors. Such changes and uncertainty
have caused, and may in the future cause
disruption among employees as well as
fatigue due to the cumulative effect of several
reorganizations over the past years. As a
result, we believe it is essential that we work
on creating a corporate culture that is
motivational, based on equal opportunities,
and encourages creativity and continuous
learning to meet the challenges.
In 2017, we continued to measure the
favorability of employee perceptions across
a wide variety of topics about company and
culture, with an anonymous employee survey.
The result rose from 76% to 80% favorability
towards the company. In 2018, we aim
to continue strengthening our employee
engagement understanding by exploring
new means to capture employee opinion,
for overall perceptions of Nokia as a company
and our cultural direction, as well as team
dynamics. 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 2017,
we also introduced global volunteering
guidelines allowing all employees the
opportunity to carry out two working days
per year as a volunteer.
In 2017, each employee spent an average of
approximately 16 hours on training (19 in
2016). 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.
Diversity, inclusion and anti-discrimination are
key to our employee makeup. On March 8,
2017, International Women’s Day, our CEO
Rajeev Suri signed the United Nations Women
Empowerment Principles, stating that Nokia is
committed to doing its part to eliminate the
disparity in technology companies between
men and women. We have a Diversity Steering
Committee that makes decision proposals to
the Group Leadership Team and steers our
various diversity programs. In September
2017, our CEO also signed a letter of
cooperation with UNESCO to promote gender
equality, women’s empowerment and
women’s leadership. In 2017, approximately
13% (14% in 2016) of our senior
management positions were held by women
and around 2 300 leaders and employees
were trained on gender balance topics,
against the target of 2 000. In total, women
accounted for 22% of our workforce in 2017.
Labor conditions
Our Code of Conduct provides the basis for
our labor conditions, and is underpinned by a
comprehensive set of global human resources
policies and procedures that enable fair
employment. We adhere to the International
Labor Organization (“ILO”) Declaration on
Fundamental Principles and Rights at Work
and wherever we operate we meet the
requirements of labor laws and regulations,
and oftentimes strive to exceed those laws
and regulations.
We strive to ensure decent working conditions
and fair employment, considering
international and local laws and guidelines.
Health and safety is a key priority for us.
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. As the highest risks exist with
our contractors who, for example, work at
height or with electricity, we have therefore
set KPIs related to the supplier Health and
Safety Maturity Assessment Process, which
are described in the Responsible sourcing
section above. In April 2017, we launched a
new corporate wellness program Healthier
Together, encouraging and enabling active
lifestyle for all employees, and contributing
to making Nokia a healthy place to work.
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.
Cooperating with others in our industry
and beyond
In 2017, we remained a member of the
United Nations Global Compact, Global
e-Sustainability Initiative, CDP supply
chain program, Global Network Initiative,
Climate Leadership Council, Digital Europe,
Responsible Mineral Initiative (formerly
Conflict-Free Sourcing Initiative), GSMA
Humanitarian Connectivity Charter 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.
Working with NGOs
Based on our Corporate Community
Investment approach, we set a target of
improving the lives of 2 000 000 people
between 2016-2025 through our corporate
and key regional community investment
programs, focusing our action on gender
balance, education, and health, and on
how our products and services improve
people’s lives. By the end of 2017, already
around 1 122 400 people have benefitted
from our programs.
In addition to multi-year signature programs
for example with Save the Children and
Greenlight for Girls, in 2017 we supported
new signature programs such as the
Unicef mHealth program in Indonesia
(http://unicefstories.org/tech/mhealth/)
and HundrED (www.hundred.org/en).
In addition to these, we have worked with
several other organizations to activate
children and youth to innovate and be
empowered through technology.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
Employees
In 2017, the average number of employees
was 101 731 (102 687 in 2016 and 56 690 in
2015). The total amount of salaries and wages
paid in 2017 was EUR 6 456 million (EUR 6 275
million in 2016 and EUR 3 075 million in 2015).
Refer to Note 9, Personnel expenses, of our
consolidated financial statements in this
annual report on Form 20-F.
The table below shows the average number of
employees in 2017, by geographical location:
Region
Finland
Other European countries
Middle East & Africa
China
Asia-Pacific
North America
Latin America
Total
Average number
of employees
6 359
32 698
3 954
17 829
22 179
14 910
3 802
101 731
NOKIA ANNUAL REPORT ON FORM 20-F 2017
69
Operating and financial review and prospects Dividend
The Board of Directors proposes
a dividend of EUR 0.19 per share
for 2017.
The proposed dividend is in line with our
distribution target. Nokia’s Board of Directors
is committed to proposing a growing dividend,
including for 2018. On a long-term basis,
Nokia targets to grow the dividend by
distributing approximately 40% to 70%
of earnings per share (“EPS”), excluding
unallocated items*, taking into account
Nokia’s cash position and expected cash
flow generation.
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 parent
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 parent 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 of Directors.
* 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.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
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 on Form 20-F.
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 on Form 20-F also
contains forward-looking statements that
involve risks and uncertainties presented
in “Forward-looking statements” above.
Our strategy is subject to various risks 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.
In November 2016, we announced key
financial and strategic targets as well as our
“Rebalancing for growth” corporate strategy
at our Capital Markets Day event. For further
information refer to “Business Overview—Our
strategy” and “Operating and financial review
and prospects—Principal industry trends
affecting operations”.
We operate in rapidly changing and innovative
industries and the opportunities we pursue
may require significant investments in
innovation in order to generate growth,
profitability or other targeted benefits across
our business groups. Our strategy, which
includes targeted investments in our business
and pursuing new business opportunities
based on identified trends and opportunities,
may not yield a return on our investment
as planned or at all. Our ability to achieve
strategic goals and targets is subject to a
number of uncertainties and contingencies,
certain of which are beyond our control,
and there can be no assurance that we will
correctly identify trends or opportunities
to pursue or be able to achieve the goals or
targets we have set. We continuously target
various improvements in our operations
and efficiencies through investing in R&D,
entering into licensing arrangements,
acquiring businesses and technologies,
recruiting expert employees and partnering
with third parties. There can be no assurance
that our efforts will generate the expected
results or improvements in our operations or
that we will achieve our intended targets or
financial objectives related to such efforts.
Any failure to achieve our strategy may
materially and adversely affect our business,
financial condition and results of operations.
Furthermore, there can be no assurance that
our investments will result in technologies,
products or services that achieve or retain
broad or timely market acceptance, answers
to the expanding needs or preferences of our
customers or consumers, or break-through
innovations that we could otherwise utilize
for value creation.
As part of our strategy, we have and may
continue to acquire or divest assets. For
instance, in June 2017 we completed
acquisition of Comptel for the purpose of
advancing our software strategy. We may
fail to complete planned acquisitions or
divestments or to integrate acquired
businesses or assets. Any such result could
interfere with our ability to achieve our
strategy, obtain intended benefits, retain and
motivate acquired key employees, or timely
discover all liabilities of acquired businesses
or assets, which may have a material adverse
effect on our business.
We may be materially and adversely affected
by general economic and market conditions
and other developments in the economies
where we operate.
As we are a company with global operations
and sales in many countries around the world,
our sales and profitability are dependent on
general economic conditions both globally
and regionally, the global financial markets,
as well as industry and market developments
in numerous diverse markets. Adverse
developments in, or the general weakness of,
economic conditions, such as unemployment
or consumer spending, may have an adverse
impact on the spending patterns of
end-users. This, in turn, may affect demand
of consumables, such as mobile phones or
digital health products which would have an
adverse effect on our Technologies business.
In our Networks business, this may also affect
both the services that end-users subscribe
to and the usage levels of such services,
which may lead mobile operators and
service providers to invest less in related
infrastructure and services or to invest in
low-margin products and services, which
could have a material adverse effect on our
business, financial condition, and results of
operations. Likewise, adverse developments
in economic conditions may lead vertical
customers, i.e. webscale companies, TXLE,
transportation, energy, public safety, to invest
less in infrastructure and services to digitize
their operations or to invest in low-margin
products and services, which again could have
a material adverse effect on our business,
financial condition, and results of operations.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
71
Operating and financial review and prospects Risk factors continued
on products and technologies that do not
become widely accepted or ultimately
prove unviable. Additionally, many of our
current and planned products are highly
complex and may contain defects or errors
that are, for instance, detected only after
deployment in telecommunications networks.
Our results of operations will depend to a
significant extent on our ability to succeed in
the following areas:
■ maintaining and developing a product
portfolio and service capability that are
attractive to our customers, for instance by
keeping pace with technological advances in
our industry and pursuing the technologies
that become commercially accepted;
■ continuing to introduce new products and
product upgrades successfully and on a
timely basis;
■ developing new or enhancing existing tools
for our services offerings;
■ optimizing the amount of customer or
market specific technology, product and
feature variants in our product portfolio;
■ continuing to meet expectations and
enhance the quality of our products and
services as well as introducing products
and services that have desired features
and attributes, such as energy efficiency;
■ pricing products and services appropriately,
which is crucial in the networks
infrastructure business due to the typical
long-term nature and complexity of the
agreements; and
■ leveraging our technological strengths.
General uncertainty and adverse
developments in the financial markets and
the general economy could have a material
adverse effect on our ability to obtain
sufficient or affordable financing on satisfying
terms. Uncertain market conditions may
increase the price of financing or decrease
its availability. We could encounter difficulties
in raising funds or accessing liquidity, which
may have a material adverse effect on our
business, financial condition and results of
operations. Unfavorable economic conditions
may also affect our suppliers. We have
manufacturing facilities and suppliers located
in various countries around the world and any
failure by these suppliers or partners, whether
due to challenging economic conditions or
intense competition or alike, may lead to
material adverse effect on our business,
financial condition and results of operations.
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 or fail to adapt
to changing business models.
Our business and the markets where we
operate are characterized by rapidly evolving
technologies, frequent new technological
requirements, product feature introductions
and evolving industry standards. Our business
performance depends on the timely and
successful introduction of new products,
services and upgrades of current products to
meet the evolving requirements of customers,
comply with emerging industry standards and
address competing technological and product
developments carried out by competitors.
The R&D of new and innovative, technologically
advanced products, as well as upgrades to
current products and new generations of
technologies, is a complex and uncertain
process requiring high levels of innovation
and investment, in addition to accurate
anticipation of technological, regulatory and
market trends. We may focus our resources
Certain of our competitors have significant
resources to invest in market exploration and
may seek new monetization models or drive
industry development and capture value
in areas where we may not currently be
competitive or do not have similar resources
available to us. These areas may include
monetization models linked to large amounts
of consumer data, large connected
communities, home or other entertainment
services, healthcare products and services,
alternative payment mechanisms or
marketing products. We also face competition
from various companies that may be able
to develop technologies or products that
become preferred over those developed by us
or result in adverse effects on us through, for
instance, developing technological innovations
that make our innovations less relevant.
The participants in the information technology,
communications and related services market
compete on the basis of product offerings,
technical capabilities, quality, price and
affordability through consumer financing
arrangements. Any failure by us to effectively
and profitably invest in new competitive
products, services, upgrades or technologies
and bring them to market in a timely manner
could result in a loss of net sales and market
share and have a material adverse effect on
our results of operations, competitiveness,
profitability and financial condition.
The competitive environment in the markets
where we operate continues to be intense
and is characterized by maturing industry
technologies, equipment price erosion and
aggressive price competition. Moreover,
mobile operators’ cost reductions and
network sharing, and industry consolidation
among operators have reduced the amount
of available business, resulting in further
competition and pressure on pricing and
profitability. Consolidation of operators may
result in vendors and service providers
concentrating their business in certain service
providers and increasing the possibility that
agreements with us are terminated or not
renewed. Furthermore, there are various
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
incumbent and new players competing with
Nokia in customer groups we strategically
target, such as webscale companies and
customers in energy, transport, public sector
and TXLEs. With these types of customers,
the nature of competition can be significantly
different from the communications service
provider markets, including competition
based on access network, core network,
Cloud infrastructure, platforms, applications
and devices.
We compete with companies that have large
overall scale, which affords such companies
more flexibility (e.g., on pricing). We also
continue to face intense competition globally,
including from companies based in China
which endeavor to gain further market share
and broaden their presence in new areas of
the network infrastructure and related
services business (e.g., by providing lower-cost
products and services). Competition for new
customers, as well as for new infrastructure
deployment, is particularly intense and
focused on the favorability of price and
agreement terms.
Additionally, new competitors may enter the
industry as a result of acquisitions or shifts in
technology. For example, the virtualization of
core and radio networks and the convergence
of IT and telecommunications may lower the
barriers to entry for IT companies entering
the traditional telecommunications industry
or build up tight strategic partnerships
with our traditional competitors. These
developments may enable more generic IT,
software and hardware to be used in
telecommunications networks leading to
further pricing pressure. Additionally, some
companies, including webscale companies,
may drive a faster pace of innovation in
telecommunication infrastructure through
more collaborative approaches and open
technologies across access, backhaul, core
and management. If we are unable to respond
successfully to competitive challenges in the
markets in which we operate, our business,
financial condition and results of operations
may be materially and adversely affected.
We must introduce high-quality products and
services in a cost-efficient, timely manner and
manage proactively the costs related to our
portfolio of products and services, including
component sourcing, manufacturing, logistics
and other operations. If we fail to maintain or
improve our market position, competitiveness
or scale, or if we fail to leverage our scale to
the fullest extent and keep prices and costs
at competitive levels or provide high-quality
products and services, this could materially
and adversely affect our competitive position,
business and results of operations,
particularly our profitability.
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.
Our sales and profitability are dependent on
the development of the industries in which we
operate, including the information technology
and communications and related services
market in numerous markets around the
world. For instance, we are particularly
dependent on the investments made by
mobile operators and network service
providers in network infrastructure and
related services. The pace and size of such
investments are in turn dependent on the
ability of network service providers and
mobile operators to increase their subscriber
numbers, reduce churn and compete with
business models eroding revenue from
traditional voice, messaging and data
transport services, as well as the financial
condition of such network service providers
and mobile operators. Additionally, market
developments favoring new technological
solutions, such as SDN, may result in reduced
spending for the benefit of our competitors
who have, or may have, a stronger position
in such technologies. The technological
viability of standardized, low-margin
hardware products in combination with the
virtualization of functions can induce a change
in purchase behavior, resulting in favoring
other vendors or in higher bargaining power
versus Nokia due to more alternative vendors.
Both effects could have a material adverse
effect on our business.
We expect to generate a significant share of
our growth from new customers, including
webscale companies and vertical customers
in energy, transport, public sector and TXLEs.
Each of these sectors may face adverse
industry developments which may
significantly impact the size of investments
addressable by us and our ability to address
these investments, in terms of both having
the right products available and being able
to attain new customers.
The level of demand by service providers and
other customers that purchase our products
and services can change quickly and can
vary over short periods of time. As a result
of the uncertainty and variations in the
telecommunications and vertical industries,
accurately forecasting revenues, results and
cash flow remains difficult.
Our success in the industries where we
operate is subject to a number of risks and
uncertainties, including:
■ the intensity of competition;
■ further consolidation of our customers
or competitors;
■ our ability to develop products and
services in a timely manner, or at all,
that meet future technological or quality
requirements and challenges at a
competitive cost level;
■ our ability to maintain and build up
strategic partnerships in our value creation
chain (e.g., in product creation and in
project delivery);
NOKIA ANNUAL REPORT ON FORM 20-F 2017
73
Operating and financial review and prospects Risk factors continued
■ our ability to correctly estimate
technological developments, including the
impending turn to 5G, or adapt successfully
to such developments;
■ the development of the relevant markets
and/or industry standards in directions that
leave us deficient in certain technologies
and industry areas that impact our overall
competitiveness;
■ the choice of our customers to turn to
alternative vendors to maintain end-to-end
services from such vendors;
■ our ability to successfully develop market
recognition as a leading provider of
software and services in the information
technology and communications and
related services market, in the digital media
and digital health markets as well as with
our vertical customers in energy, transport,
public sector, webscale, and TXLEs;
■ our ability to sustain or grow net sales in our
business and areas of strategic focus, which
could result in the loss of benefits related
to economies of scale and reduced
competitiveness;
■ our ability to identify opportunities and
enter into agreements that are
commercially successful;
■ our ability to continue utilizing current
customer relations to advance our sales of
related services, or pursue new service-led
growth opportunities;
■ our global presence that involves large
projects that expose us to various business
and operational risks including those
related to market developments, political
unrest or change in political atmosphere,
economic and trade sanctions and
compliance and anti-corruption-related
risks, especially with respect to emerging
markets; and
■ our ability to maintain efficient and
low-cost operations.
Our inability to overcome any of the above
risks or uncertainties could have a material
adverse effect on our results of operations
or financial performance.
We are dependent on a limited number of
customers and large multi-year agreements.
The loss of a single customer or contract,
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.
A significant proportion of the net sales that
we generate have historically been derived
from a limited number of customers. As
consolidation among existing customers
continues, it is possible that an even greater
portion of our net sales will be attributable to
a smaller number of large service providers
operating in multiple markets. These
developments are also likely to increase the
impact on our net sales based on the outcome
of certain individual agreement tenders.
Mobile operators are increasingly entering
into network sharing arrangements, as well
as joint procurement agreements, which may
reduce their investments and the number
of networks available for us to service.
Furthermore, procurement organizations of
certain large mobile operators sell consulting
services to enhance the negotiating position
of small operators with their vendors.
As a result of these trends and the intense
competition in the industry, we may be
required to agree to increasingly less
favorable terms in order to remain
competitive. Any unfavorable developments
in relation to, or any change in the agreement
terms applicable to, a major customer
may have a material adverse effect on our
business, results of operations and financial
condition. Also, due to the long-term nature
of the agreements, it is possible that the
contract terms of the agreement may prove
less favorable to us than originally expected,
for instance due to changes in costs and
product portfolio decisions.
We may lose existing agreements, or we are
unable to renew or gain new agreements due
to customer diversity policies that limit the
ability of customers to have one network
provider exceeding a certain threshold
of business in a given market. Policies or
practices in certain countries may also
limit the possibility for foreign vendors to
participate in certain business areas over
a certain threshold.
Furthermore, there is a risk that the timing
of sales and results of operations associated
with large multi-year agreements, which
are typical in the mobile infrastructure and
related services business, will differ from
expectations. Moreover, such agreements
often require dedication of substantial
amounts of working capital and other
resources, which may adversely affect our
cash flow, particularly in the early stages of
an agreement’s term, or may require us to
continue to sell certain products and services,
or to sell in certain markets, that would
otherwise be discontinued or exited, thereby
diverting resources from developing more
profitable or strategically important products
and services, or focusing on more profitable
or strategically important markets. Any
suspension, termination or non-performance
by us under an agreement’s terms may have
a material adverse effect on us (e.g., due to
penalties for breaches or early termination).
Our 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.
We have historically invested significantly in
R&D to develop new relevant technologies,
products and services for our business. This
has led to the Nokia Technologies business
group possessing one of the industry’s
strongest intellectual property portfolios,
including numerous standardized or
proprietary patented technologies.
We now have two further, distinct and
industry-leading portfolios: the Nokia
Networks and Alcatel Lucent portfolios.
Many of our products and services use or are
protected by patents in these portfolios. We
also generate revenue by licensing, and we
seek to renew existing license agreements
and negotiate new license agreements. We
also seek to expand the scope of our licensing
activities to other industries, in particular
those that implement mobile communication
technologies. The continued strength of our
portfolios depends on our ability to create
new relevant technologies, products and
services through our R&D activities and to
protect our IPR. If those technologies,
products and services do not become
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
relevant, and therefore attractive to licensees,
the strength of our intellectual property
portfolios could be reduced, which could
adversely affect our ability to use our
intellectual property portfolios for revenue
generation. Our intellectual property-related
revenue can vary considerably from time to
time based on factors such as the terms of
agreements we enter into with licensees,
and there is no assurance that past levels
are indicative of future levels of intellectual
property-related revenue.
Despite the steps that we have taken to
protect our technology investments with IPR,
we cannot be certain that any rights or
pending applications will be granted or
that the rights granted in connection with
any future patents or other IPR will be
sufficiently broad to protect our innovations.
Third parties may infringe our intellectual
property relating to our proprietary
technologies or disregard their obligation to
seek a license under our SEPs or seek to pay
less than reasonable license fees. If we are
unable to continue to develop or protect
our intellectual property-related revenue or
establish new sources of revenue, this may
materially and adversely affect our business,
financial position and results of operations.
The Nokia Technologies business group’s
sales and profitability are currently largely
derived from patent licensing. Patent licensing
income may be adversely affected by general
economic conditions or adverse market
developments, as well as regulatory and other
developments with respect to protection
awarded to technology innovations or
compensation trends with respect to
licensing. For example, our patent licensing
business may be adversely affected if a
licensee’s ability to pay is reduced or they
become insolvent or bankrupt. Additionally,
poor performance of potential or current
licensees may limit a licensee’s motivation
to seek new or renew existing licensing
arrangements with us. In certain cases, patent
licensing income is dependent on the sales of
the licensee, where the reduced sales of the
licensee have a direct effect on the patent
licensing income received by the Nokia
Technologies business group.
We enforce our patents against unlawful
infringement and generate revenue through
realizing the value of our intellectual property
by entering into license agreements and
occasionally through business transactions.
Patent license agreements can cover both
licensees’ past and future sales. The portion
of the income that relates to licensees’ past
sales is not expected to have a recurring
benefit and ongoing patent income from
licensing is generally subject to various
factors that we have little or no control over,
for instance sales by the licensees.
In certain cases, we have initiated litigation to
enforce our patents. In other cases, we have
used arbitration proceedings to establish
the terms of compensation between the
parties. Due to the nature of any litigation
or arbitration proceedings, there can be no
assurances as to the final outcome or timing
of any outcome of litigation, arbitration or
other resolution.
Regulatory developments, actions by
authorities, or applications of regulations may
adversely affect our ability to protect our
intellectual property or create intellectual
property-related revenue. Any patents or
other IPR may be challenged, invalidated or
circumvented, and any right granted under
our patents may not provide competitive
advantages for us. Our ability to protect and
monetize our intellectual property may
depend on regulatory developments in
various jurisdictions and the implementation
of the regulations by administrative bodies.
Our ability to protect, license or divest our
patented innovations may vary by region.
In the technology sector generally, certain
licensees are actively avoiding license
payments, while some licensors are using
aggressive methods to collect license
payments, with both behaviors attracting
regulatory attention. Authorities in various
countries have increasingly monitored patent
monetization and may aim to influence the
terms on which patent licensing arrangements
or patent divestments may be executed. Such
terms may be limited to a certain country or
region; however, authorities could potentially
seek to widen the scope and even impose
global terms, potentially resulting in an
adverse effect on us or limiting our ability
to monetize our patent portfolios.
Intellectual property-related disputes and
litigation are common in the technology
industry and are often used to enforce
patents and seek licensing fees. Other
companies have commenced and may
continue to commence actions seeking to
establish the invalidity of our intellectual
property, including our patents. In the event
that one or more of our patents is challenged,
a court may invalidate the patent or
determine that the patent is not enforceable,
which could have an impact on our
competitive position. The outcome of court
proceedings is difficult to predict and,
consequently, our ability to use intellectual
property for revenue generation may from
time to time depend on favorable court
rulings. Additionally, if any of our patents is
invalidated, or if the scope of the claims in any
patents is limited by a court decision, we could
be prevented from using such patents as
a basis for product differentiation or from
licensing the invalidated or limited portion of
our IPR. Even if such a patent challenge is not
successful, the related proceedings could be
expensive and time-consuming, divert the
attention of our management and technical
experts from our business and have an
adverse effect on our reputation. Any
diminution in the protection of our IPR
could cause us to lose certain benefits of
our R&D investments.
We retained our entire patent portfolio
after the sale of the D&S Business in 2014.
Following the sale of the D&S Business, Nokia
Technologies is no longer required to agree
cross-licenses to cover its handset business,
which has contributed to growing our licensing
revenue. While this has been our practice,
there can be no guarantee that this can be
continued in future. In the past, parts of our
intellectual property development were driven
by innovation from the D&S Business. As we
no longer own this business, our future
intellectual property relating to the mobile
phone sector may lessen and our ability to
influence industry trends and technology
selections may reduce.
We also enter into business agreements
separately within our business groups which
may grant certain licenses to our patents. Some
of these agreements may inadvertently grant
licenses to our patents with a broader scope
than intended, or they may otherwise make
the enforcement of our patents more difficult.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
75
Operating and financial review and prospects Risk factors continued
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.
We generate sales from, and have
manufacturing facilities and suppliers located
in, various countries around the world.
Regulatory and economic developments,
political turmoil, military actions, labor unrest,
civil unrest, public health and safety (including
disease outbreaks), environmental issues
(including adverse effects resulting from
climate change) and natural and man-made
disasters in such countries could have a
material adverse effect on our ability to supply
products and services, including network
infrastructure equipment manufactured in
such countries, and on our sales and results of
operations. In recent years, we have witnessed
political unrest in various markets in which
we conduct business or in which we have
operations, which in turn has adversely
affected our sales, profitability or operations
in these markets, and in certain cases affected
us outside these countries or regions. Any
reoccurrence or escalation of such unrest
could have a further material adverse effect
on our sales or results of operations. For
instance, instability and conflict in regions
such as the Middle East, parts of Africa and
Ukraine have in the past adversely affected,
and may in the future adversely affect, our
business or operations in these or related
markets (e.g., through increased economic
uncertainty or a slowdown or downturn
attributable to current or increased
economic and trade sanctions).
We have a significant presence in emerging
markets in which the political, economic, legal
and regulatory systems are less predictable
than in countries with more developed
institutions. These markets represent a
significant portion of our total sales, and a
significant portion of expected future industry
growth. Most of our suppliers are located in,
and our products are manufactured and
assembled in, emerging markets, particularly
in Asia. Our business and investments in
emerging markets may also be subject to risks
and uncertainties, including unfavorable or
unpredictable treatment in relation to tax
matters, exchange controls, restrictions
affecting our ability to make cross-border
transfers of funds, regulatory proceedings,
unsound or unethical business practices,
challenges in protecting our IPR,
nationalization, inflation, currency fluctuations
or the absence of or unexpected changes in
regulation, as well as other unforeseeable
operational risks. The purchasing power
of our customers in developing markets
depends to a greater extent on the price
development of basic commodities and
currency fluctuations, which may render
our products or services unaffordable.
We continuously monitor international
developments and assess the appropriateness
of our presence and business in various
markets. For instance, as a result of
international developments, we have
expanded our business in Iran in compliance
with applicable economic sanctions and other
regulations. While the international agreement
on Iran’s nuclear activities has led to a
relaxation of international sanctions, many
jurisdictions continue to impose various
restrictions on conducting business in Iran
and the international regulatory framework
remains complex. Adverse political or other
developments could potentially lead to a
reintroduction of sanctions which might
necessitate a reassessment of our position
there. Should we decide to exit or otherwise
alter our presence in a particular market, this
may have an adverse effect on us through,
for example, triggering investigations, tax
audits by authorities, claims by contracting
parties or reputational damage. The results
and costs of investigations or claims against
our international operations may be difficult
to predict and could lead to lengthy disputes,
fines or fees, indemnities or costly settlements.
Our efforts aimed at managing and
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 need to manage our operating expenses
and other internal costs to maintain cost
efficiency and competitive pricing of our
products and services. Failure by us to
determine the appropriate prioritization
of operating expenses and other costs, to
identify and implement the appropriate
measures to adjust our operating expenses
and other costs on a timely basis, or to
maintain achieved cost reduction levels,
could have a material adverse effect on our
business, results of operations and financial
condition. For instance, we have announced
targeted operating cost savings in relation to
the acquisition of Alcatel Lucent and achieving
these operating cost savings is dependent
partly on the continued efficient integration
of the companies which may include
certain uncertainties.
We operate in highly competitive industries
and we are continuously targeting increased
efficiency of our operations through various
initiatives. We may, in the ordinary course of
business, institute new plans for restructuring
measures. Such restructuring measures
may be costly, potentially disruptive to
operations, and may not lead to sustainable
improvements in our overall competitiveness
and profitability and, thus, may have a
material adverse effect on our business or
results of operations, for instance, as a result
of the loss of benefits related to economies
of scale.
In addition to our efforts in operating cost
savings, various efficiency programs aimed
at improving cost savings and financial
performance have been implemented,
including by Alcatel Lucent prior to its
acquisition by Nokia, and there can be no
assurance that such plans will be met as
planned or result in sustainable improvements.
Factors that may prevent a successful
implementation or cause adverse effects
on us include the following:
■ expectations with respect to market
growth, customer demand and other trends
in the industry in which we operate;
■ our ability to benefit from industry trends
may prove to be inaccurate and changes in
the general economic conditions, whether
globally, nationally or in the markets in
which we operate, may impact our ability
to implement such plans;
■ a down-turn in global or regional economic
conditions may have an adverse effect on
our ability to achieve the cost savings
contemplated;
■ unfavorable changes in legislation in the
markets in which we operate may influence
timing, costs and expected savings of
certain initiatives contemplated;
■ our ability to successfully develop new or
improve existing products, market products
to new or existing customers, enter new
markets and otherwise grow our business
in a highly competitive market;
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
■ our ability to swap equipment of certain
customers in line with our future product
lines development. We might not be
successful in securing continued business
from such customers, leading to sunk
cost impacting our business and results
of operations;
■ organizational changes related to the
implementation plans require the alignment
and adjustment of resources, systems
and tools, including digitalization and
automation, which if not completed in a
structured manner could impact our ability
to achieve our goals, projected cost savings
and ability to achieve the efficiencies
contemplated;
■ the costs to effect the initiatives
contemplated by our plans may exceed our
estimates and we may not be able to realize
the targeted cash inflows or yield other
expected proceeds;
■ our cost saving initiatives, including R&D,
may negatively affect our ability to develop
new or improve existing products and
compete effectively in certain markets, and
there is no guarantee that we will continue
to be able to successfully innovate or
remain technologically competitive;
■ disruptions to regular business operations
caused by the plans, including to unaffected
parts of Nokia; the benefits of our plans
may not be realized in contemplated
timeframes or at all;
■ intended business plans may require us to
inform or consult with employees and labor
representatives, and such processes may
influence the timing, costs and extent of
expected savings and the feasibility of
certain of the initiatives contemplated;
■ skilled employees may leave or we may not
be able to recruit employees as a result of
planned initiatives, and loss of their
expertise may cause adverse effects on our
business or limit our ability to achieve our
goals and lead to an overall deterioration of
brand value among potential and current
employees or as a preferred employer; and
■ bargaining power of our suppliers may
prevent us from achieving targeted
procurement savings.
While we are implementing and have
implemented various cost savings and other
initiatives in the past, and may implement
such initiatives in the future, there can be no
assurance that we will be able to complete
those successfully or that we will realize
the projected benefits. Our plans may be
altered in the future, including adjusting
any projected financial or other targets. The
anticipated costs or the level of disruption
expected from implementing such plans or
restructurings may be higher than expected.
If we are unable to realize the projected
benefits or contemplated cost savings by
efforts aimed at managing and improving
financial performance, operational
performance, cost savings, competitiveness,
targeted results or improvements, we may
experience negative impacts on our reputation
or a material adverse effect on our business,
financial condition, results of operations and
cash flows. Efforts to plan and implement cost
saving initiatives may divert management
attention from the rest of the business and
adversely affect our business.
We may be unable to realize the anticipated
benefits, synergies, cost savings or
efficiencies from acquisitions, including the
acquisition of Alcatel Lucent, and we may
encounter issues or inefficiencies related
to our organizational and operational
structure, including being unable to
successfully implement our business plans.
We acquire businesses or companies from time
to time and, for instance, continue to allocate
significant resources to the integration of
the former Alcatel Lucent business and
implementation of our business plans and
strategy. Despite our progress in the integration,
there can be no assurance that the overall
integration of Alcatel Lucent will be successful
or yield expected benefits and results. The
integration process involves certain risks and
uncertainties, some of which are outside
our control, and there can be no assurance
that we will be able to realize the intended
organizational and operational benefits related
to our business plans in the manner or
within the timeframe currently anticipated.
Such risks and uncertainties include, among
others, the distraction of our management’s
attention from our business resulting in
performance shortfalls, the disruption of our
ongoing business, interference with our ability
to maintain our relationships with customers,
vendors, regulators and employees and
inconsistencies in our services, standards,
quality, product road maps, controls,
procedures and policies, any of which
could have a material adverse effect on our
business, financial condition and results of
operations. Potential challenges that we may
encounter regarding the integration process
and operation as a combined company
include the following:
■ adverse contractual issues with respect
to various agreements with third parties
(including joint venture agreements,
customers, vendors, licensees or other
contractual parties), certain financing
facilities, pension fund agreements,
agreements for the performance of
engineering and related work/services,
IT agreements, technology, intellectual
property rights and licenses, employment
agreements, or pension and other
post-retirement benefits-related
liability issues;
■ inability to retain or motivate key
employees and recruit employees;
■ disruptions caused, for instance, by
reorganizations, which may result in
inefficiency within the new organization
through loss of key employees or delays
in implementing our intended structural
changes, among other issues;
■ inability to achieve the targeted
organizational changes, efficiencies or
synergies in the targeted time or to the
extent targeted or with targeted
implementation costs, for instance due to
inability to streamline overlapping products
and services efficiently, rationalize our
organization and overheads, reduce
overheads and costs or achieve targeted
efficiencies, and the risk of new and
additional costs associated with
implementing such changes;
■ inability to rationalize or streamline our
organization or product lines or to retire
legacy products and related services
as a result of pre-existing customer
commitments;
NOKIA ANNUAL REPORT ON FORM 20-F 2017
77
Operating and financial review and prospects Risk factors continued
■ loss of, or lower volume of, business from
key customers, or the inability to renew
agreements with existing customers or
establish new customer relationships,
including limitations linked to customer
policies with respect to aggregate vendor
share or supplier diversity policies or
increased efforts from competitors aiming
to capitalize on disruptions;
■ conditions and burdens imposed by laws,
regulators or industry standards on our
business or adverse regulatory or industry
developments or litigation affecting us, as
a result of the acquisition of Alcatel Lucent
or otherwise;
■ potential unknown or larger than estimated
liabilities of Alcatel Lucent (prior to the
acquisition) or other adverse circumstances
related to Alcatel Lucent that lead to larger
than expected liabilities or have other
adverse impacts on us;
■ claims, fines, investigations or assessments
for conduct that we failed to or were unable
to discover or identify in the course of
performing our due diligence investigations
of Alcatel Lucent prior to the acquisition,
including unknown or unasserted liabilities;
■ issues relating to fraud, non-compliance
with applicable laws and regulations,
improper accounting policies, improper
internal control or other improper activities;
■ challenges relating to the consolidation
or ongoing integration of corporate,
financial data and reporting, control and
administrative functions, including cash
management, foreign exchange/hedging
operations, internal and other financing,
insurance, financial control and reporting,
IT, communications, legal and compliance
and other administrative functions;
■ the coordination of R&D, marketing and
other support functions may fail or cause
inefficiencies or other administrative
burdens caused by operating the
combined business;
■ we may not be able to successfully maintain
the Nokia Bell Labs research, development
and innovation capabilities;
■ potential divestitures of certain businesses
or operations, as desired, for which there
can be no assurance that we would be
successful in executing such a transaction
on favorable terms or at all; and
■ our ability to eliminate the complexity
of our corporate structure following the
acquisition of Alcatel Lucent.
Additionally, the anticipated cost reductions
and other benefits expected to arise from
the acquisition of Alcatel Lucent and the
integration of Alcatel Lucent into our
existing business, as well as related costs to
implement such measures, are derived from
our estimates, which are inherently uncertain.
While we believe these estimated synergy
benefits and related costs are reasonable,
the underlying assumptions are inherently
uncertain and subject to a variety of
significant business, economic, and
competitive factors, risks and uncertainties
that could cause our actual results to differ
materially from those contained in the
expected synergy benefits and related
cost estimates.
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.
We operate globally and are therefore
exposed to foreign exchange risks in the form
of both transaction risks and translation risks.
Our policy is to monitor and hedge exchange
rate exposure, and we manage our operations
to mitigate, but not to eliminate, the impacts
of exchange rate fluctuations. There can
be no assurance, however, that our hedging
activities will prove successful in mitigating
the potentially negative impact of exchange
rate fluctuations. Additionally, significant
volatility in the relevant exchange rates may
increase our hedging costs, as well as limit our
ability to hedge our exchange rate exposure.
In particular, we may not adequately hedge
against unfavorable exchange rate
movements, including those of certain
emerging market currencies, which could have
an adverse effect on our financial condition
and results of operations. Furthermore,
exchange rate fluctuations may have an
adverse effect on our net sales, costs
and results of operations, as well as our
competitive position, through their
impact on our customers and competitors.
We also experience other financial
market-related risks, including changes in
interest rates and in prices of marketable
securities that we own. We may use derivative
financial instruments to reduce certain of
these risks. If our strategies to reduce such
risks are not successful, our financial condition
and results of operation may be harmed.
Additionally, exchange rate fluctuations may
materially affect the U.S. dollar value of any
dividends or other distributions that are paid
in euro, as well as the market price of our ADSs.
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.
Our products and services include, and our
business models depend on, utilization of
numerous patented standardized or
proprietary technologies. We invest
significantly in R&D through our business to
develop new relevant technologies, products
and services. Our R&D activities have resulted
in us having one of the industry’s strongest
intellectual property portfolios, on which
our products and services and future cash
generation and income depend. We believe
our innovations that are protected by IPR
are a strong competitive advantage for our
business. The continued strength of our IPR
portfolios depends on our ability to create
new relevant technologies, products and
services through our R&D activities.
Our products and services include increasingly
complex technologies that we have developed
or that have been licensed to us by certain
third parties. The amount of such proprietary
technologies and the number of parties
claiming IPR continue to increase. The holders
of patents and other IPR potentially relevant
to these complex technologies may be
unknown to us, may have different business
models, may refuse to grant licenses to their
proprietary rights or may otherwise make
it difficult for us to acquire a license on
commercially acceptable terms. Additionally,
although we endeavor to ensure that we and
the companies collaborating with us possess
78
NOKIA ANNUAL REPORT ON FORM 20-F 2017
appropriate IPR or licenses, we cannot
fully avoid the risks of IPR infringement
by suppliers of components, processes
and other various layers in our products,
or by companies with which we collaborate.
Similarly, we and our customers may face
claims of infringement in connection with
the use of our products.
In line with standard practice in our industry,
we generally indemnify our customers for
certain intellectual property-related
infringement claims initiated by third parties,
particularly non-practicing entities having
no product or service business, and related
to products or services purchased from us.
If such claims are made directly against our
customers, we may have limited possibilities
to participate in the processes including
negotiations and defenses, or evaluate the
outcomes and resolutions in advance. All IPR
indemnifications can result in significant
payment obligations for us that are difficult
to estimate in advance.
The business models for many areas in
our industry may not be clearly established.
