Nokia Annual Report on Form 20-F 2018
Creating the technology
to connect the world
As filed with the Securities and Exchange Commission on March 21, 2019
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, 2018
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)
Esa Niinimäki, 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: None
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: 5 635 945 159.
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 every Interactive Data File required
to be submitted 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 such files).
Yes
No
Yes
No
Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”
“accelerated filer”, “smaller reporting company” or “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
Emerging growth company
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
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
ITEM 1
ITEM 2
ITEM 3
IDENTITY OF DIRECTORS, SENIOR
MANAGEMENT AND ADVISERS
OFFER STATISTICS AND EXPECTED
TIMETABLE
KEY INFORMATION
3A Selected Financial Data
3B Capitalization and Indebtedness
3C Reasons for the Offer and Use
of Proceeds
3D Risk Factors
ITEM 4
INFORMATION ON THE COMPANY
4A History and Development of
the Company
4B Business Overview
4C Organizational Structure
4D Property, Plants and Equipment
4A UNRESOLVED STAFF COMMENTS
ITEM 5
OPERATING AND FINANCIAL REVIEW
AND PROSPECTS
5A Operating Results
5B Liquidity and Capital Resources
5C Research and Development,
Patents and Licenses
5D Trends Information
Section in Document
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—Significant subsequent events; Financial statements—Notes to consolidated
financial statements—Note 5, Segment information; Financial statements—Notes to consolidated
financial statements—Note 6, Acquisitions and disposals; Other information—Investor information
Business overview; Operating and financial review and prospects—Principal industry trends affecting
operations; Financial statements—Notes to consolidated financial statements—Note 5, Segment
information; General facts on Nokia—Government regulation
Business overview—We create the technology to connect the world; Financial statements—Notes to
consolidated financial statements—Note 5, Segment information; Financial statements—Notes to
consolidated financial statements—Note 32, Principal Group companies; Financial statements—Notes to
consolidated financial statements—Note 1,
Corporate information
Business overview; Financial statements—Notes to consolidated financial statements—Note 2,
Significant accounting policies; Financial statements—Notes to consolidated financial statements—
Note 7, Discontinued operations; Financial statements—Notes to consolidated financial statements—
Note 16, Property, plant and equipment; General facts on Nokia—Production of infrastructure
equipment and products
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, Financial 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,
Financial 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
5F
Tabular Disclosure of Contractual
Obligations
5G Safe Harbor
ITEM 6
DIRECTORS, SENIOR MANAGEMENT
AND EMPLOYEES
Arrangements; Financial statements—Notes to consolidated financial statements—Note 36, Financial
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
6A Directors and Senior Management Corporate governance—Corporate governance statement
6B Compensation
6C Board Practices
6D Employees
6E
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 Governance; Financial statements—Notes to consolidated financial statements—Note 35,
Related party transactions
Operating and financial review and prospects—Sustainability and corporate responsibility
Corporate governance—Compensation—Remuneration Report; Corporate governance—Corporate
governance statement—Share ownership of the Board of Directors and the Nokia Group Leadership Team;
Financial statements—Notes to consolidated financial statements—Note 26, Share-based payment
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Form 20-F
Item Number Form 20-F Heading
ITEM 7
MAJOR SHAREHOLDERS AND
RELATED PARTY TRANSACTIONS
7A Major Shareholders
7B Related Party Transactions
7C Interests of Experts and Counsel
FINANCIAL INFORMATION
8A Consolidated Statements and
ITEM 8
Other Financial Information
8B Significant Changes
ITEM 9
THE OFFER AND LISTING
9A Offer and Listing Details
9B Plan of Distribution
9C Markets
9D Selling Shareholders
9E Dilution
9F
Expenses of the Issue
ITEM 10 ADDITIONAL INFORMATION
10A Share capital
10B Memorandum and Articles
of Association
10C Material Contracts
10D Exchange Controls
10E Taxation
10F Dividends and Paying Agents
10G Statement by Experts
10H Documents on Display
10I Subsidiary Information
ITEM 11 QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
ITEM 12 DESCRIPTION OF SECURITIES
OTHER THAN EQUITY SECURITIES
12A Debt Securities
12B Warrants and Rights
12C Other Securities
12D American Depositary Shares
ITEM 13 DEFAULTS, DIVIDEND ARREARAGES
AND DELINQUENCIES
Section in Document
General facts on Nokia—Shares, —Shareholders
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; Financial statements—Notes to consolidated financial statements—
Note 29, Provisions
Operating and financial review and prospects—Significant subsequent events
General facts on Nokia—Shares, —Shareholders, Other information—Investor information—Stock exchanges
N/A
General facts on Nokia—Shares, —Shareholders; Financial statements—Notes to consolidated financial
statements—Note 1, Corporate information; Investor information; Other information—Investor
information—Stock exchanges
N/A
N/A
N/A
N/A
General facts on Nokia—Memorandum and Articles of Association; Other information—Exhibits
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
Operating and financial review and prospects—Principal industry trends affecting operations; Financial
statements—Notes to consolidated financial statements—Note 36, Financial risk management,
—Note 22, Other comprehensive income
N/A
N/A
N/A
General facts on Nokia—American Depositary Shares; Introduction and use of certain terms
None
ITEM 14 MATERIAL MODIFICATIONS TO
None
THE RIGHTS OF SECURITY
HOLDERS AND USE OF PROCEEDS
ITEM 15 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
16E PURCHASES OF EQUITY SECURITIES
BY THE ISSUER AND AFFILIATED
PURCHASERS
16F CHANGE IN REGISTRANT’S
CERTIFYING ACCOUNTANT
16G CORPORATE GOVERNANCE
16H MINE SAFETY DISCLOSURE
ITEM 17 FINANCIAL STATEMENTS
ITEM 18 FINANCIAL STATEMENTS
ITEM 19 EXHIBITS
NOKIA ANNUAL REPORT ON FORM 20-F 2018
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; Operating and financial review and prospects—Sustainability and corporate responsibility
Corporate governance—Corporate governance statement—Auditor fees and services, Corporate
governance—Corporate governance statement—Audit Committee pre-approval policies and procedures
None
Corporate Governance—Compensation
None
Corporate governance—Corporate governance statement—Regulatory framework
None
N/A
Financial Statements
Other information—Exhibits
Forward-looking statements
These statements are based on
management’s best assumptions and beliefs
in light of the information currently available
to it and are subject to a number of risks and
uncertainties, many of which are beyond our
control, which could cause actual results to
differ materially from such statements. These
statements are only predictions based upon
our current expectations and views of future
events and developments and are subject to
risks and uncertainties that are difficult to
predict because they relate to events and
depend on circumstances that will occur
in the future. Risks and uncertainties that
could affect these statements include by
are not limited to 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.
G)
any future collaboration or business
collaboration agreements or patent
license agreements or arbitration awards,
including income from any collaboration
or partnership, agreement or award;
H) timing of the development and delivery of
our products and services, including our
short term and longer term expectations
around the deployment of 5G and our
ability to capitalize on such deployment
as well as use our global installed base as
the platform for success in 5G, and the
overall readiness of the 5G ecosystem;
I)
J)
K)
L)
the outcome of pending and threatened
litigation, arbitration, disputes,
regulatory proceedings or investigations
by authorities;
restructurings, investments, capital
structure optimization efforts,
divestments and our ability to achieve the
financial and operational targets set in
connection with any such restructurings,
investments, and capital structure
optimization efforts including our
2019-2020 cost savings program;
future capital expenditures, temporary
incremental expenditures or other R&D
expenditures to develop or rollout new
products, including 5G; and
the sustainability and corporate
responsibility contained in the
sustainability and corporate
responsibility section of this annual
report on Form 20-F.
Certain statements contained in this
Annual Report constitute “forward-looking
statements”. Forward-looking statements
provide Nokia’s current expectations of future
events based on certain assumptions and
include any statement that does not directly
relate to any current or historical fact. The
words “believe”, “expect”, “expectations”,
“anticipate”, “foresee”, “see”, “target”,
“estimate”, “designed”, “aim”, “plan”,
“intend”, “influence”, “assumption”, “focus”,
“continue”, “project”, “should”, “is to”, “will”,
“strive”, “may” or similar expressions as they
relate to us or our management are intended
to identify these forward-looking statements,
as well as statements regarding:
A)
B)
C)
business strategies including the four
pillars of Lead, Expand, Build and Create,
market expansion, growth management,
and future industry trends and
megatrends and our plans to address
them, including Future X;
future performance of our businesses
and any expected future distributions
and dividends;
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;
D) expectations, plans, timelines or benefits
related to changes in our organizational
and operational structure;
E)
F)
market developments in our current and
future markets and their seasonality and
cyclicality, including for communication
service providers, as well as general
economic conditions and future
regulatory developments;
our position in the market, including
product portfolio and geographical reach,
and our ability to use the same to develop
the relevant business or market and
maintain order pipeline over time;
NOKIA ANNUAL REPORT ON FORM 20-F 2018
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.
Introduction and use
of certain terms
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 the
generally accepted accounting principles
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.
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, references to “dollars”,
“U.S. dollars”, “USD” or “$” are to the currency
of the United States, and references to
“Chinese yuan” or “Chinese yuan renminbi”
or “CNY” are to the official currency of the
People’s Republic of China. 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 1.1450 U.S. dollars per euro,
and conversions of selected euro amounts
into Chinese yuan renminbi at specified rates
or, if not specified, at the year-end rate
7.8751 Chinese yuan renminbi per euro. The
referred year-end rates where the European
Central Bank reference rates on December 31,
2018. No representation is made that the
amounts have been, could have been or could
be converted into U.S. dollars or Chinese yuan
at the rates indicated or at any other rates.
Additional terms are defined in the
“Glossary of terms”.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Contents
Business overview
We create the technology
to connect the world
Letter from our President and CEO
Market trends driving
our strategy
Our strategy
Networks business
Mobile Networks
Fixed Networks
Global Services
IP/Optical Networks
Nokia Software
Nokia Enterprise
Nokia Technologies
Nokia Bell Labs
Operating and financial review
and prospects
Principal industry trends
affecting operations
Results of operations
Results of segments
Liquidity and capital resources
Significant subsequent events
Sustainability and corporate
responsibility
Shares and share capital
Risk factors
Corporate governance
Corporate governance statement
Compensation
General facts on Nokia
Our history
Memorandum and Articles
of Association
Selected financial data
Shares
Shareholders
American Depositary Shares
Production of infrastructure
equipment and products
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
Key ratios
Glossary of terms
Investor information
Contact information
Signatures
02
02
04
06
08
10
12
14
16
18
20
22
24
26
28
30
34
40
47
49
50
58
60
76
78
96
112
114
115
117
118
121
123
124
124
125
125
126
129
130
136
204
205
206
207
208
212
213
214
01
We create the technology
to connect the world
We are at the dawn of a new era. Digital
technologies – cloud computing, artificial
intelligence, machine learning, the Internet
of Things and 5G networks – are changing
our world. Nokia is driving innovation and
the future of technology to power this
digital age and transform how people live,
work and communicate.
We push the boundaries of what is possible to create new
ways of connecting people, things and services instantly
and effortlessly. We build upon a foundation of integrity,
quality and security. We help our customers navigate
complex choices, drive productivity gains in physical
and digital industries alike, and unlock new opportunities
that provide extraordinary experiences in people’s lives
each day.
A global technology leader
Net sales 2018 by region
1
2
6
5
4
3
1 Asia-Pacific
2 Europe(1)
3 Greater China
4 Latin America
5 Middle East & Africa
6 North America
EUR 4 081m (-3%)
EUR 6 489m (-5%)
EUR 2 165m (-14%)
EUR 1 380m (+8%)
EUR 1 874m (-2%)
EUR 6 574m (+3%)
Financial highlights
For the year ended December 31,
Continuing operations
Net sales
Gross profit
Gross margin
Operating (loss)/profit
Operating margin
Loss for the year
Earnings per share, diluted
Dividend per share(1)
As of December 31
Net cash and current financial investments
2018
EURm
2017
EURm
23 147
22 563
9 139
8 446
37.4% 39.5%
16
0.1%
(1 437)
(59)
(0.3)%
(549)
EUR
EUR
(0.26)
0.19
(0.10)
0.20
2018
EURm
3 051
Net sales 2018 by business(2)
3
2
C
A
2016
EURm
23 641
8 524
36.1%
(1 100)
(4.7)%
(912)
EUR
(0.13)
0.17
2017
EURm
2016
EURm
4 514
5 299
B
1
(1) Planned maximum annual distribution for 2018 is EUR 0.20 per share to be paid quarterly subject to shareholders’
and the Board of Directors’ approval.
1 Nokia’s Networks business EUR 20 121m (-2%)
A Ultra Broadband
Networks
B Global Services
C IP Networks
EUR 8 692m (-3%)
EUR 5 710m (-2%)
and Applications
EUR 5 719m (0%)
2 Nokia Technologies
EUR 1 501m (-9%)
3 Group Common and Other EUR 1 021m (-8%)
(1) All Nokia Technologies IPR and Licensing net sales are
allocated to Finland.
(2) Includes net sales to other segments.
The figures are derived from our consolidated financial
statements prepared in accordance with IFRS. Year-on-year
change is in parenthesis.
02
NOKIA ANNUAL REPORT ON FORM 20-F 2018
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.
North America
Employees
14 200
Europe
Employees
40 500
Greater China
Employees
17 200
Middle East & Africa
Employees
3 700
Asia-Pacific
Employees
23 100
Latin America
Employees
4 300
Net sales in 2018
Countries of operation
Average number of employees in 2018
EUR 22.6bn
~130
~103 000
We have organized our networks-oriented businesses into six business groups: Mobile Networks, Fixed Networks, Global Services,
IP/Optical Networks, Nokia Software and Nokia Enterprise (together the “Networks business”); and have kept our driver of future
innovation and licensing, Nokia Technologies, as a separate, seventh business group.
Nokia’s Networks business
Nokia Technologies
Mobile Networks
IP/Optical Networks
Global Services
Nokia Technologies
Higher quality and more
reliable mobile broadband
experiences
Massively scalable networks
securely connecting
everyone and everything
to the cloud
Helping customers navigate
through complexity to
transform their business
Technology designed to
bring the human family
closer together
Fixed Networks
Nokia Software
Nokia Enterprise
Using intelligent access to
create networks that are
faster, better, smarter
Intelligent software
platforms optimizing
and automating
network performance
Digitalizing asset-intensive
industries with mission and
business critical needs
For more information on our business performance:
Our strategy
Our businesses
Results of operations
Results of segments
Financial statements
See pages 8–9
See pages10–27
See pages 34–46
See page 129
NOKIA ANNUAL REPORT ON FORM 20-F 2018
03
Business overview Letter from our
President and CEO
Net sales in 2018
EUR 22.6bn
Proposed dividend per share (maximum)
EUR 0.20
“2018 saw the commercial deployment of 5G
move forward in lead countries, and Nokia
was at the forefront of this activity. In 2019
we expect to see more organizations around
the world take their first steps in creating
the infrastructure for the Fourth Industrial
Revolution – and Nokia is ready to be their
trusted partner.”
Financial highlights
Although our performance in 2018 was below
our expectations overall, we exited 2018 with
a strong finish, confirming our expectation
of accelerated sales momentum as the year
progressed. Indeed, we had a strong second
half with every one of our Networks Business
Groups delivering year-on-year growth,
excluding the impact of changes in foreign
currency exchange rates. This drove growth in
Nokia’s net sales for the year of 1%, excluding
the impact of changes in foreign currency
exchange rates.
Our Networks business delivered
approximately 2% growth in 2018, excluding
the impact of changes in foreign currency
exchange rates, fueled by the continued
success of our end-to-end strategy and the
conversion of a healthy pipeline into net sales.
This allowed us to take share in certain
segments of the market, while the overall
market itself declined slightly. High customer
engagement in multiple elements of our
5G portfolio sees us enter 2019 with
a strong Networks order backlog. In Nokia
Technologies, we maintained our strong
growth track record with 11% year-on-year
growth in recurring licensing revenue.
Reflecting this momentum in the year, the
Board of Directors will propose a maximum
dividend of EUR 0.20 per share for 2018: a 5%
increase compared to 2017.
Progress in our strategy
In our first pillar – leading in
high-performance, end-to-end networks
with Communications Service Providers –
we have proven our capabilities as the
commercialization of 5G begins. We proudly
serve as a partner to most of 5G’s
‘first-movers’ with over 25 5G commercial
deals and nearly 100 trials and pilots of the
new technologies.
In our second pillar – expanding network
sales to select vertical markets – we support
a wide and growing range of organizations
as they evaluate how best to digitalize their
operations. Enterprises are increasingly
looking at dedicated networks to enable them
to have full control over networking solutions
that have the characteristics they need for
their business. Today we serve approximately
1 000 customers outside of our traditional
Communications Service Provider base,
bringing connectivity to some of the most
complex, fast-moving industries on earth,
including a number of new automotive, energy
and transportation customers that placed
their trust in our technologies in 2018.
In our third pillar – building a strong
standalone software business at scale – we
see clear signs of our strategy bearing fruit.
Nokia Software is now a truly verticalized
business, driven by a renewed sales
organization, underpinned by simpler
processes and boasting a modern,
cloud-native common software foundation.
The attractiveness of this proposition is borne
out through strong 2018 sales momentum
including wins with AT&T, BT, STC, Sky, Telenor
One Europe and Verizon and the industry
analyst research firm, Analysys Mason, ranked
us the leading telecoms software company
by revenue.
In our fourth pillar – creating new licensing
opportunities – our successes in 2018 with
existing and new licensee customers have
validated our direction for Nokia Technologies.
This year we have extended our patent
licensing agreement with Samsung; signed
a new multi-year patent license agreement
04
NOKIA ANNUAL REPORT ON FORM 20-F 2018
with Chinese smartphone maker OPPO;
and benefitted from continued progress made
by our brand licensee, HMD Global, which
unveiled a range of new products throughout
2018 with production capacity to deliver on
demand. We see further potential in licensing
to smartphone makers and in other markets
which are using our patented inventions, such
as automotive, consumer electronics and IoT
devices such as smart meters.
Accelerating our strategy
Given the considerable momentum of our
strategy, and with the successful Alcatel
Lucent integration and associated cost-saving
program completed, we took steps during
2018 to accelerate the execution of our
strategy and position our business for 5G
leadership. Alongside a new program targeting
EUR 700m in annual cost savings(1) by the
end of 2020, these steps have led to a
number of organizational changes that
further strengthen our ability to deliver
on our 2019 and 2020 guidance.
First, we have created a new Business Group,
Nokia Enterprise, that consolidates a range
of existing, fast-growing activities into one
organization. Led by Kathrin Buvac, Nokia
Enterprise will enhance our ability to capture
higher-growth, higher-margin opportunities
as companies progress with their digital
transformations.
Second, we have tailored Mobile Networks’
operational focus on mobile radio products,
led by Tommi Uitto, and consolidated all our
Cloud Core activities and accountability into
Nokia Software, under the leadership of
Bhaskar Gorti.
We have also realigned Nokia’s
customer-facing organization into two
regional groups, to make sure our customer
focus is as strong as possible. The first group
covers the Americas, led by Ricky Corker.
The second is responsible for Europe, Middle
East & Africa and Asia-Pacific, led by Federico
Guillén who previously led Fixed Networks.
The new President of Fixed Networks,
Sandra Motley, is charged with continuing the
operational discipline of the Business Group
while capturing new market opportunities
for its portfolio.
These changes have strengthened our
organization, sharpened our focus, and
added strong capabilities to Nokia’s Group
Leadership Team.
The 5G investment cycle
From the first trials to the first roll-outs,
2018 was the year in which 5G became a
commercial reality. It is my firm belief that
we now stand at the start of a meaningful,
long-term technology trend that bodes
uniquely well for Nokia.
5G will power networks that connect sensors,
machines, platforms, systems and people
in one seamless, automated ‘whole’. This
fundamental shift in network design will
require several different stages of investment,
each of which leads naturally to the next.
Nokia’s unique, end-to-end portfolio includes
products and services for each stage of
this process, leading to a virtuous cycle of
investment that only Nokia can truly take
advantage of.
The cycle has already begun with 5G radio
access network (RAN) upgrades in ‘first-mover’
markets such as the US, Korea, China and
Japan, which our Airscale portfolio enables.
As well as radio, these networks also need
high-capacity connectivity to data centers,
requiring backhaul network expansion.
Demand in the US for our IP and Optical
Anyhaul offer shows this trend already
taking shape.
With networks built, operators will then
need fixed-wireless access to expand
“last-mile” connectivity. With the most
complete fixed-wireless access product set
of any provider, we are well-placed to tap
this opportunity.
In due course, ‘fast-follower’ countries will
commence their 5G roll-outs. Yet, by this
point, ‘first-mover’ countries will already have
entered the second stage of 5G evolution.
Here, the focus will shift to network
virtualization and edge cloud and smart
network fabrics will be required to connect
these edge clouds, all playing to Nokia’s
strength in cloud deployment and packet core.
Network slicing will follow, triggering a need
for enhanced software that can control
networks with high degrees of automation:
our standalone software business and early
moves in AI will allow us to capitalize.
Simultaneously, many enterprises will choose
to build their own private networks, meeting
bespoke performance, reliability and security
requirements. These networks will leverage
the same end-to-end technologies as CSPs,
but on a smaller scale. These will need to be
plugged into national or global networks,
creating a seamless ‘whole’, driving even
greater network traffic and shifting the
cycle back to the beginning.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
No other global company touches every
link in this cycle. No matter how early
or late stage the investment, be it a
‘first-mover’ or ‘fast-follower’ geography, a
Communications Service Provider innovator
or a digitally-minded enterprise, Nokia’s
end-to-end portfolio means that we can
meet every 5G investment requirement
that lies ahead.
Force for good
Digital technology increases productivity,
reduces waste and connects the world, so
it was pleasing that the radio networks we
delivered to our customers served around
6.1 billion subscriptions worldwide this year,
up about 10% from 2016. As the 5G era
begins we will see even greater societal
and industrial benefits.
Climate challenges remain critically important.
We have worked hard to minimize the energy
use of our products. Achievements included
the first commercial liquid-cooled base
station in the world, recognition as a leader by
the CDP Climate rating, and achieving average
energy savings of 43% for customers whose
networks we modernized during 2018. These
and many more examples of our sustainable
development work can be found in our People
& Planet report, to be published in May 2019.
Looking ahead
Nokia exits 2018 with strength, energy and
purpose. The year has not been without
challenges, but nevertheless, we have
remained focused on our commitments to
our customers, people and shareholders.
Our strategy is focused on the true areas of
opportunity; our global team is committed,
dynamic and capable of innovating and
winning at the highest level; and our
end-to-end portfolio has put us in a great
position to grasp the transformative 5G
opportunity ahead.
Rajeev Suri
President and CEO
(1) Excluding 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.
05
Business overview Market trends driving
our strategy
We are rebalancing for growth, putting Nokia at the heart
of unprecedented opportunities in the Fourth Industrial
Revolution to create the technology to connect the world.
We have identified six global megatrends.
In 2016 we identified six global megatrends that we believe continue to impact our current and potential customers,
change the lives of people and impact business operations on a global scale. The Nokia Bell Labs Future X vision
is directly aligned to these megatrends, providing opportunities for us to diversify into new growth areas.
1 Network, compute
and storage:
Ever present broadband capacity coupled with a
distributed cloud for ubiquitous compute and near infinite
storage, allowing limitless connectivity and imperceptible
latency as well as subscription-based and asset-less
business models.
2 Internet
of Things:
In addition to people, trillions of things are connected to the
internet and amongst themselves, collecting unprecedented
amounts of data in a private and business context.
4 Human and machine
interaction:
A range of new form factors that transform the way humans
interact with each other and with machines, e.g. voice-based
digital assistance, gesture control, smart clothes, implantable
chips, robotics and Augmented and Virtual Reality.
5 Social and trust
economics:
Ubiquitous connectivity, compute and storage, as well as
technologies such as artificial intelligence and blockchain,
enabling new business models based on sharing assets and
distributed trust, allowing rapid scalability on a global level.
06
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Nokia Bell Labs has developed Future X, our vision of a future network
architecture that addresses these megatrends in a holistic way. This is
our guide to building networks that meet the future needs of our
customers and address the inherent opportunities in the megatrends.
The Future X vision encompasses the key domains of future networks:
emerging devices and sensors, 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 to digitize business operations, we see a shift
in who is investing in technology.
Our primary market with communication service providers (CSPs), in
which we have a leadership position, is very large in size, but expected
to provide a limited estimated growth opportunity, mainly driven
by 5G.
However, the megatrends are increasing the demand for large high-
performance networks in other key industries. Webscale companies
– such as Google, Microsoft and Alibaba – are investing in cloud
technology and network infrastructure at an increasing scale. As other
vertical markets such as transportation, energy and the public sector
(TEPS) digitize their operations, they need high-performing mission-
critical networks as well. The same is true for TXLEs – technically
sophisticated large enterprises, such as banks, that invest heavily in
their own network infrastructures to gain a key competitive advantage.
Our “Future X for industries” network architecture combines the
technologies that drive dramatic productivity improvements across
a wide range of industry sectors. As technologies such as edge cloud
supporting augmented intelligence and advanced security analytics
as well as end-to-end 5G-capable networks become a reality, they
will radically speed up the digital transformation of industries such
as manufacturing, logistics, transportation and energy, as well as
governments and cities. Nokia’s holistic approach is helping to drive
a new era of productivity and human–machine interaction that
is expected to unlock trillions of dollars of economic value in the
next decade.
We are addressing both our primary CSP market and the newly
identified growth opportunities in the Industrial IoT with our
“Rebalancing for Growth” strategy. The 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.
3 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.
6 Digitization and
ecosystems:
Next level of digitization beyond content and information,
digitizing atoms with additive printing in an industrial,
consumer and medical context, digitizing logistics and
production processes, transforming global supply chains
by massive-scale automation.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
07
Business overview Our strategy
Our four pillars
Our strategy builds on our business portfolio and continued
drive to create technology that serves people and businesses
and includes the following four key priorities.