The lack of availability of licenses for
copyrighted content, delayed negotiations
or restrictive IPR license terms may have a
material adverse effect on the cost or timing
of content-related services and products
offered by us, mobile network operators
or third-party service providers.
Since all technology standards that we use
and rely on, including mobile communication
technologies such as UMTS, LTE and upcoming
5G, or fixed line communication technologies,
include certain IPR, we cannot avoid risks of
facing claims for infringement of such rights
due to our reliance on such standards. We
believe the number of third parties declaring
their patents to be potentially relevant to
these standards is increasing, which may
increase the likelihood that we will be subject
to such claims in the future. As the number
of market entrants and the complexity of
technologies increases, it remains likely that
we will need to obtain licenses with respect
to existing and new standards from other
licensors. While we believe most of such
IPR declared or actually found to be essential
to a particular standard carries an obligation
to be licensed on fair, reasonable and
non-discriminatory terms, not all intellectual
property owners agree to apply such terms.
As a result, we have experienced costly and
time-consuming litigation proceedings
against us and our customers or suppliers
over such issues and we may continue to
experience such litigations in the future.
From time to time, certain existing patent
licenses may expire or otherwise become
subject to renegotiation. The inability to
renew or finalize such arrangements or renew
licenses with acceptable commercial terms
may result in costly and time-consuming
litigation, and any adverse result in any such
litigation may lead to restrictions on our
ability to sell certain products and could result
in payments that could potentially have a
material adverse effect on our operating
results and financial condition. These legal
proceedings may continue to be expensive
and time-consuming and divert the efforts
of our management and technical experts
from our business and, if decided against us,
could result in restrictions on our ability to
sell our products, require us to pay increased
licensing fees, unfavorable judgments,
costly settlements, fines or other penalties
and expenses.
Our patent license agreements may not cover
all the future businesses that we may enter,
our existing business may not necessarily be
covered by our patent license agreements if
there are changes in our corporate structure
or our subsidiaries, or our newly-acquired
businesses may already have patent license
agreements with terms that differ from
similar terms in our patent license
agreements. This may result in increased
costs, restrictions in the use of certain
technologies or time-consuming and costly
disputes whenever there are changes in
our corporate structure or our subsidiaries,
or whenever we enter into new business
areas or acquire new businesses.
We make accruals and provisions to cover
our estimated total direct IPR costs for our
products. The total direct IPR costs consist
of actual payments to licensors, accrued
expenses under existing agreements and
provisions for potential liabilities. We believe
our accruals and provisions are appropriate
for all technologies owned by third parties.
The ultimate outcome, however, may differ
from the provided level, which could have
a positive or adverse impact on our results
of operations and financial condition.
Any restrictions on our ability to sell our
products due to expected or alleged
infringements of third-party IPR and any
IPR claims, regardless of merit, could result
in a material loss of profits, costly litigation,
the obligation to pay damages and other
compensation, the diversion of the attention
of our key employees, product shipment
delays or the need for us to develop
non-infringing technology or to enter into
a licensing agreement on unfavorable
commercial terms. If licensing agreements
are not available on commercially acceptable
terms, we could be precluded from making
and selling the affected products, or could
face increased licensing costs. As new features
are added to our products, we may need to
acquire further licenses, including from new
and sometimes unidentified owners of
intellectual property. The cumulative costs of
obtaining any necessary licenses are difficult
to predict and may over time have a material
adverse effect on our operating results.
Our business is subject to direct and 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.
Our business is subject to direct and indirect
regulation in each of the countries and regions
where we, the companies with which we
collaborate and our customers operate.
We develop many of our products based on
existing regulations and technical standards,
our interpretation of unfinished technical
standards or, in certain cases, in the absence
of applicable regulations and standards. 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.
For example, changes in regulation affecting
the construction of base stations and other
network infrastructure could adversely
affect the timing and costs of new network
constructions or the expansion and
commercial launch and ultimate commercial
success of such networks. Also, changes
in applicable privacy-related regulatory
frameworks, such as EU Data Protection
Regulation effective as of May 2018, or their
application may adversely affect our business,
including possible changes that increase
costs, limit or restrict possibilities to offer
products or services, or reduce or could be
seen to reduce the privacy aspects of our
offerings, including if further governmental
interception capabilities or regulations aimed
at allowing governmental access to data are
required for the products and services that we
offer. An increase in the protectionist stances
of governments around the world, which
impact the free flow of data across borders,
is already affecting our global service delivery
model. Due to the increase in terrorism
(including cyber terrorism), we are observing
that the adoption of surveillance, data
localization, national sourcing and national
hiring requirements, regulations and policies
are increasing.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
79
Operating and financial review and prospects Risk factors continued
An increase in regulation of digital
telecommunications, especially in the
European Union, might impose additional
costs or burdens on our customers and on
Nokia itself. Our operations and employee
recruitment and retention depend on our
ability to obtain the necessary visas and work
permits for our employees to travel and work
in the jurisdictions in which we operate.
Restrictive government policies, such as
limitations on visas, may make it difficult for
us to move our employees into and out of
these jurisdictions. Changes in political
regimes will also likely impact the way
Nokia does business, due to potential
changes in trade, privacy, cybersecurity,
telecommunications, immigration and
environmental policies.
Moreover, countries could require
governmental interception capabilities or
regulations aimed at allowing governmental
access to data that could adversely affect us
by reducing our sales to such markets or
limiting our ability to use components or
software that we have developed or sourced
from other companies. Furthermore, our
business and results of operations may be
adversely affected by regulation, as well as
economic and trade policies favoring the
local industry participants, as well as other
measures with potentially protectionist
objectives that host governments in various
countries may take, particularly in response
to challenging global economic conditions or
following changes in political regimes. The
impact of changes in or uncertainties related
to regulation and trade policies could affect
our business and results of operations
adversely or indirectly in certain cases where
the specific regulations do not directly apply
to us or our products and services.
The regulatory, exports and sanctions legal
environment can also be difficult to navigate
for companies with global operations,
impacting our ability to grow business in
specific markets or enter newer market
opportunities. Our ability to protect our
intellectual property and generate intellectual
property-related net sales is dependent
on regulatory developments in various
jurisdictions, as well as the application of
the regulations, for instance through
administrative bodies. Export control,
tariffs or other fees or levies imposed on
our products and environmental, health,
product safety and data protection, security,
consumer protection, money laundering and
other regulations that adversely affect the
export, import, technical design, pricing or
costs of our products could also adversely
affect our sales and results of operations.
Reduced availability of export credits
supporting our sales as well as reduced
government funding for our R&D activities
could affect our ability to enter new markets
and to develop new technology or products.
Additionally, changes in various types of
regulations or their application with respect
to taxation or other fees collected by
governments or governmental agencies may
result in unexpected payment obligations,
and in response to prevailing difficult global
economic conditions there may be an
increased aggressiveness in collecting such
fees. We may be subject to new, existing or
tightened export control regulations,
sanctions, embargoes or other forms of
economic and trade restrictions imposed on
certain countries. Such actions may trigger
additional investigations, including tax audits
by authorities or claims by contracting parties.
The results and costs of such investigations
or claims may be difficult to predict and
could lead to lengthy disputes, fines or fees,
indemnities or a costly settlement.
Our provision of services and adaptation of
Cloud-based solutions has resulted in us
being exposed to a variety of new regulatory
issues or different exposure to regulatory
issues (e.g., related to data privacy) and makes
us subject to increased regulatory scrutiny.
Our current business models rely on certain
centralized data processing solutions and
Cloud or remote delivery-based services for
distribution of services and software or data
storage. Cloud and remote delivery-based
business models and operations have certain
inherent risks, including those stemming from
potential security breaches, and applicable
regulatory regimes may cause limitations
in implementing such business models or
expose us to adverse effects stemming for
instance from regulatory or contractual
issues, including penalties, fines, sanctions
and limitations on conducting business.
Moreover, our competitors have employed
and will likely continue to employ significant
resources to shape the legal and regulatory
regimes in countries where we have significant
operations. Governments and regulators may
make legal and regulatory changes or interpret
and apply existing laws in ways that make our
products and services less appealing to end
users or require us to incur substantial costs,
change our business practices or prevent us
from offering our products and services.
We operate on a global scale and our business
and activities cover multiple jurisdictions
and are subject to complex regulatory
frameworks. Current international trends
show increased enforcement activity and
enforcement initiatives in areas such as
competition law, export control and sanctions,
privacy, cybersecurity and anti-corruption.
Despite our Group-wide annual ethical
business training and other measures, we
may not be able to prevent breaches of law
or governance standards within our business,
subsidiaries and joint ventures.
Nokia is a publicly listed company and, as such,
subject to various securities and accounting
rules and regulations. While Nokia has
determined that its internal control over
financial reporting was effective as of
December 31, 2017, it must continue to
monitor and assess its internal control over
financial reporting and its compliance with
the applicable rules and regulations. Our
operating subsidiaries or our joint ventures’
failure to maintain effective internal controls
over financial reporting or to comply with
the applicable securities and accounting rules
and regulations, could adversely affect the
accuracy and timeliness of our financial
reporting, which could result, for instance,
in loss of confidence in us or in the accuracy
and completeness of our financial reports,
or otherwise in the imposition of fines or
other regulatory measures, which 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.
We are exposed to information security-related
risk, for instance as our business and
operations rely on confidentiality of
proprietary information as well as sensitive
information, for instance related to our
employees. Also, our business models rely on
certain centralized data processing solutions
and Cloud or remote delivery-based services
for distribution of services and software or
data storage. Our business, including our
Cloud or remote delivery-based business
models and operations have certain inherent
risks, including those stemming from potential
security breaches and applicable regulatory
regimes, which may cause limitations in
implementing Cloud or remote delivery-based
models or expose us to regulatory or
contractual sanctions.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
Although we endeavor to develop products
and services that meet the appropriate
security standards, including effective data
protection, we or our products and online
services, marketing and developer sites
may be subject to cybersecurity breaches,
including hacking, viruses, worms and
other malicious software, unauthorized
modifications, or illegal activities that may
cause potential security risks and other harm
to us, our customers or consumers and other
end-users of our products and services.
IT is rapidly evolving, the techniques used
to obtain unauthorized access or sabotage
systems change frequently and the parties
behind cyber-attacks and other industrial
espionage are believed to be sophisticated
and have extensive resources, and it is not
commercially or technically feasible to
mitigate all known vulnerabilities in a timely
manner or to eliminate all risk of cyber-attacks
and data breaches. Additionally, we contract
with multiple third parties in various
jurisdictions who collect and use certain data
on our behalf. Although we have processes
in place designed to ensure appropriate
collection, handling and use of such data,
third parties may use the data inappropriately
or breach laws and agreements in collecting,
handling or using or leaking such data. This
could lead to lengthy legal proceedings or
fines imposed on us, as well as adverse effects
to our reputation and brand value.
In connection with providing products and
services to our customers and consumers,
certain customer feedback, information on
consumer usage patterns and other personal
and consumer data are collected, stored and
processed through us, either by us or by
our business partners or subcontractors.
Loss, improper disclosure or leakage of any
personal or consumer data collected by
us or which is available to our partners or
subcontractors, made available to us or
stored in or through our products, could have
a material adverse effect on us and harm our
reputation and brand. We have outsourced a
significant portion of our IT operations, as well
as the network and information systems that
we sell to third parties or for whose security
and reliability we may otherwise be
accountable. Additionally, governmental
authorities may use our networks products
to access the personal data of individuals
without our involvement; for example,
through the so-called lawful intercept
capabilities of network infrastructure. Even
the perception that our products do not
adequately protect personal or consumer
data collected by us, made available to us or
stored in or through our products or that they
are being used by third parties to access
personal or consumer data could impair our
sales, results of operations, reputation and
brand value.
Additionally, cyber-attacks can be difficult
to prevent, detect or contain. We cannot rule
out the possibility that there may have been
cyber-attacks that have been successful
and/or evaded our detection. We continue
to invest in risk mitigating actions; however,
there can be no assurance that such
investments and actions will prevent or
detect future cyber-attacks.
Our business is also vulnerable to theft, fraud
or other forms of deception, sabotage and
intentional acts of vandalism by third parties
and employees. Unauthorized access to or
modification, misappropriation or loss of
our intellectual property and confidential
information, including personal data, could
result in litigation and potential liability to
customers, suppliers and other third parties,
harm our competitive position, reduce the
value of our investment in R&D and other
strategic initiatives or damage our brand and
reputation, which could have a material
adverse effect on our business, results of
operations or financial condition. Additionally,
the cost and operational consequences of
implementing further information system
protection measures, especially if prescribed
by national authorities, could be significant.
We may not be successful in implementing
such measures in due time, which could cause
business disruptions and be more expensive,
time consuming and resource-intensive.
Such disruptions could adversely impact
our business.
As our business operations, including those
we have outsourced, rely on complex IT
systems, networks and related services, our
reliance on the precautions taken by external
companies to ensure the reliability of our
and their IT systems, networks and related
services is increasing. Consequently, certain
disruptions in IT systems and networks
affecting our external providers could have
a material adverse effect on 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 operations rely on the efficient and
uninterrupted operation of complex and
centralized IT systems, networks and
processes, which are integrated with those of
third parties. Additionally, certain personal,
consumer and customer data is stored and
processed on our IT service provider’s
equipment as part of our business operations.
All IT systems, networks and processes are
potentially vulnerable to damage, breaches,
malfunction or interruption from a variety
of sources. We are, to a significant extent,
relying on third parties for the provision of IT
services. We may experience disruptions if our
partners do not deliver as expected or if we
are unable to successfully manage systems
and processes together with our business
partners. The ongoing trend to Cloud-based
architectures and network function
virtualization has introduced further
complexity and associated risk.
We are constantly seeking to improve the
quality and security of our IT systems. For
instance, we have introduced new significant
IT solutions in recent years and outsourced
certain functions, increasing our dependence
on the reliability of external providers as well
as the security of communication with them.
We will often need to use new service providers
and may, due to technical developments or
choices regarding technology, increase our
reliance on certain new technologies, such as
Cloud or remote delivery on demand-based
services and certain other services that are
used over the internet rather than using a
traditional licensing model. Switching to
new service providers and introducing new
technologies is inherently risky and may
expose us to an increased risk of disruptions
in our operations, for instance, due to
network inefficiency, a cybersecurity breach,
malfunctions or other disruptions resulting
from IT systems and processes.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
81
Operating and financial review and prospects Risk factors continued
We pursue various measures in order to
manage our risks related to system and
network malfunctions and disruptions,
including the use of multiple suppliers and their
strong technical and contractual engagements
in IT security. However, despite precautions
taken by us, any malfunction or disruption of
our current or future systems or networks,
such as an outage in a telecommunications
network used by any of our IT systems, or a
breach of our cybersecurity, such as an attack,
malware or other event that leads to an
unanticipated interruption or malfunction
of our IT systems, processes, networks or
data leakages, could have a material adverse
effect on our business, results of operations
and brand value. Additionally, if we fail to
successfully secure our IT, this may have a
material adverse effect on our business and
results of operations. A disruption of services
relying on our IT, for instance, could cause
significant discontent among users resulting
in claims, contractual penalties or deterioration
of our brand value.
Our Nokia Technologies business group
aims to generate net sales and profitability
through licensing of the Nokia brand and
technologies in addition to the development
and sales of products and services,
especially in the area of digital health.
We are also engaged with other business
ventures including technology innovation
and incubation. Expected net sales and
profitability for these businesses may
not materialize as planned or at all.
Our Nokia Technologies business group
pursues various business opportunities
building on our innovations and the Nokia
brand. In addition to patent licensing and
monetization, the Nokia Technologies
business group is focused on generating net
sales and profits through business ventures
related to Nokia brand and technology
licensing and digital health.
In 2017, we continued to integrate the
acquired Withings business into the Nokia
Technologies portfolio and rebranded the
Withings products to be Nokia-branded
products in June 2017. Refer to “Overview—
Strategy” and “Business Overview—Our
businesses—Nokia Technologies” for more
information. However, there can be no
assurance that we will achieve the intended
benefits from the Withings acquisition or
rebranding of the products under the Nokia
brand; for instance, we may not be able to
maintain or increase the sales of the business
acquired though the Withings acquisition.
Competition in the consumer health market is
intensifying, and Nokia Technologies needs to
continue innovating, building differentiating
technologies, and creating competitive health
products that respond to consumer needs
and deliver on brand promise. In 2017, we
faced some quality challenges with some
products in the portfolio and they resulted
in delayed and/or reduced product sales.
There can be no assurances that we are
able to reach our targets with respect to
growing the business, including being able
to successfully make the right strategic
bets and investments, including choices for
the growth segments, product categories,
product portfolio, target consumer segments
and geographies, sales and marketing
expansion, scaling up the supply chain and
manufacturing, and strategic partnerships.
Nokia Technologies has a strategic
agreement covering branding rights and
intellectual property licensing with HMD
Global. Refer to “Overview–Strategy” and
“Business Overview–Our businesses–Nokia
Technologies” for more information.
Under the agreement, Nokia receives royalty
payments from HMD Global for sales of Nokia
branded mobile phones and tablets, covering
both brand and intellectual property rights.
As such, the amount of income for Nokia is
dependent on the business and success of
HMD Global. In 2017, HMD Global continued
to ramp up its business and launched the
initial devices in its Nokia-branded mobile
phone portfolio. For some products, HMD
Global had a limited supply for critical
components which resulted in reduced sales
in some markets and geographies. There can
be no assurance that we will successfully reach
additional new brand licensing arrangements
at all or on terms that prove satisfactory to
us. The agreement with HMD Global limits
Nokia’s possibilities to license the Nokia brand
for certain types of devices over an agreed
time and as such limiting Nokia’s licensing
possibilities with respect to such devices.
Additionally, licensing the Nokia brand to HMD
Global or licensing the Nokia brand to other
manufacturers could—in cases where the
licensee acts inconsistently with our ethical,
compliance or quality standards—negatively
affect our reputation and the value of our
brand, thus diminishing the business potential
with respect to utilizing our brand for licensing
opportunities or otherwise having a negative
effect on our business. Nokia is not an
investor or shareholder of HMD Global and
Nokia has limitations in its ability to influence
HMD Global in its business and other
operations, exposing Nokia to potential
adverse effects from the use of the Nokia
brand by HMD Global or other adverse
developments encountered by HMD Global
that become attributable to Nokia though
association and HMD Global being a licensee
of the Nokia brand.
In 2017, Nokia Technologies ceased further
development of its OZO virtual reality camera
and related software technologies (“Digital
Media”) business. The decision to end our
investment in the Digital Media business was
based on our assessment that the virtual
reality industry segment did not grow as fast
as we had anticipated it would grow and on
our inability to meet the revenue targets for
this business. Nokia Technologies is in the
process of settling outstanding liabilities with
contract manufacturers and other suppliers
arising from the cessation of the Digital
Media business.
The Nokia Technologies business group
develops and licenses various innovations
as well as developing its own products and
services, including digital health-related
products. The manufacturing and selling of
devices and services can expose us to risks,
including product liability claims, claims from
contract manufacturers and/or suppliers,
negative consumer feedback and reputational
harm. The digital health device portfolio
comprises connected health devices, such
as scales, watches, trackers, blood pressure
monitors, thermometers, sleep and home
products. With such products, there exists
a possibility of actual or claimed device or
software malfunctions which, if realized,
could injure or harm users. Some products
are subject to regulatory approvals and/or
compliance with regulatory standards in
countries where such products are sold.
Product malfunctions, failure to obtain
appropriate regulatory approvals or a failure
to comply with regulatory standards may
result in product recalls; litigation; claims for
compensation; reputational harm; leakage of
consumer data; brand deterioration; and/or
criminal, civil, or regulatory actions, penalties
and/or fines.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
The industries in which we operate, or
may operate in the future, are generally
fast-paced, rapidly evolving and innovative.
Such industries are at different levels of
maturity, and there can be no assurances that
any investment we make will yield an expected
return or result in the intended benefits.
Our business will likely require significant
well-placed investments to innovate and grow
successfully. Such investments may include
R&D, licensing arrangements, acquiring
businesses and technologies, recruiting
specialized expertise and partnering with third
parties. Such investments may not, however,
result in technologies, products or services
that achieve or retain broad or timely market
acceptance or are preferred by our customers
and consumers. Additionally, we are entering
into new business areas based on our
technology assets and may explore new
business ventures. Such business areas or
plans may be adversely affected by adverse
industry and market developments in the
numerous diverse markets in which we
operate, as well as by general economic
conditions globally and regionally. As such, the
investments may not be profitable or achieve
the targeted rates of return. There can be no
assurances that we will be able to identify and
understand the key market trends and user
segments enabling us to address customers’
and consumers’ expanding needs in order to
bring new innovative and competitive products
and services to market in a timely manner.
There can be no assurances that our
Nokia Technologies business group will be
successful in innovation and incubation or in
generating net sales and profits through its
business plans, for instance in technology
and brand licensing, or products in the digital
health area. Additionally, entering into new
business areas may expose us to additional
liabilities or claims, for instance through
product liability or other regulatory
frameworks and related government
investigations, litigation, penalties or fines.
We operate in a number of different
jurisdictions around the world and we
are subject to various legal frameworks
regulating corruption, fraud, trade policies,
and other risk areas. At any given time
we may be subject to inspections,
investigations, claims, and government
proceedings, and the extent and outcome
of such proceedings may be difficult to
estimate with any certainty. We may be
subject to material fines, penalties and
other sanctions as a result of such
investigations.
Bribery and anti-corruption laws in effect
in many countries prohibit companies and
their intermediaries from making improper
payments to public officials for the purpose
of obtaining new business or maintaining
existing business relationships. Certain
anti-corruption laws such as the United States
Foreign Corrupt Practices Act (“FCPA”) also
require the maintenance of proper books and
records, and the implementation of controls
and procedures in order to ensure that a
company’s operations do not involve corrupt
payments. Since we operate throughout the
world, and given that some of our clients
are government-owned entities and that
our projects and agreements often require
approvals from public officials, there is a risk
that our employees, consultants or agents
may take actions that are in violation of our
policies and of anti-corruption laws. In many
parts of the world where we currently operate
or seek to expand our business, local practices
and customs may be inconsistent with our
policies, including the Nokia Code of Conduct,
and could violate anti-corruption laws,
including the FCPA and the UK Bribery Act
2010, and applicable European Union
regulations, as well as applicable economic
sanctions and embargoes. Our employees,
or other parties acting on our behalf, could
violate policies and procedures intended to
promote compliance with anti-corruption laws
or economic sanctions. Violations of these
laws by our employees or other parties acting
on our behalf, regardless of whether we had
participated in such acts or had knowledge
of such acts at certain levels within our
organization, could result in us or our
employees becoming subject to criminal
or civil enforcement actions, including fines
or penalties, disgorgement of profits and
suspension or disqualification of sales.
Additionally, violations of law or allegations
of violations may result in reputational harm
and loss of business and adversely affect our
brand and reputation. Detecting, investigating
and resolving such situations may also result
in significant costs, including the need to
engage external advisers, and consume
significant time, attention and resources from
our management and other key employees.
The results and costs of such investigations
or claims may be difficult to predict and could
lead to, for instance, lengthy disputes, fines,
fees or indemnities, costly settlement or the
deterioration of the Nokia brand.
Through our Human Rights Due Diligence
process, we aim to ensure via our sales interface
that human rights are not infringed through
the misuse of the products and technology
we provide. Potential product misuse is by
far the most salient human rights risk in our
operations. We also operate in many countries
with a diverse supply chain, and there is a risk
that our employees, partners or agents may
take actions that are in contradiction to our
Code of Conduct or that customers and
suppliers may similarly violate these principles,
which could also have an adverse impact on
our reputation, brand, or financial position.
We therefore employ a range of processes
and procedures to mitigate these risks.
As Nokia has now completed its acquisition of
Alcatel Lucent, any historical issues with Alcatel
Lucent’s operations may be attributed to or
the responsibility of Nokia. In the past, Alcatel
Lucent has experienced both actual and alleged
violations of anti-corruption laws. As a result of
FCPA violations in the past, Alcatel Lucent had
to pay substantial amounts in fines, penalties
and disgorgement of profits to government
enforcement agencies in the United States and
elsewhere. We may be subject to claims, fines,
investigations or assessments for conduct
that we failed to or were unable to discover
or identify in the course of performing our
due diligence investigations of Alcatel Lucent,
including unknown or unasserted liabilities and
issues relating to fraud, non-compliance with
applicable laws and regulations, improper
accounting policies or other improper activities.
Any damages, fines, penalties or other
sanctions attributable to us could have
a material adverse effect on our brand,
reputation or financial position.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
83
Operating and financial review and prospects Risk factors continued
We may be adversely affected by
developments with respect to the customer
financing or extended payment terms that
we provide our customers.
Mobile operators in certain markets may
require their suppliers, including us, to
arrange, facilitate or provide financing in
order to obtain sales or business. Similarly,
operators may require extended payment
terms. In certain cases, the amounts and
duration of these financings and trade credits,
and the associated impact on our working
capital, may be significant. Requests for
customer financing and extended payment
terms are typical for our industry.
Uncertainty in the financial markets may
result in increased customer financing
requests. As a strategic marketing
requirement, we arrange and facilitate
financing or provide extended payment terms
to a number of our customers, typically
supported by export credit agencies or
through the sale of related deferred
receivables. In the event, that export credit
agencies face future constraints on their
ability or willingness to provide financing to
our customers, or there is insufficient demand
to purchase their receivables, such events
could have a material adverse effect on our
business and financial condition. We have
agreed to extended payment terms for a
number of our customers, and may continue
to do so in the future. Extended payment
terms may result in a material aggregate
amount of trade credits. Even when the
associated risk is mitigated by a diversified
customer portfolio, defaults in the aggregate
could have a material adverse effect on us.
We cannot guarantee that we will be
successful in arranging, facilitating or
providing required financing, including
extended payment terms to our customers,
particularly in difficult financial conditions
on the market. Additionally, certain of our
competitors may have greater access to credit
financing, which could adversely affect our
ability to compete successfully for business
opportunities in the markets in which we
operate. Our ability to manage our total
customer financing and trade credit exposure
depends on a number of factors, including
capital structure, market conditions affecting
our customers, the levels and terms of credit
available to us and our customers, the
cooperation of export credit agencies and our
ability to mitigate exposure on acceptable
terms. We may be unsuccessful in managing
the challenges associated with the customer
financing and trade credit exposure that we
may face from time to time. While defaults
under financings, guarantees and trade
credits to our customers resulting in
impairment charges and credit losses have
not been significant for us in the past, these
may increase in the future, and commercial
banks may not continue to be able or willing to
provide sufficient long-term financing, even if
backed by export credit agency guarantees,
due to their own constraints.
We have sold certain receivables to banks or
other financial institutions to mitigate the
payment risk and improve our liquidity,
and any significant change in our ability
to continue this practice could impair our
capability to mitigate such payment risk
and to manage our liquidity.
We may not be able to collect outstanding
guarantees and bonds that could limit our
possibilities to issue new guarantees and/or
bonds, which are required in customer
agreements or practices. We also face risks
that such commercial guarantees and bonds
may be unfairly called.
We have operations in many countries
with different tax laws and rules, which may
result in complex tax issues and disputes.
We may be obliged to pay additional taxes
for past periods as a result of changes in law,
or changes of tax authority practice or
interpretation (possibly with retroactive effect
in certain cases), resulting potentially in a
material adverse effect on our cash flow
and financial position. As a company with
global operations we are subject to tax
investigations in various jurisdictions, and
such proceedings can be lengthy, involve
actions that can hinder local operations and
affect unrelated parts of our business, and
the outcome of such proceedings is difficult
to predict. While we have made provisions for
certain tax issues, the provisions we have made
may not be adequate to cover such increases.
The taxes for which we make provisions, such
as income taxes, indirect taxes and social
taxes, could increase significantly in the future
as a result of changes in applicable tax laws
in the countries in which we operate. Our
business and the investments we make
globally, especially in emerging markets,
are subject to uncertainties, including
unfavorable or unpredictable changes in tax
laws (possibly with retroactive effect in certain
cases), taxation treatment and regulatory
proceedings, including tax audits. The impact
of these factors is dependent on the types
of revenue and mix of profit we generate in
various countries, for instance, income from
sales of products or services may have
different tax treatments.
We may face adverse tax consequences due
to our past acquisitions and divestments,
including, but not limited to, stamp duties,
land transfer taxes, franchise taxes and
other levies. Additionally, there may be
other potential tax liabilities which we are
not currently aware but which may result
in significant tax consequences now or
in the future.
In the context of our sale of the D&S business
to Microsoft, we are required to indemnify
Microsoft for certain tax liabilities, including
(i) tax liabilities of the Nokia entities acquired
by Microsoft in connection with the closing of
the Sale of the D&S Business, (ii) tax liabilities
associated with the assets acquired by
Microsoft and attributable to tax periods
ending on or prior to the closing date of the
Sale of the D&S Business, and (iii) tax liabilities
relating to the pre-closing portion of any
taxable period that includes the closing date
of the Sale of the D&S Business.
In relation to the sale of the HERE business,
we are also required to indemnify the
Consortium for certain tax liabilities, including
tax liabilities of the HERE entities acquired by
the Consortium in connection with the closing
of the Sale of the HERE Business attributable
to (i) tax periods ending on or prior to the
closing date of the Sale of the HERE Business,
and (ii) the pre-closing portion of any taxable
period that includes the closing date of the
Sale of the HERE Business.
There may also be unforeseen tax expenses
that turn out to have an unfavorable impact
on us. As a result, and given the inherently
unpredictable nature of taxation, there can
be no assurance that our tax rate will remain
at the current level or that cash flows
regarding taxes will be stable.
84
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Our actual or anticipated performance,
among other factors, could reduce our
ability to utilize our deferred tax assets.
Deferred tax assets recognized on tax losses,
unused tax credits and tax deductible
temporary differences are dependent on
our ability to offset such items against
future taxable income within the relevant tax
jurisdiction. Such deferred tax assets are also
based on our assumptions on future taxable
earnings and these may not be realized as
expected, which may cause the deferred tax
assets to be materially reduced. There can be
no assurances that an unexpected reduction
in deferred tax assets will not occur. Any such
reduction could have a material adverse effect
on us. Additionally, our earnings have in the
past been and may in the future continue to
be unfavorably affected in the event that no
tax benefits are recognized for certain
deferred tax items.
We may be unable to retain, motivate, develop
and recruit appropriately skilled employees.
Our success is dependant on our ability
to retain, motivate, develop and recruit
appropriately skilled employees. The market
for skilled employees and leaders in our
business is extremely competitive. We work
on creating a corporate culture that is
motivational, based on equal opportunities
and encourages creativity and continuous
learning to meet the challenges.
Our workforce has fluctuated over recent
years as we have introduced changes in our
strategy to respond to our business targets
and endeavors. Such changes and uncertainty
have caused and may in the future cause
disruption and dissatisfaction among
employees, as well as fatigue due to the
cumulative effect of several reorganizations
over the past years, our efforts to continue
to evolve our business, maximize operational
efficiency and capitalize on the benefits
following the acquisition of Alcatel Lucent.
These efforts might include implementing
new organizational structures such as
reorganization, strategic changes, M&A
activity, competence development, relocation
of employees, the closing or consolidation of
sites, or insourcing/outsourcing parts of the
business operations. As a result, employee
motivation, energy, focus, morale and
productivity may be reduced, causing
inefficiencies and other problems across
the organization resulting in the loss of key
employees and increased costs in resolving
and addressing such matters. The loss of
key employees could result in resource gaps,
some of which may only be noticed after a
certain period of time or which negatively
impact our relationship with customers,
vendors or other business partners.
Accordingly, we may need to take measures to
attract, retain and motivate skilled employees.
Also, planned efforts to rebalance our
workforce may not be completed as planned
and may result in larger than expected costs,
or we may not be able to complete such
efforts as planned, for instance, due to legal
restrictions, resulting in a non-optimal
workforce that could hinder our ability to
reach targeted cost savings. Succession
planning, especially with respect to key
employees and leaders, is crucial to avoid
business disruptions and to ensure the
appropriate transfer of knowledge. We
have, and may from time to time, acquire
businesses or complete other transactions
where retaining key employees may be
crucial to obtain the intended benefits of
such transactions. We must ensure that key
employees of such acquired businesses
are retained and appropriately motivated.
However, there can be no assurances that
we will be able to implement measures
successfully to retain or hire the required
employees. We believe this will require
significant time, attention and resources
from our senior management and other
key employees within our organization and
may result in increased costs. We have
encountered, and may in the future
encounter, shortages of appropriately skilled
employees or lose key employees or senior
management, which may hamper our ability
to implement our strategies and may have
a material adverse effect on our business
and results of operations. Relationships
with employee representatives are generally
managed at the site level in accordance
with country-specific legislation and most
collective bargaining agreements have
been in place for several years. Our inability
to negotiate successfully with employee
representatives or failures in our relationships
with such representatives could result in
strikes by the employees, increased operating
costs as a result of higher wages or benefits
paid to employees as the result of such strike
or other industrial action or inability to
implement changes to our organization
and operational structure in the planned
timeframe or expense level, or at all. If our
employees were to engage in a strike or
other work stoppage, we could experience
a significant disruption in our day-to-day
operations and higher ongoing labor costs,
which could have a material adverse effect
on our business and results of operations.
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.
Our product manufacturing, service creation
and delivery, as well as our logistics, or the
components of such activities that we have
outsourced to third parties, expose us to
various risks and potential liabilities, including
those related to compliance with laws and
regulations and exposure to environmental
liabilities or other claims. Additionally, if we are
subjected to negative publicity with respect
to the activities that we manage or that are
managed by third parties, we may experience
an adverse impact to our reputation that
can have a negative effect, for instance, on
our brand and sales. These operations are
continuously modified in an effort to
improve the efficiency and flexibility of our
manufacturing, service creation and delivery,
as well as our logistics function and ability to
produce, create and distribute continuously
changing volumes. We, or third parties that
we outsource services to, may experience
difficulties in adapting our supply to meet
the changing demand for our products and
services, ramping up and down production
at our facilities, adjusting our network
implementation capabilities as needed on a
timely basis, maintaining an optimal inventory
level, adopting new manufacturing processes,
finding the most timely way to develop the
best technical solutions for new products,
managing the increasingly complex
manufacturing process, service creation
and delivery process or achieving required
efficiencies and flexibility.
Our manufacturing operations depend
on obtaining sufficient quantities of
fully functional products, components,
sub-assemblies, software and services
on a timely basis. Our principal supply
requirements for our products are for
electronic components, mechanical
components and software, which all have a
wide range of applications in our products.
In certain cases, a particular component
or service may be available only from a
limited number of suppliers or from a single
supplier in the supply chain. Our product
manufacturing, service creation and delivery,
as well as our logistics, or the components
of such activities that we have outsourced to
third parties may also be adversely affected
by various developments, including adverse
changes in trade policies or laws or
regulations, geopolitical disturbances,
pandemic outbreaks or other similar events.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
85
Operating and financial review and prospects Risk factors continued
For instance, a component supplier may
experience delays or disruptions to our
manufacturing processes or financial
difficulties or even insolvency, bankruptcy
or closure of our business, in particular due
to difficult economic conditions.
Additionally, our dependence on third-party
suppliers has increased as a result of our
strategic decisions to outsource certain
activities. Suppliers may from time to time
extend lead times, limit supplies, change their
partner preferences, increase prices, provide
poor quality supplies or be unable to adapt
to changes in demand due to capacity
constraints or other factors, which could
adversely affect our ability to deliver our
products and services on a timely basis. For
example, our efforts to meet our customer
needs during major network roll-outs in
certain markets may require sourcing large
volumes of components and services from
suppliers and vendors at short notice and
simultaneously with our competitors. If we fail
to properly anticipate customer demand, an
over-supply or under-supply of components
and production or services delivery capacity
could occur. In many cases, some of our
competitors utilize the same contract
manufacturers, component suppliers and
service vendors. If they have purchased
capacity or components ahead of us, or if
there is significant consolidation in the
relevant supplier base, this could prevent
us from acquiring the required components
or services, which could limit our ability to
supply our customers or increase our costs.
We may not be able to secure components
on attractive terms from our suppliers or
a supplier may fail to meet our supplier
requirements, such as our and our customers’
product quality, safety, security and other
standards. Certain suppliers may not comply
with local laws, including, among others, local
labor laws. Consequently, some of our
products may be unacceptable to us or to our
customers. Our products are highly complex
and defects in their design, manufacture and
associated hardware, software and content
have occurred in the past and may continue to
occur in the future. Defects and other quality
issues may result from, among other things,
failure in our own product manufacturing
and service creation and delivery, as well as
failure of our suppliers to comply with our
requirements, or failures in products and
services created jointly with business partners
or other third parties where the development
and manufacturing process is not fully within
our control. Quality issues may cause,
for instance, delays in deliveries, loss of
intellectual property, liabilities for network
outages, court fees and fines due to breaches
of significantly increasing regulatory privacy
requirements and related negative publicity,
and additional repair, product replacement or
warranty costs to us, and harm our reputation
and our ability to sustain or obtain business
with our current and potential customers.
With respect to our services, quality issues
may relate to the challenges of having the
services fully operational at the time they
are made available to our customers and
maintaining them on an ongoing basis.
We may also be subject to damages due to
product liability claims arising from defective
products and components. We make
provisions to cover our estimated warranty
costs for our products and pending liability
claims. We believe our provisions are
appropriate, although the ultimate outcome
may differ from the provisions that are
provided for, which could have a material
adverse effect on our results of operations,
particularly profitability and financial condition.
We may experience challenges caused by
third parties, or other external difficulties in
connection with our efforts to modify our
operations to improve the efficiency and
flexibility of our manufacturing, service
creation and delivery, as well as our logistics,
including, but not limited to, strikes,
purchasing boycotts, public harm to our brand
and claims for compensation resulting from
our decisions on where to place and how to
utilize our manufacturing facilities. Such
difficulties may result from, among other
things, delays in adjusting production at our
facilities, delays in expanding production
capacity, failures in our manufacturing, service
creation and delivery, as well as logistics
processes, failures in the activities we have
outsourced, and interruptions in the data
communication systems that run our
operations. Any of these events could delay
our successful and timely delivery of products
that meet our and our customers’ quality,
safety, security and other requirements,
cause delivery of insufficient or excess
volumes compared to our own estimates or
customer requirements, or otherwise have
a material adverse effect on our sales and
results of operations or our reputation
and brand value.
Many of our production sites or the
production sites of our suppliers are
geographically concentrated, with a majority
of our suppliers based in Asia. Also, we rely on
efficient logistic chain elements, e.g. regional
distribution hubs or transport chain elements
(main ports, streets, and airways), which may
be affected by various events, including
natural disasters, civil unrest, political
instability or public health-related issues. In
the event that any of these geographic areas
are affected by any adverse conditions, such
as natural disasters, geopolitical disruptions,
civil unrest or health crises that disrupt
production or deliveries from our suppliers,
our ability to deliver our products on a timely
basis could be adversely affected, which may
have a material adverse effect on our business
and results of operations.
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 are a party to lawsuits, arbitrations,
agreement-related disputes and product
liability-related allegations in the normal
course of our business. Litigation, arbitration
or agreement-related disputes can be
expensive, lengthy and disruptive to normal
business operations and divert the efforts
of our management. Moreover, the
outcomes of complex legal proceedings
or agreement-related disputes are difficult
to predict. An unfavorable resolution
of a particular lawsuit, arbitration or
agreement-related dispute could have a
material adverse effect on our business,
results of operations, financial condition and
reputation. The investment or acquisition
decisions we make may subject us to litigation
arising from minority shareholders’ actions
and investor dissatisfaction with the activities
of our business. Shareholder disputes, if
resolved against us, could have a material
adverse effect on our financial condition and
results of operations as well as expose us to
disputes or litigation.
We record provisions for pending claims when
we determine that an unfavorable outcome
is likely and the loss can reasonably be
estimated. Due to the inherent uncertain
nature of legal proceedings, the ultimate
outcome or actual cost of settlement may
materially differ from estimates. We believe
our provisions for pending claims are
appropriate. The ultimate outcome, however,
may differ from the provided estimate, which
could have either a positive or an adverse
impact on our results of operations and
financial condition.
Although our products are designed to meet
all relevant safety standards and other
recommendations and regulatory requirements
globally, we cannot guarantee we will not
become subject to product liability claims or
86
NOKIA ANNUAL REPORT ON FORM 20-F 2017
be held liable for such claims or be required to
comply with future regulatory changes in this
area, which could have a material adverse
effect on our business and financial condition.
We have been involved in several lawsuits
alleging adverse health effects associated
with our products, including those caused
by electromagnetic fields, and the outcome
of such procedures is difficult to predict,
including potentially significant fines or
settlements. Even a perceived risk of adverse
health effects of mobile devices or base
stations could have a material adverse effect
on us through a reduction in the demand for
mobile devices having an adverse effect, for
instance, through a decreased demand for
mobile networks or increased difficulty in
obtaining sites for base stations.
For a more detailed discussion of litigation
to which we are a party, refer to Note 29,
Provisions, of our consolidated financial
statements included in this annual report
on Form 20-F.
We may not have access to sources of
funding on favourable terms, or at all.
We rely on multiple sources of funding for
short-term and long-term capital and aim to
minimize the liquidity risk by maintaining a
sufficient cash position and having committed
credit lines in place. However, there can be no
assurances that we will be able to generate
sufficient amounts of capital or to maintain an
efficient capital structure from time to time.
We also may not be able to have access to
additional sources of funds that we may need
from time to time with reasonable terms, or at
all. If we cannot access capital on a commercially
viable basis, our business, financial condition
and cash flow could materially suffer.
We may not be able to re-establish
investment grade rating or maintain
our credit ratings.
Moody’s, Standard & Poor’s and other credit
rating agencies have assigned credit ratings
to us and we have set a goal of re-establishing
investment grade credit rating. There can be
no assurances that we will be able achieve an
investment grade credit rating at the targeted
time, or at all.
In the event our credit rating is downgraded
that could have a material adverse effect,
for instance, our cost of funds and related
margins, our business, financial condition,
results of operations, liquidity, or access
to capital markets.
We may be unable to achieve targeted
benefits from, or successfully implement,
planned transactions or transactions may
result in liabilities.
From time to time, we may consider possible
transactions that could complement our
existing operations and enable us to grow our
business or divest our existing businesses
or operations. We have made a number of
acquisitions and divestments, in addition
to the recent acquisitions of Alcatel Lucent
and Comptel. We may engage in further
transactions, such as acquisitions,
divestments, mergers or joint ventures in the
future. Additionally, we make investments to
companies through certain investment funds,
including NGP Capital, and there can be no
assurance that such investments will result
in new successful technologies that we will
be able to monetize.
We cannot provide any assurances that any
transactions we initiate, such as acquisitions,
divestments, mergers or joint ventures, will
ultimately be completed on favorable terms
or provide the benefits or return on investment
that we had originally anticipated. After
reaching an agreement for a transaction, we
may need to satisfy pre-closing conditions on
acceptable terms, which may prevent us from
completing the transaction or result in changes
to the scope of the transaction. Furthermore,
we may not succeed in integrating acquired
operations with our existing business.
Transactions, including acquisitions,
divestments, mergers or joint ventures,
involve inherent risks, and the assumptions
may be incorrect in evaluating a transaction.
Therefore, we may be exposed to unknown or
contingent liabilities of acquired businesses,
such as those related to contractual
obligations, taxes, pensions, environmental
liabilities, disputes and compliance matters.
Additionally, there are multiple risks that
can hamper or delay our ability to integrate
acquired businesses and to achieve identified
and anticipated operating and financial
synergies, including:
■ unanticipated delays or inability to proceed
with transactions as planned, for instance,
due to issues in obtaining regulatory or
shareholder approvals, completing public
offers or proposals, the imposition of
conditions on the acquirer of a business
to divest certain assets or impose other
obligations due to competition laws or
other regulations;
■ unanticipated costs or changes in scope,
for instance, due to issues with regulators
or courts imposing terms on a transaction
or obstacles that result in changes required
in the scope of the transaction;
■ the diversion of management attention
from the existing business;
■ the potential loss of key employees,
customers and suppliers;
■ unanticipated changes in business, industry
or general economic conditions that affect
the assumptions underlying the acquisition;
■ potential disputes with sellers, purchasers
or other counterparties;
■ impairments related to goodwill and other
intangible assets, for instance, due to
business performance after an acquisition
or differences in evaluating the goodwill
with respect to the acquired businesses;
■ potential limitations on our ability to
control any joint ventures; accordingly
such transactions may result in increased
exposure to operational, compliance,
legal or financial risks;
■ unexpected costs associated with the
separation of the business which is to be
divested or with the integration of the
business which is acquired;
■ additional payment obligations and higher
costs resulting from non-performance by
divested businesses;
■ exposure to contingent liabilities in
connection with any indemnity we provide
to the purchaser in connection with such
divestment;
■ potential post-closing claims for
indemnification and disputes with
purchasers or sellers;
■ our dependence on some of the divested
businesses as our suppliers in the future;
and
■ high transaction costs.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
87
Operating and financial review and prospects Risk factors continued
Significant transactions may result in claims
between the parties, (including, but not
limited to, any indemnification claims),
which can consume time and management
attention, and the outcome of any claims
related to significant transactions may be
difficult to predict and could have a material
adverse effect on our financial condition.
We are involved in joint ventures and are
exposed to risks inherent to companies
under joint management.
We have a number of joint ventures in various
parts of the world. The agreements related
to our joint ventures may require unanimous
consent or the affirmative vote of a qualified
majority of the shareholders to take certain
actions, thereby possibly slowing down the
decision-making process. In addition, joint
venture companies involve inherent risks such
as those associated with a complex corporate
governance structure, including lack of
transparency and consequent risks of
compliance breaches or other similar issues,
or issues in dissolving such entities or
divesting their shareholdings, assets and
liabilities, and also may involve negative
public perceptions caused by the joint
venture partner that are adverse to us.
Performance failures of our partners,
as well as failures to agree to partnering
arrangements with third parties could
adversely affect us.
If any of the companies we partner and
collaborate with were to fail to perform
as expected, or if we fail to achieve the
collaboration or partnering arrangements
needed to succeed, we may be unable to
bring our products, services or technologies
to market successfully or in a timely manner,
which could have a material adverse effect
on our operations. We are increasingly
collaborating and partnering with third parties
to develop technologies, products and
services, as well as seeking new revenue
streams through partnering arrangements.
We also depend on third-party partners in
our efforts to monetize our brands, including
the Nokia and Nokia Bell Labs brands and
technologies, for instance, through
arrangements where the brands are licensed
to third-party products and the product
development and distribution are handled
partly or in full by third parties. Additionally,
we have outsourced various functions to third
parties and are relying on them to provide
certain services to us. These arrangements
involve the commitment of certain resources,
including technology, R&D, services and
employees. Although the objective of the
collaborative and partnering arrangements is
a mutually beneficial outcome for each party,
our ability to introduce and provide products
and services that are commercially viable and
meet our, our customers’ and consumers’
quality, safety, security and other standards
in a timely manner could be hampered from
performance or other failures.
For instance, in many areas, including finance
and human resources-related arrangements,
a failure to maintain an efficient relationship
with the selected partner may lead to ongoing
operational problems or even to severe
business disruptions, and we cannot give
assurances that the availability of the
processes and services upon which we rely
on will not be interrupted, which could have
a material adverse effect on our business
operations, in particular related to the
integration of Alcatel Lucent. Performance
problems may result in missed reporting
deadlines, financial losses, missed business
opportunities and reputational harm. In
addition, as management’s focus shifts from
a direct to an indirect operational control
in these areas, there is a risk that without
active management and monitoring of the
relationship, the services provided may be
below appropriate quality standards. Partners
may not meet agreed service levels, in which
case, depending on the impacted service, our
contractual remedies may not fully cure all of
the damages we may suffer. This is particularly
true for any deficiencies that would impact
the reporting requirements applicable to us as
a company listed on multiple stock exchanges.
In order to implement outsourcing
arrangements, we may be required to
implement changes in our business practices
and processes, for instance, to capture
economies of scale and operational
efficiencies, and to reflect a different way
of doing business. Consequently, business
processes that were customized for individual
business groups or for us generally may be
converted to a more standardized format.
During a transition to outsourcing, our
employees may need to train the partner’s
staff or be trained in the partners’ systems,
potentially resulting in the distraction of our
employees. Adjustments to staff size and
transfer of employees to the partner’s
companies could have an adverse effect
on us, for instance, through impacting the
morale of our employees and raising complex
labor law issues and resulting in the loss of
key personnel.
There is also a risk that we may not be able
to determine whether controls have been
effectively implemented, and whether the
partner company’s performance monitoring
reports are accurate. Concerns could equally
arise from giving third parties access to
confidential data, strategic technology
applications and books and records.
Additionally, we have a brand licensing
partnership with HMD Global. HMD Global
is responsible for following our brand and
quality guidelines. If HMD Global or other
partners act inconsistently with our ethical,
sustainability, compliance, brand, or quality
standards, this can negatively affect our
reputation, the value of our brand, and the
business outcome of our partnerships.
Additionally, partnering and outsourcing
arrangements can create a dependency on
the outsourcing company, causing issues
in our ability to learn from day-to-day
responsibilities, gain hands-on experience
and adapt to changing business needs.
The carrying amount of our goodwill
may not be recoverable.
We assess the carrying amount of goodwill
annually, or more frequently if events or
changes in circumstances indicate that such
carrying amount may not be recoverable.
We assess the carrying amount of other
identifiable assets if events or changes in
circumstances indicate that their carrying
amounts may not be recoverable. If we do not
generate revenues from our businesses as
anticipated, our businesses may not generate
sufficient positive operating cash flows. This,
or other factors, may lead to a decrease in the
value of our assets, including intangible assets
and the goodwill attributed to our businesses,
resulting in impairment charges that may
adversely affect our net profit for the year.
While we believe the estimated recoverable
values are reasonable, actual performance
in the short- and long-term and our
assumptions on which we base our
calculations could materially differ from
our forecasts, which could impact future
estimates of our businesses’ recoverable
values, and may result in impairment charges.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
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.
We engage in the supply of submarine optical
fiber cable networks linking mainland to
islands, island to island or several points along
a coast, with activities also expanding to the
supply of broadband infrastructure to oil and
gas platforms and other offshore installations.
Although thorough surveys, permit processes
and safety procedures are implemented
during the planning and deployment phases
of all of these activities, there is a risk that
previously-laid infrastructure, such as electric
cables or oil pipelines, may go undetected
despite such precautions, and be damaged
during the process of installing the
telecommunications cable, potentially
causing business interruption to third parties
operating in the same area and accidental
pollution or other disturbances or damage to
the environment. While we have contractual
limitations in place and maintain insurance
coverage to limit our exposure, we cannot
provide any assurance that these
protections will be sufficient to cover
such exposure entirely.
The amount of dividend and equity return
distributed to shareholders for each
financial period is uncertain and is affected
by exchange rate fluctuations.
We cannot assure that we will pay dividends or
deliver return on equity on the shares issued
by us, nor is there any assurance as to the
amount of any dividend or return of equity we
may pay, including but not limited to situations
where we make commitments to increase our
dividends. The payment and the amount of
any dividend or return of equity is subject to
the discretion of our Board and, ultimately,
the general meeting of our shareholders
and will depend on available cash balances,
retained earnings, anticipated cash needs,
the results of our operations and our
financial condition and terms of outstanding
indebtedness, as well as other relevant
factors such as restrictions, prohibitions
or limitations imposed by applicable law.
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 are exposed to various employee
cost-related risks, including those related to
pension, employee fund-related obligations
and employee healthcare-related risks. In
the United States, we maintain significant
employee pension benefit plans and a
significant retiree welfare benefit plan
(providing post-retirement healthcare
benefits and post-retirement life insurance
coverage). Outside the United States, we
contribute to pension schemes for large
numbers of current and former employees.
The U.S. and non-U.S. plans and schemes
have funding requirements that depend on,
among other things, various legal
requirements, how assets set aside to pay
for those obligations are invested, the
performance of financial markets, interest
rates, assumptions regarding the life
expectancy of covered employees and
retirees, and medical cost inflation and
medical care utilization. To the extent that
any of those variables change, the funding
required for those plans/schemes may
increase, and we may be unsuccessful in our
ability to avoid or control costs resulting from
such increased funding requirements. Our
inability to avoid or control such costs could
have a material adverse effect on our results
of operations and our financial position.
With respect to our employee costs and
pension and other post-retirement obligations,
we face the following risks, among others:
■ financial market performance and volatility
in asset values and discount rates affect the
funded status of our pension obligations
and could increase funding requirements,
including legally required minimum
contributions;
■ our pension plan participants and
post-retirement health plan participants
may live longer than has been assumed,
which would result in an increase in our
benefit obligations. We cannot be certain
that the longevity of the participants in our
pension plans or retiree healthcare plan will
not exceed that indicated by the mortality
tables we currently use or that future
updates to those tables will not reflect
materially longer life expectancies;
■ we currently fund, and expect to be able
to continue to fund, our United States
post-retirement healthcare and group
life insurance costs for our formerly
represented retirees with excess pension
assets in our (United States) formerly
represented pension plan, as permitted
under Section 420 of the United States
Internal Revenue Code. A deterioration
in the funded status of that pension plan
could negatively affect our ability to
continue making Section 420 transfers.
Section 420 is currently set to expire
in 2025.
■ we currently provide post-retirement group
life insurance coverage for a closed group of
former non-represented employees who
meet stated age and service criteria. This
benefit obligation is largely insured through
an experience-rated group life insurance
policy issued by a reputable insurer,
the premiums for which are paid from
a voluntary employees’ beneficiary
association (veba) trust. Based on current
actuarial and return-on-asset assumptions
and the present level and structure of this
group life insurance obligation, we believe
that we can continue to fund the premiums
for this policy from this trust for several
more years. Once the trust’s assets are
depleted, however, the company will bear
the annual premium cost associated with
this benefit. Although we expect to be able,
in the future, to fund this cost from excess
pension assets in our (United States)
non-represented pension plan, the level
of excess pension assets in that plan in any
given year may be insufficient to cover the
annual premium cost.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
89
Operating and financial review and prospects 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, 2017, the total number
of Nokia shares was 5 839 404 303 and our
share capital equaled EUR 245 896 461.96.
As of December 31, 2017, Nokia and its
subsidiary companies owned a total of
259 887 597 Nokia shares, representing
approximately 4.5% of the total number of
the shares and voting rights of the company.
In 2017, we did not cancel any shares.
In 2017, under the authorization held by
the Board of Directors and in line with the
capital structure optimization program,
Nokia repurchased 153 601 462 shares
representing approximately 2.6% of share
capital and total voting rights as of December
31, 2017. In 2016, we had repurchased
54 296 182 shares. 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. The 207 897 644
repurchased shares representing
approximately 3.6% of share capital and total
voting rights on December 31, 2017 were
cancelled, effective as of February 2, 2018.
In 2017, under the authorization held by the
Board of Directors, we issued 415 750 new
shares following the holders of stock options
issued in 2011, 2012 and 2013 exercising
their option rights. In addition, we issued
2 933 541 new shares without consideration
to Nokia to be transferred to fulfil our
obligation under the Nokia Equity Programs.
In 2017, under the authorization held by
the Board of Directors, we issued a total
of 12 199 284 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. The total
number of treasury shares issued represented
0.2% of the total number of shares and the
total voting rights as of December 31, 2017.
The issuances did not have a significant effect
on the relative holdings of other Nokia
shareholders, or on their voting power.
Information on the authorizations held
by the Board of Directors in 2017 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
on Form 20-F for further information
regarding Nokia shares.
90
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Board of Directors
and management
Pursuant to the Articles of
Association of Nokia Corporation,
our Board of Directors is
composed of a minimum of
seven and a maximum of 12
members. The Board of Directors
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 of Directors 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 Board of
Directors, 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
91
Operating and financial review and prospects Corporate
governance
92
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Contents
Corporate governance statement
Regulatory framework
Main corporate governance
94
94
bodies of Nokia
94
General meeting of shareholders 94
Board of Directors
95
Group Leadership Team and
President and CEO
101
Risk management, internal control
and internal audit functions
at Nokia
Main features of risk
106
management systems
106
Description of internal control
procedures in relation to the
financial reporting process
Description of the organization
106
of the internal audit function 106
Main procedures relating to
insider administration
Auditor fees and services
Audit Committee pre-approval
policies and procedures
Compensation
Introduction
Remuneration governance
Remuneration policy
Remuneration report
107
107
107
108
108
109
111
117
NOKIA ANNUAL REPORT ON FORM 20-F 2017
93
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 2017, 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 limited basis for
exceptional purposes related to retention and
recruitment, primarily in the United States, to
ensure Nokia is able to retain and recruit vital
talent for the future success of the company.
The restricted share plan for 2018 is designed
in a similar manner. 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.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
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 May 23,
2017, Jeanette Horan was elected to the
Board after which the gender balance of the
Board was 70% male and 30% 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
Nokia 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 May 23,
2017 elected the following ten members to
the Board for a term ending at the close of the
Annual General Meeting in 2018: Bruce Brown,
Jeanette Horan, Louis R. Hughes, Edward
Kozel, Jean C. Monty, Elizabeth Nelson, Olivier
Piou, Risto Siilasmaa, Carla Smits-Nusteling
and Kari Stadigh.
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 May 23, 2017, 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 2017, 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 May
23, 2017, all Board member candidates were
determined to be independent under the
Finnish corporate governance standards
and the rules of the NYSE.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
95
Corporate governance Corporate governance statement continued
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. Vice Chairman 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.
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.
Engineer, 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
Ltd 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 the PESH
foundation.
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.
MBA (Marketing and Finance),
Xavier University, the United
States. BS (Chemical Engineering),
Polytechnic Institute of New York
University, the United States.
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.
Jeanette Horan
b. 1955
Nokia Board member since 2017.
Member of the Audit Committee.
Edward Kozel
b. 1955
Nokia Board member since 2017.
Member of the Audit Committee.
Degree in Electrical Engineering
and Computer Science, University
of California, the United States.
President and CEO of Range
Networks 2013–2014, Owner of
Open Range 2000–2013, Chief
Technology and Innovation
Officer and member of the Board
of Management of Deutsche
Telecom 2010–2012, CEO of
Skyrider 2006–2008, Managing
Director of Integrated Finance
2005–2006, Senior Vice
President, Business development
and Chief Technology Officer
and Board Member of Cisco
1989–2001.
Various Board Memberships in
1999–2009.
Jean Monty
b. 1947
Nokia Board member since 2016.
Member of the Personnel
Committee.
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
until 1997.
Member of the Board of Directors
of Fiera Capital Inc. Member of
the Boards of Directors of
Bombardier 1998–2017. Member
of the Board of Directors of
Alcatel Lucent SA 2008–2016.
MBA, Business Administration and
Management, Boston University,
the United States. BSc,
Mathematics, University of
London, United Kingdom.
Various executive and managerial
positions in IBM 1998–2015. Vice
President of Digital Equipment
Corporation 1994–1998. Vice
President, Development, of Open
Software Foundation 1989–1994.
Member of the Supervisory Board
at Wolters Kluwer, and the Chair
of the Remuneration Committee.
Member of the Board of Advisors
at Jane Doe No More, a non-profit
organization.
Member of the Board of Advisors
of Cyberreason 2017-2018.
Member of the Board of Directors
of West Corporation 2016-2017.
Member of the Board of Directors
of Microvision 2006-2017.
Louis Hughes
b. 1949
Nokia Board member since 2016.
Member of the Audit 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.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
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 Finance
Finland (previously Finnish
Financial Services). Member of the
Board of Directors of Waypoint
Capital Group Holdings SA.
Member of the Board of Directors
of Niilo Helanderin Säätiö.
Chair Risto Siilasmaa
Vice Chair Olivier Piou
Bruce Brown
Jeanette Horan
Louis Hughes
Edward Kozel
Jean Monty
Elizabeth Nelson
Carla Smits-Nusteling
Kari Stadigh
Elizabeth Nelson
b. 1960
Nokia Board member since 2012.
Chair of the Audit Committee.
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
of Pandora Media 2013–2017.
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 ANNUAL REPORT ON FORM 20-F 2017
97
Corporate governance Corporate governance statement continued
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 2017,
an external evaluator assisted in the
Board 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.
Election of the Chair of the Board of
Directors and Vice Chair of the Board of
Directors and the chair and members of
the Board’s Committees
The Chair of the Board and the Vice Chair
of the Board of Directors are elected from
among the members of the Board by the new
Board and confirmed by the independent
directors of the Board based on the
recommendation of the Corporate
Governance and Nomination Committee.
The independent directors of the new Board
also confirm the election of the members
and chairs for the Board’s committees from
among the Board’s independent directors
upon the recommendation of the Corporate
Governance and Nomination Committee and
based on each committee’s member
qualification standards. These elections will
take place at the Board’s assembly meeting
following the Annual General Meeting in 2018.
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 advisors 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.
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.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
Meetings of the Board of Directors
The Board held 21 meetings excluding committee meetings during 2017, of which approximately 40% were regularly scheduled meetings held
in person, complemented by meetings via video or conference calls or by other means. Additionally, in 2017, the non-executive directors held
meetings regularly without management in connection with Board meetings.
Directors’ attendance at Board meetings, including committee meetings but excluding meetings among the non-executive directors or
independent directors only, in 2017 is set forth in the table below:
Bruce Brown
Jeanette Horan (from May 23, 2017)
Louis Hughes
Edward Kozel (from May 23, 2017)
Jean Monty
Elizabeth Nelson
Olivier Piou
Risto Siilasmaa
Carla Smits-Nusteling
Kari Stadigh
Additionally, many of the directors attended,
as non-voting observers, 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 2017 attended Nokia’s Annual
General Meeting held on May 23, 2017.
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
100
100
100
95
100
100
90
Audit
Committee
meetings
%
100
100
100
100
100
Corporate
Governance
and Nomination
Committee
meetings
%
100
80
100
100
Personnel
Committee
meetings
%
100
100
88
100
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 May 23, 2017, the Audit
Committee consisted of the following five
members of the Board: Elizabeth Nelson
(Chair), Jeanette Horan, Louis Hughes,
Edward Kozel 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.
Audit 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 ANNUAL REPORT ON FORM 20-F 2017
99
Corporate governance Corporate governance statement continued
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 2017,
refer to “—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 advisors 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 advisors.
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
of four times a year based on 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 nine meetings in
2017. Attendance at the meetings was 100%.
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 May 23, 2017, 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.
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 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.
The Committee has the power to appoint
recruitment firms or advisors 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 five meetings in 2017.
The average attendance at the meetings
was 95%. Additionally, any director who so
wishes may attend meetings of the Corporate
Governance and Nomination Committee
as a non-voting observer.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
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 and CEO under
Finnish law.
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
May 23, 2017, 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 eight
meetings in 2017. The average attendance
at the meetings was 97%. Additionally,
any director who so wishes may attend
meetings of the Personnel Committee
as a non-voting observer.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
101
Corporate governance Corporate governance statement continued
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 2017 and thereafter,
the following new appointments
were made to the Group
Leadership Team:
■ Kristian Pullola was appointed
Chief Financial Officer and
member of the Group
Leadership Team as of
January 1, 2017;
■ Monika Maurer was appointed
Chief Operating Officer
and member of the Group
Leadership Team as of
April 1, 2017;
■ Igor Leprince was appointed
President of Global Services
and member of the Group
Leadership Team as of
April 1, 2017;
■ 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;
■ Gregory Lee was appointed
President of Nokia Technologies
and member of the Group
Leadership Team as of
June 30, 2017;
■ Joerg Erlemeier was appointed
Chief Operating Officer and
member of the Group
Leadership Team as of
December 11, 2017; and
■ Sanjay Goel was appointed
President of Global Services
and member of the Group
Leadership Team as of
April 1, 2018.
Further, during 2017 and
thereafter, the following
members of the Group
Leadership Team resigned:
■ Samih Elhage, formerly
President of Mobile Networks,
stepped down from the
Group Leadership Team
as of March 31, 2017;
■ Monika Maurer, formerly
Chief Operating Officer,
stepped down from the
Group Leadership Team as
of December 11, 2017; and
■ Igor Leprince, President of
Global Services, will step down
from the Group Leadership
Team as of March 31, 2018.
Rajeev Suri
b. 1967
President and Chief Executive
Officer of Nokia Corporation.
Chair of the 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.
Rajeev Suri
Basil Alwan
Hans-Jürgen Bill
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.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
Kathrin Buvac
Ashish Chowdhary
Joerg Erlemeier
Joerg Erlemeier
b. 1965
Chief Operating Officer. Group
Leadership Team member since
2017. Joined Nokia in 1994.
Bachelor of Engineering
(Electronics and
Telecommunications),
Fachhochschule, Aachen,
Germany.
Senior Vice President, Integration,
Nokia, 2015. Vice President,
Global Services, Europe, Nokia,
2015. Head of Delivery, North
America market, Nokia, 2013/14.
Head of Program Management
Office, Nokia Siemens Networks,
2012. Head of Middle East &
Africa, Nokia Siemens Networks,
2009–2011. Held several
executive level positions in
Nokia/Nokia Siemens Networks,
1994–2009.
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.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
103
Corporate governance
Corporate governance statement continued
Barry French
b. 1963
Chief Marketing Officer. Group
Leadership Team member since
2016. Joined Nokia in 2006.
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.
Sanjay Goel
b. 1967
Senior Vice President, Global
Services. President of Global
Services and Group Leadership
Team member as of April 1, 2018.
Joined Nokia Networks in 2001.
Bachelor’s Degree in
Engineering in Electronics and
Communications from Manipal
Institute of Technology,
Karnataka, India.
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.
Senior Vice President, Services
Portfolio Sales, Global Services,
Nokia since 2015. Vice President,
Services, Customer Operations,
Asia, Middle East & Africa, Nokia
Networks 2012 – 2015. Head of
Global Services, Asia Pacific &
Japan, Nokia Siemens Networks
2009-2012. Head of Managed
Services, Asia Pacific (including
India & Japan), Nokia Siemens
Networks 2007-2009. Several
director and manager level
positions in Nokia Networks
2001-2007. Manager in IBM India
1996-2001. Several engineer
positions in Asea Brown Boveri
Ltd 1990-1996.
Board member, World Affairs
Council of Dallas.
Bhaskar Gorti
b. 1966
President of Nokia Software.
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.
Barry French
Sanjay Goel
Bhaskar Gorti
Federico Guillén
b. 1963
President of Fixed Networks.
Group Leadership Team member
since 2016. Joined Nokia in 2016.
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
the United States 1989–2003.
Federico Guillén
Gregory Lee
104
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Igor Leprince
Gregory Lee
b. 1963
President of Nokia Technologies.
Group Leadership Team member
since 2017. Joined Nokia in 2017.
Kristian Pullola
b. 1973
Chief Financial Officer. Group
Leadership Team member since
2017. Joined Nokia in 1999.
Kristian Pullola
Marc Rouanne
Maria Varsellona
Marcus Weldon
Bachelor of Science degree in
Biochemistry, University of
California at San Diego, the
United States.
President and Chief Executive
Officer, North America and
Director, Media Solutions Center
of America, Samsung Electronics
Co. Ltd 2014–2017. President,
Samsung Telecommunications
America (STA) 2013–2014.
President, Samsung Asia
2010–2013. Global Chief
Marketing Officer, Samsung
Electronics Co. Ltd 2004–2010.
Vice President, Franchises and
Customer Development, Johnson
& Johnson Consumer Asia Pacific
2002–2004. President, Vision
Care, Asia Pacific, Johnson &
Johnson Medical Devices
1999–2002.
Member of the Board of Directors
of HMD Global.
Igor Leprince
b. 1971
President of Global Services
until March 31, 2018. Group
Leadership Team member since
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.
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.
Marc Rouanne
b. 1963
President of Mobile Networks.
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 Advisory Board
of Dhatim.
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 (publ).
Marcus Weldon
b. 1968
Corporate Chief Technology
Officer and President of Nokia Bell
Labs. Group Leadership Team
member since 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.
Network Partner to Keen Venture
Partners. Advisor to Mundi
Ventures.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
105
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.
Key risks and opportunities are primarily identified against business
targets either in business operations or as an integral part of strategy
and financial planning. Risk management covers strategic, operational,
financial and hazard risks. Key risks and opportunities are analyzed,
managed and monitored as part of business performance management
with the support of risk management personnel and the centralized
Enterprise Risk Management function.
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 core 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. 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. In addition to the principles
defined in the Nokia Enterprise Risk Management Policy, other key
policies reflect implementation of specific aspects of risk management.
Key risks and opportunities are reviewed by the Group Leadership
Team and the Board in order to create visibility on business risks
as well as to enable prioritization of risk management activities.
Overseeing risk is an integral part of the Board’s deliberations. 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. 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.
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 2017, 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.
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.
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 2017, 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.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
Main procedures relating to insider administration
Our insider administration is organized according to the applicable
European Union and Finnish laws and regulations. In addition, the
Board of Directors has approved Nokia Insider Policy, which sets
out Nokia-wide rules and practices to ensure full compliance with
applicable rules and that inside information is recognized and treated
in an appropriate manner and with the highest integrity. The policy
is applicable to all Nokia employees.
Persons discharging managerial responsibilities
Nokia has identified members of the Board of Directors and the Group
Leadership Team as persons discharging managerial responsibilities
who, along with persons closely associated with them, are required to
notify Nokia and the Finnish Financial Supervisory Authority of their
transactions with Nokia’s financial instruments. Nokia publishes the
transaction notifications on a stock exchange release.
In addition, under the Nokia Insider Policy, persons discharging
managerial responsibilities are obligated to clear with the Vice President,
Corporate Legal, a planned transaction in Nokia’s financial instruments
in advance. It is also recommended that trading and other transactions
in Nokia’s financial instruments are carried out in times when the
information available to the market is as complete as possible.
Closed Window
Persons discharging managerial responsibilities are subject to a closed
window period of 30 calendar days preceding the disclosure of Nokia’s
quarterly or annual result announcements, as well as the day of the
disclosure. During the closed window period persons discharging
managerial responsibilities are prohibited from dealing in Nokia’s
financial instruments.
Nokia has imposed this closed window period also on separately
designated Financial Reporting Persons who are recurrently involved
with the preparation of Nokia’s quarterly and annual results
announcements. These persons are separately notified of their
status as Financial Reporting Persons.
Insider Registers
Nokia does not maintain a permanent insider register. Insiders are
identified on a case-by-case basis for specific projects and are notified
of their insider status. Persons included in a project-specific insider
register are prohibited from dealing in Nokia’s financial instruments
until the project ends or is made public.
Supervision
Our insider administration’s responsibilities include internal
communications related to insider matters and trading restrictions,
setting up and maintaining our insider registers, arranging related
trainings as well as organizing and overseeing compliance with the
insider rules.
Violations of the Nokia Insider Policy must be reported to the Vice
President, Corporate Legal. Nokia employees may also use channels
stated in the Nokia Code of Conduct for reporting incidents involving
alleged violations of the Nokia Insider Policy.
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, 2017.
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
2017
25.3
1.8
1.2
0.1
28.4
2016
31.3
1.8
3.4
–
36.5
(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 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.
Audit Committee pre-approval
policies and procedures
The Audit Committee of the Board is responsible, among other
matters, for oversight of the external auditor’s independence, subject
to the requirements of applicable legislation. The Audit Committee has
adopted a policy regarding an approval procedure of audit services
performed by the external auditors of Nokia Group 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 the Pre-approval Policy (“general
pre-approval”); or (ii) require the specific pre-approval of the Audit
Committee (“specific pre-approval”). The Pre-approval Policy sets 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 is subject to annual review
by the Audit Committee.
The Audit Committee establishes budgeted fee levels annually
for each of the categories of audit and non-audit services that
are pre-approved under the Pre-approval Policy, namely, audit,
audit-related, tax and other services. 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 cost of those services.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
107
Corporate governance Compensation
This section sets out our remuneration governance,
policies and 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 for 2017. 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.
Introduction
2017 was a challenging year, with our primary addressable market
declining in the range of 4 to 5%. Despite this, we continued to
execute well on our “rebalancing for growth” strategy, maintain cost
and pricing discipline, and deliver solid financial results, though lower
than the annual plan. On a compensation front this led to lower than
target annual bonuses, though a little higher than last year driven
by the performance of the patent licensing business.
Compensation in 2017
Our compensation approach is driven by our fundamental belief in
pay for performance and aligning the interests of employees and
shareholders. We strive to pay competitively compared to peer
companies and we pay based on performance. Compensation received
in any one year consists primarily of base salary, annual short-term
incentive and a long-term incentive awarded three years prior
to vesting.
The business delivered weaker revenue than planned, but resilient
operating profit and cash flow, resulting in an annual short-term
incentive being below target (76%) for our President and CEO.
The settlement of the Apple patent litigation was not built into the
2017 forecast and target, as it was not expected to be resolved in
2017, but it did have a significant impact on the results in 2017.
The Board exercised discretion on the treatment of the settlement
of the Apple patent litigation providing credit for the financial benefit
of an earlier settlement, but not recognizing the full value of the
settlement in 2017.
Long-term incentive payments received in the year reflect the
performance share award granted in 2014. Based on strong
performance in 2014 and 2015 the payout under that plan was
125.72% of target. The President and CEO also received the
payment under the first tranche of a special award granted in 2016
to incentivize the delivery of synergies from the Alcatel Lucent
acquisition. That award was based on financial synergies and cultural
integration and the targets were achieved in full. The three-tranche
vesting of the award ensures continued interest in delivering
sustainable integration.
In 2017, the President and CEO was awarded a long-term incentive
award, which will vest to him in 2020 based on performance in 2017
and 2018.
The base salary of the President and CEO will remain at EUR 1 050 000
for 2018, the third year in which his salary has remained at this level.
His target short-term incentive will also remain at 125% of base salary.
Looking forward on long-term incentives
The change to our long-term incentive resulted from the Personnel
Committee’s review of the performance measures used in our
long-term incentive plan. The review resulted in two recommendations
to the Board. First, while earnings per share remains core to the plan,
the committee recommended to introduce a relative measure by
changing the measure of revenue to revenue relative to market,
measuring Nokia’s revenue relative to its primary addressable market
to recognize cyclicality in the industry. The weighting of the measure
was also reduced from 50% to 33.3% with the second change to
introduce a free cash flow measure. In any business managing cash
flow is critical and in the challenging market environment ahead it
is essential to ensure the management remain focused on the dual
priorities of managing for cash and investing in 5G.
The Personnel Committee continues to monitor the effectiveness
of the long-term incentive plans comparing performance and payout
to that of our peers and then comparing performance of the plans
with the total shareholder return of Nokia over time. The analysis is
discussed in more detail below in the Remuneration Report with a
headline that there is strong correlation between performance of the
plans and total shareholder return over time and within a given year.
However, the nature of long-term incentives means that there is
a delay between the time they are earned and the time they are
received which can distort the snapshot at any one point in time.
In 2017 the 2014 long-term incentive award vested which rewarded
for strong performance in 2014 and 2015 while the results in 2017
showed a weaker revenue and impact on the share price.
The pattern of performance of the performance share plans follows
the movement in the share price of the company with the most recent
performance being the 2016 cycle where 46.25% of the target award
will vest. In the recent years, the payout of our long-term incentive
plans has been as follows:
The 2014 performance share plan vested on January 1, 2017 with
125.72% of the target award vesting based on the achievement
against the revenue and earnings per share targets during the
performance period (financial years 2014 and 2015); and
The 2015 performance share plan vested on January 1, 2018 with
123.75% of the target award vesting based on the achievement
against the revenue and earnings per share targets during the
performance period (financial years 2015 and 2016); and
The 2016 performance share plan will vest on January 1, 2019
with 46.25% of the target award vesting based on the achievement
against the revenue and earnings per share targets during the
performance period (financial years 2016 and 2017).
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
Employee Share Purchase Plan
Finally, a word about our employee share purchase plan, Share in
Success. The plan offers the opportunity for our employees to own
shares in Nokia, fosters share ownership as a component of the culture
in Nokia and is a key part of aligning everyone’s interests and helping
Nokia grow. We are particularly proud of Share in Success, under which
participating employees receive one matching share for every two
purchased shares that the participant still holds at the end of the
12-month plan cycle. In 2017, Nokia offered the plan to employees in
57 countries and 36% of those eligible joined the plan. In 2018, it is
intended for employees in 18 new countries to be invited to join,
taking the total number of participating countries to 75.
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.
■ 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 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
109
Corporate governance Compensation continued
■ 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 its discretion, any other
significant compensation arrangements applicable to the wider
executive population in the Nokia Group.
■ The Committee reports 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 the
compensation philosophy, strategy, principles, and management
compensation to be included in our Remuneration Report.
Work of the Personnel Committee
The Personnel Committee convened five times during 2017 with
a general theme for each meeting. The discussion and timing of
certain remuneration-related elements was unique in 2017,
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
■ 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.
September:
■ Compensation strategy and
philosophy review
■ Risk review
Update on:
■ market and legal environment;
and
■ adviser market practices
November:
Review of:
■ framework for the short-term
incentive program for 2018;
■ framework for the long-term
incentive program for 2018;
and
■ the Remuneration Statement
and Report for 2017
January:
■ 2016 achievement review
and short-term incentive plan
payment approvals including
review of the performance of
the President and CEO
■ Budget approval for the 2017
Nokia equity program and
performance review for the
2015 performance share plan
■ Review of the Group
Leadership Team succession
planning
March:
■ Share ownership policy
compliance review
■ Review of the 2016
Remuneration Statement
and Report
■ Group Leadership Team
compensation reviews
August:
Review of:
■ Talent summit outcomes;
■ diversity; and
■ policy
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
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.