1 Lead
Lead in high-performance, end-to-end networks with CSPs
2 Expand
Expand network sales to select vertical markets
3 Build
Build a strong software business
4 Create
Create new licensing opportunities
Our position
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.
Our position
We continue to expand into select vertical markets that have
high-performance, carrier-grade networking needs: Web and cloud
companies; transportation, energy, public sector (TEPS); and TXLE
(large enterprises for which technology is a strategic advantage). As
the world becomes more digital and more automated, the kind of
high-performance, low-latency networks once used almost exclusively
in telecommunications are now needed by other organizations.
This is especially true in organizations that own high-value, movable
assets that are mission-critical. To address this growing need for
high-performance networks, Nokia formed the Nokia Enterprise
business group. With Nokia Enterprise, we have implemented a
combined sales organization, a targeted portfolio and new solutions
that address our customers’ digitization and automation needs.
Our focus areas
■ We are differentiating ourselves with our end-to-end networks
that deliver benefits for our customers in automation, total cost
of ownership and time to market.
■ We are establishing leadership in 5G through our presence with 5G
leading customers in the first 5G markets globally and achieving
global technology and quality excellence.
■ We are innovating in augmented intelligence, analytics and automation
for fast and flawless delivery of our network infrastructure services.
■ We are providing industry-leading cognitive network services
to improve network performance, operational efficiency and
subscriber experience, and developing service business models
to open new revenue streams for CSPs.
■ We are maintaining our leading market share in copper and fiber
access, accelerating momentum in fixed wireless access,
successfully expanding in the cable market, further developing new
smart home solutions such as whole-home Wi-Fi, and simplifying
network operations for our customers.
■ We are 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.
Our focus areas
■ Web and cloud customers increasingly require high-performance
networks to improve customer experiences and to expand their
primary business models. For web and cloud companies, we are
focusing on an all-IP-led approach, providing IP routing and optical
network infrastructure.
■ Large, tech-savvy enterprise (TXLE) customers need to virtualize
and automate their hybrid cloud data centers with technology
disruptions like software-defined wide area networking (SD-WAN),
software-defined security, and branch office connectivity.
Nokia can address those needs with SD-WAN and our all-IP portfolio.
■ TEPS customers require high-performance, mission-critical
networking that digitizes their energy systems, rail systems and
cities. They also need to layer on top of those networks industrial
automation platforms that help digitize their operations. Nokia
offers mission-critical networks, solutions for digitization and
Industrial IoT, and industrial automation.
■ Other verticals also need to increase productivity and reduce costs
through the digitization and automation of their operational
systems. This can be accomplished with Industrial IoT platforms,
automation platforms and private wireless networks. Nokia now
targets these opportunities.
Progress
■ We are driving the deployment of 5G: the number of customers
Progress
■ In 2018 we made good progress in our select vertical markets
already engaged with us on 5G is rapidly heading over the 100 mark,
and amongst those we have already signed over 25 5G supply
agreements. Our global base of mobile broadband customers puts
us in a position of strength as 5G rollouts accelerate globally.
with over 150 new customers and we now have more than 1 000
enterprise customers. We consolidated our enterprise-specific
activities into Nokia Enterprise, our new business group, which
commenced operations January 1, 2019.
■ In July, 2018, we announced a landmark USD 3.5 billion agreement
with T-Mobile to accelerate the deployment of their nationwide
5G network in the United States. During the year we also signed
three separate framework agreements with a combined value of
EUR 2 billion with China Mobile, China Telecom and China Unicom.
■ Independent third party assessments by P3/Connect and others
testify to Nokia’s superior networks performance around the world.
■ In 2018 we delivered constant currency sales growth of 9% in the
enterprise space, excluding the third-party business that we are
exiting, and posted solid profitability.
■ We unveiled our “Future X for industries” strategy and architecture,
which leverages digital transformation technologies to catalyze
productivity and economic growth for enterprises.
■ We also announced numerous private LTE deals during the year
including Elektro, a power distributor in Brazil, and BMW’s smart
manufacturing facility in partnership with China Unicom.
08
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Our position
Our position
With our existing software products, we are today a leader in the large
Our approach is to keep our patent licensing business strong, creating
and growing telecoms software market. Our ambition is to build on this
new revenue streams from patent and technology licensing and brand
foundation and strengthen our position by building software for Digital
partnerships. We own one of the broadest and strongest patent
Time. This means intelligently connecting humans, machines and data
portfolios in our industry, built from the innovation of Nokia, Nokia
to boost productivity and thus create time for what matters the most.
Siemens Networks and Alcatel Lucent. At the end of 2018 our patent
We help our customers to connect data across their business, network
portfolio included around 20 000 patent families, and we filed patents
and operations and help them create insights for maximizing their
on more than 1 300 new inventions during 2018.
investments – in time, relationships, revenue and productivity. By
doing so, we aim to create a global software player that has a growth
and margin profile like leading software companies. The basis for all
our activities is diligent cost management, lean operations and a focus
on developing and engaging our people.
Our focus areas
Our focus areas
■ We are accelerating our innovation to meet customer expectations
■ We continue to renew the portfolio through innovation in multiple
faster. For this purpose, we are adopting the Common Software
areas, especially cellular standard essential patents, in part as
Foundation across all our products and making them cloud-native,
a result of the extensive research activities of Nokia Bell Labs.
as well as reorganizing our R&D for greater effectiveness. We are
■ In addition to renewing existing patent licenses on favorable terms,
also gearing Services and Care to next-generation effectiveness
our aim is to add new licensees from the mobile industry, and we
for faster delivery and flawless customer service.
■ We are modernizing our portfolio via Connected Intelligence
by incorporating artificial intelligence and machine learning
continue to expand patent licensing into new segments, such as
automotive, IoT and consumer electronics. Besides this, we are
exploring opportunities to license our unique audio/visual
everywhere, enabling new revenue streams, pushing the limits
technologies to device creators.
of automation in operations, and moving to secure cloud-native
networks. Beyond individual products, we integrate and deliver
■ Our brand licensing efforts are well underway – we see value creation
opportunities in the mobile devices industry, leveraging our strong
results-oriented solutions across our portfolio and with
strategic partners.
■ We are optimizing our go-to-market strategy with a refreshed
software sales team, better pricing models and stronger partnerships.
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.
Progress
UK and Sky.
■ Throughout the year our Nokia Software business group
■ Further validating our global licensing program, Nokia and
continued to demonstrate the strength of its portfolio by winning
the Chinese smartphone company OPPO signed a multi-year
major accounts including BT, Telenor One Europe, STC, Telefónica
patent license agreement. In addition, we extended our
■ Analysys Mason ranked Nokia #1 in telecom product software
revenues and #2 in combined telecom product and
■ Nokia’s brand licensee HMD Global continued to refresh
its smartphone portfolio with numerous new models and
product-related revenues in its latest annual report released
announced plans to double its manufacturing capacity in
in November, 2018.
India to satisfy demand.
patent licensing agreement with Samsung.
Progress
1 Lead
2 Expand
Lead in high-performance, end-to-end networks with CSPs
Expand network sales to select vertical markets
3 Build
Build a strong software business
4 Create
Create new licensing opportunities
Our position
With our existing software products, we are today a leader in the large
and growing telecoms software market. Our ambition is to build on this
foundation and strengthen our position by building software for Digital
Time. This means intelligently connecting humans, machines and data
to boost productivity and thus create time for what matters the most.
We help our customers to connect data across their business, network
and operations and help them create insights for maximizing their
investments – in time, relationships, revenue and productivity. By
doing so, we aim to create a global software player that has a growth
and margin profile like leading software companies. The basis for all
our activities is diligent cost management, lean operations and a focus
on developing and engaging our people.
Our position
Our approach is to keep our patent licensing business strong, creating
new revenue streams from patent and technology licensing and brand
partnerships. We own one of the broadest and strongest patent
portfolios in our industry, built from the innovation of Nokia, Nokia
Siemens Networks and Alcatel Lucent. At the end of 2018 our patent
portfolio included around 20 000 patent families, and we filed patents
on more than 1 300 new inventions during 2018.
Our focus areas
■ We are accelerating our innovation to meet customer expectations
faster. For this purpose, we are adopting the Common Software
Foundation across all our products and making them cloud-native,
as well as reorganizing our R&D for greater effectiveness. We are
also gearing Services and Care to next-generation effectiveness
for faster delivery and flawless customer service.
■ We are modernizing our portfolio via Connected Intelligence
by incorporating artificial intelligence and machine learning
everywhere, enabling new revenue streams, pushing the limits
of automation in operations, and moving to secure cloud-native
networks. Beyond individual products, we integrate and deliver
results-oriented solutions across our portfolio and with
strategic partners.
■ We are optimizing our go-to-market strategy with a refreshed
Our focus areas
■ We continue to renew the portfolio through innovation in multiple
areas, especially cellular standard essential patents, in part as
a result of the extensive research activities of Nokia Bell Labs.
■ 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, IoT and consumer electronics. Besides this, we are
exploring opportunities to license our unique audio/visual
technologies to device creators.
■ 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.
successfully expanding in the cable market, further developing new
offers mission-critical networks, solutions for digitization and
software sales team, better pricing models and stronger partnerships.
Progress
■ Throughout the year our Nokia Software business group
continued to demonstrate the strength of its portfolio by winning
major accounts including BT, Telenor One Europe, STC, Telefónica
UK and Sky.
Progress
■ Further validating our global licensing program, Nokia and
the Chinese smartphone company OPPO signed a multi-year
patent license agreement. In addition, we extended our
patent licensing agreement with Samsung.
■ Analysys Mason ranked Nokia #1 in telecom product software
■ Nokia’s brand licensee HMD Global continued to refresh
revenues and #2 in combined telecom product and
product-related revenues in its latest annual report released
in November, 2018.
its smartphone portfolio with numerous new models and
announced plans to double its manufacturing capacity in
India to satisfy demand.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
09
Our position
Our position
Nokia is a leader in this area today and we will use our main
We continue to expand into select vertical markets that have
competitive advantage – a near-100% end-to-end portfolio that
high-performance, carrier-grade networking needs: Web and cloud
we can deliver on a global scale – to maintain our leadership while
companies; transportation, energy, public sector (TEPS); and TXLE
managing for profitability.
(large enterprises for which technology is a strategic advantage). As
the world becomes more digital and more automated, the kind of
high-performance, low-latency networks once used almost exclusively
in telecommunications are now needed by other organizations.
This is especially true in organizations that own high-value, movable
assets that are mission-critical. To address this growing need for
high-performance networks, Nokia formed the Nokia Enterprise
business group. With Nokia Enterprise, we have implemented a
combined sales organization, a targeted portfolio and new solutions
that address our customers’ digitization and automation needs.
Our focus areas
Our focus areas
■ We are differentiating ourselves with our end-to-end networks
that deliver benefits for our customers in automation, total cost
■ Web and cloud customers increasingly require high-performance
networks to improve customer experiences and to expand their
of ownership and time to market.
primary business models. For web and cloud companies, we are
■ We are establishing leadership in 5G through our presence with 5G
focusing on an all-IP-led approach, providing IP routing and optical
leading customers in the first 5G markets globally and achieving
network infrastructure.
global technology and quality excellence.
■ We are innovating in augmented intelligence, analytics and automation
■ Large, tech-savvy enterprise (TXLE) customers need to virtualize
and automate their hybrid cloud data centers with technology
for fast and flawless delivery of our network infrastructure services.
disruptions like software-defined wide area networking (SD-WAN),
■ We are providing industry-leading cognitive network services
to improve network performance, operational efficiency and
software-defined security, and branch office connectivity.
Nokia can address those needs with SD-WAN and our all-IP portfolio.
subscriber experience, and developing service business models
■ TEPS customers require high-performance, mission-critical
to open new revenue streams for CSPs.
■ We are maintaining our leading market share in copper and fiber
access, accelerating momentum in fixed wireless access,
networking that digitizes their energy systems, rail systems and
cities. They also need to layer on top of those networks industrial
automation platforms that help digitize their operations. Nokia
smart home solutions such as whole-home Wi-Fi, and simplifying
Industrial IoT, and industrial automation.
network operations for our customers.
■ Other verticals also need to increase productivity and reduce costs
■ We are leveraging our superior products and the next-generation
through the digitization and automation of their operational
IP routing portfolio based on our FP4 chipset to grow in both edge
systems. This can be accomplished with Industrial IoT platforms,
and core routing, where we have a fully virtualized portfolio that
automation platforms and private wireless networks. Nokia now
is differentiated by performance, flexibility, security and quality.
targets these opportunities.
Progress
Progress
■ We are driving the deployment of 5G: the number of customers
■ In 2018 we made good progress in our select vertical markets
already engaged with us on 5G is rapidly heading over the 100 mark,
with over 150 new customers and we now have more than 1 000
and amongst those we have already signed over 25 5G supply
enterprise customers. We consolidated our enterprise-specific
agreements. Our global base of mobile broadband customers puts
activities into Nokia Enterprise, our new business group, which
us in a position of strength as 5G rollouts accelerate globally.
commenced operations January 1, 2019.