Advisors
The Personnel Committee engaged Aon, an independent external
consultant, 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 material business relationships with Nokia.
Authorizations and resolutions of the Board concerning remuneration
Valid authorizations
The Annual General Meeting held on May 23, 2017 resolved to
authorize the Board to resolve to issue a maximum of 560 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 November 23, 2018 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 June 16, 2016. The authorization did
not terminate the authorization granted by the Extraordinary General
Meeting held on December 2, 2015 to the Board for the issuance
of shares in order to implement the acquisition of Alcatel Lucent.
Board resolutions
On January 31, 2018, the Board approved the Nokia equity program
for 2018 and the issuance, without consideration, of a maximum
of 10.5 million Nokia shares held by the company to settle its
commitments to Nokia’s equity plan participants during 2018.
Remuneration policy
This section of our statement describes our remuneration policy,
the aspects considered when setting the policy and how we currently
compensate our directors and executives.
Board of Directors
The objective of the Board’s Corporate Governance and Nomination
Committee when determining director remuneration is to ensure that
Nokia is able to compete for top-of-class board competence 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
Nokia 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 May 23, 2017 and ends at the close
of the Annual General Meeting in 2018 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(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 our policy,
the directors shall retain until the end of their directorship such
number of shares as 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
members of the Board except the Chair of the Board based on cost
of 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.
According to our 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
111
Corporate governance Compensation continued
The President and CEO
Our focus when considering policies related to remuneration of the
President and CEO is to:
■ attract, retain and motivate the right individuals to lead Nokia;
■ drive performance and appropriate behaviors; and
■ align the interests of the President and CEO and the results
of our compensation programs with the interests and returns
of our shareholders.
These principles are then also applied to the compensation of the
Group Leadership Team.
Compensation philosophy, design and strategy
Our compensation programs are designed to attract, drive and retain
the talent necessary to deliver long-term sustainable 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 incentivize delivery of these
objectives 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 results and creating value for our shareholders.
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, the quantum and the relative mix
of compensation packages. The peer group for 2017 is presented
in “—Remuneration Report” below. We also monitor a wider group
of companies as emerging competitors in the labor markets from
which we hire.
In designing our variable compensation programs key consideration
is given to:
■ incorporating specific performance measures that align directly
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. The variable pay 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.
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 to set targets that are achievable and sufficiently demanding to create shareholder value.
The elements of the compensation structure for the President and CEO are further detailed below.
Element
Base salary
Purpose
To attract and retain the
best individual with the
requisite level of knowledge,
skills and experience to lead
our businesses and provide
a degree of financial
certainty and stability.
Short-term
incentives
To incentivize and reward
performance against
delivery of the annual
business plan.
Operation
Base pay is reviewed annually taking into
consideration a variety of factors, including,
for example, the following:
■ performance of the individual;
■ changes in the market and the remuneration
of our external comparator group;
■ changes in individual responsibilities; and
■ average employee salary increases across
Nokia and in the local market.
Short-term incentives are based on
performance against single year targets
and paid in cash.
Targets for the short-term incentives are set
at the start of the year, in the context of
analyst expectations and the annual plan,
selecting measures that align to delivery
of Nokia’s strategy.
Achievement is assessed at the end of the year.
Opportunity
Base salary increases are expected to be set
in the context of wider employee increases.
As a percentage of base salary
Min 0%
Target 125%
Max 281.25%
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
Element
Long-term
incentives
Purpose
To reward for delivery
of sustainable long-term
performance, align the
President and CEO’s
interests with those
of shareholders and
aid retention.
Benefits &
perquisites
Relocation
& mobility
To attract, retain and
protect the President
and CEO.
To support the international
mobility and ensure the
right person is in the
right location to meet
business needs.
Retirement
plans
To provide for retirement
with a level of certainty.
Operation
Annual long-term incentive awards are made in
performance shares and paid for performance
against longer-term targets.
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 and motivational.
The target value of a long-term incentive award
is determined by reference to Nokia’s peer
group and informed by reference to a wider
group of emerging competitors in the markets
where we recruit our talent including a range
of technology companies.
The Board retains the discretion to make
exceptional awards in circumstances where
there is a strategically significant change in
Nokia for which they believe that additional
incentives would increase or accelerate
value creation.
Benefits are made available as part of the
same policy that applies to employees more
broadly in the relevant country, with additional
security provisions, as appropriate.
Support may be offered to cover additional
costs related to relocation to and working in
a location other than home country based
on business need. The policy supports the
mobility needs of an individual and their
dependants 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.
Retirement age is defined and pensions are
provided in line with local country arrangements;
in Finland this is the statutory Finnish pension
system (“Finnish TyEL”).
Under the TyEL arrangements, base salary,
incentives and other taxable benefits are
included in the definition of earnings while
gains from equity related plans are not.
Opportunity
Payout as a percentage of target award
Min 0%
Target 100%
Max 200%
n/a
n/a
As mandated by Finnish law
Change
of control
arrangements
To ensure the continuity of
management in connection
with a possible change of
control event.
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”.
n/a
NOKIA ANNUAL REPORT ON FORM 20-F 2017
113
Corporate governance Compensation continued
2017 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
Compensation mix and opportunity
To align the interests of the President and CEO with those of our
shareholders, the compensation mix for the President and CEO is
heavily geared towards performance-based pay with only 19.5%
of core target compensation in 2017 consisting of fixed pay. The
total remuneration of the President and CEO is thus dependent on
performance and the range of possible outcomes is shown opposite:
Remuneration on recruitment
Our policy on recruitment is to offer a compensation package which is
sufficient to attract, retain and motivate the individual with the right
skills for the required role. On occasion, we may offer compensation to
buy out awards or other lost compensation 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
The President and CEO is 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
Nokia 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 is required to own three times his base salary
in Nokia shares and is given a period of five years from appointment
to achieve the required level of share ownership.
Termination provisions
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. Current termination
provisions of the President and CEO’s service agreement are
described under “—Termination provisions of the President and CEO”.
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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 and follows the same
policy framework as the President and CEO and other eligible
employees, except that the quantum differs by role. Short-term
incentive plans are based on rewarding the delivery of business
performance utilizing certain, or all, of the following metrics as
appropriate to the member’s role: revenue, operating profit, free cash
flow and defined strategic objectives. The revenue and operating
profit metrics 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.
Remuneration on 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 or other lost compensation 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.
Nokia Equity Program
The Nokia equity program includes the following equity instruments:
Share ownership policy
Members of the Group Leadership Team are required to own two
times their base salary in Nokia Shares. They are given five years from
joining the Group Leadership Team to meet the requirements of
the policy.
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.
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.
Termination provisions
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 Nokia for any other reason than cause,
where Nokia pays compensation in lieu of notice period salary,
the benefits and target short-term incentive amounts are taken
into account.
The Board has discretion to implement change of control agreements
if there is a period of significant instability in the business to facilitate
stable and effective leadership during such a time, for example during
a merger. At the end of 2017 there were no change of control
agreements in place for the Group Leadership Team members.
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
Limited use for recruitment
and retention
Employee share purchase plan
Employees in participating countries
Encourage share ownership within the
Nokia employee population, increasing
engagement and sense of ownership
in the company
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
NOKIA ANNUAL REPORT ON FORM 20-F 2017
115
Corporate governance Compensation continued
Performance share plans
In accordance with previous years’ practice, the primary equity
instruments granted to 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 the performance criteria.
The table below illustrates the performance criteria of the
performance share plans that are currently active.
Performance criteria(1) (Nokia group)
Annual earnings per share (diluted)
Annual free cash flow
Revenue relative to market
Average annual net sales
Average annual earnings per share
(diluted)
2018
Yes
Yes
Yes
2017
2016
Yes
Yes
Yes
Yes
Minimum settlement at below threshold
performance(2)
–
–
25%
(1) 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) 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.
Under the 2018 performance share plan, the pay-out will depend on
whether the performance criteria have been met by the end of the
performance period. The performance criteria are: Nokia annual
earnings per share (diluted), annual free cash flow and revenue relative
to market. The criteria 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.
The 2018 performance share plan has a two-year performance
period (2018-2019) and a subsequent one-year restriction period.
The number of performance shares to be settled would be determined
with reference to the performance targets during the performance
period. For non-executive participants, 25% of the performance
shares granted in 2018 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 at the date of the performance
share grant in 2018 will not receive any settlement.
The grant under the 2018 performance share plan could result
in an aggregate maximum settlement of 94 million Nokia shares,
in the event that maximum performance against all the performance
criteria is achieved.
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 granted to Nokia’s executives and other eligible
employees on a more limited basis than performance shares for
purposes related to retention and recruitment to ensure Nokia is
able to retain and recruit vital talent for the future success of Nokia.
Under the 2018 restricted share plan, the restricted shares are
divided into three tranches, each tranche consisting of one third of the
restricted shares granted. The first tranche has a one-year restriction
period, the second tranche a two-year restriction period, and the third
tranche a three-year restriction period.
The grant under the 2018 restricted share plan could result in an
aggregate maximum settlement of 8 million Nokia shares. 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.
Employee Share Purchase Plan
Under our employee share purchase plan 2018 “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 quarterly 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. The Employee Share Purchase Plan
is planned to be offered to Nokia employees in up to 75 countries for
the plan cycle commencing in 2018.
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.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
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.
Remuneration Report
The Remuneration Report provides information on the Board and
executive remuneration between January 1, 2017 and December 31,
2017. We provide disclosure of the compensation of our Board, the
President and CEO and aggregated compensation information for the
Group Leadership Team. Revenue, operating profit and earnings per
share measures referred to in the Remuneration Report 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.
Board of Directors
In 2017, the aggregate amount of compensation paid to the members
of the Board for their services on the Board and its committees
equaled EUR 2 138 000.
The Annual General Meeting held on May 23, 2017 resolved to elect
ten 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 2018: Bruce Brown, Louis R. Hughes, Jean C. Monty,
Elizabeth Nelson, Olivier Piou, Risto Siilasmaa, Carla Smits-Nusteling
and Kari Stadigh. Jeanette Horan and Edward Kozel were elected
as new members 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.
The following table outlines the total annual compensation paid in
2017 to the members of the Board for their services, as resolved by
shareholders at the Annual General Meeting on May 23, 2017. The
table does not include the meeting fees as resolved by the Annual
General Meeting in 2017. The meeting fees for applicable Board and
Committee meetings held in 2017 will be paid in 2018. For details of
Nokia shares held by the members of the Board, refer to “—Share
ownership—Share ownership of the Board of Directors” below.
Compensation paid in 2017:
Risto Siilasmaa, Chair
Olivier Piou, Vice Chair(3)
Bruce Brown(4)
Jeanette Horan(5)
Louis R. Hughes(6)
Edward Kozel(7)
Jean C. Monty(8)
Elizabeth Nelson(9)
Carla Smits-Nusteling(10)
Kari Stadigh(11)
Total
EUR(1)
440 000
199 000
209 000
175 000
194 000
175 000
174 000
207 000
195 000
170 000
2 138 000
Shares(2)
30 497
12 823
13 169
12 129
12 129
12 129
11 090
13 169
12 129
11 090
140 354
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
The meeting fees for the term that ended at the close of the Annual General Meeting in 2017
were paid in cash in 2017 and are included in the table above. The meeting fees for the current
term as resolved by the Annual General Meeting in 2017 will be paid in cash in 2018 and are not
included in the table above.
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.
Consists of EUR 185 000 for services as the Vice Chair of the Board and meeting fees
of EUR 14 000.
Consists of EUR 160 000 for services as a member of the Board, EUR 30 000 for services
as the Chair of the Personnel Committee and meeting fees of EUR 19 000.
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.
Consists of EUR 160 000 for services as a member of the Board, EUR 15 000 for services as
a member of the Audit Committee and meeting fees of EUR 19 000.
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.
Consists of EUR 160 000 for services as a member of the Board and meeting fees of
EUR 14 000.
Consists of EUR 160 000 for services as a member of the Board, EUR 30 000 for services
as the Chair of the Audit Committee and meeting fees of EUR 17 000.
(10) Consists of EUR 160 000 for services as a member of the Board, EUR 15 000 for services
as a member of the Audit Committee and meeting fees of EUR 20 000.
(11) Consists of EUR 160 000 for services as a member of the Board and meeting fees
of EUR 10 000.
The President and CEO
The following table shows the remuneration received by the President
and CEO in 2017 and 2016. The long-term incentive payments reflect
actual payments in the respective years attributable to the vesting
of the 2014 Nokia performance share plan in 2017 and the 2012
Nokia Networks equity incentive plan that vested in 2016.
EUR
Salary
Short-term incentive(1)
Long-term incentive
From role as Nokia President and CEO
From role as NSN CEO(2)
Other compensation(3)
Total
2017
1 050 000
997 369
2016
1 049 044
780 357
4 261 633
–
114 557
6 423 559
–
7 556 598
122 157
9 508 156
(1) Short-term incentives represent amounts earned in respect of the financial year, but that are
paid in April of the following year.
(2) Amount represents the value of the 2012 Nokia Networks equity incentive plan.
(3) Other compensation includes compensation for housing equaling EUR 44 463
(2016: EUR 41 312); travel assistance equaling EUR 22 628 (2016: EUR 33 482); Tax services
equaling EUR 17 595 (2016: EUR 19 260) and other benefits including mobile phone, driver
and supplemental medical and disability insurance equaling EUR 29 871 (2016: EUR 28 103).
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 2017, payments to the Finnish state pension system
equaled EUR 304 546 (EUR 469 737 in 2016).
NOKIA ANNUAL REPORT ON FORM 20-F 2017
117
Corporate governance
Compensation continued
Variable pay
Targets for the short-term incentives are set annually at or
before the start of the year, balancing the need to deliver value
with the need to motivate and drive the performance of the
President and CEO. Targets are selected from a set of strategic
metrics that align with driving sustainable value for shareholders and
are set in the context market expectations and analyst consensus
forecasts. The long-term incentive targets are set in a similar context
and are set for the life of the plan at the start of the performance
period and locked in for the life of the plan.
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 measures
for driving sustainable business performance at Nokia in 2017 were:
■ revenue;
■ operating profit;
■ earnings per share;
■ free cash flow; and
■ personal strategic objectives.
The variable compensation focused on these measures including
personal strategic objectives to support the strategic development of
Nokia, which is not necessarily measurable or easily measured in purely
financial terms.
Short-term incentive
The 2017 short-term incentive framework for the President and CEO
was based on three core metrics: revenue, operating profit and free
cash flow.
The short-term incentive for the President and CEO were based on the
achievement of key financial targets and other strategic objectives, as
defined below. Performance against these defined targets was 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.
Incentive opportunity by metric (% of total variable pay)
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
Revenue
Earnings
per share
Operating
profit
Free
cash flow
Personal
strategic
objectives
Short-term incentive
Long-term incentive
2017 Pay mix
1
3
2
1 Base salary
2 Short-term incentive
3 Long-term incentive
19.43%
24.29%
56.28%
% of base salary
Minimum
performance
0%
Target
performance
125%
Maximum
performance
281.25%
Measurement criteria
80% of the incentive was based on performance against the Nokia scorecard:
■ revenue (⅓);
■ operating profit (⅓); and
■ free cash flow (⅓).
The final 20% of the incentive was determined based on the achievement of personal
strategic objectives set for President and CEO by the Board.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
Short-term incentive targets and achievements reflect the challenging market conditions yet also show the operational resilience of our
business. In line with Nokia’s performance in 2017, the short-term incentive of the President and CEO equaled EUR 997 369, or 76% of the
target award, reflecting the challenging market environment. Achievement by each element of the short-term incentive plan was as follows:
Metric
Revenue
Operating profit
Free cash flow(1)
Target
EURm
24 283
2 483
(244)
Achievement
22.11%
96.94%
105.31%
(1) Free cash flow target was negative due to expected restructuring costs and roadmap integration issues.
The Board reviewed the impact of the settlement of the Apple patent litigation on the short-term Incentive and decided not to recognize
the impact of the settlement itself on either revenue or operating profit on the basis that it had not been included in targets due to the
unpredictable nature of such large litigations. It was deemed appropriate to give credit for the cash flow benefit, value a swift settlement
and recognize the cost savings achieved by avoiding extensive litigation.
Long-term incentive
In 2017, the President and CEO’s 2014 performance share award vested at 125.72% of the target award valued at EUR 3 968 064.
In 2016, the President and CEO was granted a restricted share award subject to the fulfillment of predetermined and demanding performance
conditions related to the successful integration of Nokia and Alcatel Lucent. This award vests in three equal tranches, the first of which was in
2017 and worth EUR 293 569.
In 2017, the President and CEO was awarded the following equity awards under the Nokia equity program:
Award
Performance shares(1)
Units awarded
596 421
Grant date fair value (EUR)
3 040 554
Grant date
July 5, 2017
Vesting date
January 1, 2020
(1) The 2017 performance share plan has a two-year performance period based on financial targets and a one-year restriction period. There is no minimum payout at below threshold performance for
executive employees. The maximum payout would be 200% subject to maximum performance against all the performance criteria. Vesting is subject to continued employment.
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.
Beneficially owned shares as of December 31, 2017(1)
Vested shares under the 2015 performance share plan delivered on February 14, 2018(2)
Unvested shares under outstanding Nokia equity plans(3)
Total
Units
1 366 994
436 530
1 032 533
2 836 057
Value (EUR)
5 317 607
1 964 385
4 015 553
11 294 545
(1) The value is based on the closing price of a Nokia share of EUR 3.89 on Nasdaq Helsinki on December 29, 2017.
(2) The value and number of units represent fair market value of a Nokia share of EUR 4.50 on Nasdaq Helsinki on February 14, 2018 and the net number of shares delivered after the applicable taxes were
withheld from the number of shares that vested to the President and CEO.
(3) The number of units represents the number of unvested awards as of December 31, 2017 including the payout factor of the 2016 performance share plan and excluding the 2015 performance share
plan that vested on January 1, 2018. The value is based on the closing price of a Nokia share of EUR 3.89 on Nasdaq Helsinki on December 29, 2017. Vesting is subject to continued employment.
Termination provisions of the President and CEO
Currently the 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 Reason
Cause
Nokia
Notice
None
Compensation
The President and CEO is entitled to no additional compensation and all unvested equity
awards would be forfeited.
Up to 18 months The President and CEO is entitled to a severance payment equaling up to 18 months of
Nokia
Reasons other
than cause
President
and CEO
Any reason
Six months
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 either continue to receive 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.
President
and CEO
Nokia’s material
breach of
the service
agreement
Up to 18 months 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 up to 18 months of compensation (including annual base
salary, benefits and target incentive). Any unvested equity awards would be forfeited.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
119
Corporate governance Compensation continued
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 by either 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.
Group Leadership Team
In 2017, our Group Leadership Team grew following the realignment of the business to accelerate delivery of our strategy, bringing a Chief
Operating Officer, Chief Technology Officer and the President of the new business group, Global Services onto the Group Leadership Team.
At the end of 2017, the Group Leadership Team consisted of 15 persons split between Finland, other European countries and the United States.
Name
Rajeev Suri
Federico Guillén
Basil Alwan
Bhaskar Gorti
Igor Leprince (1)
Marc Rouanne
Samih Elhage(2)
Gregory Lee
Kristian Pullola
Monika Maurer(3)
Joerg Erlemeier
Hans-Jürgen Bill
Kathrin Buvac
Ashish Chowdhary
Barry French
Maria Varsellona
Marcus Weldon
Position in 2017
President and CEO
President of Fixed Networks
President of IP/Optical Networks
President of Nokia Software
President of Global Services
President of Mobile Networks
President of Mobile Networks
President of Nokia Technologies
Chief Financial Officer
Chief Operating Officer
Chief Operating Officer
Chief Human Resources Officer
Chief Strategy Officer
Chief Customer Operations Officer
Chief Marketing Officer
Chief Legal Officer
Chief Technology Officer and President of Bell Labs
Appointment date
May 1, 2014
January 8, 2016
January 8, 2016
January 8, 2016
April 1, 2017
January 8, 2016
May 1, 2014
June 30, 2017
January 1, 2017
April 1, 2017
December 11, 2017
January 8, 2016
January 8, 2016
January 8, 2016
January 8, 2016
January 8, 2016
April 1, 2017
(1) Igor Leprince will step down from the Group Leadership Team as of March 31, 2018. Sanjay Goel was nominated as President of Global Services and member of the Group Leadership Team from April 1, 2018.
(2) Samih Elhage was a member of the Group Leadership Team until March 31, 2017.
(3) Monika Maurer was a member of the Group Leadership Team until December 11, 2017.
Remuneration of the Group Leadership Team (excluding the President and CEO) in 2017 and 2016, in the aggregate, was as follows:
Salary, short-term incentives and other compensation(2)
Long-term incentives(3)
Total
2017
EURm(1)
20.3
7.0
27.3
2016
EURm(1)
22.7
25.5
48.2
(1) The values represent each member’s time on the Group Leadership Team.
(2) Short-term incentives represent amounts earned in respect of 2017 performance. Other compensation includes mobility related payments, local benefits and pension costs.
(3) The 2016 amount represents 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 2017, the Group Leadership Team (excluding the President and the CEO) was awarded the following equity awards under the Nokia equity program:
Award
Performance shares(1)
Restricted shares
Units awarded(2)
1 333 567
696 835
Grant date fair
value (EUR)
6 798 525
3 548 981
Grant date
July 5, 2017
July 5, 2017
Vesting date
January 1, 2020
October 1, 2018, 2019 and 2020
(1) The 2017 performance share plan has a two-year performance period based on financial targets and a one-year restriction period. There is no minimum payout at below threshold performance for
executive employees. The maximum payout would be 200% subject to maximum performance against all the performance criteria. Vesting is subject to continued employment.
(2) Includes units awarded to persons who were Group Leadership Team members during 2017.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
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
12
11
10
9
8
7
6
5
4
3
2
1
0
0
1
2
3
4
Nokia
5
6
Relative pay rank
7
8
9
10
11
12
Share price and total shareholder return vs long-term
incentive performance
250%
200%
150%
100%
50%
0
TSR
value
Nil
Nil
2011
2012
25.72% 23.75%
86%
100%
100%
2013
2014
Long-term incentive plan year,
as of December 31
2015
46.25%
2016
2017*
Achieved
Overachieved
Nokia total shareholder return (“TSR”)
* Performance period not yet completed.
Review of our incentive plans
Each year we monitor the performance of our incentive plans against
the targets for the plan, total shareholder return and the impact that
the plans have on total compensation compared to market peers.
Target setting
Targets for the short-term incentives are set annually at or before
the start of the year, balancing the need to deliver value with the need
to motivate and drive performance of the Group Leadership Team.
Targets are selected from a set of strategic metrics that align with
driving sustainable value for shareholders and are set in the context
market expectations and analyst consensus forecasts. Targets for our
long-term incentive plans are set in a similar context. The long-term
incentive targets are set at the start of the performance period and
locked in for the life of the plan.
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 2017 represent the
challenging business environment in which Nokia has been operating
with median payout at 83% 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 revenue and earnings per share targets during the
performance period (financial years 2014 and 2015).
The 2015 performance share plan vested on January 1, 2018 with
123.75% of the target award vesting based on the achievement
against the revenue and earnings per share targets during the
performance period (financial years 2015 and 2016).
The 2016 performance share plan will vest on January 1, 2019 with
46.25% of the target award vesting based on the achievement against
the revenue and earnings per share targets during the performance
period (financial years 2016 and 2017).
While short-term performance in 2017 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.
Pay for performance
Core to our compensation philosophy is a desire to pay for performance.
We conduct two tests each year on our long-term incentives:
1.
We compare ourselves to a group of peer companies ranking our
performance against the peer group based on total shareholder
return and total compensation paid. Data are only publicly available
for our peer group for financial years to December 31, 2016.
2.
Overall total shareholder return is compared to long-term
incentive payouts mapping the performance of the plans against
the total shareholder return curve.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
121
Corporate governance
Compensation continued
The first test is a snapshot at any given point in time, showing the
compensation received in a year compared to peers versus total
shareholder return over the three years prior. The second test looks
over time at the progress of the long-term incentive plans. While the
comparison to a group of peers shows Nokia with a low performance
rank and relatively high pay compared to its peers the comparison
of long-term incentive payouts over time aligns well to the total
shareholder return performance of the business over a longer
time frame. The key driver of much of this is timing with long-term
incentives paid sometime after the share price (and total shareholder
return) has moved. To highlight this point, in 2019 Nokia would expect
to see 46.25% of the 2016 performance share plan award vest to the
President and CEO.
Based on the peer group comparison, Nokia was tenth over the three
preceding years, as measured by total shareholder return. Whilst the
compensation paid out to the President and CEO (as opposed to
awarded) was ranked second, reflecting the final payment to him of
the Nokia Networks equity incentive plan award granted in 2012 and
rewarding the transformation of the Nokia Networks business which
has since become the core of Nokia.
However, looking at the performance of our long-term incentive plans
against total shareholder return there is a stronger alignment with
the performance of the plans declining as total shareholder return
declines and the trend lines are reasonably aligned.
The Board continues to actively monitor the performance of its
long-term incentive plans to ensure that they deliver value for
shareholders. Accordingly, the Board has changed the performance
metrics in the 2018 long-term incentive plan to better fit with the
needs of the business.
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, 2017, the members of our Board held a total of
4 915 481 shares and ADSs in Nokia, which represented approximately
0.09% 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 as of December 31, 2017:
Name(1)
Risto Siilasmaa
Olivier Piou
Bruce Brown
Jeanette Horan
Louis R. Hughes
Edward Kozel
Jean C. Monty
Elizabeth Nelson
Carla Smits-Nusteling
Kari Stadigh
Shares(1)
1 313 205
265 583
–
12 129
53 956
12 129
2 778 647
–
26 050
261 090
ADSs(1)
–
–
113 130
–
–
20 525
–
59 037
–
–
(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 on Form 20-F.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
Share ownership of 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, 2017. The share ownership of all members of the Group Leadership Team, including the President and CEO, was 2 569 891 Nokia
shares, which represented 0.05% of the outstanding shares and total voting rights excluding shares held by Nokia Group as of December 31, 2017.
Name
Rajeev Suri
Federico Guillén
Basil Alwan
Bhaskar Gorti
Igor Leprince
Marc Rouanne
Gregory Lee
Kristian Pullola
Joerg Erlemeier
Hans-Jürgen Bill
Kathrin Buvac
Ashish Chowdhary
Barry French
Maria Varsellona
Marcus Weldon
Position in 2017
President and Chief Executive Officer
President of Fixed Networks
President of IP/Optical Networks
President of Nokia Software
President of Global Services
President of Mobile Networks
President of Nokia Technologies
Chief Financial Officer
Chief Operating Officer
Chief Human Resources Officer
Chief Strategy Officer
Chief Customer Operations Officer
Chief Marketing Officer
Chief Legal Officer
Chief Technology Officer and President of Nokia Bell Labs
Beneficially owned shares
number
1 366 994
24 761
176 716
25 417
50 288
239 362
–
126 156
5 125
150 853
38 569
88 481
108 603
149 613
18 953
Stock-option ownership of the Nokia Group Leadership Team
The following table sets forth the aggregate stock option ownership of the Group Leadership Team in office as of December 31, 2017.
Category
2012 Q2
2012 Q3
2013 Q2
Number of stock options
40 000
50 000
45 000
Exercise price (EUR)
2.08
1.82
2.35
Expiration date
December 27, 2018
December 27, 2018
December 27, 2019
Unvested equity awards held by the Nokia Group Leadership Team
The following table sets forth the potential aggregate ownership interest through the holding of equity-based incentives of the Group
Leadership Team in office, including the President and CEO, as of December 31, 2017:
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
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)
135 000
0.002%
30.17%
4 625 484
0.08%
7.64%
9 250 968
0.16%
7.64%
1 440 039
0.02%
25.86%
(1) Includes the 15 members of the Group Leadership Team in office as of December 31, 2017. 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, 2017, 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, 2017, the payout would be 200% and the table reflects this potential maximum payout. The restriction
period for the performance share plan 2015 and the performance period for the performance share plan 2016 ended on December 31, 2017 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 2015 plan took place in February 2018 and the
settlement for the performance share 2016 plan is expected to take place in the beginning of 2019 after the restriction period ends.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
123
Corporate governance General facts
on Nokia
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
Contents
Our history
Memorandum and Articles
of Association
Selected financial data
Shares and shareholders
Depositary payments in 2017
Related party transactions
Production of infrastructure
equipment and products
Key ratios
Controls and procedures
Government regulation
Sales in United States-sanctioned
countries
Taxation
126
127
129
131
139
139
139
140
141
142
142
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
125
General facts on Nokia General facts on Nokia
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.
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.
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 our recent acquisitions of Alcatel Lucent,
Gainspeed, Withings, Deepfield, and Comptel, we can deliver today
a near 100% end-to-end portfolio on a global scale.
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 occur 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.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
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 fee payable to the Board
members is paid in Nokia shares purchased from the market or
alternatively by using treasury shares held by Nokia, 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
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. Neither Finnish law
nor our Articles of Association sets 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.
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.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
127
General facts on Nokia General facts on Nokia continued
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.
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.
128
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Selected financial data
Five-year consolidated financial information
The financial data set forth below as of and for the years ended December 31, 2017 and 2016 and for each of the three years ended December
31, 2017, 2016 and 2015 has been derived from our audited consolidated financial statements included in this annual report on Form 20-F.
The financial data as of December 31, 2017 and 2016 and for each of the three years ended December 31, 2017, 2016 and 2015 should be
read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements.
We acquired Alcatel Lucent in January 2016; consequently the acquisition is reflected in the financial data presented as of and for the years
ended December 31, 2017 and 2016 only. Refer to Note 5, Acquisitions, of our consolidated financial statements included in this annual report
on Form 20-F. For information on material trends affecting our business and results of operations, refer to “Operating and financial review and
prospects—Principal industry trends affecting operations” above.
The audited consolidated financial statements from which the selected consolidated financial data set forth below have been derived were
prepared in accordance with IFRS. For information on our critical accounting policies refer to Note 3, Use of estimates and critical accounting
judgments, of our consolidated financial statements included in this annual report on Form 20-F.
For the year ended December 31
From the consolidated income statement(2)
Net sales
Operating profit/(loss)
(Loss)/profit before tax
(Loss)/profit for the year from Continuing operations
(Loss)/profit for the year from Discontinued operations
(Loss)/profit for the year
(Loss)/profit from Continuing operations attributable
to equity holders of the parent
(Loss)/profit attributable to equity holders of the parent
Earnings per share (for profit/(loss) attributable to equity
holders of the parent)
Basic earnings per share, EUR
From Continuing operations
From the (loss)/profit for the year
Diluted earnings per share, EUR
From Continuing operations
From the (loss)/profit for the year
Cash dividends per share, EUR(2)
Average number of shares (millions of shares)
Basic
Diluted
Continuing operations
Group
2017
USDm(1)
26 378
18
(581)
(1 638)
(24)
(1 662)
(1 679)
(1 703)
(0.30)
(0.30)
(0.30)
(0.30)
0.22
5 652
5 652
5 652
2017
2016
2015
2014
2013
23 147
16
(510)
(1 437)
(21)
(1 458)
(1 473)
(1 494)
(0.26)
(0.26)
(0.26)
(0.26)
0.19
23 641
(1 100)
(1 369)
(912)
(15)
(927)
(751)
(766)
(0.13)
(0.13)
(0.13)
(0.13)
0.17
EURm
12 560
1 697
1 540
1 194
1 274
2 468
1 192
2 466
0.32
0.67
0.31
0.63
0.26
11 762
1 414
999
2 718
758
3 476
2 710
3 462
0.73
0.94
0.67
0.85
0.14
11 795
672
399
128
(867)
(739)
273
(615)
0.07
(0.17)
0.07
(0.17)
0.37
5 652
5 732
3 671
3 699
3 712
5 652
5 652
5 741
5 741
3 949
3 949
4 132
4 132
3 733
3 712
(1) In 2017, average rate of USD per EUR 1.1396 has been used to translate the consolidated income statement items.
(2) The Board proposes a cash dividend of EUR 0.19 per share for 2017, subject to shareholders’ approval at the Annual General Meeting convening on May 30, 2018.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
129
General facts on Nokia
General facts on Nokia continued
For the year ended December 31
From the consolidated statement of financial position
Non-current assets
Cash and other liquid assets(2)
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
Long-term interest-bearing liabilities
Other non-current liabilities
Current borrowings
Other current liabilities
Liabilities of disposal groups classified as held for sale
Total shareholders’ equity and liabilities
Net cash(3)
Share capital
2017
USDm(1)
25 439
9 954
13 899
28
49 319
19 401
96
4 156
10 345
371
14 949
–
49 319
5 427
296
2017
2016
2015
2014
2013
21 160
8 280
11 561
23
41 024
16 138
80
3 457
8 605
309
12 435
–
41 024
4 514
246
24 182
9 326
11 349
44
44 901
20 094
881
3 657
7 664
370
12 235
–
44 901
5 299
246
EURm
5 102
9 849
5 975
–
20 926
10 503
21
2 023
1 988
51
6 340
–
20 926
7 775
246
7 339
7 715
6 009
–
21 063
8 611
58
2 576
2 530
116
7 172
–
21 063
5 023
246
6 048
8 971
4 825
5 347
25 191
6 468
192
3 286
1 067
3 376
6 074
4 728
25 191
2 309
246
(1) In 2017, end of period rate of USD per EUR 1.2022 has been used to translate the consolidated statement of financial position items.
(2) 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. Net interest-bearing liabilities consist of borrowings due within one year and long-term interest-bearing liabilities, less cash and other
liquid assets.
(3) Total cash and other liquid assets less long-term interest-bearing liabilities (including the current portion thereof) less short-term borrowings.
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 2013 to 2017 and for each of the months in the six-month period ended
February 28, 2018, 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)
2013
2014
2015
2016
2017
September 30, 2017
October 31, 2017
November 30, 2017
December 30, 2017
January 31, 2018
February 28, 2018
March 1, 2018 to March 9, 2018
End of period rate
Average rate
Highest rate
Lowest rate
(USD per EUR)
1.3779
1.2101
1.0859
1.0552
1.2022
1.1813
1.1648
1.1898
1.2022
1.2428
1.2211
1.2326
1.3303
1.3210
1.1032
1.1029
1.1396
1.1913
1.1755
1.1743
1.1836
1.2197
1.2340
1.2330
1.3816
1.3927
1.2015
1.1516
1.2041
1.2041
1.1847
1.1936
1.2022
1.2488
1.2482
1.2415
1.2774
1.2101
1.0524
1.0375
1.0416
1.1747
1.1580
1.1577
1.1725
1.1922
1.2211
1.2216
On March 9, 2018, the noon buying rate was USD 1.2326 per EUR 1.00.
130
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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, 2017, the share capital of Nokia Corporation equaled EUR 245 896 461.96 and the total number of shares issued was
5 839 404 303. As of December 31, 2017, the total number of shares included 259 887 597 shares owned by Group companies representing
approximately 4.5% 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
2017
246
5 839 404
259 887
5 579 517
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
during the year, (000s), basic
5 651 814
5 732 371
3 670 934
3 698 723
3 712 079
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
5 651 814
247 717
5 741 117
237 700
3 949 312
209 509
4 131 602
216 830
3 712 079
225 587
As of December 31, Continuing operations
2017
2016
2015
2014
2013
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)
(0.26)
(0.26)
neg.
0.19
1 060
neg.
4.88
2.89
21 704
(0.13)
(0.13)
neg.
0.17
963
neg.
3.70
3.51
26 257
0.32
0.31
20.63
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
(1) Based on Nokia closing share price at year-end.
(2) The Board proposes a cash dividend of EUR 0.19 per share for 2017, subject to shareholders’ approval at the Annual General Meeting convening on May 30, 2018.
(3) For 2017, the figure represents the maximum amount to be distributed as dividends, based on the number of shares as of December 31, 2017, 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
2013
2014
2015
2016
2017
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 ANNUAL REPORT ON FORM 20-F 2017
131
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
2017
8 839 680
5 839 404
151
2016
9 604 722
5 836 055
165
2015
8 490 823
3 992 823
213
2014
2013
9 278 853 16 748 295
3 744 956
3 745 044
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.
2017
3.81/5.96
4.88
3.89
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
2017
3.81/5.93
5.07
3.89
2016
3.66/6.99
4.98
4.57
2015
6.29/7.15
6.66
6.59
2014
–
–
–
2013
–
–
–
2017
4.50/6.65
5.59
4.66
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
Nokia share prices on Nasdaq Helsinki (EUR) and the NYSE (USD) 2013–2017
)
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
132
Jan 13
Jan 14
Jan 15
Jan 16
Jan 17
Dec 17
Nasdaq Helsinki
NYSE
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Stock option exercises 2013–2017
Year
2013
2014
2015
Stock option category
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
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
Subscription price
EUR
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
9.85
8.60
7.03
7.33
5.76
3.50
4.58
3.58
2.18
1.92
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
50
0
50
0
0
0
0
442
212
90
0
213
285
1 242
Date of
payment
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
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
0.29
0.00
0.29
0.00
0.00
0.00
0.00
2.55
0.74
0.41
0.00
0.47
0.55
4.72
New share capital
EURm
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
NOKIA ANNUAL REPORT ON FORM 20-F 2017
133
General facts on Nokia
General facts on Nokia continued
Year
2016
2017
Stock option category
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
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
Nokia Stock Option Plan 2013 4Q
Total
Subscription price
EUR
5.66
3.40
4.48
3.48
2.08
1.82
1.76
2.58
2.35
2.72
5.66
3.40
4.48
3.48
2.08
1.82
1.76
2.58
2.35
2.72
5.41
Number of new
shares 000s
104
0
0
0
240
308
10
0
166
5
833
0
0
5
0
61
148
9
0
193
0
0
416
Date of
payment
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
Net proceeds
EURm
0.60
0.00
0.00
0.00
0.51
0.57
0.02
0.00
0.39
0.01
2.10
0.00
0.00
0.02
0.00
0.13
0.27
0.02
0.00
0.45
0.00
0.00
0.87
New share capital
EURm
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Shareholders
As of December 31, 2017, shareholders registered in Finland represented 21.00% and shareholders registered in the name of a nominee
represented 79.00% of the total number of shares of Nokia Corporation. The number of directly registered shareholders was 247 717
as of December 31, 2017. Each account operator (13) is included in this figure as only one registered shareholder.