■ In July, 2018, we announced a landmark USD 3.5 billion agreement
■ In 2018 we delivered constant currency sales growth of 9% in the
with T-Mobile to accelerate the deployment of their nationwide
enterprise space, excluding the third-party business that we are
5G network in the United States. During the year we also signed
exiting, and posted solid profitability.
three separate framework agreements with a combined value of
■ We unveiled our “Future X for industries” strategy and architecture,
EUR 2 billion with China Mobile, China Telecom and China Unicom.
which leverages digital transformation technologies to catalyze
■ Independent third party assessments by P3/Connect and others
testify to Nokia’s superior networks performance around the world.
productivity and economic growth for enterprises.
■ We also announced numerous private LTE deals during the year
including Elektro, a power distributor in Brazil, and BMW’s smart
manufacturing facility in partnership with China Unicom.
Business overview Networks business
Competition
The main competitors in our primary market
are Huawei, Ericsson and ZTE, and in some
markets we also encounter Samsung. 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
Nokia Software market segments, as well as
the microwave transport market segment
remain highly fragmented.
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, mobile and
converged core networks, as well as software
platforms and applications.
Our personal lives and enterprises are
becoming increasingly more digitized, driving
exponential growth in data traffic and, in turn,
driving the demand for our portfolio of highly
reliable and high-performance networks to
support massive connectivity.
Our Annual Report on Form 20-F for 2019 will
reflect our new segment reporting structure,
which separates the Networks and Software
businesses. For more information, see
Note 37, Subsequent events, in the Financial
Statements section.
Nokia’s Networks business
In this section
Mobile Networks
page 12
Mobile broadband experiences
Fixed Networks
page 14
Faster, better, smarter networks
Global Services
page 16
Helping businesses to transform
IP/Optical Networks page 18
Connecting to the cloud
Nokia Software
page 20
Intelligent software platforms
Nokia Enterprise
page 22
Digitalizing industries
10
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Sales and marketing
Nokia considers its customers in two distinct
markets. Our primary addressable market
consists of CSPs. Our current enterprise
business is small in comparison with our
operator business but growing fast.
The geographically divided Customer
Operations (CO) organizations are the
primary interface with our CSP customers.
The CO Americas organization focuses on our
markets in North America and Latin America,
while the CO EMEA & APAC organization
is responsible for our Asia Pacific & Japan,
Europe, Greater China, India, and Middle East
and Africa markets.
The CO organizations have a comprehensive
global presence (active in approximately
130 countries) and its structure ensures
that our customers benefit from dedicated
management attention and from our teams’
deep understanding of local markets. This
approach enables Nokia to maintain strong
customer relationships.
The priority of the CO organizations is to
serve our customers. And, since 2018,
the CO organizations have been responsible
for both delivery and sales, ensuring strong
alignment between our customer-facing
teams in each account. Our “One CDM”
(customer delivery manager) model provides
a strong counterpart to our customer team
setup, ensuring that customers have a
seamless experience when working with Nokia.
This is particularly important given the value
our customers put on Nokia’s end-to-end
approach, which can provide a solution to
a customer need based on portfolio
elements from several of our business groups.
The CO organization also works very closely
with our sales and delivery colleagues in
Nokia Software to ensure the right level
of customer focus and expertise in this
crucial area, and with our colleagues in Nokia
Enterprise to make sure that we are efficient
in developing and selling the solutions
that will benefit both our CSP and enterprise
customers. We strongly support our
“Service-Provider-as-a-Partner” (SPaaP) sales
approach, in which we work in partnership
with operators to address customers in the
enterprise space. This model is proving to
be a successful route to market for CSPs
as well as for Nokia.
Research & development
We are one of the industry’s largest R&D
investors in information communication
technology and we drive innovation across
telecommunications and vertical industries
to meet the needs of a digitally connected
world. Product development is continually
underway to meet the high programmability,
agility and efficiency requirements of the
next-generation software-defined networks
that will accommodate mobile and fixed
broadband, IoT, intelligent analytics and
automation, which are used to forge new
human possibilities.
We have 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
11
Business overview Networks business continued
Mobile
Networks
Market overview
The primary market for our Mobile Networks
business group includes technologies for
mobile access and microwave transport. This
encompasses access network technologies
ranging from 2G to 5G licensed and
unlicensed spectrum for both macro
and small cell deployments.
We have a global installed base that is
expected to provide us with the platform
for success in 5G. We have more than
400 customers in 4G/LTE and a robust
AirScale platform, which can be upgraded
from 4G to 5G. We built our AirScale portfolio
and small cells, software and mobile transport
solutions to work across all generations of
technology and all relevant spectrum bands
for efficient, simplified and optimized sites for
our customers. In radio we build our access
portfolio based on one architecture: Future X
is the foundation of our reference architecture
for all deployment models. The Nokia 5G
Future X end-to-end product and services
portfolio combines high-capacity 5G New
Radio, core, SDN-controlled “Anyhaul”
transport, edge clouds, and software
orchestration to provide a complete set
of network capabilities for commercial 5G.
Competition
The mobile networks market is a highly
consolidated market as a whole, and our
main competitors are Huawei and Ericsson.
Additionally, there are two regional vendors,
ZTE and Samsung, that have an estimated
market share of below 10%. The microwave
transport market segment, however,
remains fragmented.
Business overview
and organization
We see a strong initial appetite for 5G in
the most progressive and advanced mobile
markets, and we are the only end-to-end
mobile network vendor working with the
major operators in the U.S., China, South
Korea and Japan. Nokia is rolling out
technology today to prepare our customers
for commercial launches when 5G devices
and spectrum become available.
In Mobile Networks our goal is to be the
leader in 5G and provide the best value to
our customers as they evolve their networks.
In December 2017 the first 3GPP
specifications were confirmed – including
5G New Radio (NR) – and since then, the
technology and the market have moved fast.
We continue to develop our 5G portfolio
according to the latest 3GPP specifications
and are proud of the number of industry
firsts that we have completed on the path
to 5G commercialization. Furthermore,
we continue to invest significantly in our
ReefShark processor family for baseband and
RF. Our customers are moving fast as well: our
first commercial 5G radio contract was signed
in January 2018 with NTT DoCoMo in Japan
based on 5G New Radio. As an industry, we
have moved quickly from specifications to
development, testing, and implementation in
real networks. To this end, roughly half of our
R&D personnel are fully focused on 5G and
this is expected to increase as we continue to
move personnel on a periodic and strategic
basis. As we move from 4G to 5G, we aim
to become a champion of continuous
integration, continuous delivery and DevOps.
12
NOKIA ANNUAL REPORT ON FORM 20-F 2018
2018 highlights
■ In January, Nokia unveiled its new
ReefShark chipsets which leverage
in-house silicon expertise to
dramatically reduce the size, cost and
power consumption of operators’
networks and meet the massive
compute and radio requirements of 5G.
■ In July, Nokia and T-Mobile announced
a USD 3.5 billion, multi-year 5G network
agreement. Under the agreement,
Nokia will provide T-Mobile with its
complete end-to-end 5G technology,
software and services portfolio.
■ In August, Verizon and Nokia
completed first 5G NR mobility call.
■ In September, AT&T selected Nokia as
a supplier to seamlessly accelerate the
transformation of their network to 5G.
■ In November, Nokia signed frame
agreements worth more than EUR 2
billion with three Chinese operators.
Agreements will increase network
speed and capacity as well as improve
reliability across China, while
introducing new network capabilities
as operators evolve toward 5G.
■ In December, Nokia and Telenor Group
announced plans to deploy AirGile
cloud-native core solution to
transform mobile network operations
in Scandinavia. Deployment in
Denmark, Norway and Sweden will
enable new capabilities in service
agility, scalability, automation and
network slicing as Telenor evolves
toward 5G.
■ In December, Helsinki Airport became
the first 5G airport in the world with
Nokia network technology.
U.S. operator T-Mobile visiting the
Nokia headquarters in Espoo, Finland.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
13
Business overview Networks business continued
Fixed
Networks
Market overview
The primary market of Fixed Networks is
the CSPs. In this market, the shift from copper
to fiber has been accelerating in all regions
and we see a strong rise of next-generation
copper and fiber technologies, such as G.fast
and XGS-PON (10 gigabit passive optical
networks). Virtualization of fixed access
networks is slowly but surely picking up.
Complementary technologies such as fixed
wireless access and whole-home Wi-Fi are
clearly gaining traction. We have been
diversifying our business into new segments,
including cable MSOs, energy, government,
enterprise and non-traditional players
with new business models, such as
investment firms.
Business overview
and organization
We are diversifying our portfolio with constant
innovation and have the industry’s most
complete portfolio to make our customers’
business case work. In 2018 the results of
our 2017 R&D investments started paying off.
We had breakthroughs with the first European
and Asian customers for Unified Cable Access,
and the first contracts for Nokia Wi-Fi,
Wireless PON and 5G to-the-home. We also
signed five new virtualization customers
for our software-defined access solution.
We are also diversifying geographically, with
breakthroughs with service providers in new
and important growth markets such as Japan,
South Korea and India.
The Fixed Networks strategy is based on
a concept we call the “power of and”: fixed
and mobile; gigabit to and into the home;
the network and the cloud.
The first pillar of this strategy, fixed and
mobile, is about offering the right technology
mix to deliver gigabit access to more people,
faster. It comprises copper, fiber, coax and
fixed wireless access technologies. Nokia is a
market leader in copper technologies, such as
VDSL2 vectoring, Vplus and G.fast. We also
increased our market share in fiber, with
technologies such as GPON, ethernet
point-to-point and 10 gigabit next-generation
fiber technologies (with XGS-PON getting
significant market traction). We have been
enlarging our portfolio with new ASICs for
our leading G.fast and VDSL2 solutions, new
options for our copper platforms called Long
Reach VDSL2 (VDSL2-LR) and new fixed wireless
access products, including FastMile high-gain
outdoor receivers and indoor gateways.
For cable operators, Nokia offers the true
end-to-end technology capabilities needed to
support growing capacity requirements today
and into the future. Nokia’s Unified Cable
Access solution has put an end to the industry
debate on R-PHY versus R-MACPHY and offers
a full toolbox of fiber, coax and virtualized
distributed access architecture solutions.
The Unified Access Solution is now being
deployed with the first European customer,
after a successful debut in the US last year.
Nokia has also brought to life the technology,
Full Duplex Docsis, to support 10Gbps
symmetrical services over coax cable networks.
The second pillar, delivering a gigabit to and
into the home, is about ensuring the perfect
connectivity throughout the home. Fixed
Networks has been expanding its business,
evolving into the whole-home Wi-Fi market
with the Nokia Wi-Fi portfolio. Nokia Wi-Fi
provides perfect coverage in every corner of
the home, supporting CSPs in their goals to
offer managed Wi-Fi services and deliver a
superior customer experience. Third-party
tests show superior performance of the Nokia
Wi-Fi beacons. The first customers are signed
up and have started offering the service
to their subscribers.
As networks become ever more complex,
given the diversity of technologies and
deployment options, the third pillar of our
strategy looks at simplifying and automating
operations. Virtualization plays a key role in
this. Moving functions to the cloud makes
networks easier to manage and scale.
With our software-defined access network
solution, Nokia takes a pragmatic approach.
Our strength and competitive advantage lie
in the fact that our virtualization solution
offers a smooth migration path for service
providers to gradually evolve their legacy
equipment to a software-defined network
combined with the coexistence with legacy
systems that CSPs may decide not to evolve.
We launched our fully open and programmable
fixed access network slicing solution, and our
Multivendor ONU Connect, the industry’s only
fully open, virtualized solution that resolves
PON CPEs multivendor interoperability (one
of the biggest pain points for fiber operators)
and signed up five new customers.
Enabled by Nokia’s advanced automation and
analytics, Nokia launched the Fixed Access
Health Index for service providers, a new
metric for measuring and benchmarking
the quality and performance of fixed
access networks.
14
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Competition
The competitive landscape in fixed access
for CSPs has two major key players, Nokia and
Huawei, who have the bulk of market share.
ZTE, in third position, has been impacted by
the U.S. components ban. Smaller players
like Calix and Adtran in North America and
Fiberhome in China have limited footprint
and have a market share smaller than 10%
and no comparable breadth of portfolio.
2018 highlights
■ Nokia continued to be the market
leader in copper access and one of
the market leaders in fiber access,
growing its market share. We are the
only vendor with a leading market
share in all regions worldwide, and
the only Western supplier in China.
■ For Fixed Networks, our strategy of
growth through diversification is
paying off. Our portfolio diversification
is opening growth opportunities
in cable, whole-home Wi-Fi, fixed
wireless access and virtualization;
our geographical diversification has
delivered breakthroughs in countries
like South Korea, India and Japan,
with good growth opportunity; and
our market diversification is opening
new business opportunities in new
segments and with non-traditional
customers.
■ We believe that Nokia remains a clear,
front-of-the-pack leader in the race
to deliver state-of-the-art fixed
networking solutions.
Nokia Wi-Fi enables service providers to deliver their
residential customers super-fast, reliable connectivity
throughout a household.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
15
Business overview Networks business continued
Global
Services
Market overview
The Global Services business group’s
market includes network infrastructure and
professional services for mobile networks in
addition to managed services for the fixed,
mobile, applications, IP and optical domains.