Largest shareholders registered in Finland as of December 31, 2017(1)
Shareholder
Varma Mutual Pension Insurance Company
The State Pension Fund
Ilmarinen Mutual Pension Insurance Company
Folketrygdfondet
Schweizerische Nationalbank
Elo Mutual Pension Insurance Company
OP-Finland Fund
Lival Oy Ab
Nordea Pro Finland Fund
Svenska Litteratursällskapet i Finland rf
Total number
of shares 000s
57 222
42 000
31 565
26 605
25 881
23 300
18 758
16 369
16 059
15 431
% of all shares
0.98
0.72
0.54
0.46
0.44
0.40
0.32
0.28
0.28
0.26
% of all voting rights
1.02
0.75
0.56
0.48
0.46
0.42
0.34
0.29
0.29
0.28
(1) Excluding nominee registered shares and shares owned by Nokia Corporation. Nokia Corporation owned 248 428 936 shares as of December 31, 2017.
134
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Breakdown of share ownership as of December 31, 2017(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
50 000
119 783
68 363
9 022
424
45
51
29
247 717
% of
shareholders
20.18
48.35
27.60
3.64
0.17
0.02
0.02
0.01
100.00
Total number
of shares
2 832 324
55 281 401
215 685 638
220 190 388
81 577 276
31 401 574
110 898 260
5 121 537 442
5 839 404 303
% of
all shares
0.05
0.95
3.69
3.77
1.40
0.54
1.90
87.71
100.00
(1) The breakdown covers only shareholders registered in Finland, and each account operator (13) 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
79.00
21.00
100.00
% of shares
6.24
8.20
2.19
1.11
3.26
21.00
As of December 31, 2017, a total of 640 129 725 ADSs (equivalent to the same number of shares or approximately 10,96% of the total
outstanding shares) were outstanding and held of record by 132 478 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, 2017 was 392 913.
Based on information known to us as of January 29, 2018, as of December 31, 2017 Blackrock, Inc. beneficially owned 364 870 084 Nokia shares
or convertible bonds combined, which at that time corresponded to approximately 6.2% of the total number of shares and voting rights of Nokia.
To the best of 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.
Shares and stock options owned by the members of the Board and the Nokia Group Leadership Team
As of December 31, 2017, the members of our Board and the Group Leadership team held a total of 7 485 372 shares and ADSs in Nokia,
which represented approximately 0.13% of our outstanding shares and total voting rights excluding shares held by Nokia Group.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
135
General facts on Nokia General facts on Nokia continued
Authorizations
Authorizations to issue shares and special rights entitling to shares
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.
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 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 December 16, 2017 was terminated by a resolution of Annual General Meeting on
May 23, 2017.
At the Annual General Meeting held on May 23, 2017, the shareholders authorized the Board of Directors to issue a maximum of 560 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 November 23, 2018.
In 2017, under the authorization held by the Board of Directors, the Parent Company issued 415 750 new shares following the holders of stock
options issued in 2011, 2012 and 2013 exercising their option rights.
In 2017, the Parent Company issued 2 933 541 new shares without consideration to the Parent Company to fulfil the company’s obligation
under the Nokia Equity Programs.
In 2017, under the authorization held by the Board of Directors, the Parent Company issued 12 199 284 treasury shares to employees,
including certain members of the Group Leadership Team, as settlement under equity-based incentive plans and the employee share purchase
plan. The shares were issued without consideration and in accordance with the plan rules.
As of December 31, 2017, the Board of Directors had no other authorizations to issue shares, convertible bonds, warrants or stock options.
136
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Authorization to repurchase shares
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 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 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 that would have been effective until December 16, 2017 was terminated by a resolution of the Annual General
Meeting on May 23, 2017.
At the Annual General Meeting held on May 23, 2017, the shareholders authorized the Board of Directors to repurchase a maximum of 560
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 Company. In addition, shares may be repurchased in order to meet obligations arising from debt
financial instruments that are exchangeable into equity instruments, to settle equity-based incentive plans for employees of the Group or of
its associated companies, or to be transferred for other purposes such as financing or carrying out acquisitions. The authorization is effective
until November 23, 2018.
Under the authorization held by the Board of Directors and in line with the capital structure optimization program, the Parent Company
repurchased 153 601 462 shares in 2017 representing approximately 2.6% of share capital and total voting rights as of December 31, 2017.
In 2016, the Parent Company had repurchased 54 296 182 shares. 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. On February 1, 2018 the Parent Company announced that the Board of
Directors had decided to cancel 207 897 644 treasury shares repurchased under the capital structure optimization program. The cancellation
of the shares does not have an impact on the Parent Company’s share capital.
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. The share repurchase program was
completed in November 2017 with a total of 207 897 644 shares repurchased during 2016 and 2017 and a total spend of EUR 1 billion.
Period
January
February
March
April
May
June
July
August
September
October
November
December
Total
Total number of
shares purchased
–
23 146 576
22 923 357
1 136 600
18 135 447
11 914 517
1 997 670
24 487 731
19 822 720
4 236 729
25 800 115
–
153 601 462
Average price
paid per share, EUR
–
4.67
4.97
5.28
5.59
5.76
5.41
5.34
5.15
4.25
4.26
–
5.01
Total number of shares
purchased as part of
publicly announced plans
or programs(1)
54 296 182
77 442 758
100 366 115
101 502 715
119 638 162
131 552 679
133 550 349
158 038 080
177 860 800
182 097 529
207 897 644
207 897 644
207 897 644
Maximum value
of shares that may yet
be purchased under the
plans or programs, EUR
769 389 815
661 389 853
547 389 895
541 389 897
439 989 947
371 390 053
360 590 071
229 792 560
127 793 146
109 793 275
–
–
–
(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 repurchase program was announced
on November 15, 2016. The column includes all the shares purchased as part of the EUR 1 billion share repurchase program.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
137
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.
2013
2014
2015
2016
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Full year
Most recent six months
September 2017
October 2017
November 2017
December 2017
January 2018
February 2018
March 9, 2018(2)
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
6.03
6.97
7.87
6.99
5.17
5.96
5.64
5.23
5.96
5.29
5.23
4.47
4.22
4.13
4.88
4.83
2.30
4.89
4.91
3.66
4.12
4.80
4.97
3.81
3.81
4.97
4.16
4.04
3.81
3.85
3.89
4.62
8.18
8.73
8.37
7.55
5.57
6.65
6.59
6.11
6.65
6.29
6.11
5.14
4.97
5.00
5.95
5.96
3.02
6.64
5.71
4.04
4.50
5.17
5.83
4.51
4.50
5.83
4.75
4.79
4.51
4.68
5.23
5.68
EUR
–
–
7.15
6.99
5.17
5.93
5.64
5.23
5.93
5.28
5.23
4.47
4.22
4.12
4.88
4.83
–
–
6.29
3.66
4.13
4.80
4.97
3.81
3.81
4.97
4.16
4.04
3.81
3.85
3.89
4.62
(1) Nokia’s listing and trading on Euronext Paris commenced on November 19, 2015.
(2) For the period until March 9, 2018.
Depositary fees and charges
ADS holders may have to pay the following service fees to the Depositary:
Service
Issuance of ADSs
Cancellation of ADSs
Distribution of cash dividends or other cash distributions
Distribution of ADSs pursuant to (i) stock dividends, free stock distributions or (ii) exercises of rights to purchase
additional ADSs
Distribution of securities other than ADSs or rights to purchase additional ADSs
ADR transfer fee
Fees, USD
Up to 5 cents per ADS(1)
Up to 5 cents per ADS(1)
Up to 2 cents per ADS(2)
Up to 5 cents per ADS(2)
Up to 5 cents per ADS(1)
1.50 per transfer(1)
(1) These fees are typically paid to the Depositary by the brokers on behalf of their clients receiving the newly issued ADSs from the Depositary and by the brokers on behalf of their clients delivering the
ADSs to the Depositary for cancellation. The brokers in turn charge these transaction fees to their clients.
(2) In practice, the Depositary has not collected these fees. If collected, such fees are offset against the related distribution made to the ADR holder.
138
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Additionally, ADS holders are responsible for certain fees and expenses
incurred by the Depositary on their behalf and certain governmental
charges such as taxes and registration fees, transmission and delivery
expenses, conversion of foreign currency and fees relating to
compliance with exchange control regulations. The fees and charges
may vary over time.
On July 3, 2017, Nokia and China Huaxin commenced operations of
the new joint venture. Nokia holds an ownership interest of 50% plus
one share in the parent company, Nokia Shanghai Bell Co., Ltd.,
with China Huaxin holding the remaining ownership interests. Refer to
Note 33, Significant partly-owned subsidiaries, of our consolidated
financial statements included in this annual report on Form 20-F.
In the event of refusal to pay the depositary fees, the Depositary may,
under the terms of the deposit agreement, refuse the requested
service until payment is received or may set-off the amount of the
depositary fees from any distribution to be made to the ADR holder.
Depositary payments in 2017
In 2017, our Depositary made the following payments on our behalf
in relation to our ADR program.
Category
Settlement infrastructure fees (including
the Depositary Trust Company fees)
Proxy process expenses (including printing,
postage and distribution)
ADS holder identification expenses
Legal fees
NYSE listing fees
Total
Payment, USD
1 129 477.49
872 975.48
97 885.85
–
500 000.00
2 600 338.82
Additionally for 2017, our Depositary has agreed to reimburse us
USD 1 024 997.24 mainly related to contributions towards our
investor relations activities, including investor meetings and
conferences and fees of investor relations service vendors, and
other miscellaneous expenses related to the United States listing
of our ADSs.
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. Refer to Note 35, Related party
transactions, of our consolidated financial statements included
in this annual report on Form 20-F.
HMD global Oy (“HMD”) is a related party to Nokia. As announced in
May 2016, Nokia has a strategic agreement covering branding rights
and intellectual property licensing to grant HMD an exclusive global
license to create Nokia-branded mobile phones and tablets for ten
years. Under the agreement, Nokia Technologies receives royalty
payments from HMD for sales of Nokia-branded mobile products,
covering both brand and intellectual property rights. The Board of
Directors of HMD includes a representative from Nokia.
As part of the acquisition of Alcatel Lucent in 2016, Nokia acquired
a partly owned consolidated subsidiary, Alcatel-Lucent Shanghai Bell
Co., Ltd. On May 18, 2017 Nokia announced the signing of definitive
agreements with the China Huaxin Post & Telecommunication
Economy Development Center (“China Huaxin”). related to the
integration of Alcatel-Lucent Shanghai Bell Co., Ltd. and Nokia’s China
business into a new joint venture branded as Nokia Shanghai Bell.
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, 2017, 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, 2017.
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
Shanghai (antenna): radio frequency systems
Oulu: base stations
Calais: submarine cables
Trignac: radio frequency systems
China
China
Finland
France
France
Germany Hannover: radio frequency systems
India
Chennai: base stations, radio controllers and
transmission systems
UK
USA
Greenwich: submarine cables
Meriden: radio frequency systems
Productive
capacity,
Net (m2)(2)
5 000
7 800
22 000
9 200
12 500
13 800
63 000
10 200
21 000
12 000
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 ANNUAL REPORT ON FORM 20-F 2017
139
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 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 as of 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 as of December 31
Shareholders’ equity per share
Capital and reserves attributable to equity holders of the parent
Number of shares as of December 31—number of treasury shares
as of December 31
Market capitalization
(Number of shares as of December 31—number of treasury shares
as of December 31) x closing share price as of 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
Net cash
Total cash and other liquid assets—interest-bearing liabilities
140
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Controls and procedures
Our management, with the participation of our President and CEO and
our Chief Financial Officer, conducted an evaluation pursuant to Rules
13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act of
1934, as amended (“the Exchange Act”), of the effectiveness of our
disclosure controls and procedures as of December 31, 2017. Based
on such evaluation, our President and CEO and our Chief Financial
Officer have concluded that our disclosure controls and procedures
were effective.
Disclosure controls and procedures mean controls and other
procedures that are designed to ensure that information required
to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Commission’s rules and forms, and
that such information required to be disclosed by us in the reports
that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our President and
CEO and our Chief Financial Officer, or persons performing similar
functions, as appropriate to allow timely decisions regarding
required disclosures.
Management’s annual report on internal control over
financial reporting
Our 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 regarding the reliability of financial reporting
and the preparation and fair presentation of published financial
statements. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Our management evaluated the effectiveness of our internal control
over financial reporting using the criteria described in Internal Control
– Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Tredway Commission (“COSO”). Based on this
evaluation, our management has assessed the effectiveness of
Nokia’s internal control over financial reporting at December 31, 2017
and concluded that such internal control over financial reporting
is effective.
The effectiveness of our internal control over financial reporting as of
December 31, 2017 has been audited by PricewaterhouseCoopers Oy,
an independent registered public accounting firm. Refer to “Report of
independent registered public accounting firm” of this Annual Report
on Form 20-F.
Changes in internal control over financial reporting
Other than the matters described below, there were no changes
in our internal control over financial reporting that occurred during
the year ended December 31, 2017 that have materially affected,
or are reasonably likely to materially affect, Nokia’s internal control
over financial reporting.
Remediation of prior year material weaknesses
In 2016, management identified two material weaknesses in internal
control over financial reporting in Alcatel Lucent. A material weakness
is a deficiency, or combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a
material misstatement of our annual financial statements will not be
prevented or detected on a timely basis.
Accounting for income taxes in the United States
Management previously identified a material weakness in the internal
control over financial reporting related to the accounting for income
taxes in the United States. During 2017, management took necessary
steps to address the control deficiencies by (i) enhancing the local
income tax leadership team with the addition of qualified individuals;
(ii) integrating the local tax reporting processes within Nokia, including
implementing standard income tax accounting systems and controls
to ensure consistent execution of income tax accounting; and
(iii) providing additional income tax accounting training to existing
United States tax professionals.
Controls over revenue recognition in China
Management previously identified a material weakness in the internal
control over financial reporting related to revenue recognition in China.
During 2017, management took necessary steps to address the
control deficiencies by (i) enhancing the experience of the local finance
leadership team by adding senior accounting management resources;
(ii) segregating the roles of the accounting, operations and sales
departments and implementing new controls in the areas of invoicing
and cash allocation; (iii) implementing new controls related to revenue
and cost accounting for customer contracts; (iv) implementing new
processes and controls over document retention; and (v) enhancing
the local ethics and compliance function with the addition of qualified
individuals and providing additional ethics and compliance training
to employees.
Management completed all remediation actions during the year.
Based on the results of our testing during 2017, management has
concluded that the controls are adequately designed and have
operated effectively for a sufficient period of time. Accordingly,
the material weaknesses have been remediated.
Attestation report of the registered public accounting firm
Refer to “Report of independent registered public accounting firm”
of this Annual Report on Form 20-F.
Exchange controls
There are currently no Finnish laws which may affect the import
or export of capital, or the remittance of dividends, interest or
other payments.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
141
General facts on Nokia General facts on Nokia continued
Government regulation
Nokia and its businesses are subject to direct and indirect regulation
in each of the countries in which we, the companies with which we work
and our customers do business. As a result, changes in or uncertainties
related to various types of regulations applicable to current or new
technologies, intellectual property, products and services could affect
our business adversely. Moreover, the implementation of technological
or legal requirements could impact our products and services,
technology and patent licensing activities, manufacturing and
distribution processes, and could affect the timing of product and
services introductions and the cost of our production, products and
services, as well as their commercial success. Also, our business is
subject to the impacts of changes in economic and trade policies or
regulation favoring the local industry participants, as well as other
measures with potentially protectionist objectives that the host
governments in different countries may take. Export control,
tariffs or other fees or levies imposed on our products and services,
environmental, product safety and security and other regulations that
adversely affect the export, import, pricing or costs of our products
and services as well as export prohibitions (sanctions) enacted by the
EU, the United States or other countries or regions could adversely
affect our net sales and results of operations.
For example, in the United States, our products and services are
subject to a wide range of government regulations that might have a
direct impact on our business, including, but not limited to, regulation
related to product certification, standards, spectrum management,
provision of telecommunications services, privacy and data protection,
competition and sustainability. The EU-level or local member state
regulation has a direct impact on many areas of our business, markets
and customers within the EU. The European regulation influences,
for example, conditions for innovation for telecommunications
infrastructure and internet and related services, as well as technology
and patent licensing; investment in fixed and wireless broadband
communication infrastructure and operation of global data flows.
Additionally, with respect to certain developing market countries,
the business environment we operate in can be affected by
protectionist regulation.
We are in continuous dialog with relevant state agencies, regulators
and other decision makers through our government relations
representatives in various geographies through our experts, industry
associations and representatives in order to proactively exchange
views and address the impact of any planned changes to the
regulatory environment on our business activities.
Sales in United States-sanctioned countries
General
We are a global company and have sales in most countries of the world.
For more information on our organizational structure refer to
“Overview—This is Nokia—Organizational structure and reportable
segments” and Note 4, Segment information, of our consolidated
financial statements included in this annual report on Form 20-F. Nokia
is committed to the highest standards of ethical conduct, and adheres
to all applicable national and international trade-related laws. As a
leading international telecommunications company with global
operations, Nokia has a presence also in countries subject to
international sanctions. All operations of Nokia, and in particular any
operations undertaken in countries targeted by sanctions, are
conducted in accordance with our comprehensive and robust Internal
Compliance Program to ensure that they are in full compliance with all
applicable laws and regulations.
We cannot exclude the possibility that third parties may unlawfully
divert our products to these countries from other countries in which
we sell them, or that, for services distributed through the internet,
third parties could have accessed them in markets or countries for
which they are not intended by circumventing the industry standard
protective mechanisms, such as IP address blocks, despite our efforts
in implementing measures to prevent such actions.
Disclosure pursuant to Section 219 of the Iran Threat Reduction
and Syria Human Rights Act of 2012
We operate in Iran in compliance with applicable economic sanctions
and other trade-related laws. We provide telecommunications
equipment with ancillary services to various network operator
customers and internet service providers through our Networks
business. We do not deliver equipment and services to Iran for military
purposes, or for the purpose of limiting political discourse, blocking
legitimate forms of free speech or conducting surveillance of
individuals.
In connection with the business activities relating to Iran, we have two
local offices in Iran that employed approximately 80 employees at the
end of 2017 through a branch of a Finnish subsidiary and four
employees through a branch of Alcatel Lucent International. Nokia also
maintains a shareholding in Pishahang Communications Network
Development Company (“Pishahang”). Nokia holds 49% of the
outstanding shares of Pishahang. The other major shareholder in
Pishahang is Information Technology Application Development
TACFAM Company (“Tacfam”) which holds 49% of the outstanding
shares. Pishahang has been historically the contracting entity for Nokia
in Nokia’s transactions with MTN-Irancell, and Pishahang has not
pursued, nor does it intend to pursue any other business.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
We continue to maintain routine contacts with governmental agencies
in Iran as required, for example, to maintain a legal presence and office
facilities in Iran, pay taxes and employ Iranian nationals.
To our knowledge, none of our sales in Iran in 2017 are required to be
disclosed pursuant to ITRA Section 219, with the possible exception of
the following:
In 2017, we provided radio, core and transmission equipment,
including associated services, to Iranian mobile network operators,
Mobile Communications Company of Iran (“MCCI”) and MTN Irancell,
and to three local internet service providers, Shatel Group, HiWeb
and Pars Online, as well as to a consortium formed by Shatel, HiWeb,
Pishgaman and Asia Tech. We also provided equipment and services to
local fixed networks operators, Telecommunication Company of Iran
(“TCI”) and, through a local prime contractor Maskan va Omran Quds
Razavi Company, to Telecommunication Infrastructure Company of
Iran (“TIC”). Also, RFS, a wholly owned subsidiary of NSB, has in 2017
sold wireless infrastructure products through an Iranian distributor,
FourSat Kish. Additionally, in 2017, we purchased certain fixed line
telephony services from TCI and mobile phone subscriptions
from MCCI.
In 2013, our subsidiary Alcatel-Lucent Deutschland AG (which merged
into Nokia Solutions and Networks GmbH & Co. KG in 2017), reached a
settlement agreement with Iranian Telecommunication Manufacturing
Company Public Stock Corporation (“ITMC”) on claims raised by ITMC
related to contracts that were completed prior to 2007 for the delivery
of telecommunications equipment and services. In the course of these
contracts, performance bonds had been opened between 2001 and
2006 at Bank Tejarat, Bank Saderat and Bank Mellat and had been
retained by ITMC as security against their claims. The settlement
agreement stipulates that Alcatel-Lucent Deutschland AG shall pay
EUR 1.6 million to ITMC as settlement for the claims and that, in return,
performance bonds held by ITMC shall be released. In 2017, the
performance bonds held by ITMC have been released and the
settlement payment has been remitted.
We further maintain, through our branch offices, bank accounts at
Bank Tejarat for purposes of carrying out routine financial transactions.
Although it is difficult to evaluate with any reasonable degree of
certainty, we have concluded that we cannot exclude the possibility
that MCCI, MTN Irancell, TCI, TIC, HiWeb, Shatel, Pishgaman, Asia Tech,
Pars Online, ITMC, FourSat Kish or Tacfam is owned or controlled,
directly or indirectly, by the government of Iran.
None of these activities involve U.S. affiliates of Nokia, or any persons
from the United States.
In 2017, we recognized net sales of EUR 32 million and a net profit of
EUR 16.2 million from business with MCCI, net sales of EUR 29.8 million
and a net profit of EUR 2.5 million from business with MTN Irancell, net
sales of EUR 10.47 million and a net profit of EUR 3.77 million from
business with TCI, as well as net sales of EUR 26.03 million and a net
profit of EUR 14.09 million from business with TIC. Furthermore,
we recognized net sales of EUR 0.11 million and a net profit of
EUR 0.05 million from business with Pars Online, net sales of
EUR 6.9 million and a net profit of EUR 2.7 million from business
with HiWeb, and net sales of EUR 9.6 million and a net profit of
EUR 2.7 million from business with Shatel. We recognized net sales
of EUR 0.21 million and a net profit of EUR 0.08 million with the
consortium led by Shatel and HiWeb. Moreover, RFS recognized
sales revenue of approximately EUR 0.04 million, and net profit
of EUR 0.01 million from business with FourSat Kish.
We intend to continue and seek to expand our business activities in
Iran in compliance with applicable economic sanctions and other
trade-related laws.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
143
General facts on Nokia General facts on Nokia continued
Taxation
General
The statements of the United States and Finnish tax laws set out
below are based on the laws in force as of the date of this annual
report on Form 20-F and may be subject to any changes in the United
States or Finnish law, and in any double taxation convention or treaty
between the United States and Finland, occurring after that date,
possibly with retroactive effect.
For purposes of this summary, beneficial owners of ADSs that hold the
ADSs as capital assets and that are considered residents of the United
States for purposes of the current income tax convention between
the United States and Finland, signed on September 21, 1989 (as
amended by a protocol signed on May 31, 2006), referred to as the
“Treaty”, and that are entitled to the benefits of the Treaty under
the “Limitation on Benefits” provisions contained in the Treaty, are
referred to as “U.S. Holders”. Beneficial owners that are citizens or
residents of the United States, corporations created in or organized
under U.S. law, and estates or trusts (to the extent their income is
subject to U.S. tax either directly or in the hands of beneficiaries)
generally will be considered to be residents of the United States under
the Treaty. Special rules apply to U.S. Holders that are also residents
of Finland and to citizens or residents of the United States that do not
maintain a substantial presence, permanent home or habitual abode
in the United States. For purposes of this discussion, it is assumed that
the Depositary and its custodian will perform all actions as required
by the deposit agreement with the Depositary and other related
agreements between the Depositary and Nokia.
If a partnership holds ADSs (including for this purpose any entity or
arrangement treated as a partnership for U.S. federal income tax
purposes), the tax treatment of a partner will depend upon the status
of the partner and activities of the partnership. If a U.S. Holder is a
partnership or a partner in a partnership that holds ADSs, the holder
is urged to consult its own tax advisor regarding the specific tax
consequences of owning and disposing of its ADSs.
Because this summary is not exhaustive of all possible tax
considerations—such as situations involving financial institutions,
banks, tax‒exempt entities, pension funds, U.S. expatriates, real estate
investment trusts, persons that are dealers in securities, persons who
own (directly, indirectly or by attribution) 10% or more of the share
capital or voting stock of Nokia, persons who acquired their ADSs
pursuant to the exercise of employee stock options or otherwise as
compensation, or U.S. Holders whose functional currency is not the
U.S. dollar, who may be subject to special rules that are not discussed
herein—holders of shares or ADSs that are U.S. Holders are advised
to satisfy themselves as to the overall U.S. federal, state and local tax
consequences, as well as to the overall Finnish and other applicable
non-U.S. tax consequences, of their ownership of ADSs and the
underlying shares by consulting their own tax advisors. This summary
does not discuss the treatment of ADSs that are held in connection
with a permanent establishment or fixed base in Finland, and it does
not address the U.S. Medicare tax on certain investment income.
For the purposes of both the Treaty and the U.S. Internal Revenue
Code of 1986, as amended, referred to as the “Code”, U.S. Holders of
ADSs will be treated as the owners of the underlying shares that are
represented by those ADSs. Accordingly, the following discussion,
except where otherwise expressly noted, applies equally to U.S.
Holders of ADSs, on the one hand, and of shares on the other.
The holders of ADSs will, for Finnish tax purposes, be treated as the
owners of the shares that are represented by the ADSs. The Finnish tax
consequences to the holders of shares, as discussed below, also apply
to the holders of ADSs.
U.S. and Finnish taxation of cash dividends
For U.S. federal income tax purposes, the gross amount of dividends
paid to U.S. Holders of shares or ADSs, including any related Finnish
withholding tax, generally will be included in gross income as foreign
source dividend income. We do not expect to maintain calculations
of our earnings and profits under U.S. federal income tax principles;
therefore, U.S. Holders should expect that the entire amount of any
distribution generally will be reported as dividend income. Dividends
will not be eligible for the dividends received deduction allowed to
corporations under the Code. The amount includible in income
(including any Finnish withholding tax) will equal the U.S. dollar value
of the payment, determined at the time such payment is received by
the Depositary (in the case of ADSs) or by the U.S. Holder (in the case
of shares), regardless of whether the payment is in fact converted
into U.S. dollars. Generally, any gain or loss resulting from currency
exchange rate fluctuations during the period between the time such
payment is received and the date the dividend payment is converted
into U.S. dollars will be treated as U.S. source ordinary income or loss
to a U.S. Holder.
Special rules govern and specific elections are available to accrual
method taxpayers to determine the U.S. dollar amount includible in
income in the case of a dividend paid (and taxes withheld) in foreign
currency. Accrual basis taxpayers are urged to consult their own tax
advisers regarding the requirements and elections applicable in
this regard.
Under the Finnish Income Tax Act and Act on Taxation of Non‒residents’
Income, non‒residents of Finland are generally subject to a withholding
tax at a rate of 30% payable on dividends paid by a Finnish resident
company. However, pursuant to the Treaty, dividends paid to U.S.
Holders generally will be subject to Finnish withholding tax at a
reduced rate of 15% of the gross amount of the dividend.
Qualifying pension funds are, however, pursuant to the Treaty exempt
from Finnish withholding tax. Refer also to “—Finnish withholding taxes
on nominee registered shares” below.
144
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Subject to conditions and limitations, Finnish income taxes withheld
will be treated as foreign taxes eligible for credit against a U.S. Holder’s
U.S. federal income tax liability. Dividends received generally will
constitute foreign source “passive category income” for foreign tax
credit purposes. In lieu of a credit, a U.S. Holder may elect to deduct
all of its foreign taxes provided the deduction is claimed for all of the
foreign taxes paid by the U.S. Holder in a particular year. A deduction
does not reduce U.S. tax on a dollar‒for‒dollar basis like a tax credit.
The deduction, however, is not subject to the limitations applicable
to foreign tax credits.
Provided that certain holding period and other requirements are met,
certain U.S. Holders (including individuals and some trusts and estates)
are eligible for reduced rates of U.S. federal income tax at a maximum
rate of 20% in respect of “qualified dividend income”. Dividends
that Nokia pays with respect to its shares and ADSs generally will be
qualified dividend income if certain holding periods are met and Nokia
was neither a passive foreign investment company (“PFIC”) in the year
prior to the year in which the dividend was paid nor in the year in which
the dividend is paid. Nokia currently believes that dividends paid with
respect to its shares and ADSs will constitute qualified dividend
income for U.S. federal income tax purposes; however, this is a factual
matter and is subject to change. Nokia anticipates that its dividends
will be reported as qualified dividends on Forms 1099‒DIV delivered to
U.S. Holders. U.S. Holders of shares or ADSs are urged to consult their
own tax advisors regarding the availability to them of the reduced
dividend tax rate in light of their own particular situation and the
computations of their foreign tax credit limitation with respect to
any qualified dividends paid to them, as applicable.
We believe we should not be classified as a PFIC for U.S. federal income
tax purposes for the taxable year ended December 31, 2017 and we
do not expect to become a PFIC in the foreseeable future. U.S. Holders
are advised, however, that this conclusion is a factual determination
that must be made annually and thus may be subject to change. If we
were to be classified as a PFIC, the tax on distributions on our shares
or ADSs and on any gains realized upon the disposition of our shares
or ADSs generally would be less favorable than as described herein.
Dividends paid by a PFIC are not “qualified dividend income” and are
not eligible for reduced rates of taxation. Additionally, U.S. persons
that are shareholders in a PFIC generally will be required to file an
annual report disclosing the ownership of such shares and certain
other information. U.S. Holders should consult their own tax advisors
regarding the application of the PFIC rules, including the related
reporting requirements), to their ownership of our shares or ADSs.
Finnish withholding taxes on nominee registered shares
Generally, for U.S. Holders, the reduced 15% withholding tax rate of
the Treaty (instead of 30%) is applicable to dividends paid to nominee
registered shares only when the conditions of the provisions applied
to dividends are met (Section 10b of the Finnish Act on Taxation of
Non‒residents’ Income).
According to the provisions, the Finnish account operator and a foreign
custodian are required to have a custody agreement, according to
which the custodian undertakes to (a) declare the country of residence
of the beneficial owner of the dividend, (b) confirm the applicability
of the Treaty to the dividend, (c) inform the account operator of any
changes to the country of residence or the applicability of the Treaty,
and (d) provide the legal identification and address of the beneficial
owner of the dividend and a certificate of residence issued by the local
tax authorities upon request. It is further required that the foreign
custodian is domiciled in a country with which Finland has entered into
a treaty for the avoidance of double taxation and that the custodian
is entered into the register of foreign custodians maintained by the
Finnish tax authorities.
In general, if based on an applicable treaty for the avoidance of double
taxation the withholding tax rate for dividends is 15% or higher, the
treaty rate may be applied when the aforementioned conditions of
the provisions are met (Section 10b of the Finnish Act on Taxation of
Non‒residents’ Income). A lower rate than 15% may be applied based
on the applicable treaty for the avoidance of double taxation only
when the following information on the beneficial owner of the
dividend is provided to the payer prior to the dividend payment: name,
date of birth or business ID (if applicable) and address in the country
of residence.
U.S. and Finnish tax on sale or other disposition
A U.S. Holder generally will recognize taxable capital gain or loss on the
sale or other disposition of ADSs in an amount equal to the difference
between the U.S. dollar value of the amount realized and the adjusted
tax basis (determined in U.S. dollars) in the ADSs. If the ADSs are held
as a capital asset, this gain or loss generally will be long‒term capital
gain or loss if, at the time of the sale, the ADSs have been held for
more than one year. Any capital gain or loss, for foreign tax credit
purposes, generally will constitute U.S. source gain or loss. In the case
of a U.S. Holder that is an individual, long‒term capital gain generally
is subject to U.S. federal income tax at preferential rates. The
deductibility of capital losses is subject to significant limitations.
The deposit or withdrawal by a U.S. Holder of shares in exchange for
ADSs or of ADSs for shares under the deposit agreement generally
will not be subject to U.S. federal income tax or Finnish income tax.
The sale by a U.S. Holder of the ADSs or the underlying shares, other
than an individual who, by reason of his residence in Finland for a
period exceeding six months, is or becomes liable for Finnish income
tax according to the relevant provisions of Finnish tax law, generally will
not be subject to income tax in Finland, in accordance with Finnish tax
law and the Treaty.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
145
General facts on Nokia General facts on Nokia continued
The United States information reporting and backup withholding
Dividend payments with respect to shares or ADSs and proceeds
from the sale or other disposition of shares or ADSs may be subject
to information reporting to the Internal Revenue Service and possible
U.S. backup withholding. Backup withholding will not apply to a holder
if the holder furnishes a correct taxpayer identification number or
certificate of foreign status and makes any other required certification
in connection therewith, or if it is a recipient otherwise exempt from
backup withholding (such as a corporation). Any U.S. person required
to establish their exempt status generally must furnish a duly
completed IRS Form W‒9 (Request for Taxpayer Identification Number
and Certification). Non‒U.S. holders generally are not subject to U.S.
information reporting or backup withholding. However, such holders
may be required to provide certification of non‒U.S. status (generally
on IRS Form W‒8BEN for individuals and Form W‒8BEN‒E for
corporations) in connection with payments received in the United
States or through certain U.S.‒related financial intermediaries. Backup
withholding is not an additional tax. Amounts withheld as backup
withholding may be credited against a holder’s U.S. federal income tax
liability, and the holder may obtain a refund of any excess amounts
withheld under the backup withholding rules by timely filing the
appropriate claim for refund with the Internal Revenue Service and
furnishing the proper required information.
Finnish transfer tax
Transfers of shares and ADSs could be subject to the Finnish transfer
tax only when one of the parties to the transfer is subject to Finnish
taxation under the Finnish Income Tax Act by virtue of being a resident
of Finland or a Finnish branch of a non‒Finnish (a) credit institution
(b) investment firm (c) management company of collective investment
undertaking or (d) alternative investment fund manager. In accordance
with the amendments in the Finnish Transfer Tax Act (applicable from
November 9, 2007) no transfer tax is payable on the transfer of
publicly traded shares or ADSs (irrespective of whether the transfer
is carried out on a stock exchange or not). However, there are certain
conditions for the exemption. Prior to the said amendments, transfer
tax was not payable on stock exchange transfers. In cases where the
transfer tax would be payable, the transfer tax would be 1.6% of the
transfer value of the security traded.
Finnish inheritance and gift taxes
A transfer of an underlying share by gift or by reason of the death of a
U.S. Holder and the transfer of an ADS are not subject to Finnish gift or
inheritance tax provided that none of the deceased person, the donor,
the beneficiary of the deceased person or the recipient of the gift is
resident in Finland.
Non-residents of the United States
Beneficial owners of ADSs that are not U.S. Holders will not be subject
to U.S. federal income tax on dividends received with respect to ADSs
unless such dividend income is effectively connected with the conduct
of a trade or business within the United States. Similarly, non‒U.S.
Holders generally will not be subject to U.S. federal income tax on any
gain realized on the sale or other disposition of ADSs, unless (a) the
gain is effectively connected with the conduct of a trade or business
in the United States or (b) in the case of an individual, that individual is
present in the United States for 183 days or more in the taxable year
of the disposition and other conditions are met.
146
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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
148
149
150
151
152
154
154
154
163
165
167
170
171
172
172
172
173
173
176
177
178
179
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
180
180
181
181
182
183
184
185
187
188
190
198
199
201
statement of cash flows
202
32. Principal Group companies
203
33. Significant partly-owned subsidiaries 204
34. Investments in associated
companies and joint ventures
35. Related party transactions
36. Risk management
Report of Independent Registered
Public Accounting Firm
205
205
206
214
NOKIA ANNUAL REPORT ON FORM 20-F 2017
147
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 profit/(loss)
Share of results of associated companies and joint ventures
Financial income and expenses
(Loss)/profit before tax
Income tax (expense)/benefit
(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
Diluted
Notes
4, 7
8
8
8
10
8, 10
34
11
12
6
2017
EURm
23 147
(14 008)
9 139
(4 916)
(3 615)
363
(955)
16
11
(537)
()
(927)
( )
(1 473)
36
( )
(21)
–
()
(1 494)
36
( )
2016(1)
EURm
23 641
(15 117)
8 524
(4 997)
(3 767)
117
(977)
( )
18
(287)
( )
457
()
(751)
(161)
()
(15)
–
()
(766)
(161)
()
2015(1)
EURm
12 560
(6 963)
5 597
(2 080)
(1 772)
236
(284)
1 697
29
(186)
(346)
1 194
1 192
2
1 194
1 274
–
1 274
2 466
2
2 468
13
EUR
EUR
EUR
(0.26)
0.00
(0.26)
(0.26)
0.00
(0.26)
(0.13)
0.00
(0.13)
(0.13)
0.00
(0.13)
0.32
0.35
0.67
0.31
0.32
0.63
13
000s shares
5 651 814
5 651 814
000s shares
5 732 371
5 741 117
000s shares
3 670 934
3 949 312
(1) In 2017, the Group adopted a more activity-based allocation method which resulted in changes to allocation and presentation principles of certain costs. In addition, it changed the presentation of
certain hedging gains and losses. Comparatives for 2016 and 2015 have been recasted to reflect these changes.
The notes are an integral part of these consolidated financial statements.
148
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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 (loss)/income, 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.