Business overview
and organization
The services, solutions and multi-vendor
capabilities of our Global Services business
group help CSPs and enterprises in the
transport, energy and public sectors (TEPS)
navigate through the evolving technology
landscape, network complexity and data
growth. We work with them to improve end
user experience while providing support
in day-to-day network planning,
implementation, operations and maintenance.
Our Global Services offering allows Nokia to
differentiate in the 5G market while helping
operators prioritize their 5G investments and
bring 5G-based services to the market faster.
Nokia 5G Acceleration Services portfolio helps
CSPs prepare for 5G business cases
and assess the technical choices, plan and
design the end-to-end deployment and
manage the complexity of multi-vendor
and legacy networks.
Our other key focus area in Global Services
is empowering CSPs to transform to digital
service providers. We are building a new digital
architecture for the full life cycle of network
design, deployment, operations and technical
support – both for legacy and cloud-based
networks. We tap into advanced analytics,
powered by Nokia AVA, our cognitive service
delivery platform, to help boost network
performance, operational efficiency and
customer experience. Software robots speed
up network upgrades – for example, 11 000
eNodeBs were upgraded in one night with
100% accuracy for a large tier 1 operator.
Nokia AVA cognitive
services platform offers
readiness to manage a
multitude of connected
applications.
16
NOKIA ANNUAL REPORT ON FORM 20-F 2018
2018 highlights
■ Analytics services gained traction with
customers including Telenor Pakistan,
Ooredoo Myanmar, EE UK, StarHub and 3
Indonesia, and Nokia AVA was rated the
leading telco artificial intelligence
ecosystem by Analysys Mason.
■ Nokia WING, a managed service for
global IoT deployments, was selected by
AT&T, Tele2 and Marubeni Corporation
to provide seamless connectivity across
geographical borders and technologies.
■ To help operators roll out 5G technology,
Nokia introduced Cross-Domain
Architecture and Site Evolution Services
and launched Nokia 5G Digital Design,
a unique patent-pending concept that
will dramatically revolutionize the way
networks are designed.
■ The launch of Security Risk Index
and Managed Security Service helps
to ensure CSPs can protect their
networks against threats. In addition
to addressing their own security needs,
CSPs can white-label Managed Security
Services to enterprises under their own
brand, which offers revenue potential
in the fast-growing enterprise
security market.
■ Nokia Cloud Collaboration Hubs were
opened in Singapore, Irving (Texas) and
Reading (UK). The hubs are execution
centers where multi-vendor cloud
services from strategy and design to
execution and delivery are provided.
■ We expanded our offering for smart
cities and public safety by launching
Advanced Command Center, which
enables better decision-making by
strengthening situational awareness,
and improves emergency response by
utilizing video communications, IoT,
analytics and automation.
We also help digital service providers to
seize the possibilities of IoT and enter new
markets using Nokia Worldwide IoT Network
Grid (WING), which provides seamless
connectivity across geographical borders and
technologies. We enable our customers to
enter new markets rapidly and with low risk
through pay-as-you-grow or revenue share
models where, for example, WING and
Nokia AVA’s Analytics Services are provided
as-a-Service (aaS).
We have invested heavily in automation, data
science and artificial intelligence. Our digital
field force is empowered by augmented reality
and video support from our Global Delivery
Centers. In 2018 we completed the first
successful deployments on our crowdsourcing
platform. Our engineers process 6 million
trouble tickets each year using artificial
intelligence and help ensure the best
experience for more than 1 billion
subscribers worldwide.
Global Services introduced a new
organizational structure effective in August
2018 to accelerate its strategy execution,
drive efficiencies in the established base
businesses, such as network deployment and
technical support, and capture new business
opportunities, for example in analytics and
Industrial IoT.
Competition
In a market segment that combines products
and services as well as managed services,
Nokia competes against Huawei, Ericsson, ZTE
and Cisco, while for the service-led businesses
like cognitive network analytics services and
IoT and systems integration, we see other
competitors such as Netcracker, HPE and IBM
emerging in addition to Ericsson and Huawei.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
17
Business overview Networks business continued
IP/Optical
Networks
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, wavelength division
multiplexing, and packet optical transport
networking solutions. We also have analytics
and end-to-end SDN solutions.
A growing portion of our IP/Optical Networks
revenue is derived from adjacent markets,
which include customer segments like
webscale companies and enterprises. In the
enterprise segment, we address verticals like
TEPS and support hyperscale networking for
health care, finance and retail enterprises.
We address these mission-critical markets with
our IP, optical and Nuage Networks portfolios.
Business overview
and organization
For our IP/Optical Networks business group,
we provide the highly reliable and massively
scalable networks that underpin the digital
world’s dynamic interconnectivity. Our
portfolio of robust and innovative 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.
CSP networks are under tremendous
pressure from cloud-based applications,
ultra-broadband evolution and the Industrial
IoT. Our IP and optical networking solutions
reduce time to market and risk as CSPs launch
new services, enabling rapid scaling to meet
surging demands with optimal configurations.
Our insight-driven network automation
solutions help to further ensure 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 address the
needs of – and are valued by – our webscale,
TEPS and large enterprise customers.
The revolutionary
Nokia FP4 network
processor lets service
providers and webscale
companies implement
IP networks that deliver
unprecedented scale,
security and functionality
without sacrificing
performance.
18
NOKIA ANNUAL REPORT ON FORM 20-F 2018
2018 highlights
■ The IP/Optical Networks business group
launched the next generation of our
Photonic Service Engine (PSE) family of
super-coherent digital signal processors,
underscoring Nokia’s leading position in
the industry and innovation pedigree.
The Nokia PSE-3 will be instrumental
in the evolution of CSP and webscale
networks to meet the surging traffic
demands of video, cloud and 5G
by maximizing the capacity and
performance of every link in their
optical networks.
■ Telia Company selected Nokia’s cloud
packet core solution to profitably deliver
enhanced mobile broadband, and to
provide the massively scalable platform
required as part of Telia’s Next
Generation Core.
■ Telefónica Spain selected our
high-performance routing and Nuage
Networks Virtualized Cloud Services to
build an open, elastic and secure data
center network, greatly expanding the
agility, scale and efficiency of its
cloud-based services.
■ We won a five-year contract with
Polish PKP Polskie Linie Kolejowe to
deploy a nationwide turnkey GSM-R
and mission-critical backhaul network
to enhance railway security and
reliability throughout the country.
Our largest-ever GSM-R contract will
provide PKP/PLK with one of the biggest
state-of-the-art railway communications
networks in Europe.
■ We introduced the latest release of the
Nuage Networks Virtualized Network
Services (VNS) platform, SD-WAN 2.0,
offering the most powerful and secure
end-to-end network governance across
a multi-cloud environment, with
complete visibility and control from
a single management interface.
■ Proximus announced as part of its
migration to its Terabit IP Transport
Aggregation Network, TITAN, that it was
among the first in the world to deploy
Nokia’s next-generation 7750 Service
Router 14S, the first routers equipped
with multi-terabit processors – a
technological leap in the industry.
The IP/Optical Networks product portfolio
includes:
■ comprehensive IP and optical wide area
network (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 Industrial IoT services and unique
hybrid solutions enabling a converged
services future;
■ analytics and carrier SDN solutions
for insight-driven network automation
that dynamically provide, optimize and
assure network services and resources
end-to-end, from access to the cloud and
spanning IP and optical technology layers;
■ advanced data center 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; 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 and
programmable IP and optical networks.
Competition
Our competitive landscape in this space
includes Cisco, Juniper Networks and Huawei,
in addition to various specialized players
in optical such as Ciena.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
19
Business overview Networks business continued
Nokia Software
Market overview
As service providers and large enterprises
seek to modernize their businesses by
leveraging 5G, they are propelling a clear
growth market in telecommunications. The
Nokia Software portfolio is designed to help
customers accelerate their digital reinvention
and power the Fourth Industrial Revolution.
Our network-agnostic and cloud-native
software solutions:
■ enrich and monetize digital experiences;
■ fuel operations through automation
and intelligence;
■ increase network agility and advanced
functionality; and
■ provide innovative emerging technologies.
In this business space we sell primarily to a
CSP market and Nokia Software continues
to expand into new vertical markets and
emerging technologies.
Business overview
and organization
The Nokia Software business has an
important edge over traditional software
vendors. Rooted in our deep understanding
of our customers’ networks, we bridge the
gap between their business and their network
with a level of intelligence unparalleled for our
industry. Our mission is to help our customers
operate in digital time – modernizing the slow,
siloed and monolithic systems that weigh
them down today with more agile, intelligent
and lightweight solutions. By rebuilding our
software applications on a Common Software
Foundation, we are increasing innovation
velocity while at the same time ensuring
that our products are easier to deploy,
use and maintain. Our modern software
solutions are based on five key principles:
extreme automation, actionable insight,
high trust, cloud-native, and multi-vendor/
multi-network capabilities.
The Nokia Software portfolio contains:
■ Digital experience and monetization:
enables service providers to identify
and act upon the small windows of digital
time where the opportunities to enrich
and monetize are the most impactful.
Our portfolio includes solutions for
omni-channel customer engagement,
customer experience network analytics,
fixed and mobile device management,
and policy and charging. Today we have
more than 400 digital experience and
monetization customers, we are the market
leader in both fixed and mobile device
management and we have the industry’s
first cloud-native 5G charging solutions.
■ Digital operations: helps service providers
simplify, automate and optimize their
service and network operations. Our
portfolio includes solutions for service
fulfillment, 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.
20
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Changing subscriber
expectations and market
conditions have prompted
many operators to
re-invent themselves as
digital service providers.
■ 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. As of 2019
Nokia’s cloud core portfolio of products
and services is included in this portfolio
in an effort to improve customer focus.
Competition
Nokia is #1 in sales of telecom software
products and is one of only two large players
in the market that are stable and growing,
according to Analysys Mason. However,
this market remains highly fragmented,
with more than half of the market served by
niche players or in-house custom solutions.
As such, we see significant opportunity
to increase our market share.
Our competitors fall into two categories:
independent software vendors (ISVs) and
network equipment providers (NEPs). The
main ISV competitors are Amdocs, Netcracker
and Oracle. This is an area where we see
increasing competition from niche players.
The main NEP competitors are Huawei
and Ericsson, selling software as part
of large infrastructure deals.
2018 highlights
As part of Nokia’s strategy to build a
software business at scale, the Nokia
Software business group has been sharply
focused on building a specialized software
sales force, expanding and modernizing
our portfolio, and transforming our
delivery and support capabilities. We are
excited to see the impact of these small
and large changes as we model our balance
sheet, go-to-market, R&D and services on
those of traditional software companies.
2018 product innovations include:
■ Unveiled the latest version of our
Cognitive Analytics for Customer Insight
software, bolstering our Customer
Experience Index (CEI) with machine
learning and intelligent automation to
improve accuracy of predicting customer
satisfaction and provide intelligent,
digital-time recommendations for
next-best automated and human
actions to address subscriber issues.
■ Launched a new cloud-native Enterprise
Session Border Controller (eSBC)
that brings secure, ultra-high-quality
IP voice and video services to
enterprise customers.
■ Acquired SpaceTime Insight to expand
our IoT software portfolio and accelerate
vertical application development.
■ The new release of our CloudBand
NFV and orchestration solution gained
significant market traction, propelled
by new cloud management capabilities
improving service delivery and
significantly reducing operating costs,
as 5G deployments get underway.
■ Enriched our NetGuard security,
operations, augmented intelligence,
network and experience capabilities
to support Nokia’s 5G Future X
network architecture.
Operational and organizational
highlights include:
■ Strengthened our dedicated software
sales force and recruited experienced
software sales people across the globe.
■ Continued to drive the adoption of a
Common Software Foundation to make
our software easier for customers to
integrate, deploy and use; strengthened
our DevOps capabilities to get features
to market faster; and standardized
performance and reliability testing
to ensure our products exceed
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.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
21
Business overview Networks business continued
Nokia Enterprise
Market overview
In 2018 Nokia successfully addressed the
enterprise customer segment. Recognizing
the growth potential of our business within
this segment, we created a new business
group, Nokia Enterprise, effective January 1,
2019. Our Enterprise business group
addresses the mission- and business-critical
networking requirements of asset-intensive
industries such as transportation, energy,
manufacturing and logistics – as well as
governments and smart cities. The business
group also supports hyperscale networking
for health care, finance and retail enterprises
and webscale players.
Business overview
and organization
Nokia has a strong track record of helping
enterprises modernize the communications
networks they rely on to supervise and
manage a range of operations, employing
technologies across the IP, optical,
microwave, fixed and mobile access domains.
To date we have deployed more than
1 000 such networks across our key target
vertical markets.
Today a range of enterprises are looking
to harness major technology shifts in areas
such as ubiquitous connectivity, analytics,
cloud and the Industrial IoT to digitalize and
automate critical processes and drive massive
gains in business and industrial productivity.
Enterprises can benefit from digitalization,
better asset management, improved
processes, deeper levels of network security
and new business models that will arise from
pervasive connectivity.