2017
EURm
( )
723
(58)
(1 819)
440
35
(88)
(1)
(92)
()
( )
(2 304)
(14)
( )
(2 283)
(21)
( )
(14)
–
()
2016
EURm
(
)
613
(269)
251
(103)
14
(75)
(6)
20
445
)
(
(277)
(205)
)
(
(262)
(15)
)
(
(205)
–
)
(
2015
EURm
2 468
112
(28)
(1 054)
322
(5)
113
2
(88)
)
1 842
(
1 837
5
1 842
1 513
324
1 837
5
–
5
NOKIA ANNUAL REPORT ON FORM 20-F 2017
149
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
2017
EURm
2016
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
9 219
1 853
128
816
4 582
215
3 979
368
21 160
2 646
6 880
1 259
474
302
–
911
7 369
19 841
23
41 024
246
447
(1 480)
(932)
1 094
15 616
1 147
16 138
80
16 218
3 457
413
4 440
2 986
766
12 062
309
268
383
3 996
6 666
1 122
12 744
24 806
41 024
10 960
1 981
116
1 040
5 701
254
3 802
328
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
536
3 781
6 412
1 270
12 605
23 926
44 901
150
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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 from/(used in) operations
Interest received
Interest paid
Income taxes paid, net
Net cash from/(used in) operating activities
Cash flow from investing activities
Acquisition of businesses,
Purchase of current available-fo
Purchase of investments at fair value
Purchase of non-current ava
Purchase of shares in associated companies
(Payment of)/proceeds from othe
Proceeds from/(payment of) sh
Purchases of property, plant and eq
Proceeds from disposal of businesses, net of disposed cash
Proceeds from disposal of shares in associated companies
Proceeds from maturities and sale
investments, liquid assets(1)
ilable-for-sale investments
ort-term loans receivable
net of acquired cash
r long-term loans receivable
of current available-for-sale
uipment, and intangible assets
r-sale investments, liquid assets(1)
through profit and loss, liquid assets
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
ruments of subsidiaries(1)
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 inst
Proceeds from long-term borrowings
(1)
Repayment of long-term borrowings
Repayment of short-term borrowings
Dividends paid and other contr
Net cash used in financing activities
Translation differences
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents as of January 1
Cash and cash equivalents as of December 31
ibutions to shareholders
Notes
31
31
2017
EURm
(1 458)
3 583
597
2 722
53
(409)
(555)
1 811
(394)
(2 729)
–
(104)
(10)
(2)
2
(601)
(16)
–
3 265
324
207
67
1
10
1
(785)
(38)
2 129
(2 044)
(42)
(970)
( )
(200)
()
7 497
7 369
2016
EURm
(927)
2 407
(2 207)
(727)
85
(309)
(503)
( )
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)
)
(
43
502
6 995
7 497
2015
EURm
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)
()
6
1 825
5 170
6 995
(1) In 2016, Alcatel Lucent ordinary shares and ADSs and OCEANEs acquired in cash by the Group 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, the Group’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 ,
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 ANNUAL REPORT ON FORM 20-F 2017
151
Financial statements
Consolidated statement of
changes in shareholders’ equity
EURm
As of January 1, 2015
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, 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 excercised
Dividends(1)
Acquisition of non-controlling interests
Convertible bondequity component
Convertible bondconversion to equity
Other movements
Total other equity movements
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 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 excercised
Dividends(1)
Acquisitions through business
combinations
Equity issuance costs related to
acquisitions
Acquisition of non-controlling interests
Vested portion of share-based
payment awards related to
acquisitions
Convertible bondequity component
Other movements
Total other equity movements
As of December 31, 2016
Number
of shares
outstanding
000s
Notes
Share
capital
Share
issue
premium
Treasury
shares
Translation
differences
Fair value
and other
reserves
Reserve for
Invested
non-
restricted
equity
Retained
earnings
Equity
holders of
the parent
Non-
controlling
interests
Total
3 648 143
246
439
()
1 099
22
3 083
4 710
8 611
58
8 669
21
21
21
21
21
21
21
21
21
21
–
–
34
(2)
(12)
(57)
(30)
8
1 281
(24 516)
1 042
313 681
(436)
3 939 195
–
246
()
380
(1 057)
252
85
(4)
95
6
–
()
182
–
2 460
(16)
4
750
(1)
737
3 820
24
(174)
427
(7)
270
()
(2)
()
292
289
(83)
–
204
348
12
(73)
(1)
–
–
117
(6)
(22)
3
20
3 408
(54 296)
1 074
–
206
286
–
()
68
(231)
(52)
3
(1 501)
(7)
78
(1 057)
78
(1 053)
4
1
2 466
252
(4)
95
7
2 466
1 837
34
252
(4)
95
6
2 468
1 842
34
(1)
2
5
(2)
(2)
(427)
(4)
(174)
–
4
(507)
(15)
–
720
(1)
55
6 279 10 503
(507)
(15)
57
()
1
(3)
(766)
348
289
(83)
12
(73)
(4)
(766)
()
117
(6)
(6)
(231)
6
(1 501)
(4)
(174)
–
4
(512)
(52)
–
720
(1)
13
10 524
344
251
(83)
12
(73)
(6)
(927)
()
117
(6)
(6)
(231)
6
(1 515)
(5)
(37)
()
21
(4)
(38)
(2)
(161)
()
(14)
5
1 765 358
11 616
11 616
1 714
13 330
5
65 778
(14)
6
(38)
(1)
(15)
(2)
(16)
359
(459)
(16)
(117)
(635)
(16)
(752)
38
1
6
–
–
6
–
–
5 720 503
–
246
59
439
()
()
()
483
() 11 911
15 731
488
9 868
( )
3 588 20 094
1 065
881
10 933
20 975
152
NOKIA ANNUAL REPORT ON FORM 20-F 2017
EURm
As of December 31, 2016
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
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 excercised
Dividends
Acquisitions through business
(1)
combinations
Acquisition of non-controlling interests
Disposal of subsidiaries
Other movements
Number
of shares
outstanding
000s
5 720 503
Notes
Share
capital
Share
issue
premium
Treasury
shares
Translation
differences
Fair value
and other
reserves
Reserve for
Invested
non-
restricted
equity
Retained
earnings
Equity
holders of
the parent
Non-
controlling
interests
Total
246
439
()
483
488
15 731
3 588
20 094
881 20 975
21
21
21
21
21
–
–
92
(7)
(79)
20
20
20
12 199
(153 601)
416
(1 768)
352
662
28
(86)
2
(1 494)
–
( )
606
–
( )
170
(769)
(116)
1
(963)
12
4
2
1
662
(1 768)
662
(1 818)
(50)
352
28
(86)
2
(1 494)
352
28
(86)
2
(1 458)
36
( )
92
()
( )
92
(7)
(25)
(769)
1
(963)
–
12
–
7
(7)
(25)
(769)
1
(970)
17
(776)
(9)
7
(7)
17
(788)
(9)
Total other equity movements
As of December ,
5 579 517
–
246
8
447
()
( )
1
()
–
1 094
()
15 616
()
1 147
( )
16 138
()
80
( )
16 218
(1) Dividend declared is EUR 0.19 per share, subject to shareholders’ approval (dividend EUR 0.17 per share for 2016; dividend
EUR 0.16 per share for 2015; and special dividend EUR 0.10 per
share for 2015).
The notes are an integral part of these consolidated financial statements.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
153
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 , the Board of Directors authorized the financial
statements for 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 , 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 , has made use
of the exemption available under § b and § 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.
154
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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. 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. In the majority of cases,
the Group retains obligations related to the licensed assets after
the initial licensing transaction, and as a result revenue is recognized
over a period of time during which the Group is expected to
perform. Where the Group has no remaining obligations to perform
subsequent to the initial licensing transaction, and licensing fees are
non-refundable, revenue is recognized after the customer has been
provided access to the underlying assets. 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
maturities that most closely match expected payouts of benefits.
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.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
155
Financial statements
Notes to consolidated financial statements continued
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.
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 legal 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: performance shares, restricted
shares and the employee share purchase plan.
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.
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, are
accounted for in income taxes.
Following the IFRS Interpretations Committee agenda decision in
September on interest and penalties related to income taxes,
the Group no longer accounts for these items as income taxes.
Interest expenses and income are presented in financial expenses
and income, respectively, and penalties are presented in other
operating expenses in the consolidated income statement.
In relation to this, the Group has retrospectively revised the
presentation of interest and penalties related to income taxes
from current income tax liabilities to provisions in the consolidated
statement of financial position. The impact of the revision was
EUR million as of December , and EUR million as
of December , .
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.
156
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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-
monetary 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.
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
20–33 years
3–20 years
Machinery and equipment
Production machinery, measuring and test equipment 1–5 years
Other machinery and equipment
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.
Goodwill is allocated to the cash-generating units or groups of
cash-generating units that are expected to benefit from the
synergies of the related business combination and that reflect the
lowest level at which goodwill is monitored for internal management
purposes. A cash-generating unit, as determined for the purposes
of the Group’s goodwill impairment testing, is the smallest group of
NOKIA ANNUAL REPORT ON FORM 20-F 2017
157
Financial statements
Notes to consolidated financial statements continued
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. When the composition of one or more groups
of cash generating units to which goodwill has been allocated is
changed, the goodwill is reallocated based on the relative fair value
of the affected groups of cash generating units.
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.
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:
Level —Quoted (unadjusted) market prices for exchange-traded
products in active markets for identical assets or liabilities;
Level —Valuation techniques for which significant inputs other
than quoted prices are directly or indirectly observable; and
Level —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.
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 monetary 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 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
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
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.
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 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
159
Financial statements
Notes to consolidated financial statements continued
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 ,
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 other operating income and
expenses 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.
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.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
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.
New and amended standards and interpretations adopted
On January , , the Group adopted amendments to IAS ,
Statement of Cash Flows (“IAS ”) and IAS , Income Taxes
(“IAS ”). The amendments to IAS are part of the IASB’s Disclosure
Initiative and help users of financial statements to better understand
changes in an entity’s debt arising from financing activities, including
both changes arising from cash flows and non-cash changes. The
amendments to IAS relate to potential restrictions of tax laws
to sources of taxable profits against which an entity may make
deductions on the reversal of deductible temporary difference,
as well as to provide additional guidance on how an entity should
determine future taxable profits. 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 Financial Instruments
IFRS , Financial Instruments (“IFRS ”), was issued in July
and it replaces IAS , Financial Instruments: Recognition and
Measurement (“IAS ”). IFRS 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 , .
On adoption, the Group does not restate comparative periods but
will present the cumulative effect of adopting IFRS as a transition
adjustment to the opening balance of retained earnings as of
January , .
Classification and measurement
Based on assessment of the Group’s business models for holding
financial assets, the Group has identified the following to be the
most significant impacts in the classification and measurement of
financial assets:
The Group’s investments in venture funds that are under IAS 39
classified as non-current available-for-sale investments will be
classified at fair value through profit or loss with value changes
included to other operating income and expenses. Upon initial
application of the standard, the accumulated net positive fair
value changes of approximately EUR 200 million, formerly
recorded to other comprehensive income, will be presented as an
adjustment to opening balance of retained earnings. There will be
no change in the valuation nor carrying amount of these assets.
Certain restricted bank deposits currently classified as non-
current available-for-sale investments under IAS 39 will be
classified as amortized cost. There will be no change in the
carrying amount of these deposits.
Trade receivables are under IAS 39 carried at the invoiced amount
less allowances for doubtful accounts. The Group’s business
model for managing trade receivables is both to collect
contractual cash flows and to sell assets and hence trade
receivables will be measured at fair value through other
comprehensive income. The initial fair value adjustment,
which will be presented in other comprehensive income as a
transition adjustment upon initial application of the standard,
is not material.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
161
Financial statements
Notes to consolidated financial statements continued
The Group’s business model for managing customer finance
assets is both to collect contractual cash flows and to sell assets
and hence customer finance assets will be measured at fair
value through other comprehensive income. The initial fair value
adjustment, which will be presented in other comprehensive
income as a transition adjustment upon initial application of
the standard, is not material.
The Group has assessed the investments currently classified as
current available-for-sale, liquid assets, and will classify 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.
Certain term deposits used as collaterals for derivative
transactions that are under IAS 39 classified as cash equivalents
will be classified to current financial investments based on IFRS 9
business model assessment.
Impairment model
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, there will be no significant impact from the new
model. There will be a limited impact to loans extended to the
Group’s customers as the new model results in an earlier recognition
of credit losses.
Hedge accounting model
The new hedge accounting model 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 been aligned with the requirements
from IFRS and hence there is no impact on the accounting for its
hedging relationships. For cash flow hedge accounting, the Group
has elected to defer cost of hedging in other comprehensive income
until the hedged item impacts profit and loss. For net investment
hedge accounting, the Group has elected to defer cost of hedging in
other comprehensive income and amortize it over the duration of
the hedge. The initial adjustment related to treatment of cost of
hedging, that is recorded between other comprehensive income and
retained earnings as a transition adjustment upon initial application
of the standard, is not material.
Disclosure
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
financial effect of the IFRS transition will be presented in the
annual report.
IFRS Revenue from Contracts with Customers
IFRS , Revenue from Contracts with Customers, (“IFRS ”) was
issued in May and establishes a new five-step model that
will apply to revenue arising from contracts with customers. Under
IFRS , 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. The Group will adopt the standard on
the effective date of January , . The new standard replaces IAS
, Revenue, and IAS , Construction contracts. The Group adopted
the standard by applying the modified retrospective method and will
present the cumulative effect of adopting IFRS as an adjustment
to the opening balance of retained earnings as of January , .
Management has analyzed the impact of the adoption of IFRS
and concluded that the new standard will not have a material impact
on the Group’s consolidated financial statements. The procedures
performed by management focused on a review of existing contracts
through December , , focusing on the following areas:
Arrangements with customers
Management considered the definition of a contract in accordance
with the new standard and concluded that only legally binding
commitments should be considered in evaluating the accounting
for arrangements with customers. As such, frame agreements will
be accounted for based on purchase orders, initial discounts and
other material rights. Previously, a broader contract definition was
permitted for accounting purposes.
Identification of performance obligations and allocation of
transaction price
In accordance with IFRS , the identification of performance
obligations and allocation of transaction price is based on a fair value
model. The Group’s application of previous accounting standards is
consistent with IFRS .
Transfer of control of hardware
The point at which control transfers to the customer under IFRS
is consistent with the Group’s assessed point of transfer of the
significant risks and rewards of ownership to the customer under
the previous standard.
Software revenue
In accordance with IFRS , revenue related to software
arrangements will be recognized at points in time. Under previous
standards, certain software revenue arrangements were recorded as
revenue over the terms of the arrangements where customers had
access to a portfolio of software solutions. After the adoption of
IFRS , this change may result in larger fluctuations in revenue
between quarters than under the previous standard.
Patent license agreements in Nokia Technologies
The Group’s current revenue recognition principles for license
agreements, which contain future commitments to perform, are in
line with IFRS and continue to be recorded over time. Further, the
Group has determined that, upon transition to IFRS , one specific
license agreement is a completed contract as it has no such future
commitments (refer to Application of transition guidance below).
Application of transition guidance
In April , the Group entered into an agreement to license
certain technology patents and patent applications owned
by the Group on the effective date of that agreement, on a
non-exclusive basis, to a licensee, for a period of years (the
“License Agreement”). Contemporaneously and under the terms
of the License Agreement, the Group issued to the licensee an
option to extend the technology patent license for remaining life
of the licensed patents. The Group received all cash consideration
due for the sale of the -year license and option upon closing
of the License Agreement. Management has determined that,
upon transition to IFRS , the License Agreement is a completed
contract. As such, in accordance with the transition requirements
of the standard, the Group continues to apply its prior revenue
accounting policies, based on IAS , Revenue, and related
interpretations, to the License Agreement. Under those
policies, the Group is recognizing revenue over the term of
the License Agreement.
As of December , the balance of deferred revenue related
to the License Agreement of EUR million, recognized in advance
payments and deferred revenue in the consolidated statement
of financial position, is expected to be recognized as revenue
through .
Opening balance sheet adjustment
Adoption of the standard will result in a net decrease of retained
earnings of approximately EUR million in the opening balance
sheet of .
162
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Disclosure
The new standard introduces expanded disclosure requirements
which will impact the presentation of the statement of financial
position by providing information on customer-related contract
assets and liabilities. The standard requires presentation of the
net position of the Group’s contract-related balances, excluding
invoiced receivables, as of the reporting date, on a contract-by-
contract basis.
IFRS Leases
IFRS , Leases, (“IFRS ”) issued in January , sets out the
requirements for the recognition, measurement, presentation and
disclosure of leases. IFRS provides a single lessee accounting
model, requiring lessees to recognize right-of-use assets and lease
liabilities for substantially all leases in the consolidated statement
of financial position. The Group will adopt IFRS on the effective
date of January , using the cumulative catch-up transition
method, whereby the cumulative effect of initially applying IFRS
will be recognized as an adjustment to the opening balance of
retained earnings on January , and comparative information
will not be restated. The Group is currently assessing the full impact
of IFRS but the initial expectation is that the main impact from
adoption relates to the recognition and disclosure of the Group’s
real estate-related operating leases. In the consolidated financial
statements for the year ended December , the Group
disclosed non-cancellable operating lease commitments of
EUR million. Refer to Note , 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.
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 , Acquisitions.
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 , 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 million (EUR million in ) and the
fair value of plan assets amounts to EUR million
(EUR million in ). Refer to Note , 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 million (EUR million in ) of temporary
differences, tax losses carry forward and tax credits for which no
deferred tax assets are recognized due to uncertainty of utilization.
The majority of the unrecognized deferred tax assets relate to
France. Refer to Note , Income taxes.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
163
Financial statements
Notes to consolidated financial statements continued
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.
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 Canada. 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 , Income taxes.
Goodwill recoverability
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 three years.
Seven 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 results of the impairment testing indicate adequate headroom
for each group of CGUs. Total goodwill amounts to EUR million
as of December , (EUR million in ). Refer to
Note , Intangible assets and Note , 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 million
(EUR million in ), representing % of accounts receivable
(% in ). Refer to Note , 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 million (EUR million in
), representing % of inventory (% in ). Refer to
Note , 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 assets that are not traded in an
active market, using non-observable data (level of the fair value
hierarchy), is EUR million (EUR million in ), representing
% of total financial assets measured at fair value on a recurring
basis (% of total net financial assets in ). Level financial
liabilities include conditional obligation to China Huaxin as part
of the Nokia Shanghai Bell definitive agreements where China Huaxin
obtained the right to fully transfer its ownership interest in Nokia
Shanghai Bell to the Group in exchange for a future cash settlement.
The calculated net present value of the expected future cash
settlement is EUR million, representing % of total financial
liabilities measured at fair value on recurring basis. Refer to Note ,
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 million (EUR million in ).
Refer to Note , 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 , Provisions.
164
NOKIA ANNUAL REPORT ON FORM 20-F 2017
4. Segment information
The Group has two businesses: Nokia’s Networks business and Nokia
Technologies, and four reportable segments for financial reporting
purposes: () Ultra Broadband Networks, () Global Services and
() IP Networks and Applications within Nokia’s Networks business;
and () 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 Nokia Software() 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 Group adopted its current operational and reporting structure
on April , . Previously the Group had three reportable
segments for financial reporting purposes: Ultra Broadband
Networks and IP/Networks and Applications within Nokia's Networks
business, and Nokia Technologies. Ultra Broadband Networks was
comprised of two aggregated operating segments: Mobile Networks
and Fixed Networks, and IP Networks and Applications was comprised
of two aggregated operating segments: IP/Optical Networks and
Nokia Software. On March , , the Group announced changes
in its organizational structure which included the separation of the
Group’s former Mobile Networks operating segment into two distinct
operating segments: one focused on products and solutions, called
Mobile Networks, and the other on services, called Global Services.
The Global Services operating segment is comprised of the services
that resided within the previous Mobile Networks operating segment,
including company-wide managed services. Global Services does not
include the services of Fixed Networks, IP/Optical Networks and
Nokia Software, which continue to reside within the respective
operating segments.
The President and CEO is the chief operating decision maker and
monitors the operating results of operating and reportable
segments for the purpose of making decisions about resource
allocation and performance assessment. Key financial performance
measures of the segments include primarily net sales and operating
profit. The evaluation of segment performance and allocation of
resources is based on segment operating profit().
Accounting policies of the segments are the same as those
described in Note , 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 are not allocated to the segments().
No single customer represents % 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 and software for communications service providers,
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.
Global Services
Global Services operating segment provides a wide range of
professional services with multi-vendor capabilities, covering
network planning and optimization, systems integration as well
as company-wide managed services. It also provides network
implementation and care services for mobile networks, using
the strength of its global service delivery for quality, speed
and efficiency.
IP Networks and Applications
IP Networks and Applications comprises IP/Optical Networks and
Nokia Software 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 Nokia Software 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. 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
Group Common and Other includes Alcatel-Lucent Submarine
Networks and Radio Frequency Systems, 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) Applications & Analytics operating segment was renamed as Nokia Software on February 1, 2018.
(2) 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
165
Financial statements
Notes to consolidated financial statements
continued
Segment information
EURm
Continuing operations
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
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
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)
Global
Services
IP Networks
and
Applications(2)
Nokia's
Networks
Business
Total(3)
Nokia
Technologies
Group
Common
and Other Eliminations
Segment
total
Unallocated
items(4)
Total
8 970 5 810
–
(80)
–
411
–
(258)
–
781
5 743
–
(160)
–
519
20 523
–
(498)
–
1 711
1 639
15
(12)
–
1 124
1 060
54
(48)
(11)
(248)
– 23 222
–
()
()
2 587
(69)
–
–
–
–
(75) 23 147
–
(1 033) ( )
()
16
(199)
(2 571)
21
–
–
21
(10)
–
–
11
–
11
9 757 6 036
–
(70)
–
406
1
(270)
(9)
922
6 036 21 829
1
(500)
(9)
1 943
–
(160)
–
615
1 038
15
(9)
–
579
1 105
37
(43)
(8)
(350)
– 23 972
–
()
()
2 172
(53)
–
–
–
–
(331) 23 641
–
(1 042) ( )
()
(3 272) ( )
–
18
–
–
18
–
–
–
18
–
18
5 333 4 887
–
(46)
–
719
–
(112)
–
492
1 328
–
(35)
–
138
11 548
–
(193)
–
1 349
1 012
15
(6)
–
698
–
–
(8)
(11)
(89)
– 12 560
–
()
()
1 958
(15)
–
–
–
– 12 560
–
–
(79)
()
–
()
(261) 1 697
29
–
–
29
–
–
–
29
–
29
(1) Includes Mobile Networks net sales of EUR 6 895 million (EUR 7 357 million in 2016 and EUR 5 197 million in 2015) and Fixed Networks net sales of EUR 2 075 million (EUR 2 401 million in 2016 and
EUR 136 million in 2015).
(2) Includes IP Routing net sales of EUR 2 694 million (EUR 2 941 million in 2016 and EUR 515 million in 2015), Optical Networks net sales of EUR 1 499 million (EUR 1 564 million in 2016) and Nokia Software
net sales of EUR 1 550 million (EUR 1 531 million in 2016 and EUR 813 million in 2015).
(3) Includes total services net sales of EUR 8 221 million (EUR 8 531 million in 2016 and EUR 5 424 million in 2015) which consists of all the services sales of Nokia’s Networks business, including Global
Services of EUR 5 810 million (EUR 6 036 million in 2016 and EUR 4 887 million in 2015) and the services of Fixed Networks, IP/Optical Networks and Nokia Software.
(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/(loss)
EURm
Total segment operating profit
Amortization and depreciation of acquired intangible assets and property,
plant and equipment
Restructuring and associated charges
Product portfolio strategy costs
Transaction and related costs, including integration costs relating to the
acquisition of Alcatel Lucent
Impairment of intangible assets
Release of acquisition-related fair value adjustments to deferred revenue
and inventory
Other
Total operating profit/(loss)
2017
2 587
(1 033)
(579)
(536)
(206)
(173)
(55)
11
16
2016
2 172
(1 026)
(774)
(348)
(295)
–
(840)
11
( )
2015
1 958
(79)
(123)
–
(99)
–
–
40
1 697
166
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Net sales to external customers by geographic location of customer
EURm
Finland(1)
United States
China
India
France
Japan
Great Britain
Germany
Italy
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
2017
1 698
5 991
2 082
1 455
1 295
759
637
523
514
499
7 694
23 147
2016
1 138
6 639
2 248
1 288
1 055
631
718
568
519
566
8 271
23 641
2017
1 437
6 132
1 949
377
125
1 052
11 072
2015
1 100
1 498
1 329
1 098
207
892
394
312
355
380
4 995
12 560
2016
726
7 946
2 369
458
130
1 312
12 941
(1) Consists of goodwill and other intangible assets and property, plant and equipment.
5. Acquisitions
The Group completed the acquis
itions of two businesses in and five businesses in :
Company/business
2017
Deepfield Networks Inc.
Comptel Corporation
2016
Alcatel Lucent SA
Nakina Systems Inc.
Withings S.A.
Gainspeed, Inc.
ETA Devices, Inc.
Description
Deepfield Networks Inc. is a United States-based leader in real-time analytics for Internet Protocol
(“IP”) network performance management and security. The Group acquired % ownership
interest on January , . Goodwill was allocated to IP/Optical Networks operating segment.
Comptel Corporation is a Finland-based telecommunications software company. The Group
acquired .% of the share capital and voting rights as part of the tender offer on March ,
. The Group acquired % ownership interest on June , . Goodwill was allocated
to Nokia Software operating segment.
Alcatel Lucent is a global leader in Internet Protocol (“IP”) networking, ultra-broadband access and
Cloud applications. The Group obtained control on January , and completed the acquisition
of % of the share capital and voting rights on November , .
Nakina Systems Inc. is a Canadian security and operational systems software company. The Group
acquired the business through an asset transaction on March , . Goodwill was allocated to
Nokia Software operating segment.
Withings S.A. is a provider of digital health products and services. The Group acquired %
ownership interest on May , . Goodwill was allocated to Nokia Technologies operating
segment.
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 % ownership interest on July , . Goodwill was
allocated to Fixed Networks operating segment.
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 % ownership interest on
October , . Goodwill was allocated to Mobile Networks operating segment.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
167
Financial statements
Notes to consolidated financial statements
continued
Information on the Alcatel Lucent acquisition is presented below. All other acquisitions completed by the Group in and are
individually immaterial to the consolidated financial statements. Goodwill arising from these acquisitions is attributable to future derivations
of the acquired technology, future customers, synergies and assembled workforce, and was allocated to cash-generating units or groups of
cash-generating units expected to benefit from the synergies of the combination. Refer to Note , Impairment. The majority of the goodwill
acquired from these acquisitions is not expected to be deductible for tax purposes. The Group also recognised intangible assets from these
acquisitions related to acquired customer relationships and technology assets. As of each respective acquisition date, the total consideration
paid, aggregate fair values of intangible assets, other net assets acquired and resulting goodwill for the individually immaterial acquisitions
are as follows:
EURm
Other intangible assets
Other net assets
Total identifiable net assets
Goodwill
Total purchase consideration
2017
169
67
236
162
398
2016
70
16
86
274
360
Alcatel Lucent business combination
Acquisition of Alcatel Lucent Securities
On April , , the Group and Alcatel Lucent announced their intention to combine through a public exchange offer (“exchange offer”)
in France and the United States. The Group obtained control of Alcatel Lucent on January , 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 , ,
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 , . 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. Following the initial and reopened exchange offers, the Group held .% of the
share capital, and at least .% of the voting rights of Alcatel Lucent.
Subsequent to the exchange offers, a series of transactions were carried out to acquire the remaining outstanding equity interests in Alcatel
Lucent. As a result, the Group held .% of the share capital and .% of the voting rights in Alcatel Lucent, corresponding to .%
of the Alcatel Lucent shares on a fully diluted basis.
On September , , the Group and Alcatel Lucent filed a joint offer document 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”). 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 provided in 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.
The Public Buy-Out Offer period ended on October , , and the Squeeze-Out was implemented on November , , in accordance
with the AMF General Regulation. On November , , the Group held % of the share capital and voting rights of Alcatel Lucent.
Alcatel Lucent ordinary shares and ALU ADSs acquired subsequent to the 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.
168
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Purchase consideration
The purchase consideration comprises the fair value of the consideration paid for the Alcatel Lucent Securities obtained through the
exchange offer, 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 . on Nasdaq Helsinki on January , , and the exchange offer ratio of . Nokia share for every Alcatel Lucent share.
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
Purchase accounting
The fair values of the acquired identifiable assets and liabilities of Alcatel Lucent, 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
10 046
1 570
6
11 622
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 amounted to EUR million and was 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. Refer
to Note , Impairment for allocation of goodwill.
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 were to be settled in Alcatel Lucent ordinary shares were measured at fair value within non-controlling interests.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
169
Financial statements
Notes to consolidated financial statements
continued
Fair values of identifiable 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, amounted
to EUR million, of which EUR million was recognized in .
From January to December , the acquired business contributed revenues of EUR million and a net loss of EUR million to the
consolidated income statement. These amounts were calculated using the subsidiary’s results, adjusting them for accounting policy alignments.
6. Disposals treated as Discontinued operations
Results of Discontinued operations
(1)
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, net of tax(2)
(Loss)/profit for the year
2017
–
–
–
–
(7)
(15)
()
6
()
(10)
()
5
()
2016
–
–
–
–
(11)
(4)
(
)
14
(
)
(28)
(
)
14
)
(
2015
1 075
(244)
831
(498)
(213)
(23)
97
(9)
88
8
96
1 178
1 274
(1) Results of Discontinued operations include the results of the HERE business and the D&S business, the disposals of which were completed on December 4, 2015 and April 25, 2014, respectively.
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.
(2) In 2017, an additional gain on the sale of EUR 5 million was recognized related to the HERE business due to a tax indemnification. 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.
Cash flows from Discontinued operations(1)
EURm
Net cash (used in)/from operating activities
Net cash (used in)/from investing activities
Net cash flow for the period
2017
(14)
(16)
()
2016
(10)
3
()
2015
6
2 553
2 559
(1) Cash flows from Discontinued operations include the cash flows from the HERE business and the D&S business, the disposals of which were completed on December 4, 2015 and April 25, 2014, respectively.
Sale of the HERE Business
On August , 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 , .
170
NOKIA ANNUAL REPORT ON FORM 20-F 2017
EURm
2 551
(2 667)
()
1 174
1 058
120
1 178
December 4, 2015
2 722
115
151
14
174
87
56
3 319
286
55
306
5
652
2 667
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 as of December , :
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
Net assets disposed of
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
(1) Excludes services performed as part of contracts under percentage of completion accounting.
(2) In 2017 and 2016, contract revenue includes submarine projects, which account for the majority of the revenue.
2017
2016
2015
14 216
8 150
781
23 147
14 543
8 166
932
23 641
7 080
5 421
59
12 560
Revenue recognition-related positions for construction contracts in progress as of December :
EURm
Contract revenues recorded prior to billings(1)
Billings in excess of costs incurred
Work in progress on construction contracts
Advances received
Retentions
2017
Assets
132
28
–
Liabilities
151
45
2016
Assets
129
57
1
Liabilities
164
113
(1) Contract revenues recorded prior to billings in 2016 have been revised to include non-invoiced receivables from submarine projects.
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 million as of December , (EUR million in ).
NOKIA ANNUAL REPORT ON FORM 20-F 2017
171
Financial statements
Notes to consolidated financial statements
continued
8. Expenses by nature
EURm
Continuing operations
Personnel expenses (Note 9)
Cost of material
Depreciation and amortization (Notes 14, 15)
Rental expenses
Impairment charges
Other
Total operating expenses
2017
2016
2015
7 845
7 776
1 591
339
210
5 733
23 494
7 814
7 260
1 594
344
17
7 829
24 858
3 738
2 907
286
164
11
3 993
11 099
Operating expenses include government grant income and R&D tax credits of EUR million (EUR million in and EUR million
in ) that have been recognized in the consolidated income statement as a deduction against research and development expenses.
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
2017
2016
2015
6 456
99
445
845
7 845
6 275
130
458
951
7 814
3 075
67
223
373
3 738
(1) Includes EUR 97 million for equity-settled awards (EUR 119 million in 2016 and EUR 43 million in 2015).
(2) Includes costs related to defined contribution plans of EUR 231 million (EUR 236 million in 2016 and EUR 172 million in 2015) and costs related to defined benefit plans of EUR 214 million (EUR 222 million
in 2016 and EUR 51 million in 2015). Refer to Note 27, Pensions and other post-employment benefits.
The average number of employees is ( in and in ).
10. Other income and expenses
EURm
Continuing operations
Other income
Foreign exchange gain on hedging forecasted sales and purchases, net
Pension curtailment income and amendment income
Realized gains from unlisted venture funds
Interest income from customer receivables and overdue payments
Profit on sale of property, plant and equipment
Expiration of stock option liability
VAT and other indirect tax refunds and social security credits
Subsidies and government grants
Other
Total
Other expenses
Restructuring, cost reduction and associated charges
Impairment charges
Pension curtailment expenses
Expenses related to sale of receivables transactions
Valuation allowances for doubtful accounts and accounts receivable write-offs
Loss on sale of property, plant and equipment
Losses and expenses related to unlisted venture funds
Foreign exchange loss on hedging forecasted sales and purchases, net
Other
Total
2017
2016
2015
93
38
51
25
19
18
–
2
117
363
(568)
(210)
(41)
(37)
(24)
(23)
(6)
–
(46)
()
–
5
13
29
–
–
19
11
40
117
(759)
(17)
(7)
(42)
(116)
(3)
(4)
(54)
25
()
–
–
144
6
8
–
17
4
57
236
(120)
(11)
–
(21)
24
(5)
(47)
(83)
(21)
()
172
NOKIA ANNUAL REPORT ON FORM 20-F 2017
11. Financial income and expenses
EURm
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 (losses)/gains on disposal of fixed income available-for-sale financial
investments(2)
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 on hedged items under fair value hedge accounting
Net fair value losses on hedging instruments under fair value hedge accounting
Net foreign exchange losses
Other financial income(3)
Other financial expenses(4)
Total
2017
2016
2015
35
–
(472)
(37)
(33)
–
–
42
(23)
(157)
172
(64)
()
84
(18)
(234)
(65)
15
(18)
21
11
(15)
(9)
85
(144)
()
31
(4)
(135)
(9)
2
(2)
(5)
7
(12)
(76)
31
(14)
()
(1) In 2017, interest expense includes one-time charges of EUR 220 million related to the Group’s tender offer to purchase USD 300 million 6.50% notes due January 15, 2028, USD 1 360 million 6.45%
notes due March 15, 2029, EUR 500 million 6.75% notes due February 4, 2019 and USD 1 000 million 5.375% notes due May 15, 2019 as well as an interest expense of EUR 69 million related to a change
in uncertain tax positions. In 2016, interest expense included one-time charges of EUR 41 million, primarily related to the redemption of Nokia of America Corporation. 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.
(2) In 2017, includes a one-time charge of EUR 32 million related to the sale of certain financial assets.
(3) In 2017, includes distributions of EUR 80 million (EUR 66 million in 2016 and EUR 25 million in 2015) from private venture funds held as non-current available-for-sale investments as well as income of
EUR 64 million due to a change in the fair value of the financial liability related to Nokia Shanghai Bell. Refer to Note 33, Significant partly-owned subsidiaries.
(4) In 2017, includes impairments of EUR 34 million (EUR 108 million in 2016) 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 (expense)/benefit
EURm
Continuing operations
Current tax
Deferred tax
Total
2017
2016
2015
(261)
(666)
()
(534)
991
457
(258)
(88)
()
Income tax reconciliation
Reconciliation of the difference between income tax computed at the statutory rate in Finland of % 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(2)
Effect of different tax rates of subsidiaries operating in other jurisdictions
Effect of deferred tax assets not recognized(3)
Benefit arising from previously unrecognized deferred tax assets
Net (increase)/decrease in uncertain tax positions
Change in income tax rates(4)
Income taxes on undistributed earnings
Other
Total
2017
102
85
(245)
(29)
(132)
178
(164)
56
–
(738)
(42)
2
()
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
)
(
(1) In 2017, the Group continued to integrate former Nokia and Alcatel Lucent operating models, the Group transferred certain intellectual property between its operations in Finland and in the United States,
recording a tax expense of EUR 245 million. These transactions reduced the deferred tax assets in the United States and increased the deferred tax assets in Finland. 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 2017, the Group recorded a EUR 139 million tax expense related to an uncertain tax position in Germany. The matter relates to the disposal of the former Alcatel Lucent railway signaling business in 2006 to Thalès.
(3) In 2016, relates primarily to tax losses and temporary differences in France.
(4) In 2017, primarily resulting from the tax rate change in the United States. The United States federal income tax rate reduction caused a revaluation of the United States deferred tax assets and
liabilities, resulting in the recognition of an additional tax provision of EUR 777 million.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
173
Financial statements
Notes to consolidated financial statements
continued
Income tax liabilities and assets include a net EUR million liability (EUR million in ) 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, 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.
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
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
Deferred
tax assets
1 019
–
2 851
13
85
157
241
933
34
240
223
12
5 808
(1 226)
4 582
2017
Deferred
tax liabilities
–
(106)
(353)
(940)
(6)
(1)
(7)
(60)
–
(55)
(78)
(33)
( )
1 226
()
Net balance
4 169
–
4 169
Deferred
tax assets
1 428
–
3 713
3
19
154
81
1 478
12
249
307
16
7 460
(1 759)
5 701
2016
Deferred
tax liabilities
–
(67)
(501)
(1 334)
(52)
(3)
(66)
(29)
(2)
(6)
(56)
(46)
(
)
1 759
(
)
2017
5 298
(666)
2
(150)
(7)
(29)
(279)
4 169
Net balance
5 298
–
5 298
2016
2 573
991
(2)
(255)
(5)
1 914
82
5 298
174
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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
2017
1 879
18 449
37
20 365
2016
2 214
18 706
32
20 952
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 % of annual taxable profits.
The deferred tax assets are recognized to the extent it is probable that taxable profit will be available against which the tax losses, tax credits
and deductible temporary difference can be utilized in the relevant jurisdictions. The majority of the Group's recognized deferred tax assets
relate to unused tax losses, tax credits and deductible temporary differences in Finland of EUR . billion (EUR . billion in ) and the
United States of EUR . billion (EUR . billion in ). Based on the recent years’ profitability in Finland and the United States, as well as
the latest forecasts of future financial performance, the Group has been able to establish a pattern of sufficient tax profitability in Finland
and the United States 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.
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
Recognized
Unrecognized
Total
Recognized
Unrecognized
2017
1 338
135
1 674
3 147
367
111
35
513
1 491
25
16 933
18 449
2 828
160
18 608
21 596
21
5
11
37
388
116
46
550
1 853
79
1 878
3 810
395
94
66
555
1 681
17
17 008
18 706
23
–
9
32
2016
Total
3 534
96
18 886
22 516
418
94
75
587
The Group has undistributed earnings of EUR million (EUR million in ) for which a deferred tax liability has not been
recognized as these earnings will not be distributed in the foreseeable future.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
175
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
2017
EURm
(1 473)
(21)
(1 494)
–
–
–
(1 473)
(21)
(1 494)
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
000s shares
000s shares
000s shares
5 651 814
5 732 371
3 670 934
–
–
–
–
–
–
–
–
4 253
3 179
1 971
9 403
–
–
–
–
651 814
5
8 746
–
8 746
8 746
5 741 117
–
268 975
268 975
278 378
3 949 312
Earnings per share attributable to equity holders of the parent
EUR
EUR
EUR
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
(0.26)
0.00
(0.26)
(0.26)
0.00
(0.26)
(0.13)
0.00
(0.13)
(0.13)
0.00
(0.13)
0.32
0.35
0.67
0.31
0.32
0.63
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.
million restricted shares are outstanding ( million in and none in ) that could potentially have a dilutive impact in the future but
are excluded from the calculation as they are determined to be anti-dilutive.
million performance shares are outstanding ( million in and none in ) 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, million performance shares ( million
in and ) have been excluded from the calculation of diluted shares as contingency conditions have not been met.
Stock options equivalent to fewer than million shares (fewer than million shares in and ) have been excluded from the
calculation of diluted shares as they are determined to be anti-dilutive.
176
NOKIA ANNUAL REPORT ON FORM 20-F 2017
In , the Group exercised its option to redeem the EUR million convertible bonds at their original amount plus accrued interest.
Virtually all bondholders elected to convert their convertible bonds into Nokia shares before redemption. million potential shares have
been included in the calculation of diluted shares to reflect the part-year effect of these convertible bonds.
In , the Group acquired Alcatel Lucent shares from JPMorgan Chase Bank N.A., as depositary, pursuant to the share
purchase agreement announced on March , . 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 , . On May ,
the Group registered with the Finnish Trade Register new Nokia shares issued to the Alcatel depositary in settlement of the
transaction. million potential shares have been included in the calculation of diluted shares from March , 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, 2016
Translation differences
Additions
Acquisitions through business combinations
Disposals and retirements(1)
Acquisition cost as of December 31, 2016
Accumulated amortization and impairment charges as of January 1, 2016
Translation differences
Disposals and retirements(1)
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
Acquisition cost as of January 1, 2017
Translation differences
Additions
Acquisitions through business combinations
Disposals and retirements
Acquisition cost as of December 31, 2017
Accumulated amortization and impairment charges as of January 1, 2017
Translation differences
Impairment charges
Disposals and retirements
Amortization
Accumulated amortization and impairment charges as of December 31, 2017
Net book value as of January 1, 2017
Net book value as of December 31, 2017
(1) Includes impairment charges of EUR 9 million in 2016. 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
Goodwill
1 145
129
–
5 358
–
6 632
(908)
–
–
–
()
237
5 724
6 632
(497)
–
162
–
6 297
(908)
–
(141)
–
–
( )
5 724
5 248
Other
3 137
424
62
5 781
(22)
9 382
(2 814)
(325)
9
(1 016)
( )
323
5 236
9 382
(521)
40
169
(73)
8 997
(4 146)
131
(33)
72
(1 050)
( )
5 236
3 971
2017
2 306
1 107
233
325
3 971
Total
4 282
553
62
11 139
(22)
16 014
(3 722)
(325)
9
(1 016)
( )
560
10 960
16 014
(1 018)
40
331
(73)
15 294
(5 054)
131
(174)
72
(1 050)
( )
10 960
9 219
2016
2 765
1 786
308
377
5 236
The remaining amortization periods are approximately one to nine years for customer relationships, one to five years for developed
technology, two to six years for tradenames and trademarks and one to six years for other.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
177
Financial statements
Notes to consolidated financial statements
continued
15. Property, plant and equipment
EURm
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 at December 31, 2016
Acquisition cost as of January 1, 2017
Translation differences
Additions
Acquisitions through business combinations
Reclassifications
Disposals and retirements
Acquisition cost as of December 31, 2017
Accumulated depreciation as of January 1, 2017
Translation differences
Impairment charges
Disposals and retirements
Depreciation
Accumulated depreciation as of December 31, 2017
Net book value as of January 1, 2017
Net book value as of December 31, 2017
Buildings and
constructions
427
(47)
1
65
587
20
(54)
999
(174)
5
1
46
(94)
()
253
783
999
(52)
115
1
42
(40)
1 065
(216)
20
–
22
(97)
()
783
794
Machinery and
equipment
1 746
–
(15)
361
674
75
(148)
2 693
(1 351)
–
13
133
(480)
( )
395
1 008
2 693
(105)
370
1
43
(353)
2 649
(1 685)
67
(25)
315
(440)
( )
1 008
881
Other
41
–
2
3
68
2
(2)
114
(9)
–
–
–
(4)
()
32
101
114
(9)
3
–
–
(2)
106
(13)
1
–
2
(4)
()
101
92
Assets under
construction
15
–
–
87
84
(97)
–
89
–
–
–
–
–
–
15
89
89
(5)
89
–
(85)
(2)
86
–
–
–
–
–
–
89
86
Total
2 229
(47)
(12)
516
1 413
–
(204)
3 895
(1 534)
5
14
179
(578)
( )
695
1 981
3 895
(171)
577
2
–
(397)
3 906
(1 914)
88
(25)
339
(541)
( )
1 981
1 853
In , 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.
178
NOKIA ANNUAL REPORT ON FORM 20-F 2017
16. Impairment
Goodwill
Based on the current operational and reporting structure (refer to Note , Segment information), the Group allocated goodwill to the
operating segments within Nokia’s Networks business and to the Digital Health cash generating unit within Nokia Technologies corresponding
to groups of cash generating units and cash generating unit (“CGU”), respectively.
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 :
EURm
Mobile Networks(1)
Fixed Networks
Global Services(1)
IP/Optical Networks
Nokia Software
Digital Health (Nokia Technologies)
2017
950
812
1 288
1 847
405
–
2016
2 298
896
–
1 970
240
141
(1) In 2017, the Group’s former Mobile Networks operating segment was separated into two distinct operating segments: Mobile Networks and Global Services (refer to Note 4., Segment Information).
The affected goodwill was allocated based on the relative fair value of the Group’s Mobile Networks and Global Services operating segments.
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 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 three years.
Seven 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 industries 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 market participant assumptions.
The results of the impairment testing indicate adequate headroom for each group of CGUs. The key assumptions applied in the impairment
testing analysis for the groups of CGUs and the CGU as of the annual impairment testing date October :
Key assumption %
Mobile Networks
Fixed Networks
Global Services
IP/Optical Networks
Nokia Software
Digital Health (Nokia Technologies)
Impairment charges by asset category
EURm
Goodwill
Other intangible assets
Property, plant and equipment
Available-for-sale investments
Total
2017
2016
2017
2016
Terminal growth rate
Post-tax discount rate
1.1
1.1
1.0
1.3
1.7
–
0.9
0.9
–
1.4
1.8
2.1
8.9
8.6
8.9
9.3
8.2
–
2017
141
33
25
45
244
2016
–
9
–
116
9.2
8.6
–
8.9
9.0
12.7
2015
–
–
–
11
NOKIA ANNUAL REPORT ON FORM 20-F 2017
179
Financial statements
Notes to consolidated financial statements
continued
Goodwill
In , as a result of challenging business conditions, the Group recorded an impairment charge of EUR million on its Digital Health
CGU. The impairment charge was allocated in its entirety to reduce the goodwill carrying amount of the Digital Health CGU to zero.
Other intangible assets
In , the Group recognized an impairment charge within other operating expenses of EUR million, mainly related to certain
technology-based assets acquired with Eden Rock LLC. The results of Eden Rock LLC. are reported within the IP Networks and Applications
reportable segment.
In , the Group recognized an impairment charge within other operating expenses of EUR million following the discontinuation of
certain technology-related assets acquired with Mesaplexx Pty Ltd. The results of Mesaplexx Pty Ltd. are reported within the Ultra Broadband
Networks reportable segment.
Property, plant and equipment
In relation to its product portfolio strategy, the Group recognized an impairment charge within other operating expenses of EUR million
for excess machinery and equipment.
Available-for-sale investments
The Group recognized an impairment charge of EUR million (EUR million in and EUR million in ) 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
2017
271
1 166
1 209
2 646
2016
268
1 159
1 079
2 506
The cost of inventories recognized as an expense during the year and included in the cost of sales is EUR million (EUR million in
and EUR million in ).
Movements in allowances for excess and obsolete inventory for the years ended December :
EURm
As of January 1
Charged to income statement
Deductions(1)
As of December 31
(1) Deductions include utilization and releases of allowances.
18. Allowances for doubtful accounts
Movements in allowances for doubtful accounts for the years ended December
:
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.
2017
456
100
(124)
432
2017
168
–
61
(37)
192
2016
195
354
(93)
456
2016
62
–
126
(20)
168
2015
204
71
(80)
195
2015
103
(7)
13
(47)
62
180
NOKIA ANNUAL REPORT ON FORM 20-F 2017
19. Prepaid expenses and accrued income
Non-current assets
EURm
R&D tax credits and other indirect tax receivables
Deposits
Other
Total
Current assets
EURm
Social security, R&D tax credits, VAT and other indirect taxes
Deposits
Accrued revenue
Divestment-related receivables
Other
Total
2017
174
77
117
368
2017
552
28
232
79
368
1 259
2016
254
–
74
328
2016
560
118
101
90
427
1 296
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 ,
, the share capital of Nokia Corporation is EUR . and the total number of shares issued is . As of December ,
, the total number of shares includes shares owned by Group companies representing .% 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 Extraordinary General Meeting held on December , , the shareholders authorized the Board of Directors to issue, in deviation
from the shareholders’ pre-emptive right, a maximum of 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 , .
At the Annual General Meeting held on June , , the shareholders authorized the Board of Directors to issue a maximum of
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 December , was terminated by a resolution of Annual General
Meeting on May , .
At the Annual General Meeting held on May , , the shareholders authorized the Board of Directors to issue a maximum of 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 November , .
In , under the authorization held by the Board of Directors, the Parent Company issued new shares following the holders
of stock options issued in , and exercising their option rights.
In , the Parent Company issued new shares without consideration to the Parent Company to fulfil the company’s obligation
under the Nokia Equity Programs.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
181
Financial statements
Notes to consolidated financial statements
continued
In , under the authorization held by the Board of Directors, the Parent Company issued treasury shares to employees,
including certain members of the Group Leadership Team, as settlement under equity-based incentive plans and the employee share
purchase plan. The shares were issued without consideration and in accordance with the plan rules.
As of December , , 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 June , , the shareholders authorized the Board of Directors to repurchase a maximum
of million shares. The amount corresponded to less than % 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 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 that would have been effective until December , was terminated by a resolution of the Annual General
Meeting on May , .
At the Annual General Meeting held on May , , the shareholders authorized the Board of Directors to repurchase a maximum
of million shares. The amount corresponds to less than % of the total number of Parent Company’s shares. The shares may be
repurchased in order to optimize the capital structure of the Company. In addition, shares may be repurchased in order to meet obligations
arising from debt financial instruments that are exchangeable into equity instruments, to settle equity-based incentive plans for employees
of the Group or of its associated companies, or to be transferred for other purposes such as financing or carrying out acquisitions. The
authorization is effective until November , .
Under the authorization held by the Board of Directors and in line with the capital structure optimization program, the Parent Company
repurchased shares in representing approximately .% of share capital and total voting rights as of December , .
In , the Parent Company had repurchased shares. 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. On February , the Parent Company announced that the
Board of Directors had decided to cancel treasury shares repurchased under the capital structure optimization program.
The cancellation of the shares does not have an impact on the Parent Company’s share capital.
21. Fair value and other reserves
EURm
As of January 1, 2015
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 on non-controlling interest
Movement attributable to non-controlling interests
As of December 31, 2016
Foreign exchange translation differences
Net investment hedging gains
Remeasurements of defined benefit plans
Net fair value gains
Transfer to income statement
Other increase/(decrease)
Movement attributable to non-controlling interests
As of December 31, 2017
Translation
differences
Pension
remeasurements
Hedging
reserve
Available-for-sale
investments
1 099
672
(207)
–
–
(1 268)
–
(4)
292
265
(83)
–
–
(14)
(15)
38
483
(1 830)
352
–
–
12
1
50
()
()
–
–
84
–
–
8
–
()
–
–
343
–
–
(2)
4
173
–
–
662
–
–
3
–
838
2
–
–
–
(53)
49
–
–
()
–
–
–
(13)
25
–
–
10
–
–
–
103
(75)
(1)
–
37
284
–
–
–
225
(131)
–
–
378
–
–
–
(10)
(63)
–
–
305
–
–
–
18
(104)
–
–
219
182
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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 , 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 , Significant accounting
policies and Note , 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 , 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 , Significant accounting policies.
22. Other comprehensive income
EURm
Gross
Tax
Net
Gross
Tax
Net
Gross
Tax
Net
2017
2016
2015
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 gains/(losses)
Transfer to income statement
Net change during the year
Cash flow hedges
Net fair value gains/(losses)
Transfer to income statement
Net change during the year
Available-for-sale investments
Net fair value gains/(losses)
Transfer to income statement on impairment
Transfer to income statement on disposal
Net change during the year
Other (decrease)/ increase, net
Total
723
723
(58)
()
665
665
613
613
(269)
()
344
344
112
112
(28)
()
84
84
(1 831)
12
( )
1
–
1
(1 830)
12
( )
440
–
440
129
(94)
35
19
14
(121)
()
(1)
()
(88)
–
()
(26)
19
(7)
(1)
(1)
4
2
–
()
352
–
352
103
(75)
28
18
13
(117)
()
(1)
()
265
(14)
251
(103)
–
()
(16)
30
14
(9)
25
(91)
()
(6)
694
–
–
–
20
–
20
3
(5)
()
(1)
(4)
7
2
–
()
265
(14)
251
673
(1 727)
( )
–
–
–
673
(1 727)
( )
(83)
–
()
(13)
25
12
(10)
21
(84)
()
(6)
445
(260)
582
322
(66)
61
()
246
11
(144)
113
2
()
53
(123)
(70)
13
(12)
1
(21)
–
2
(19)
–
()
(207)
459
252
(53)
49
()
225
11
(142)
94
2
()
NOKIA ANNUAL REPORT ON FORM 20-F 2017
183
Financial statements
Notes to consolidated financial statements
continued
23. Interest-bearing liabilities
Issuer/borrower
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia of America
Corporation
Nokia of America
Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation and
various subsidiaries
Total
Instrument
6.75% Senior Notes(1)
5.375% Senior Notes(2)
1.00% Senior Notes(1)
3.375% Senior Notes(2)
2.00% Senior Notes(1)
4.375% Senior Notes(2)
6.5% Senior Notes(1)(2)
6.45% Senior Notes(1)(2)
6.625% Senior Notes
Revolving Credit Facility
Other liabilities(3)
Currency Nominal (million)
Final maturity
EUR
USD
EUR
USD
EUR
USD
USD
USD
USD
EUR
231
581
500
500
750
500
February 2019
May 2019
March 2021
June 2022
March 2024
June 2027
74
January 2028
206
500
1 579
March 2029
May 2039
June 2020
Carrying amount EURm
2017
241
487
498
406
744
404
62
174
424
–
326
3 766
2016
527
961
–
–
–
–
287
1 306
482
–
464
4 027
(1) In March 2017, the Group issued EUR 500 million 1.00% Senior Notes due 2021 and EUR 750 million 2.00% Senior Notes due 2024 under the 5 billion Euro Medium-Term Note Programme. The proceeds
of the new notes were used to redeem (nominal amounts) EUR 269 million of the 2019 Euro Notes, USD 86 million of the 2028 USD Notes and USD 401 million of the 2029 USD Notes and for general
corporate purposes.
(2) In June 2017, the Group issued USD 500 million 3.375% Senior Notes due 2022 and USD 500 million 4.375% Senior Notes due 2027 under U.S. Securities Act of 1933, as amended. The proceeds of the
new notes were used to redeem (nominal amounts) USD 419 million of the 2019 USD Notes, USD 140 million of the 2028 USD Notes and USD 753 million of the 2029 USD Notes and for general
corporate purposes.
(3) Includes liabilities related to the French research and development tax credits (Crédits d’Impôt Recherche) of EUR 62 million (EUR 132 million in 2016) that have been sold to banks on a recourse basis
and hence remain on the consolidated statement of financial position.
All borrowings presented above are senior unsecured and have no financial covenants.
Changes in interest-bearing liabilities arising from financing activities:
As of January 1, 2017
Cash flows
Non-cash changes:
Acquisitions
Translation differences
Changes in fair value
Other
As of December 31, 2017
Long-term interest-
bearing liabilities
Short-term interest-
bearing liabilities
Derivatives held to
hedge long-term
borrowings
3 657
132
–
(291)
(46)
5
3 457
370
(40)
4
(12)
–
(13)
309
()
(49)
–
199
15
–
135
Total
3 997
43
4
(104)
(31)
(8)
3 901
184
NOKIA ANNUAL REPORT ON FORM 20-F 2017
24. Fair value of financial instruments
Financial assets and liabilities recorded at fair value are catego
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 being market values for exchange traded products, level being primarily based on quotes from third-
party pricing services, and level 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 carried at fair value in the following table are measured at
fair value on a recurring basis.
rized based on the amount of unobservable inputs used to measure their fair
EUR million
Amortized cost
Level 1
Level 2
Level 3
Total
Total
Carrying amounts
Fair value
Fair value(1)
ts including derivatives
2017
Non-current available-for-sale investments
Other non-current financial assets
Other current financial asse
Accounts receivable
Available-for-sale investments, liquid assets
Cash and cash equivalents
Total financial assets
Long-term interest-bearing liabilities
Short-term interest bearing liabilities
Other financial liabilities including derivatives
Accounts payable
Total financial liabilities
119
108
106
6 880
–
7 369
14 582
3 457
309
44
3 996
7 806
16
–
–
–
–
–
16
–
–
–
–
–
137
99
196
–
911
–
1 343
–
–
268
–
268
Carrying amounts
Fair value
544
8
–
–
–
–
552
–
–
672
–
672
816
215
302
6 880
911
7 369
16 493
3 457
309
984
3 996
8 746
816
195
302
6 880
911
7 369
16 473
3 574
309
984
3 996
8 863
Fair value(1)
EUR million
Amortized cost
Level 1
Level 2
Level 3
Total
Total
2016
Non-current available-for-sale investments
Other non-current financial assets
Other current financial assets including derivatives
Accounts receivable
Investments at fair value through profit and loss, liquid
assets
Available-for-sale investments, liquid assets
Cash and cash equivalents
Total financial assets
Long-term interest-bearing liabilities
Short-term interest bearing liabilities
Other financial liabilities including derivatives
Accounts payable
Total financial liabilities
202
143
60
6 972
–
–
7 497
14 874
3 657
370
34
3 781
7 842
–
–
–
–
–
–
–
–
–
–
–
–
–
164
111
236
–
327
1 502
–
2 340
–
–
236
–
236
674
–
–
–
–
–
–
674
–
–
14
–
14
1 040
254
296
6 972
327
1 502
7 497
17 888
3 657
370
284
3 781
8 092
1 040
228
296
6 972
327
1 502
7 497
17 862
3 821
370
284
3 781
8 256
(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.
The level 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
185
Financial statements
Notes to consolidated financial statements
continued
The level 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 the Group’s listed bonds and other securities, over-the-counter
derivatives and certain other products are included within this category.
The level financial assets 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 fair value of level investments 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.
The inputs generally considered in determining the fair value of level investments 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
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, but no individual input has a significant impact
on the total fair value of the level investments.
Level Financial liabilities include conditional obligation to China Huaxin as part of the Nokia Shanghai Bell definitive agreements where China
Huaxin obtained the right to fully transfer its ownership interest in Nokia Shanghai Bell to the Group in exchange for a future cash settlement.
The fair value of the liability is calculated using the net present value of the expected future cash settlement. Most significant unobservable
valuation inputs include certain financial performance metrics of Nokia Shanghai Bell. No individual input has a significant impact on the total
fair value of the level financial liability. Refer to Note , Significant partly-owned subsidiaries.
Reconciliation of the opening and closing balances on level financial assets and liabilities:
EURm
As of January 1, 2016
Net gains in income statement
Net loss recorded in other comprehensive income
Acquisitions through business combination
Purchases
Sales
Other movements
As of December 31, 2016
Net gains in income statement
Net loss recorded in other comprehensive income
Acquisitions of non-controlling interest
Purchases
Sales
Other movements
As of December 31, 2017
Level 3 Financial
Assets
Level 3 Financial
Liabilities
688
52
(48)
–
72
(101)
11
674
89
(89)
–
89
(182)
(29)
552
–
–
–
(14)
–
–
–
()
79
–
(737)
–
–
–
()
The gains and losses from venture fund and similar investments categorized in level 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 from level
financial assets and liabilities are included in financial income and expenses. A net gain of EUR million (net gain of EUR million in )
related to level financial instruments held as of December , is recognized in the consolidated income statement.
186
NOKIA ANNUAL REPORT ON FORM 20-F 2017
25. Derivative financial instruments
EURm
2017
Hedges on net investment in foreign subsidiaries
Forward foreign exchange contracts
Cash flow hedges
Forward foreign exchange contracts
Fair value hedges
Forward foreign exchange contracts
Firm commitments
(3)
Cash flow and fair value hedges
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
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
Assets
Liabilities
Fair value(1)
Notional(2)
Fair value(1)
Notional(2)
38
56
1
17
–
73
12
–
–
–
197
20
12
42
21
34
42
61
3
–
–
235
3 491
1 305
165
133
–
5 858
664
–
–
–
11 616
1 829
382
300
350
633
1 002
3 777
569
–
–
8 842
(2)
(6)
(1)
(24)
(141)
(88)
–
(4)
–
(2)
()
(1)
(9)
–
(51)
(6)
–
(135)
–
(29)
(5)
()
773
465
79
229
1 512
7 002
–
163
–
100
10 323
255
185
–
689
311
–
7 526
–
329
157
9 452
(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 ANNUAL REPORT ON FORM 20-F 2017
187
Financial statements
Notes to consolidated financial statements
continued
26. Share-based payment
The Group has several equity-based incentive programs for executives and other eligible employees. The programs consist of perf
share plans, restricted share plans and employee share purchase plans. 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 included in Continuing operations in the consolidated income statement
amounts to EUR million (EUR million in and EUR million in ).
ormance
Active share-based payment plans by instrument
As of January 1, 2015
Granted
Forfeited
Vested
As of December 31, 2015
Granted
Forfeited
Vested
As of December 31, 2016
Granted
Forfeited
(2)
Vested
As of December 31, 2017
(3)
Performance shares outstanding at target
Restricted shares outstanding
Number of
performance
shares at target
Weighted average grant
date fair value
EUR(1)
Number of
restricted
shares outstanding
Weighted average grant
date fair value
EUR(1)
17 234 066
13 553 992
(7 859 208)
–
22 928 850
23 110 479
(1 489 070)
(1 132 709)
43 417 550
29 983 190
(2 589 904)
(10 294 593)
60 516 243
5.78
4.70
5.08
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
2 366 008
(807 556)
(1 959 287)
5 568 702
6.22
4.73
4.90
(1) 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.
(2) Vested performance shares at target are multiplied by the confirmed payout (% of target) to calculate the total number of Nokia shares settlement.
(3) Includes 10 167 021 performance shares for the Performance Share Plan 2015 and 204 419 Restricted Shares that vested on January 1, 2018.
Performance shares
In , the Group administered four global performance share plans, the Performance Share Plans of , , and . The
performance shares represent a commitment by the Group to deliver Nokia shares to eligible participants at a future point in time, subject
to the fulfillment of predetermined performance criteria. 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 the 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. 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.
The Performance Share Plan includes a minimum payout guarantee for performance shares granted to non-executive participants,
such that % of the performance shares granted will settle after the restriction period, regardless of the satisfaction of the applicable
performance criteria. Performance shares granted to executive participants under the Performance Share Plan do not include a
minimum payout guarantee.
Global performance share plans as of December , :
Plan
2014
2015
2016
2017
Performance shares
outstanding at target
–
10 167 021
20 717 300
29 631 922
Confirmed payout
(% of target)
126
124
46
Performance
period
2014–2015
2015–2016
2016–2017
2017–2018
Restriction
period(1)
2016
2017
2018
2019
Settlement
year
2017
2018
2019
2020
(1) The restriction period will be no less than one year from the end of the performance period.
188
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Performance criteria for the Plan for the year ended December :
Performance criteria(1)
Average annual net sales 2017–2018
Average annual diluted EPS 2017–2018
Threshold performance
EUR
Maximum performance
EUR
22 842 million
0.26
26 280 million
0.38
Weight
%
50
50
(1) Excludes costs related to the acquisition of Alcatel Lucent and related integration, goodwill impairment charges, intangibl
e asset amortization and other purchase price fair value adjustments,
restructuring and associated charges and certain other items.
Restricted shares
In , the Group administered four global restricted share plans: the Restricted Share Plans , , and . Restricted shares
are granted on a limited basis for purposes related to retention and recruitment of individuals deemed critical to the Group's future success.
The vesting schedule for the Plans was months following the grant quarter. All other plans follow a tranche vesting schedule
whereby each plan vests in three equal tranches on the first, second and the third anniversary of the award subject to continued employment
with the Group. Restricted Share Plan participants do not have any shareholder rights, such as voting or dividend rights, until the Nokia shares
are delivered. The restricted share grants are generally forfeited if the employment relationship with the Group terminates prior to vesting of
the applicable tranche or tranches.
Employee share purchase plan
The Group offers a voluntary Employee Share Purchase Plan to its employees. Participating employees make contributions from their net
salary to purchase Nokia shares on a monthly basis during a -month savings period. The Group intends to deliver one matching share for
every two purchased shares the employee holds as of the end of the Plan cycle. In , matching shares were issued as a
settlement to the participants of the Employee Share Purchase Plan ( matching shares issued under the Plan and
free shares issued under the plan in , matching shares issued in under the Plan).
Legacy equity compensation programs
Stock options
In , the Group administered one global stock option plan, the Stock Option Plan . The last stock options under this Plan were
granted in . 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
As of January 1, 2015
Exercised
Forfeited
Expired
As of December 31, 2015
Exercised
Forfeited
Expired
As of December 31, 2016
Exercised
Forfeited
Expired
As of December 31, 2017
Number
of shares
7 344 023
(1 242 381)
(2 215 216)
(246 140)
3 640 286
(832 900)
(17 875)
(1 188 490)
1 601 021
(415 750)
(215 000)
(522 771)
447 500
Weighted
average exercise
price
EUR
Weighted
average share
price
EUR
6.44
4.87
4.93
4.81
3.79
2.48
8.07
4.67
2.52
2.57
7.81
3.34
2.13
2.71
5.65
2.07
Number of
options
exercisable
Weighted
average exercise
price
EUR
1 913 537
10.43
2 318 911
5.97
1 197 771
3.56
447 500
2.07
NOKIA ANNUAL REPORT ON FORM 20-F 2017
189
Financial statements
Notes to consolidated financial statements
continued
27. Pensions and other post-employment benefits
The Group maintains a number of post-employment plans in variou
The Group’s defined benefit plans comprise significant pension schemes, as well as material other post employment benefit (“Opeb”) plans
providing post-retirement healthcare and life insurance coverage to certain employee groups. 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 the legal, fiscal, and economic requirements in each country. These characteristics and risks are further
described below and relate to the plans included as part of the Group’s Continuing operations.
s countries including both defined contribution and defined benefit plans.
The total net defined benefit liability is EUR million (EUR million in ) consisting of net pension and other post-employment
benefit liabilities of EUR million (EUR million in ) and net pension and other post-employment benefit assets of
EUR million (EUR million in ).
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 % (% in ) of the Group’s total defined benefit obligation and % (% in ) 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 :
EURm
United States
Germany
United Kingdom
Other
Total
2017
2016
Defined
benefit
obligation
(19 614)
(2 773)
(1 276)
(1 834)
( )
Fair value
of plan assets
20 499
1 203
1 552
2 281
25 535
Effects of
asset ceiling
(453)
–
–
(46)
()
Net defined
benefit
balance
432
(1 570)
276
401
()
Defined
benefit
obligation
(22 845)
(2 680)
(1 265)
(1 873)
( )
Fair value
of plan assets
22 880
1 160
1 485
2 245
27 770
Effects of
asset ceiling
(265)
–
–
(40)
()
Net defined
benefit
balance
(230)
(1 520)
220
332
( )
United States
The Group has significant defined benefit pension plans and a significant post-retirement welfare benefit plan, 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 principal non-represented plan for salaried, non-union member employees was closed to new entrants after
December , and fully frozen on December , . The Group, then Alcatel Lucent, adopted a new cash-balance program, a cash
balance plan, for salaried, non-union member employees effective January , . The new program was extended to all United States-
based salaried employees, except the employees of Nokia Technologies, effective January , . For active union-represented employees
and for former employees who, when active, were represented by a union, the Group maintains two represented defined benefit plans, both
of which are traditional service-based pension programs. The larger of the two, which represents % of the obligation, is a closed plan.
Post-retirement welfare benefits 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 current union agreement
expires on December , .
The defined benefit obligations, the fair value of plan assets, the effects of the asset ceiling and the net defined benefit balance for United
States defined benefit plans as of December :
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
Fair value
of plan assets
Effects of
asset ceiling
2017
Net defined
benefit
balance
Defined
benefit
obligation
Fair value
of plan assets
Effects of
asset ceiling
(13 750)
(2 995)
(351)
( )
15 263
4 704
–
19 967
(2)
(451)
–
()
1 511
1 258
(351)
2 418
(15 855)
(3 528)
(401)
( )
16 861
5 440
–
22 301
(2)
(263)
–
()
(76)
(1 026)
(929)
(486)
(1)
( )
–
264
186
82
–
532
–
–
–
–
–
–
(76)
(762)
(743)
(404)
(1)
( )
(126)
(1 343)
(1 040)
(551)
(1)
( )
–
270
220
89
–
579
–
–
–
–
–
–
2016
Net defined
benefit
balance
1 004
1 649
(401)
2 252
(126)
(1 073)
(820)
(462)
(1)
( )
190
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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, return on investment on plan assets, and volatility
in interest rates.
United Kingdom
The Group has two pension Trusts in the United Kingdom. The Nokia Trust has a money purchase section with Guaranteed Minimum Pension
(“GMP”) underpin and final salary sections, all closed to future benefit accrual on April , . The legacy Alcatel-Lucent Trust has a money
purchase section with GMP underpin, this section is closed to future benefit accrual; it also has final salary sections, the final salary sections
are closed to new joiners but currently open to future benefit accrual. Both Trusts manage all investments for their respective pension plans.
Individual benefits for final salary sections are dependent on eligible compensation levels and years of service. For the money purchase
sections with GMP underpin, individual benefits are dependent on the greater of the value of GMP at retirement date or the pension value
resulting from the individual’s invested funds.
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 :
EURm
As of January 1
Current service cost
Interest expense
Past service cost and gains
on curtailments
Settlements
Total
Remeasurements:
Gain/(loss) from change in demographic
assumptions
Loss from change in financial
assumptions
Experience gain/(loss)
Total(1)
Translation differences(1)
Contributions from plan participants
Benefit payments from plans
Acquisitions through business
combinations
Other
Total
As of December 31
(1) Includes CTA due to translation differences.
2017
United States
pension
United States
Opeb
( )
(75)
(652)
( )
–
(98)
Other
pension
( )
(105)
(112)
Total
( )
(180)
(862)
(39)
13
(753)
(1)
–
(99)
43
10
(164)
3
23
(1 016)
2016
United States
pension
United States
Opeb
()
(63)
(711)
(13)
5
(782)
–
–
(111)
–
–
(111)
Other
pension
( )
(92)
(150)
11
6
(225)
Total
( )
(155)
(972)
(2)
11
(1 118)
141
33
(38)
136
79
15
(13)
81
(747)
60
(546)
2 422
–
1 555
(141)
204
96
370
(111)
303
(148)
3
(183)
123
(24)
246
(1 036)
267
(633)
2 915
(135)
2 104
(301)
227
5
(615)
–
1 595
(60)
205
160
(91)
(124)
366
(593)
(74)
(680)
166
(20)
243
(954)
358
(515)
(540)
(144)
2 204
–
10
3 987
( )
–
(16)
546
( )
–
(63)
282
( )
–
(69)
4 815
( )
(19 919)
(10)
(18 949)
( )
(3 243)
(18)
(3 110)
( )
(3 431)
(89)
(3 131)
( )
(26 593)
(117)
(25 190)
( )
NOKIA ANNUAL REPORT ON FORM 20-F 2017
191
Financial statements
Notes to consolidated financial statements
continued
The movements in the fair value of plan assets for the years ended December :
EURm
As of January 1
Interest income
Administrative expenses and interest
on asset ceiling
Settlements
Total
Remeasurements:
Return on plan assets, excluding amounts
included in interest income
Total
Translation differences
Contributions:
Employers
Plan participants
Benefit payments from plans
Acquisitions through business combinations
Section 420 Transfer(1)
Other
Total
As of December 31
(1) Section 420 Transfer. Refer to ‘Future Cash Flow’ section below.
2017
2016
United States
pension
United States
Opeb
22 301
738
(17)
(12)
709
1 369
1 369
(2 725)
28
–
(1 555)
–
(160)
–
(4 412)
19 967
579
16
–
–
16
37
37
(71)
3
111
(303)
–
160
–
(100)
532
Other
pension
4 890
101
Total
27 770
855
(1)
(11)
89
(18)
(23)
814
183
183
(111)
1 589
1 589
(2 907)
129
24
(158)
–
–
(10)
(126)
5 036
160
135
(2 016)
–
–
(10)
(4 638)
25 535
United States
pension
United States
Opeb
57
774
(19)
(5)
750
947
947
709
–
18
–
–
18
6
6
16
Other
pension
1 394
135
(1)
(6)
128
Total
1 451
927
(20)
(11)
896
387
387
(207)
1 340
1 340
518
32
–
(1 595)
21 571
(172)
2
20 547
22 301
10
124
(366)
599
172
–
555
579
74
20
(164)
3 182
–
76
2 981
4 890
116
144
(2 125)
25 352
–
78
24 083
27 770
The movements in the funded status for the years ended December :
EURm
As of January 1
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 from change in financial assumptions
Experience gain/(loss)
Total(1)
Translation differences(1)
Employer contributions
Benefit payments from plans
Acquisitions through business combinations
Section 420 Transfer(2)
Other
Total
As of December 31
(1) Includes CTA due to translation differences.
(2) Section 420 Transfer. Refer to ‘Future Cash Flow’ section below.
2017
2016
United States
pension
United States
Opeb
Other
pension
2 517
(75)
69
(39)
1
(44)
( )
–
(82)
(1)
–
(83)
()
(105)
(12)
43
(1)
(75)
Total
()
(180)
(25)
3
–
(202)
United States
pension
United States
Opeb
Other
pension
()
(63)
44
(13)
–
(32)
–
–
(93)
–
–
(93)
()
(92)
(16)
11
–
(97)
Total
()
(155)
(65)
(2)
–
(222)
1 369
37
183
1 589
947
6
387
1 340
141
(747)
60
823
(303)
28
–
–
(160)
10
(425)
2 871
33
(141)
204
133
299
3
–
–
160
(16)
446
( )
(38)
(148)
3
–
12
129
88
–
–
(73)
156
()
136
(1 036)
267
956
8
160
88
–
–
(79)
177
38
79
(301)
227
952
94
32
–
1 652
(172)
(8)
1 598
2 517
15
(60)
205
166
(75)
10
–
(2 644)
172
(18)
(2 555)
( )
(13)
(593)
(74)
(293)
(41)
74
79
(249)
–
(13)
(150)
()
81
(954)
358
825
(22)
116
79
(1 241)
–
(39)
(1 107)
()
192
NOKIA ANNUAL REPORT ON FORM 20-F 2017
The movements in the impact of the asset ceiling limitation for the years ended December :
EURm
As of January 1
Interest expense
Remeasurements:
Change in asset ceiling, excluding amounts
included in interest expense
Acquisitions through business combinations
Translation differences
As of December 31
Net balances as of December :
2017
2016
United States
pension
United States
Opeb
Other
pension
(265)
(11)
(224)
–
47
()
–
–
–
–
–
–
()
(1)
(9)
–
4
()
Total
()
(12)
(233)
–
51
()
United States
pension
United States
Opeb
Other
pension
–
(1)
(251)
–
(13)
()
–
–
–
–
–
–
()
(1)
(7)
(22)
(1)
()
Total
()
(2)
(258)
(22)
(14)
()
EURm
As of December 31
2017
2016
United States
pension
United States
Opeb
Other
pension
Total
United States
pension
United States
Opeb
Other
pension
Total
2 418
( )
()
()
2 252
( )
()
( )
Present value of obligations includes EUR million (EUR million in ) of wholly funded obligations, EUR million
(EUR million in ) of partly funded obligations and EUR million (EUR million in ) of unfunded obligations.
Recognized in the income statement
Recognized in personnel expenses in the consolidated income statement for the years ended December :
EURm
Current service cost
Past service cost and gains on curtailments
Interest expense
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 :
EURm
Return on plan assets, excluding amounts included in interest income
Gain from change in demographic assumptions
(Loss)/gain from change in financial assumptions
Experience gain
Change in asset ceiling, excluding amounts included in interest expense
Total
Of which relates to:
United States pensions
United States Opeb
Other pensions
2017
180
(3)
37
–
214
55
83
76
2017
1 589
136
(1 036)
267
(233)
723
599
133
(9)
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
NOKIA ANNUAL REPORT ON FORM 20-F 2017
193
Financial statements
Notes to consolidated financial statements
continued
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
Total weighted average for all countries
(1)
(1) Tables are adjusted with 1.5% long-term rate of improvement.
2017
2016
2017
Discount rate %
3.3
1.3
2.5
2.9
Mortality table
RP–2014 w/MP–2017
mortality projection
scale
Heubeck 2005G
S2PA Light
3.7
1.6
2.7
3.3
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:
2017
2.9
1.9
0.4
2.1
11 yrs
2016
3.3
1.9
0.3
2.0
11 yrs
%
2017
2016
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
3.3
3.1
3.4
2.06
11.5
11.8
4.9
2028
3.7
3.4
3.8
2.08
7.5
7.7
4.9
2028
194
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Sensitivity analysis
The sensitivity of the defined benefit obligation to changes in the principal assumptions:
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)
EURm
2 441
(117)
(557)
(533)
(47)
(899)
Decrease in assumption(1)
EURm
(2 961)
103
468
437
43
846
(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 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.
Investment strategies
The overall investment objective of the Group is to preserve or enhance the pension 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 pension plans’ demographics, benefit payments, contributions and funded status. Local trustee
boards are responsible for conducting asset liability studies, when appropriate; overseeing the investment of plan assets; and monitoring and
managing associated risks under company oversight and in accordance with local law. The results of the Asset-Liability framework are
implemented on a plan level.
The Group’s investment managers 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 regularly monitored on a stand-alone basis as
well as in the broader portfolio context. One 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
Quoted
1 857
17 810
–
–
709
–
20 376
2017
Unquoted
1
44
1 013
1 350
14
2 737
5 159
Total
1 858
17 854
1 013
1 350
723
2 737
25 535
%
7
70
4
5
3
11
100
Quoted
2 777
18 329
–
–
1 110
–
22 216
2016
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
Most short-term investments including cash, equities and 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
195
Financial statements
Notes to consolidated financial statements
continued
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 , :
%
Equity securities
Fixed income securities
Real estate
Private equity and other
Cash
Total
Pension target
allocation range
5–9
68–88
4-8
6–13
–
Percentage of
plan assets
6
78
6
10
–
100
Post-retirement
target allocation
44
15
–
–
41
100
Percentage of post-
employment plan assets
44
15
–
–
41
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
of approximately / between equity, including alternative investments for this purpose, and fixed income securities.
United States pension plan assets included EUR . million of Nokia ordinary shares and EUR . million of Nokia bonds as of December ,
(EUR million of Nokia bonds in ).
Asset ceiling limitation
IAS, Employee benefits, limits the amount of pension fund surplus that an entity may recognize to the amount of economic benefit
that the entity can realize, either through refunds, or as reductions in future contributions. The Group recognized an asset ceiling limitation
in in the amount of EUR million, reducing the total gross asset value from EUR million to the recognized value of
EUR million.
The most significant limitation of asset recognition for the Group is from the United States formerly represented pension plan. For the plans
in the United States, the surplus is owned by the plan and therefore cannot be recognized by the Group as a recoverable pension asset.