High-performance networking is at the nexus
of these trends, addressing the demand for
pervasive connectivity with smart network
infrastructure (increasingly wireless)
that seamlessly connects everyone and
everything, everywhere. Our proven
enterprise portfolio provides the foundation
for more than 1 000 mission-critical networks,
incorporating technologies from across
Nokia’s Access, IP/Optical Networks,
Software and Global Services portfolios,
coupled with enterprise-specific products
for digital automation, analytics and IoT.
This end-to-end portfolio supports the
Future X for industries network architecture
developed by Nokia Bell Labs, a blueprint for
future industrial networks that intelligently
combines high-performance, ubiquitous
access and intelligent IP/optical networks
with agile multi-cloud-enabled solutions,
analytics-driven digital value platforms
and business applications – with security
capabilities embedded at all levels – to
support industrial automation.
We are also driving the adoption of
multi-cloud, IoT and automation with strategic
investments in emerging technologies such
as SDN, data center and SD-WAN applications
and more. Notable developments in 2018
include the launch of the Nokia Digital
Automation Cloud – our plug-and-play
private wireless connectivity and automation
platform designed for Industrial IoT
applications; and the combination of
Nokia’s 2018 acquisition of SpaceTime Insight
with the company’s home-grown scene
analytics innovations.
The next industrial
revolution promises to
unlock massive economic
and productivity gains
and set us on course for
a new era of tremendous
transformation
and progress.
22
NOKIA ANNUAL REPORT ON FORM 20-F 2018
The Enterprise business group targets
a select group of industries, which includes
the following:
Transportation, energy and public sector
(TEPS)
We expect our networks to be the foundation
for next-generation smart grids that
effectively match energy generation with
demand and help power utilities explore new
energy distribution models. We provide oil,
gas and mining companies with private LTE
networks to bring new levels of performance
to a range of mission-critical operations,
protecting lives and increasing productivity.
For railway, highway, aviation and maritime
industries, we build operational technology
networks that support railway signaling,
airport communications, air traffic control,
digital signage and toll collection, and
on-board broadband and infotainment.
Nokia’s technology helps first responders save
lives, supporting traditional two-way radio
communications, while laying the foundation
for advanced control centers and the
data-rich mobile broadband services
to enhance situational awareness and
operational intelligence.
As cities seek to become smarter, Nokia offers
a platform-based approach to support the
connectivity, data sharing and usage control
capabilities needed for smarter parking,
lighting, traffic management and other
municipal services. And we are partnering
with governments and new network
providers to bring broadband to remote,
under-served communities.
Hyperscale enterprise
Nokia offers hyperscale enterprises a
comprehensive solution set to help them
meet their data needs while addressing
stringent compliance, privacy and security
requirements. Nokia solutions enable the
connection of enterprise branches to clouds,
both public and private, to enable their
users to use their business applications
from anywhere, over any broadband network.
Nokia delivers IP, optical and SDN solutions
to enable this connectivity.
Webscale companies
The webscale companies are a select
group of enterprises that handle millions
of transactions per day, demand
hyper-efficiency in content delivery and
support exceptional online experiences.
We enable these companies to intelligently
and instantaneously scale their services
through automated cloud-based global
service delivery platforms with robust
cybersecurity features by leveraging our
intelligent IP and optical networking solutions.
Competition
The competitive landscape for the
enterprise space is broad and includes many
specialized players focused on specific
markets. The primary players active in
supplying high-performance networking
and mission-critical fixed and mobile
communications technologies across a
range of market segments include Nokia,
Cisco, Juniper, Huawei and Ericsson.
■ In the transportation arena, Nokia
announced its largest-ever GSM-Railway
contract with Polish PKP Polskie Linie
Kolejowe and launched a jointly
developed solution with our partner
Altran to optimize and streamline
the maintenance of rolling stock for
railway operators.
■ Nokia has expanded its push into the
health-care segment with continued
ground-breaking cloud advances at
University of Pittsburgh Medical Center
and Oulu University Hospital.
■ In the webscale space, Nokia and
Tencent are collaborating to accelerate
5G webscale research and applications
to benefit millions of internet users
in China.
■ Nokia’s Nuage Networks has built
on its strong performance in the
next-generation SD-WAN market with
recent contracts with Cogeco Peer1 and
e-QUAL. This is further building on top
of the SD-WAN services being offered by
more than 50 service provider partners
globally, including BT, Telefónica, Cox,
Telus, NTT Netmagic and Etisalat.
2018 highlights
■ Uptake of private LTE for enterprises
accelerated in 2018, with projects
including a deployment with China
Unicom of a smart manufacturing
solution at a BMW facility; a rollout for
the Brazilian power distributor Elektro to
strengthen the company’s power grid
reliability and operating efficiency;
and an installation at the Port of
HaminaKotka, the biggest in Finland,
with Ukkoverkot.
■ Nokia solidified its leadership position
in private LTE for mining, supporting
the digitalization and automation to
make mines safer, more productive
and sustainable. In 2018 Nokia
demonstrated these capabilities for
both underground mining vehicles
and open-pit, ultra-class mining trucks
and automated haulage systems in
collaboration with key industry leaders
including Sandvik and Komatsu.
■ We launched a variety of innovative
smart city projects, including an
agreement to power BSNL’s Smart
Telecom Pole project, providing
connectivity integrated with smart
LED lighting, environmental sensors
and more; a collaboration with
Dell EMC for delivery of goods using
semi-autonomous barges in the Dutch
city of Delft; and a joint USD 2 billion
CAD program with Smart City Capital,
LLC to foster smart city projects
in Canada.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
23
Business overview Nokia Technologies
Market overview
Nokia Technologies is focused on licensing
Nokia intellectual property, including patents,
technologies and the Nokia brand, building
on Nokia’s continued innovation and decades
of R&D leadership in technologies used in
virtually all connected devices used today.
Sales and marketing
Our Patent Business is responsible for
monetizing our intellectual property by
making our innovations available to the
markets through licensing activities and
transactions. Nokia Technologies currently
has more than half of the mobile phone
market by volume under license.
Nokia Technologies also continues to engage
in global sales and marketing activities
supporting the technology licensing of
our innovative audiovisual solutions such
as OZO Audio.
Nokia Technologies sees further
opportunities in licensing its proprietary
technologies, intellectual property and brand
assets into further markets such as Internet
of Things and related industries.
Business overview
and organization
Following the sale of our Digital Health
business in 2018, Nokia Technologies has
exited the direct-to-customer market and
is now focused on licensing.
■ Our Patent Business continues to grow
its successful patent licensing and
monetization activities, which drive
most of Nokia Technologies’ net sales.
■ Our Technology Licensing business is
focused on licensing innovative spatial
audiovisual technologies to smartphone
and camera manufacturers.
■ Our Brand Partnerships business works with
our exclusive licensee for the Nokia brand
for phones and tablets, HMD Global, which
has launched 12 new Android smartphones
and five new feature phones during 2018.
In addition, our Intellectual Property
organization manages the Nokia patent
portfolio, working with all other Nokia
businesses.
24
NOKIA ANNUAL REPORT ON FORM 20-F 2018
2018 highlights
■ Following the strategic review
of options for the Digital Health
consumer products business
announced in February 2018, the
sale of the business was closed in
May 2018, following which Nokia
Technologies was focused on licensing.
■ During the year, Nokia signed a number
of patent licensing agreements,
including the extension of our
agreement with Samsung, as well as
a new agreement with China’s OPPO.
We also joined the Avanci licensing
platform, to increase licensing choices
for automotive companies.
■ Our exclusive brand licensee for
phones and tablets, HMD Global,
launched 12 new Nokia branded
Android smartphones and five new
Nokia branded feature phones
during its second year of operations.
According to Counterpoint Research
Q3 2018 figures, HMD Global is now
a top ten smartphone manufacturer
globally and among the top five in more
than 30 markets including the UK.
Research and development
The applied nature of our R&D in the
Finland-based Media Technologies Research
Lab 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 standardization.
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. We are a leading contributor
to the development of 5G standards and
declared more than 1 400 patent families
for the standard during 2018, with more
to follow. We expect to also have a leading
position in 5G standards essential patents.
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.
At the end of 2018, our portfolio stands
at around 20 000 patent families, built on
combined R&D investments of more than
EUR 126 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 2018.
Breakdown of patent filings in 2018
by technology
4
3
2
1
1 Connectivity
2 Services, applications & multimedia
3 Fixed & optical networks
4 Emerging technologies & hardware
54%
23%
9%
14%
New patent filings in 2018
1 300+
R&D investment over the last two decades
~EUR 126bn
Patent licensees
100+
NOKIA ANNUAL REPORT ON FORM 20-F 2018
25
Business overview Nokia Bell Labs
Nokia Bell Labs is the world-renowned industrial
research and innovation arm of Nokia.
Over its 93-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 nine Nobel Prizes
(including one in 2018), two Turing Awards,
three Japan Prizes and a plethora of National
Medals of Science and Engineering, as well as
an Oscar, two Grammys and an Emmy 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.
With Nokia Bell Labs, we search for the
fundamental limits of what is possible, rather
than being constrained by the current state
of the art.
We look to the future to understand essential
human needs and the potential barriers to
enabling this new human existence. We then
use our unique diversity of research intellects,
disciplines and perspectives to solve the key
complex problems by aiming to discover or
invent 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.
Our research is focused on key scientific,
technological, engineering or mathematical
areas that require ten times or more
improvement in one or more dimensions.
We then combine these areas of research into
the Future X network architecture, which aims
to bring 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 our consulting
practice to help define the path to the future
network with business model innovation
and the optimum techno-economics.
This model of defining future needs and
inventing game-changing solutions to critical
problems while advising the market on the
path forward has been the constant mission
of Nokia Bell Labs.
Nokia Bell Labs is structured into three
functional areas to optimize how we create
a foundation to disrupt and transform
the future:
■ The Chief Technology Office defines Nokia’s
technological and architectural vision and
drives industry standards and initiatives.
■ Nokia Bell Labs Research understands key
challenges in the future vision and invents
solutions that are ten times better than
what is currently possible.
■ Bell Labs Consulting advises the industry
on the economics of our vision and how
to efficiently achieve this future goal from
the current starting point.
2018 highlights
■ The 2018 Nobel Prize in Physics was
awarded to Arthur Ashkin for his
invention of Optical Tweezers while
working at Nokia Bell Labs.
■ Nokia Bell Labs demonstrated 5G
wireless access speeds of more than
10Gb/s using a pioneering low-cost,
massive-scale antenna array system
at 90 GHz, as well as mission-critical
control of industrial robots over 5G
networks with millisecond latency.
■ Nokia’s PSE-3 chipset is the world’s
first to implement probabilistic
constellation shaping (PCS), a
technique pioneered by Nokia Bell
Labs, which pushes theoretical limits
by increasing optical network capacity
up to 65% while reducing power
by 60%.
■ Nokia Bell Labs created the World Wide
Streams (WWS) platform as the world’s
first global-scale network foundation
for sharing, transforming and
publishing live data streams generated
by the billions of emerging IoT devices.
■ The Future X Lab in Murray Hill, New
Jersey was created to showcase
Nokia’s portfolio and Nokia Bell Labs’
research innovations for the 5G Future
X network, with unprecedented levels
of automation and support for
advanced network slicing with latency,
bandwidth, reliability, scalability and
optimized economics, for all future use
cases in the industrial automation era.
■ Bell Labs Consulting is publishing the
sequel to the highly successful Future
X Network book, focused on applying
the Future X vision to all the major
industrial segments, and describing
how productivity will be massively
enhanced in the coming industrial
revolution.
26
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Arthur Ashkin wins The Nobel Prize in Physics 2018
Arthur Ashkin, a former Bell
Laboratories researcher, was
awarded the 2018 Nobel Prize in
Physics “for the optical tweezers
and their application to biological
systems” on October 2, 2018.
Arthur Ashkin shares the prize with Gérard Mourou and Donna
Strickland, “for their method of generating high-intensity, ultra-short
optical pulses.” The Royal Swedish Academy of Sciences administers
the Nobel Prize for Physics and said they were awarding this year’s
winners “for groundbreaking inventions in the field of laser physics.”
Arthur Ashkin was born on September 2, 1922 (age 96) in Brooklyn,
New York. He received a B.A. in physics from Columbia College in 1947
and a Ph.D. in nuclear physics from Cornell University in 1952. Ashkin
worked at the Columbia Radiation Lab from 1942 to 1945 while in the
Army. In 1952, he joined AT&T Bell Laboratories and started working
in the microwave field and then switched to laser research.