However, Section of the Internal Revenue code (“Section ”) 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 healthcare benefits and life insurance coverage (Opeb) of
retired employees entitled to pension benefits under the plan. Section requires employers making such transfers 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 regulations.
For retirees who were represented by the CWA and IBEW, the Group expects to fund the current retiree healthcare and group life insurance
obligations with Section transfers from the United States formerly represented pension plan’s pension surplus. This is considered as a
refund from the pension plan when setting the asset ceiling.
Annual valuation of funded status of the pension plans in the United States has established that the ability to utilize the Section transfer
of excess assets is limited to the United States formerly represented pension plan. Based on a calculated valuation of related Opeb liabilities
to which the asset transfer is applicable, EUR million asset may be recognized. This results in an asset ceiling limitation reducing the
total funding surplus of this plan by EUR million from a funded status of EUR million to EUR million as of December , .
Significant events in 2017
Plan amendments
United States Special Voluntary Termination Program (“SVTP”) benefits offered to certain eligible participants
Effective January , , the Group amended the represented pension plan to reflect additional offers under the SVTP to provide for
enhanced benefits to certain eligible employees. The SVTP benefits resulted in an expense of EUR million, recognized as past service costs
in the consolidated income statement.
French AUXAD pension plan amendment
AUXAD is a French supplemental pension plan for the portion of income that exceeds eight times the annual French social security pension
limit, beyond which there is no legal or contractual pension scheme. In , the Group amended this plan to close the plan to future
accruals from January , . This change resulted in a gain of EUR million, recognized as income related to past service in the
consolidated income statement.
Curtailments
In , the Group recognized curtailments in a number of countries following continued integration efforts to achieve cost savings. In
France, restructuring activities resulted in a gain on curtailment of EUR million following the release of liabilities. In the United States,
restructuring activities resulted in a loss on curtailment of EUR million driven by severance-related pension benefit enhancement.
196
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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 appropriate. Contributions are made to benefit plans for the sole benefit of plan
participants. Employer contributions expected to be made in are EUR 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 (“ERISA”), the Internal Revenue Code of , 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 spot interest rates or average interest rates over a period of time. A preliminary assessment indicates that no funding is
required for the non-represented and represented pension plans until, at least . For the formerly represented 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
As described in the ‘Asset Ceiling’ section, Section allows for the funding of certain Opeb liabilities by utilizing certain excess pension
assets. Section is currently set to expire on December , . On December , , the Group made EUR million Section
transfer of excess pension assets from the formerly represented 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 transfer during
from the formerly represented 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 . 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 in , nor does it expect to make any contributions in . Actual
contributions may differ from expected contributions due to various factors, including performance of plan assets, interest rates and
legislative changes.
EURm
2018
2019
2020
2021
2022
2023–2027
Pension
Post-retirement
Non-qualified plans
25
25
24
24
23
110
Non-represented
9
9
9
9
8
35
Other benefit plans
3
3
3
3
3
233
Medicare subsidy for
formerly union represented(1)
(16)
(15)
(14)
(14)
(13)
(57)
(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 , . The benefit obligation associated with this group of retirees is approximately % of the total United States retiree
healthcare obligation as of December , . Medicare is the primary payer for those aged and older, comprising almost all of
uncapped retirees.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
197
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 . 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 million.
EURm
2018
2019
2020
2021
2022
2023-2027
United States direct benefit payments
Other countries
Total
Qualified
management
1 237
1 073
1 041
1 006
971
4 294
Pension
Qualified
occupational
286
265
253
242
230
980
Non-qualified
plans
25
25
24
24
23
110
Post-retirement
Formerly union
represented
125
118
147
141
133
539
Non-union
represented
51
52
53
54
55
281
273
261
267
280
279
1 515
1 997
1 794
1 785
1 747
1 691
7 719
Benefit payments are paid from plan assets where plans are fully funded. Funding mechanisms, such as the Section transfer, are further
utilized to minimize direct benefit payments for underfunded United States Opeb liabilities. Direct benefit payments expected to be paid in
total EUR million.
28. Accrued expenses, deferred revenue and other liabilities
Non-current liabilities
EURm
Advance payments and deferred revenue(1)
Discounted non-interest-bearing liabilities(2)
Salaries, wages and social charges
Other
Total
Current liabilities
EURm
Advance payments and deferred revenue(1)
Salaries, wages and social charges
VAT and other indirect taxes
Other
Total
2017
2 204
690
59
33
2 986
2017
3 513
1 551
453
1 149
6 666
2016
1 171
23
138
121
1 453
2016
3 178
1 576
362
1 296
6 412
(1) Non-current deferred revenue includes EUR 924 million (EUR 1 080 million in 2016) and current deferred revenue includes EUR 155 million (EUR 155 million in 2016) prepayment relating to a ten-year
mutual patent license agreement with Microsoft.
(2) Includes EUR 672 million financial liability related to the conditional obligation to China Huaxin as part of the Nokia Shanghai Bell definitive agreements where China Huaxin obtained the right to fully
transfer its ownership interest in Nokia Shanghai Bell to the Group in exchange for a future cash settlement. Refer to Note 33, Significant partly-owned subsidiaries.
Other accruals include accrued royalties, research and development expenses, marketing expenses and interest expenses, as well as various
amounts which are individually insignificant.
198
NOKIA ANNUAL REPORT ON FORM 20-F 2017
29. Provisions
EURm
As of January , ()
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 , ()
Acquisitions through business
combinations
Translation differences
Reclassification
Charged to income statement:
Additional provisions
Changes in estimates
Total charged to income
statement
Utilized during year
As of December 31, 2017
(3)
Restructuring
Warranty
Litigation
Environmental
194
291
2
–
874
(123)
751
(525)
713
–
(13)
–
577
(55)
522
(500)
722
94
135
1
–
121
(38)
83
(106)
207
–
(10)
–
146
(56)
90
(77)
210
69
100
22
8
75
(31)
44
(60)
183
–
(9)
7
56
(30)
26
(77)
130
16
114
4
–
28
(2)
26
(26)
134
–
(11)
(12)
14
(1)
13
(17)
107
Project
losses
Divestment-
related
62
129
Material
liability
29
180
–
–
44
(31)
13
(124)
131
–
(6)
–
8
(1)
7
(56)
76
26
9
(2)
16
(24)
(8)
(44)
110
–
(8)
(4)
15
(7)
8
(30)
76
31
2
1
57
(21)
36
(22)
77
–
(4)
15
56
(38)
18
(40)
66
Other
225
366
1
(7)
330
(104)
226
(288)
523
6
(23)
(2)
261
(52)
209
(212)
501
Total
818
1 243
41
–
1 545
(374)
1 171
(1 195)
2 078
6
(84)
4
1 133
(240)
893
(1 009)
1 888
(1) Following the IFRS Interpretations Committee agenda decision in September 2017 on interest and penalties related to income taxes, the Group no longer accounts for these items as income taxes.
Accordingly, the Group has retrospectively revised the presentation of interest and penalties related to income taxes from current income tax liabilities to provisions in the consolidated statement
of financial position. The impact of the revision was EUR 98 million as of December 31, 2016 and EUR 93 million 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.
(3) The utilization of restructuring provision includes items transferred to accrued expenses, of which EUR 56 million remained in accrued expenses as of December 31, 2017.
As of December , , the restructuring provision amounted to EUR million including personnel and other restructuring related
costs, such as real estate exit costs. The provision consists of EUR million global provision related to the announcement on April ,
and EUR million relating to the restructuring provisions recognized due to previously announced restructuring programs. The majority
of the restructuring-related cash outflows is 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 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 relates to onerous customer contracts. Cash outflows related to the project loss provision are generally expected
to occur over the next 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, in excess of forecasted requirements as of
each reporting date. Cash outflows related to the material liability provision are expected to occur over the next 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 ANNUAL REPORT ON FORM 20-F 2017
199
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
Vertu
The Group divested the United Kingdom-based luxury handset business, Vertu, to Crown Bidco Ltd in . In , 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. In July , Crown Bidco and the Group resolved the dispute on terms confidential to the parties and without any
admission of liability on the part of any entity.
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 most of the remaining open cases is expected to occur within the next couple of years.
Asbestos litigation in the United States
The Group is defending approximately asbestos-related matters, at various stages of litigation. 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 , , the Group commenced patent infringement proceedings against Apple in Asia, Europe and the United States.
On May , , the parties settled all pending patent litigation between them, and entered into a patent license and business collaboration
agreement. The Group received an up-front cash payment from Apple, with additional revenues during the term of the agreement.
LG Electronics
In , LG Electronics agreed to take a royalty-bearing smartphone patent license from Nokia Technologies with the royalty payment
obligations subject to commercial arbitration. In September , the International Court of Arbitration of the International Chamber
of Commerce issued its award for that arbitration between the Group and LG Electronics. The parties have since reached an agreement
on a license for a longer term than was set out in the arbitration.
200
NOKIA ANNUAL REPORT ON FORM 20-F 2017
30. Commitments and contingencies
Contractual obligations
Payments due for contractual obligations as of December , by due date:
EURm
Purchase obligations(1)
Operating leases(2)
Total
Within 1 year
1 983
255
2 238
1 to 3 years
471
335
806
4 to 5 years
67
185
252
More than 5 years
5
186
191
(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
Other guarantees
Financing commitments
Customer finance commitments(2)
Financing commitments to associated companies
Venture fund commitments(3)
2017
5
1 678
487
–
27
495
20
396
Total
2 526
961
3 487
2016
5
1 805
794
11
135
223
–
525
(1) In contingent liabilities on behalf of Group companies, the Group reports guarantees that have been given 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. Additionally, the Group has issued corporate guarantees with primary obligation given directly to customers with these guarantees amounting to EUR 1 114
million (EUR 1 608 million in 2016). 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) In 2016, Nokia Growth Partners announced the closing of a new USD 350 million fund for investments in Internet of Things companies. The fund is sponsored by the Group 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 ANNUAL REPORT ON FORM 20-F 2017
201
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(2)
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 expense/(benefit)
Gain on the sale of businesses
Other income and expenses
Total
Change in net working capital
(Increase)/decrease in receivables
(Increase)/decrease in inventories
Increase/(decrease) in interest-free liabilities
Total
2017
2016
2015
1 591
92
244
522
(121)
–
(11)
402
937
(5)
(68)
3 583
(421)
(296)
1 314
597
1 594
113
125
751
(82)
27
(18)
308
(429)
(14)
32
2 407
18
533
(2 758)
( )
320
49
11
48
(132)
61
(29)
211
338
(1 178)
40
()
(728)
341
(990)
( )
(1) Includes Continuing and Discontinued operations. Refer to Note 6, Disposals treated as Discontinued operations.
(2) Adjustments represent the non-cash portion of the restructuring charges recognized in the consolidated income statement.
The Group did not engage in any material non-cash investing or financing activities in . In , the purchase consideration in relation to
the acquisition of Alcatel Lucent comprised the issuance of new Nokia shares in addition to cash payments. Refer to Note , Acquisitions. In
, the Group exercised its option to redeem EUR 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.
202
NOKIA ANNUAL REPORT ON FORM 20-F 2017
32. Principal Group companies
The Group’s significant subsidiaries as of December , :
Company name
Nokia Solutions and Networks B.V.
Nokia Solutions and Networks Oy
Nokia of America Corporation(1)
Nokia Solutions and Networks India
Private Limited
Nokia Solutions and Networks System
Technology (Beijing) Co., Ltd.
Nokia Technologies Oy
Nokia Bell NV
Alcatel-Lucent Participations SA
Alcatel-Lucent Canada Inc.
Nokia Shanghai Bell Co., Ltd(2)(4)
Nokia Solutions and Networks Branch
Country of incorporation
and place of business
The Hague, Netherlands
Helsinki, Finland
Delaware, USA
Primary nature of business
Holding company
Sales and manufacturing company
Sales company
Parent
holding
%
–
–
Group ownership
interest
%
100.0
100.0
100.0
New Delhi, India
Sales and manufacturing company
–
100.0
Beijing, China
Helsinki, Finland
Antwerp, Belgium
Nozay, France
Ottawa, Canada
Shanghai, China
Sales company
Sales and development company
Sales company
Holding company
Sales company
Sales and manufacturing company
Operations Oy
Helsinki, Finland
Sales company
Sales company
Nokia Solutions and Networks Japan Corporation Tokyo, Japan
Sales and manufacturing company
Nozay, France
Alcatel Submarine Networks SAS
Sales company
Madrid, Spain
Nokia Spain, S.A.
Sales company
Milan, Italy
Alcatel-Lucent Italia S.p.A.
Alcatel Lucent SAS(3)
Holding company
Nozay, France
Sales company
Bristol, UK
Nokia UK Limited
Sales company
Taipei, Taiwan
Nokia Solutions and Networks Taiwan Co., Ltd.
Sales company
Munich, Germany
Nokia Solutions and Networks GmbH & Co. KG
Nozay, France
Alcatel-Lucent International SAS
Sales company
New South Wales, Australia Sales company
Nokia Services Limited
Haarlem, Netherlands
Nokia Finance International B.V.
Holding company
–
100.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100.0
100.0
100.0
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
100.0
100.0
100.0
(1) Alcatel-Lucent USA Inc. was renamed as Nokia of America Corporation, effective January 1, 2018.
(2) Alcatel-Lucent Shanghai Bell Co., Ltd. was renamed as Nokia Shanghai Bell Co., Ltd., effective June 1, 2017.
(3) Company form of Alcatel Lucent SA was changed to Alcatel Lucent SAS, effective February 28, 2017.
(4) The Group owns 50% plus one share in Nokia 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
203
Financial statements
Notes to consolidated financial statements
continued
33. Significant partly-owned subsidiaries
As part of the acquisition of Alcatel Lucent on January
Shanghai Bell Co., Ltd. On May , , the Group announced the signing of definitive agreements with the China Huaxin Post &
Telecommunication Economy Development Center ("China Huaxin") related to the integration of Alcatel-Lucent Shanghai Bell Co,. Ltd.
and the Group's China business into a new joint venture branded as Nokia Shanghai Bell.
, , the Group acquired a partly-owned consolidated subsidiary, Alcatel-Lucent
As part of the definitive agreements, the Group transferred it’s China business and subsidiaries to Nokia Shanghai Bell in exchange for a cash
payment. As the transfer of the Group’s China business consisted of a transaction between two Group subsidiaries, all gains or losses that
arose from the transaction were fully eliminated within the Group’s consolidated financial statements. Further, the transfer of cash from
Nokia Shanghai Bell to the wholly-owned parent entity of the Group’s China business did not impact the cash nor net cash balances in the
Group’s consolidated financial statements.
On July , , the Group and China Huaxin commenced operations of the new Nokia Shanghai Bell joint venture. The Group holds an
ownership interest of % plus one share in the Nokia Shanghai Bell’s parent company, Nokia Shanghai Bell Co., Ltd., with China Huaxin
holding the remaining ownership interests. The definitive agreements provide China Huaxin with the right to fully transfer its ownership
interest in Nokia Shanghai Bell to the Group and the Group with the right to purchase China Huaxin’s ownership interest in Nokia Shanghai Bell
in exchange for a future cash settlement. As a result, the Group derecognised the non-controlling interest balance related to Nokia Shanghai
Bell of EUR million partly offset by the recognition of a related financial liability of EUR million with the difference of EUR million
recorded as a gain within retained earnings as a transaction with the non-controlling interest.
The financial liability is measured based on the present value of the expected future cash settlement to acquire the non-controlling interest
in Nokia Shanghai Bell. In , an interest expense of EUR million was recorded to reflect the recognition of the present value discount
on the financial liability. The Group decreased the value of the financial liability in to reflect a change in estimate of the future cash
settlement resulting in the recognition of a EUR million gain in financial income and expenses in the consolidated income statement.
Financial information for the Nokia Shanghai Bell Group():
EURm
Summarized income statement
Net sales(2)
Operating profit/(loss)
Profit/(loss) for the year
Profit/(loss) for the year attributable to:
Equity holders of the parent
Non-controlling interests(3)
Summarized statement of financial position
Non-current assets
Non-current liabilities
Non-current net assets
Current assets(4)
Current liabilities
Current net assets
Net assets()
Non-controlling interests(6)
Summarized statement of cash flows
Net cash from/(used in) operating activities
Net cash (used in)/from investing activities
Net cash used in financing activities
Net decrease in cash and cash equivalents
2017
2016
2 276
83
52
15
37
589
(130)
459
3 888
(2 765)
1 123
1 582
–
438
(184)
(442)
()
1 806
(136)
(89)
(45)
(45)
424
(128)
296
2 841
(1 657)
1 184
1 480
775
(182)
89
(24)
()
(1) Financial information in 2017 is not fully comparable to financial information in 2016: the new Nokia Shanghai Bell joint venture commenced operations on July 3, 2017 and includes, in addition to the
Alcatel Lucent Shanghai Bell Group entities previously reported as material partly-owned subsidiaries, the Group’s China business, which were previously fully owned subsidiaries. Financial information
for the Nokia 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 Nokia Shanghai Bell Group.
(2) Includes EUR 328 million (EUR 483 million in 2016) net sales to other Group entities.
(3) In 2017, profit for the year is attributed to non-controlling interests until July 3, 2017.
(4) Includes a total of EUR 1 001 million (EUR 1 284 million in 2016) of cash and cash equivalents and available-for-sale investments, liquid assets.
(5) The distribution of the profits of Nokia 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.
(6) In 2017, the non-controlling interest balance was derecognized and partially offset by the recognition of the related financial liability of EUR 737 million.
204
NOKIA ANNUAL REPORT ON FORM 20-F 2017
34. Investments in associated companies and joint ventures
EURm
Net carrying amount as of January 1
Translation differences
Acquisitions through business combinations
Additions
Disposals
Share of results
Dividends
Net carrying amount as of December 31
2017
116
(8)
1
9
‒
11
(1)
128
2016
84
(1)
20
‒
(4)
18
(1)
116
Shareholdings in associated companies and joint ventures comprise investments in unlisted companies.
35. Related party transactions
The Group has related party transactions wi
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 , Significant accounting policies, and Note , Principal Group companies.
th a pension fund, associated companies, joint ventures and other entities where the Group has
Transactions with pension fund
The Group has borrowings of EUR million (EUR million in ) from Nokia Unterstützungsgesellschaft mbH, the Group’s German
pension fund, a separate legal entity. The loan bears interest at the rate of % 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 -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
2017
11
1
128
117
(252)
41
(19)
2016
18
1
116
62
(322)
13
(38)
2015
29
2
84
(1)
(233)
–
(37)
The Group has financial commitments of EUR million (guaranteed a loan of EUR million in ) for an associated company.
Management compensation
Compensation information for the President and CEO:
EUR
Base salary/fee
Cash incentive payments
Share-based payment expenses(1)
Pension expenses
Total
2017
1 050 000
997 369
2 606 613
338 787
4 992 769
2016
1 049 044
780 357
5 296 960
469 737
7 596 098
2015
1 000 000
1 922 195
4 604 622
491 641
8 018 458
(1) Represents the expense for all outstanding equity grants recorded during the year.
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
Termination benefits(2)
Total
2017
22
1
7
4
34
2016
26
1
15
1
43
(1) The members of the Group Leadership Team participate in the local retirement programs applicable to employees in the country where they reside.
(2) Includes both termination payments and payments made under exceptional contractual arrangements for lapsed equity awards.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
2015
9
1
9
3
22
205
Financial statements
Notes to consolidated financial statements
continued
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
Olivier Piou, Vice Chair(3)
Vivek Badrinath
Bruce Brown(4)
Jeanette Horan(5)
Elisabeth Doherty
Louis R. Hughes(6)
Simon Jiang
Jouko Karvinen
Edward Kozel(7)
Jean C. Monty(8)
Elizabeth Nelson(9)
Carla Smits-Nusteling(10)
Kari Stadigh(11)
Total
2017
2016
2015
Gross annual
fee(1)
EUR
440 000
199 000
–
209 000
175 000
–
194 000
–
–
175 000
174 000
207 000
195 000
170 000
2 138 000
Shares
received(2)
number
30 497
12 823
–
13 169
12 129
–
12 129
–
–
12 129
11 090
13 169
12 129
11 090
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(2)
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(2)
number
29 339
–
9 333
10 333
–
9 333
–
8 666
11 667
–
–
9 333
–
8 666
(1) The meeting fees for the term that ended at the close of the Annual General meeting in 2017 were paid in cash in 2017 and are included in the table. The meeting fees for the current term as
resolved by the Annual General Meeting in 2017 will be paid in cash in 2018 and are not included in the table.
(2) 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.
(3) Consists of EUR 185 000 for services as the Vice Chair of the Board and meeting fees of EUR 14 000.
(4) Consists of EUR 160 000 for services as a member of the Board and EUR 30 000 for services as a Chair of the Personnel Committee and meeting fees of EUR 19 000.
(5) Consists of EUR 160 000 for services as a member of the Board and EUR 15 000 for services as member of the Audit Committee.
(6) Consists of EUR 160 000 for services as a member of the Board and EUR 15 000 for services as member of the Audit Committee and meeting fees of EUR 19 000.
(7) 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.
(8) Consists of EUR 160 000 for services as a member of the Board and meeting fees of EUR 14 000.
(9) Consists of EUR 160 000 for services as a member of the Board and EUR 30 000 for services as a Chair of the Audit Committee and meeting fees of EUR 17 000.
(10) 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 and meeting fees of EUR 20 000.
(11) Consists of EUR 160 000 for services as a member of the Board and meeting fees of EUR 10 000.
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 , or .
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 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 months of compensation and cash payment of the pro-rated
value of his outstanding unvested equity awards, if he is dismissed within months of the change in control event.
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.
206
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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 are as follows:
EURm
USD
JPY
CNY
INR
2017
Foreign exchange derivatives used as cash flow hedges, net(1)
ed as fair value hedges, net(2)
Foreign exchange derivatives us
Foreign exchange derivatives used
Foreign exchange exposure from statem
Foreign exchange derivatives
as net investment hedges, net(3)
ent of financial position items, net
not designated in a hedge relationship, carried at fair
value through profit and loss, net(4)
Cross-currency/interest rate hedges
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
(803)
(84)
(2 839)
(3 365)
1 777
1 377
–
(397)
(1 418)
(2 172)
1 747
1 051
(230)
–
–
196
(411)
–
(158)
–
–
434
(174)
(328)
–
–
(728)
(765)
577
–
–
–
–
(227)
(587)
–
–
–
(403)
(352)
446
–
–
–
(104)
(236)
104
–
(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.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
207
Financial statements
Notes to consolidated financial statements
continued
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 % 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 % of possible outcomes. In the remaining % 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 % 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 , Financial Instruments: Disclosures, and thus not included in the VaR calculation.
EURm
As of December 31
Average for the year
Range for the year
2017
2016
VaR from financial instruments
144
205
144–267
83
111
73–149
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 :
EURm
Assets
Liabilities
Assets and liabilities before derivatives
Interest rate derivatives
Assets and liabilities after derivatives
2017
2016
Fixed rate
889
(3 637)
( )
1 371
( )
Floating rate
(1)
7 581
(57)
7 524
(1 371)
6 153
Fixed rate
2 107
(3 845)
( )
1 358
()
Floating rate
(1)
7 410
(113)
7 297
(1 328)
5 969
(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.
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
126
(67)
2017
Impact
on profit
2
(1)
Impact
on OCI
(1)
–
Impact on
fair value
181
(99)
2016
Impact
on profit
(3)
2
Impact
on OCI
(2)
1
208
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Equity price risk
In and , the Group did not have exposure to equity price risk from publicly listed equity shares as it does not have significant
investments. The private funds where the Group has investments are investing primarily in private equity and may, from time to time,
have investments also in public equity. Such investments have not been included in this disclosure.
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
Loan commitments given but not used
Outstanding customer finance loans(1)
Total
2017
495
160
655
2016
223
129
352
(1) Includes acquired customer loans on a fair value basis. Excludes EUR 33 million (EUR 33 million in 2016) which are considered to be uncollectible and have been provisioned.
Business-related credit risk
The Group aims to ensure the highest possible quality in accounts receivable as well as customer- or third party loan receivables. The Credit
Risk Management Standard Operating Procedure, approved by the Group CFO, lays out the framework for the management of the business-
related credit risks. The Credit Risk Management Standard Operating Procedure sets out that credit decisions are based on credit evaluation
in each business, including credit rating and limits for larger exposures, according to defined principles. Group level limit approvals are
required for material credit exposures. Credit risks are monitored in each business and, where appropriate, mitigated on case by case basis
with the use of letters of credit, collaterals, sponsor guarantees, credit insurance, and sale of selected receivables.
Credit exposure is measured as the total of accounts receivable and loans outstanding 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
.%, .% and .% (.%, .% and .% in ) of accounts receivable and loans due from customers and other third parties as of
December , . The top three credit exposures by country account for approximately .%, .% and .% (.%, .% and
.% in ) of the Group’s accounts receivable and loans due from customers and other third parties as of December , .
The .% credit exposure relates to accounts receivable in China (.% in ).
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 million (EUR million in ). The gross carrying amount of accounts receivable, related to customer balances for which
valuation allowances have been recognized, is EUR million (EUR million in ). The allowances for doubtful accounts for these
accounts receivable as well as amounts expected to be uncollectible for acquired receivables are EUR million (EUR million in ).
Aging of past due receivables not considered to be impaired as of December :
EURm
Past due 1–30 days
Past due 31–180 days
More than 180 days
Total
2017
67
94
117
278
2016
102
141
223
466
NOKIA ANNUAL REPORT ON FORM 20-F 2017
209
Financial statements
Notes to consolidated financial statements
continued
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 :
EURm
2017
Banks
Governments
Other
Total
2016
Banks
Governments
Other
Total
Rating(1)
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)
Aaa
Aa1-Aa3
A1-A3
Baa1-Baa3
Ba1-B3
Non-rated
A1-A3
Aa1-Aa3
A1-A3
Aaa
Aa1-Aa3
A1-A3
Baa1-Baa3
Ba1-Ba3
Non rated
A1-A3
Aa1-Aa3
A1-A3
Baa1-Baa3
607
398
1 808
455
35
38
1
24
10
3 376
1 054
410
1 405
893
15
42
–
45
52
6
3 922
–
74
247
232
–
–
2
10
53
618
–
201
211
728
–
–
–
30
61
13
1 244
–
69
240
125
2
–
–
39
78
553
–
35
387
–
–
–
274
1
13
5
715
–
–
191
–
–
–
–
–
–
191
–
–
116
–
–
–
53
–
–
–
169
–
–
45
–
–
–
–
–
–
45
–
–
–
–
–
–
–
–
–
–
–
607
541
2 531
812
37
38
3
73
141
4 783
1 054
646
2 119
1 621
15
42
327
76
126
24
6 050
(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 701 million (EUR 566 million in 2016)
of instruments that have a call period of less than 3 months.
(4) Includes EUR 5 million of restricted investments (EUR 5 million in 2016) within fixed income and money-market investments. These are restricted financial assets under various contractual
or legal obligations.
210
NOKIA ANNUAL REPORT ON FORM 20-F 2017
% (% in ) of the Group’s cash at bank of EUR million (EUR million in ) is held with banks of investment grade
credit rating.
Financial assets and liabilities subject to offsetting under enforceable master netting agreements and similar arrangements as of
December :
EURm
2017
Derivative assets
Derivative liabilities
Total
2016
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
197
(268)
()
235
(236)
()
–
–
–
–
–
–
197
(268)
()
235
(236)
()
135
(145)
()
153
(128)
25
38
(100)
()
73
(96)
()
24
(23)
1
9
(12)
()
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 , committed revolving credit facilities totaled EUR million (EUR million
in ).
Significant current long-term funding programs as of December , :
Issuer:
Nokia Corporation
Program:
Euro Medium-Term Note Program, totaling EUR 5 000 million
Significant current short-term funding programs as of December , :
Issuer:
Nokia Corporation
Program:
Local commercial paper program in Finland, totaling EUR 750 million
Issued
1 250
Issued
NOKIA ANNUAL REPORT ON FORM 20-F 2017
211
Financial statements
Notes to consolidated financial statements
continued
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.
EURm
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
2017
Non-current financial assets
Long-term loans receivable
Current financial assets
Short-term loans receivable
Available-for-sale investments, including cash equivalents
Bank and cash
Cash flows related to derivative
financial assets gross settled:
(1)
Derivative contracts
Derivative contracts
(2)
—receipts
—payments
Accounts receivable
Non-current financial liabilities
Long-term interest-bearing liabilities
Other long-term liabilities
Current financial liabilities
Short-term borrowings
Cash flows related to derivative financial liabilities gross
settled:
Derivative contracts
Derivative contracts
—receipts
—payments
Accounts payable
Contingent financial assets and liabilities
Loan commitments given undrawn
Loan commitments obtained undrawn
(4)
(3)
112
21
92
4 797
3 497
6
3 381
3 497
–
86
621
–
11 484
( )
5 633
10 249
(10 108)
4 297
1 235
(1 222)
1 208
77
–
558
–
–
–
107
4
–
192
–
–
–
21
10
–
45
–
–
–
–
( )
()
(44)
–
(95)
–
(938)
(748)
(1 098)
–
(2 482)
(6)
()
(215)
(98)
–
–
–
10 278
( )
( )
()
1 566
8 265
(8 366)
(3 731)
(71)
(1)
280
(243)
(251)
(172)
(3)
573
(568)
(9)
(174)
1 570
486
(467)
(3)
(78)
–
674
(601)
(2)
–
–
(1) Instruments that include a call feature have been presented at their final maturities, if any. Instruments that are contrac
tually due beyond 3 months include EUR 701 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 1 247 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.
212
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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:
Derivative contracts ̶ receipts
Cash flows related to derivative financial assets
gross 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
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)
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
150
–
2
62
326
5 753
3 276
32
–
3 935
3 276
28
1
1 248
–
42
18
(6)
86
2
272
453
–
30
32
–
53
117
–
–
13
(5)
5
30
–
–
–
–
–
205
(131)
–
6 473
(6 404)
4 430
492
(440)
1 354
1 038
(962)
106
8 221
( )
5 895
( )
(85)
(140)
(1 955)
(269)
(3 358)
()
(255)
(116)
(1)
–
8 948
( )
( )
()
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 included EUR 566 million of instruments that have
a call period of less than 3 months in 2016.
(2) Accounts receivable maturity analysis did 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 ANNUAL REPORT ON FORM 20-F 2017
213
Financial statements
Report of independent registered
public accounting firm
To the Board of Directors and shareholders
of Nokia Corporation
Opinions on the financial statements and internal control
over financial reporting
We have audited the accompanying consolidated statement of
financial position of Nokia Corporation and its subsidiaries as of
December 31, 2017 and 2016, and the related consolidated income
statement, consolidated statement of comprehensive income,
consolidated statement of changes in shareholders’ equity and
consolidated statement of cash flows for each of the three years in
the period ended December 31, 2017, including the related notes
(collectively referred to as the “consolidated financial statements”).
We also have audited the Company’s internal control over financial
reporting as of December 31, 2017, based on criteria established
in Internal Control—Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”).
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of the Company as of December 31, 2017 and 2016, and the results
of their operations and their cash flows for each of the three years in
the period ended December 31, 2017 in conformity with International
Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board and as adopted by the European Union.
Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31,
2017, based on criteria established in Internal Control—Integrated
Framework (2013) issued by the COSO.
Basis for opinions
The Company’s management is responsible for these consolidated
financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting, included in “Management’s
Annual Report on Internal Control over Financial Reporting” appearing
under Item 15 of the Annual Report on Form 20-F for the fiscal year
ended December 31, 2017. Our responsibility is to express opinions
on the Company’s consolidated financial statements and on the
Company’s internal control over financial reporting based on our
audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether
due to error or fraud, and whether effective internal control over
financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included
performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error
or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis
for our opinions.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
/s/ PricewaterhouseCoopers Oy
Helsinki, Finland
March 22, 2018
We have served as the Company’s auditor since 1987.
214
NOKIA ANNUAL REPORT ON FORM 20-F 2017
Other information
Contents
Exhibits
Glossary of terms
Investor information
Contact information
Signatures
216
217
220
221
222
NOKIA ANNUAL REPORT ON FORM 20-F 2017
215
Other information Exhibits
1
6
8
Articles of Association of Nokia Corporation (incorporated by reference to Exhibit 1
of our annual report on Form 20-F filed with the Securities and Exchange Commission
on March 23, 2017 (File No. 1-13202)).
Refer to Note 13, Earnings per share, of our consolidated financial statements included
in this annual report on Form 20 F, for information on how earnings per share information
was calculated.
Refer to Note 32, Principal Group companies, of our consolidated financial statements
included in this annual report on Form 20 F, for more information on our significant
subsidiaries.
12.1
Certification of Rajeev Suri, President and Chief Executive Officer of Nokia Corporation,
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2
Certification of Kristian Pullola, Group Chief Financial Officer of Nokia Corporation,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13
Certification, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
15(a) Consent of Independent Registered Public Accounting Firm.
101
Interactive Data Files (XBRL – Related Documents).
216
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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. 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.
5G FIRST: Nokia’s end-to-end 5G solution that incorporates AirScale
and AirFrame technology, including AirScale massive MIMO Adaptive
Antenna, Cloud Packet Core and mobile transport to bring new
capabilities to operators.
Access network: A telecommunications network between a local
exchange and the subscriber station.
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.
Altiplano: Nokia’s cloud-native software platform, Altiplano, is
uniquely designed for the SDN/NFV space, renewing operators’ ability
to scale by centralizing and virtualizing network functionality that
was traditionally embedded in the access equipment. Altiplano offers
intuitive business logic to cut across traditional network management
silos and auto-align the network. Leveraging open interfaces, open
data models and open industry initiatives, Altiplano allows operators
to integrate Nokia SDAN easily in a multivendor environment.
API (Application Programming Interface): A set of routines, protocols,
and tools for building software applications, specifying how software
components should interact.
AVA: Nokia AVA cognitive services platform that integrates
cloud-based delivery, intelligent analytics and extreme automation
to deliver instant and flawless personalized services.
Bandwidth: The width of a communication channel, which affects
transmission speeds over that channel.
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.
BSS (Business Support Systems): The components that a
telecommunications service provider uses to run its business
operations towards customers.
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 2017 included two businesses: our Networks business and
Nokia Technologies.
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: Communications 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.
DevOps: An agile software engineering culture and practice that aims
at unifying software development (Dev) and software operation (Ops).
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.
Engine: Hardware and software that perform essential core functions
for telecommunication or application tasks.
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Other information Glossary of terms continued
EPON: Ethernet Passive Optical Network.
ETSI (European Telecommunications Standards Institute): Standards
produced by the ETSI contain technical specifications laying down the
characteristics required for a telecommunications product.
Fixed Networks: Our Fixed Networks business group provides copper
and fiber access products, solutions, and services.
FP4: Nokia FP4 is the world’s first 2.4 Tb/s network processor. It builds
on three generations of Nokia’s leading-edge network processors
and sets a new standard in IP routing silicon design.
Future X: A network architecture—a massively distributed, cognitive,
continuously adaptive, learning and optimizing network connecting
humans, senses, things, systems, infrastructure, processes.
Gainspeed: California-based start-up specializing in Distributed
Access Architecture solutions for the cable industry. Acquired by
Nokia in 2016.
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: Our Global Services business group 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.
Internet Protocol (IP): Principal communications protocol in the
Internet protocol suite for relaying packets across network boundaries.
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.
IP Multimedia Subsystem (IMS): Architectural framework designed
to deliver IP-based multimedia services on telecommunications
networks; standardized by 3GPP.
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.
Lightspan: The Nokia Lightspan family delivers programmable
access nodes, specifically designed for SDAN use cases, which bring
data center practices to the central office and introduce cloud and
operational agility to the copper/fiber outside plant. The innovative
and compact Lightspan hardware comes with powerful processing,
increased throughput and power-efficient design. It features the
Lightspan SX-16F, the world’s first 16-port reverse-powered G.fast
micro-node which can be safely reverse-powered from the home.
It also includes the Lightspan CF-24W, a stackable software-defined
optical line terminal (OLT) that delivers the industry’s highest
next-generation PON (NG-PON) capacity in a single one-rack unit.
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%.
MIKA: Multi-purpose Intuitive Knowledge Assistant, a customized
digital assistant, powered by the Nokia AVA cognitive services platform,
that improves telecom operators’ efficiency by providing engineers
faster access to critical information.
MIMO: Multiple-input and multiple-output, or MIMO, is a method for
multiplying the capacity of a radio link using multiple transmit and
receive antennas.
Mobile broadband: Refers to high-speed wireless internet connections
and services designed to be used from arbitrary locations.
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,
Global Services, Nokia Software, and IP/Optical Networks business
groups in 2017.
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 Software: 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. On February 1,
2018, we announced that we would rename our Applications &
Analytics business group as Nokia Software.
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.
Nokia Technologies: Our business group focused on advanced
technology development and licensing.
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NOKIA ANNUAL REPORT ON FORM 20-F 2017
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.
Operational Support Systems (OSS): Computer systems used by
telecommunications service providers to manage their networks.
They support management functions such as network inventory,
service provisioning, network configuration and fault management.
OZO: Our professional Virtual Reality camera, crafted by Nokia
Technologies, that is no longer in production.
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.
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.
Platform: Software platform is a term used to refer to an operating
system or programming environment, or a combination of the two.
Transmission: The action of conveying signals from one point to one
or more other points.
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.
SDAN: Software Defined Access Network
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.
SD-WAN: Software-defined networking in a wide area network (WAN).
An SD-WAN simplifies the management and operation of a WAN by
decoupling the networking hardware from its control mechanism.
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.
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.
vDAA: Virtualized Distributed Access Architecture.
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.
NOKIA ANNUAL REPORT ON FORM 20-F 2017
219
Other information 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
and 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 30, 2018
Date:
Place:
Helsinki, Finland
Dividend
The Board proposes to the Annual General Meeting a dividend
of EUR 0.19 per share for the year 2017.
Financial reporting
Our interim reports in 2018 are planned to be published on April 26,
2018, July 26, 2018 and October 25, 2018. The full-year 2018 results
are planned to be published in February 2019.
Information published in 2017
All our global press releases and statements published in 2017
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
Documents on display
The documents referred to in this annual report on Form 20-F can be
read at the Securities and Exchange Commission’s public reference
facilities at 100 F Street, N.E., Room 1580, Washington, D.C. 20549.
220
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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
NOKIA ANNUAL REPORT ON FORM 20-F 2017
221
Other information Signatures
The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on Form 20-F on its behalf.
Nokia Corporation
By:
Name:
Title:
/S/ TARJA SIPILÄ
Tarja Sipilä
Vice President, Corporate Controller
By:
Name:
Title:
/S/ JUSSI KOSKINEN
Jussi Koskinen
Vice President, Corporate Legal
March 22, 2018
222
NOKIA ANNUAL REPORT ON FORM 20-F 2017
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