Arthur Ashkin invented optical tweezers that grab particles, atoms,
viruses and other living cells with their laser beam fingers. As is always
the case at Bell Labs, the breakthrough came as a byproduct of
research in the fundamentals of communications – in this case, optical
communications research into non-linear optical systems. Out of his
work on advanced laser optics came the ability to use optical ‘pressure’
from high powered lasers to control microscopic particles. A major
breakthrough came in 1987, when Ashkin used optical tweezers to
capture living bacteria without harming them. The optical tweezers
he pioneered are now widely used to investigate the machinery of life.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
27
Nobel Prizes awarded to our researchers
for their work at Bell Labs
9
Business overview Operating
and financial
review and
prospects
28
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Operating and financial review
and prospects
Contents
Principal industry trends
affecting operations
Business-specific trends
Networks business
Nokia Technologies
Financial markets trends
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
Structured finance
Venture fund investments
and commitments
Treasury policy
Significant subsequent events
Sustainability and corporate
responsibility
Our sustainability priorities
Improving people’s lives
through technology
Protecting the environment
Conducting our business
with integrity
Respecting our people
Making change happen together
Shares and share capital
Share details
Dividend
Articles of Association
Risk factors
30
30
30
32
33
34
34
39
40
40
44
46
47
47
47
48
48
49
49
49
50
51
53
54
54
56
57
58
58
58
58
60
NOKIA ANNUAL REPORT ON FORM 20-F 2018
29
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 products, from the hardware components
of networks used by communications service
providers and increasingly by customers in
other select verticals, to network agnostic
software solutions, as well as services to plan,
optimize, implement, run and upgrade
networks. Our Networks business is
conducted through six business groups:
Mobile Networks, Fixed Networks, Global
Services, IP/Optical Networks, Nokia
Enterprise 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 six 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.
This trend is one of the leading drivers for
the start of the 5G cycle, which has been
accelerated by communications service
providers, as evidenced by our growing order
book. The continuing increase in data traffic
has, however, not been directly reflected in
communications service providers’ 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 single RAN access 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
select vertical 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 to build
carrier-grade, mission-critical networks.
The first three pillars of our strategy are
aligned with these industry trends for our
Networks business. We continue to execute
well on our strategy, with a particular focus
on high-performance, end-to-end networks,
expansion into new select verticals and
building a new network-agnostic software
business. To accelerate this momentum and
increase customer focus as the 5G era beings,
we announced plans to realign parts of our
organization according to our strategy on
October 25, 2018. More information about
these plans can be found in “Business
overview—Our strategy”.
Pricing and price erosion
In 2018, we did not witness a dramatic change
in the overall competitive environment in
our industry. We did witness some pricing
pressure from a small number of large
customers funding their 5G entry within
their existing budget plans.
Product mix
The profitability of our Networks business is
affected by our product mix, including the
share of software in the sales mix. This is
particularly evident during large technology
cycles, as initial deployments consist of a
larger portion of hardware and services
and less software. This ratio shifts more
towards higher-margin software further
into the cycle, as additional capacity and
features are deployed. As the initial phases of
deployments tend to be lower margin, this is
offset by the ongoing deployment of previous
generation technologies, which tend to be
higher margin.
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.
Seasonality and cyclical nature of projects
Net sales in our Networks business are
affected by seasonality in the spending cycles
of communications service providers, 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. As an example, the 5G
technology cycle has accelerated over the
past year, as commercial deployments started
in 2018 and are expected to continue in 2019
and beyond. The timing of these projects
depends on a number of factors, including
new radio spectrum allocation, network
upgrade cycles and the availability of new
consumer devices and services, which in
turn could affect the net sales of our
Networks business.
30
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Continued operational efficiency
improvements
In 2018, our Networks business continued to
focus on operational improvements across its
business groups, in an effort to complete the
cost savings program put in place following
the acquisition of Alcatel Lucent. Upon
completion of the Alcatel Lucent integration
as of the end of 2018, we are now moving to
the next phase of restructuring, where we will
focus on optimization and ensuring that we
are lean in every part of our business. 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.
Accordingly, on October 25, 2018, we
announced a new cost reduction program
where we intend to target substantial savings
while continuing to make further investments
to drive future growth and higher returns.
The savings are expected to come from a
wide range of areas, including investments
in digitalization to drive more automation
and productivity, further process and tool
simplification, significant reductions in central
support functions to reach best-in-class cost
levels, prioritization of R&D programs to best
create long-term value, a sharp reduction of
R&D in legacy products, driving efficiency
from further application of our common
software foundation and innovative software
development techniques, the consolidation
of selected cross-company activities and
further reductions in real estate and other
overhead costs.
Cost of components and raw materials
There are several important factors driving
the profitability and competitiveness of
our Networks business: scale, operational
efficiency, pricing, and cost discipline.
The costs of our networks products are
comprised of, among others, components,
manufacturing, labor and overheads, royalties
and licensing fees, depreciation of product
machinery, logistics and warranty and other
quality costs.
Nokia Networks’ profitability can be affected
by changes in the sales volume, as well as
the requirement to source large volumes
of components on short notice, which can
impact the cost of sales, or in cases where
component shortages emerge, the net sales.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
31
Operating and financial review and prospects Principal industry trends
affecting operations continued
Nokia Technologies
Nokia Technologies is focused on pursuing
new licensing opportunities for our valuable
intellectual property, including patents,
innovative technologies and know-how,
and the Nokia brand.
The Nokia Technologies strategy consists of:
1) patent licensing, where we license
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
audio visual technologies to enable
licensees to build more innovative products;
and 3) brand licensing, enabling licensees
to leverage the value of the Nokia brand
in consumer markets.
Following a review of strategic options for
Nokia’s Digital Health business, which used to
be a part of Nokia Technologies, in May 2018
we announced and closed the sale of this
business to Eric Carreel, co-founder and
former chairman of Withings.
Monetization strategies of IPR
Success in the technology industry requires
significant R&D investment, with the resulting
patents and other Intellectual Property Rights
(IPR) utilized to protect and generate a return
on those investments and related inventions.
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. On the other hand, we also
engage in brand licensing to leverage the
Nokia brand in consumer devices.
In patent licensing, the main opportunities
we are pursuing are: (1) renewing existing
license agreements and negotiating new
license agreements with mobile phone
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.
Following the sale of our Devices and Services
business in 2014, 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.
32
NOKIA ANNUAL REPORT ON FORM 20-F 2018
In brand licensing, we will continue to seek
further opportunities to bring the Nokia brand
into consumer markets, by licensing our brand
and other intellectual property. We continue
to work with HMD Global, our exclusive
licensee for the Nokia brand for phones
and tablets, who has launched 12 new Android
smartphones and five new feature phones
during 2018.
In technology licensing, our newest business,
the opportunities are more long-term in our
view, but we will look at opportunities to
license technologies developed by Nokia
Technologies which can be integrated by
licensees into their products and services.
General trends in IPR licensing
In general, there has been increased focus
on IPR protection and licensing in the market,
and this trend is expected to continue. As
such, new agreements are generally a product
of lengthy negotiations and occasionally
through arbitration or litigation, and therefore
the timing and outcome may be difficult
to forecast. Due to the structure of patent
license agreements, the payments may
be 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.
Financial markets trends
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.
Significant changes in exchange rates may
also impact our competitive position and
related price pressures through their impact
on our competitors.
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 2018, approximately 25% of Group net
sales and approximately 30% of Group total
costs were denominated in euro. In 2018,
approximately 45% of Group net sales and
total costs were denominated in U.S. dollars
and approximately 10% in Chinese yuan.
During 2018, the U.S. dollar first depreciated
against the euro but then started appreciating
against the euro from the second quarter
onwards. Overall for the full year 2018
compared to previous year, the U.S. dollar
was weaker against the euro on year-on-year
basis and this had a negative impact on our
net sales reported in euros. However, the
weaker U.S. dollar on year-on-year basis
also contributed to lower cost of sales and
slightly lower operating expenses. In total,
before hedging, the weaker U.S. dollar on
year-on-year basis had an approximately
neutral effect on our operating profit in 2018.
For the full year 2018 compared to previous
year, the Chinese yuan was weaker against
the euro on year-on-year basis and this had
a slightly negative impact on our net sales
expressed in euros. However, the weaker
Chinese yuan on year-on-year basis also
contributed to slightly lower cost of sales and
operating expenses. In total, before hedging,
the weaker Chinese yuan on year-on-year
basis had an approximately neutral effect
on our operating profit in 2018.
For a discussion of the instruments used by
us in connection with our hedging activities,
refer to Note 36, Financial 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 Group net sales and total costs:
Currency
EUR
USD
CNY
Other
Total
2018
2017
Net sales
~25%
~45%
~10%
~20%
100%
Total costs
~30%
~45%
~10%
~15%
100%
Net sales
~25%
~45%
~10%
~20%
100%
Total costs
~30%
~45%
~10%
~15%
100%
NOKIA ANNUAL REPORT ON FORM 20-F 2018
33
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, 2018 and 2017 and for
each of the three years ended December 31, 2018, 2017 and 2016 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, 2018 and 2017 and for each of the three years ended
December 31, 2018, 2017 and 2016 should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated
financial statements.
At the end of 2018, we had two businesses: Nokia’s Networks business and Nokia Technologies, and four reportable segments for financial
reporting purposes: (1) Ultra Broadband Networks, (2) Global Services and (3) IP Networks and Applications within Nokia’s Networks business;
and (4) Nokia Technologies. We also present certain segment-level information for Group Common and Other as well as for Discontinued
operations. In 2018 the Group applied IFRS 9, Financial Instruments, and IFRS 15, Contracts with Customers, for the first time. The financial
information as of December 31, 2017 and for the years ended December 31, 2017 and 2016 has not been restated for the effects of the new
accounting standards. Refer to Note 3, New and amended standards and interpretations, in the consolidated financial statements.
Continuing operations
For the year ended December 31, 2018 compared to the year ended December 31, 2017
The following table sets forth selective line items and the percentage of net sales for the years indicated.
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other income and expenses
Operating (loss)/profit
Share of results of associated companies and joint ventures
Financial income and expenses
Loss before tax
Income tax expense
Loss for the year
Net sales
Net sales in 2018 were EUR 22 563 million, a decrease of EUR 584 million,
or 3%, compared to EUR 23 147 million in 2017. The decrease in
Continuing operations net sales was primarily due to a decrease in
Nokia’s Networks business net sales, and, to a lesser extent a decrease
in Nokia Technologies and Group Common and Other 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
2018
EURm
4 081
6 489
2 165
1 380
1 874
6 574
22 563
2017
EURm
4 228
6 833
2 516
1 279
1 907
6 384
23 147
Year-on-year
change %
(3)
(5)
(14)
8
(2)
3
(3)
(1) All Nokia Technologies IPR and licensing net sales are allocated to Finland.
2018
EURm % of net sales
2017
EURm % of net sales
Year-on-year
change %
22 563
(14 117)
8 446
(4 620)
(3 463)
(422)
(59)
12
(313)
(360)
(189)
(549)
100.0
(62.6)
37.4
(20.5)
(15.3)
(1.9)
(0.3)
0.1
(1.4)
(1.6)
(0.8)
(2.4)
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)
(3)
1
(8)
(6)
(4)
(29)
–
9
(42)
(29)
(80)
(62)
Gross profit
Gross profit in 2018 was EUR 8 446 million, a decrease of
EUR 693 million, or 8%, compared to EUR 9 139 million in 2017.
The decrease in gross profit was primarily due to lower gross profit
in Nokia’s Networks business and Nokia Technologies, as well as
higher product portfolio integration-related costs, partially offset by
lower working capital-related purchase price allocation adjustments.
Gross margin for Continuing operations in 2018 was 37.4%,
compared to 39.5% in 2017. In 2018, gross profit included product
portfolio integration-related costs of EUR 548 million and working
capital-related purchase price allocation adjustments of EUR 16 million.
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.
34
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Operating expenses
Our research and development expenses in 2018 were
EUR 4 620 million, a decrease of EUR 296 million, or 6%, compared
to EUR 4 916 million in 2017. Research and development expenses
represented 20.5% of our net sales in 2018 compared to 21.2% in
2017. The decrease in research and development expenses were due
to decreases in Nokia’s Networks business and Nokia Technologies
research and development expenses, as well as lower amortization
and depreciation of acquired intangible assets and property, plant and
equipment and product portfolio integration-related costs. In 2018,
research and development expenses included amortization and
depreciation of acquired intangible assets and property, plant and
equipment of EUR 576 million, compared to EUR 633 million in 2017,
as well as product portfolio integration-related costs of EUR 28 million,
compared to EUR 57 million in 2017.
Our selling, general and administrative expenses in 2018 were
EUR 3 463 million, a decrease of EUR 152 million, or 4%, compared
to EUR 3 615 million in 2017. Selling, general and administrative
expenses represented 15.3% of our net sales in 2018 compared to
15.6% in 2017. The decrease in selling, general and administrative
expenses was primarily due to a decrease in Nokia Technologies
selling, general and administrative expenses, lower amortization and
depreciation of acquired intangible assets, and property, plant and
equipment, and lower Group Common and Other 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 358 million in 2018
compared to EUR 394 million in 2017, as well as transaction and
integration-related costs of EUR 207 million, compared to
EUR 194 million in 2017.
Other income and expenses in 2018 was a net expense of
EUR 422 million, a decrease of EUR 170 million, compared to a net
expense of EUR 592 million in 2017. The net positive fluctuation in our
other income and expenses was primarily due to lower restructuring
and associated charges, lower impairment charges and a net positive
fluctuation in Group Common and Other other income and expenses.
These were partially offset by a net negative fluctuation in Nokia’s
Networks business other income and expenses, charges related to
fair value changes of a legacy IPR fund and charges related to the
divestment of businesses. Other income and expenses included
restructuring and associated charges of EUR 319 million in 2018
compared to EUR 576 million in 2017.
In 2018, we recorded a non-cash impairment charge to other income
and expenses of EUR 48 million, compared to EUR 141 million in 2017.
In 2017, the charge was due to the impairment of goodwill related to
our digital health business, which was 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 loss in 2018 was EUR 59 million, a change of EUR 75 million,
compared to an operating profit of EUR 16 million in 2017. The change in
operating result was primarily due to a lower gross profit, partially offset
by lower research and development expenses, a net positive fluctuation
in other income and expenses and lower selling, general and
administrative expenses. Our operating margin in both 2018 and 2017
was approximately break even.
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
Product portfolio strategy costs
Restructuring and associated charges
Transaction and related costs, including
integration costs relating to the acquisition
of Alcatel Lucent
Fair value changes of legacy IPR fund
Impairment of assets
Divestment of businesses
Release of acquisition-related fair value
adjustments to deferred revenue and
inventory
Other
Total operating (loss)/profit
2018
2017
2 180
2 587
(940)
(583)
(321)
(1 033)
(536)
(579)
(220)
(57)
(48)
(39)
(16)
(15)
(59)
(206)
–
(173)
–
(55)
11
16
(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 was a net expense of EUR 313 million
in 2018 compared to a net expense of EUR 537 million in 2017, a
decrease of EUR 224 million, or 42%. The net positive fluctuation in
financial income and expenses was primarily due to the absence of
EUR 220 million of costs 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, that negatively impacted 2017; lower losses from
foreign exchange fluctuations; and the absence of a loss on the sale
of financial assets that negatively impacted 2017. This was partially
offset by the absence of gains from venture fund investments, as they
were no longer recognized in financial income and expenses in 2018
following the adoption of IFRS 9, and the inclusion of expenses
associated with customer receivables and overdue payments in
financial income and expenses as a result of the adoption of IFRS 15.
Refer to “—Liquidity and capital resources” below.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
35
Operating and financial review and prospects Results of operations continued
Loss before tax
Our loss before tax in 2018 was EUR 360 million, a decrease of
EUR 150 million compared to a loss of EUR 510 million in 2017.
Income tax
Income taxes was a net expense of EUR 189 million in 2018, a decrease
of EUR 738 million compared to a net expense of EUR 927 million in
2017. The change in net income taxes was primarily attributable to the
following expenses recorded in 2017: deferred tax expense 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 related to the integration of the former Alcatel Lucent
and Nokia operating models, and income taxes for prior years of
EUR 139 million from to the disposal of the former Alcatel Lucent
railway signaling business in 2006 to Thalès. This was partially offset by
three factors: higher income taxes due to increased profitability and
our regional profit mix in 2018 compared to 2017, Base Erosion and
Anti-Abuse Tax in the United States, enacted as part of the tax reform
and applicable from 2018 onwards, and deferred tax expense resulting
from the write-off of certain deferred tax assets in 2018, primarily
related to foreign withholding tax credits in Finland. Refer to Note 13,
Income taxes, of our consolidated financial statements included in
this annual report on Form 20-F.
The United States passed a comprehensive set of tax reforms into law
on December 22, 2017. The new law, known as the Tax Cuts and Jobs
Act, contains several changes that are applicable to us, many of which
became effective for tax years beginning in 2018. Most notably,
the U.S. federal statutory tax rate was reduced from 35% to 21%.
In addition, the new law made significant modifications to the taxation
of cross-border transactions which we expect to have an impact on
certain transactions between our subsidiaries in the United States and
our subsidiaries outside the United States. Regulatory guidance with
respect to the new tax law will continue be published by the U.S. tax
authorities in the future and such guidance may have an impact on
our cross-border transactions. We have made reasonable estimates
related to the tax law’s impact in our December 31, 2018 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 2018 was
EUR 340 million, a decrease of EUR 1 154 million, compared to a loss of
EUR 1 494 million in 2017. The change in profit attributable to equity
holders of the parent was primarily due to lower income tax expenses
and a net positive fluctuation in financial income and expenses.
This was partially offset by an operating loss in 2018, compared
to an operating profit in 2017.
Our total EPS from continuing operations in 2018 was negative
EUR 0.10 (basic) and negative EUR 0.10 (diluted) compared to negative
EUR 0.26 (basic) and negative EUR 0.26 (diluted) in 2017.
Cost savings program
On April 6, 2016, we launched a cost savings program, targeting
approximately EUR 1 200 million of recurring annual cost savings
to be achieved in full year 2018. At the end of 2018, we completed
the restructuring activities related to this cost savings program
and achieved the EUR 1 200 million of recurring annual cost savings
targeted. In 2018, we recognized restructuring and associated charges
of approximately EUR 300 million related to the cost savings program.
Cumulative recognized restructuring and associated charges were
approximately EUR 1 600 million.
In 2018, we had restructuring and associated cash outflows of
approximately EUR 500 million related to the cost savings program.
Cumulative restructuring and associated cash outflows were
approximately EUR 1 450 million and we expect total restructuring
and associated cash outflows to be approximately EUR 2 100 million,
related to this cost savings program.
36
NOKIA ANNUAL REPORT ON FORM 20-F 2018
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
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 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 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
37
Operating and financial review and prospects Results of operations continued
Operating expenses
Our research and development expenses in 2017 were
EUR 4 916 million, a decrease of EUR 81 million, or 2%, compared
to EUR 4 997 million in 2016. Research and development expenses
represented 21.2% of our net sales in 2017 compared to 21.1% in
2016. The decrease in research and development expenses were due
to decreases in Nokia’s Networks business, Group Common and Other
and Nokia Technologies research and development expenses. In 2017,
research and development 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 in 2017 were
EUR 3 615 million, a decrease of EUR 152million, 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 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 was 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 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
research and development 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:
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 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 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.
Loss/profit before tax
Our loss before tax for Continuing operations in 2017 was
EUR 510 million, a decrease of EUR 859 million compared to a loss
of EUR 1 369 million in 2016.
38
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Cost savings program
On April 6, 2016, we launched a 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.
In 2017, we had restructuring and associated cash outflows of
approximately EUR 550 million related to the cost savings program.
Discontinued operations
Discontinued operations include the continuing financial effects of the
HERE business and the D&S business. The Group sold its HERE digital
mapping and location services business to a German automotive
industry consortium comprised of AUDI AG, BMW Group and Daimler
AG in a transaction that was completed on December 4, 2015 (the sale
of HERE business). The Group sold substantially all of its Devices &
Services business to Microsoft in a transaction that was completed
on April 25, 2014 (the sale of D&S business). Refer to Note 7,
Discontinued operations, of our consolidated financial statements
included in this annual report on Form 20-F.
For the year ended December 31, 2018 compared to the year ended
December 31, 2017
Discontinued operations profit for the year was EUR 214 million
compared to a loss of EUR 21 million in 2017. Profit for the year in
2018 mostly related to a resolution reached in the tax dispute
concerning the applicability of withholding tax in respect of payments
by Nokia India Private Limited to Nokia Corporation for the supply of
operating software in D&S business as well as a release of uncertain
tax positions related to HERE business.
For the year ended December 31, 2017 compared to the year ended
December 31, 2016
Discontinued operations loss for the year was EUR 21 million
compared to a loss of EUR 15 million in 2016.
Income tax
Income taxes 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 13, 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
39
Operating and financial review and prospects Results of segments
Networks business
For the year ended December 31, 2018 compared to the year ended December 31, 2017
The following table sets forth selective line items and the percentage of net sales for the years indicated.
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other income and expenses
Operating profit
Segment information(1)
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development
expenses
Selling, general and
administrative expenses
Other income and expenses
Operating profit
Ultra
Broadband
Networks(2)
2018
EURm
8 692
(4 816)
3 876
Global
Services
2018
EURm
5 710
(4 709)
1 001
IP Networks
and
Applications(3)
2018
EURm
5 719
(3 196)
2 523
2018
EURm % of net sales
2017
EURm % of net sales
Year-on-year
change %
20 121
(12 721)
7 400
(3 592)
(2 576)
(33)
1 199
Networks
total
2018
EURm
20 121
(12 721)
7 400
100.0
(63.2)
36.8
(17.9)
(12.8)
(0.2)
6.0
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
(2)
1
(7)
(4)
–
–
(30)
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
2017
EURm
20 523
(12 590)
7 933
(2 273)
(87)
(1 232)
(3 592)
(2 361)
(85)
(1 284)
(3 730)
(1 079)
(14)
510
(652)
(20)
242
(845)
1
447
(2 576)
(33)
1 199
(1 162)
57
781
(631)
14
411
(794)
24
519
(2 587)
95
1 711
(1) Refer to Note 5, Segment information, of our consolidated financial statements included in this annual report on Form 20-F.
(2) Net sales include EUR 6 712 million (EUR 6 895 million in 2017) attributable to Mobile Networks and EUR 1 980 million (EUR 2 075 million in 2017) attributable to Fixed Networks.
(3) Net sales include EUR 2 545 million (EUR 2 694 million in 2017) attributable to IP Routing; EUR 1 606 million (EUR 1 499 million in 2017) attributable to Optical Networks; and EUR 1 568 million
(EUR 1 550 million in 2017) attributable to 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
2018
EURm
4 055
4 400
2 147
1 347
1 859
6 313
20 121
2017
EURm
4 197
4 442
2 466
1 245
1 897
6 276
20 523
Year-on-year
change %
(3)
(1)
(13)
8
(2)
1
(2)
Net sales
Nokia’s Networks business net sales in 2018 were EUR 20 121 million,
a decrease of EUR 402 million, or 2%, compared to EUR 20 523 million
in 2017. The decrease in Nokia’s Networks business net sales was
primarily due to Ultra Broadband Networks and, to a lesser extent,
Global Services and IP Networks and Applications. Ultra Broadband
Networks net sales were EUR 8 692 million in 2018, a decrease of
EUR 278 million, or 3%, compared to EUR 8 970 million in 2017.
Global Services net sales were EUR 5 710 million in 2018, a decrease
of EUR 100 million, or 2%, compared to EUR 5 810 million in 2017.
IP Networks and Applications net sales were EUR 5 719 million in 2018,
a decrease of EUR 24 million, or approximately flat, compared to
EUR 5 743 million in 2017.
The decrease in Ultra Broadband Networks net sales is comprised
of a decrease in Mobile Networks net sales of EUR 183 million and
a decrease in Fixed Networks net sales of EUR 95 million.
The decrease in Mobile Networks net sales was primarily due to radio
networks and, to a lesser extent, core networks, partially offset
by growth in microwave. From a growth perspective, small cells
continued to deliver strong performance.
The decrease in Fixed Networks net sales was primarily due to
broadband access, services and digital home.
The decrease in Global Services net sales was primarily due to care,
network implementation, partially offset by managed services.
The decrease in IP Networks and Applications net sales is comprised of
a decrease in IP/Optical Networks net sales of EUR 42 million, partially
offset by an increase in Nokia Software net sales of EUR 18 million.
The decrease in IP/Optical Networks net sales was due to IP routing,
partially offset by optical networks. For IP routing, net sales were
adversely affected by component shortages in our supply chain, which
showed signs of improvement in the latter part of 2018. For Optical
Networks, the increase was primarily related to our strong product
portfolio, as well as progress with targeted large enterprise vertical
and webscale customers.
40
NOKIA ANNUAL REPORT ON FORM 20-F 2018
The increase in Nokia Software net sales was primarily due to growth
in digital networks, CloudBand NFV management and orchestration,
NetGuard security, network management and self-organizing network
(SON). The net sales performance of Nokia Software continued to
benefit from the investments to build a dedicated software sales
force and increasingly strong demand for our market leading
software portfolio built on a 5G ready and cloud-native Common
Software Foundation.
Gross profit
Nokia’s Networks business gross profit in 2018 was EUR 7 400 million,
a decrease of EUR 533 million, or 7%, compared to EUR 7 933 million
in 2017. Nokia’s Networks business gross margin in 2018 was 36.8%,
compared to 38.7% in 2017. The decrease in Nokia’s Networks
business gross profit was primarily due to Ultra Broadband Networks
and, to a lesser extent, Global Services and IP Networks and
Applications.
Ultra Broadband Networks gross profit in 2018 was EUR 3 876 million,
a decrease of EUR 371 million, or 9%, compared to EUR 4 247 million
in 2017. The decrease in Ultra Broadband Networks gross profit was
due to Mobile Networks. The lower gross profit in Mobile Networks
was primarily due to lower gross margin and lower net sales. Ultra
Broadband Networks gross margin in 2018 was 44.6%, compared
to 47.3% in 2017.
Global Services gross profit in 2018 was EUR 1 001 million, a decrease
of EUR 112 million, or 10%, compared to EUR 1 113 million in 2017.
The decrease in Global Services gross profit was primarily due to lower
gross margin and lower net sales, partially offset by lower incentive
accruals. Global Services gross margin in 2018 was 17.5%, compared
to 19.2% in 2017.
IP Networks and Applications gross profit in 2018 was
EUR 2 523 million, a decrease of EUR 50 million, or 2%, compared
to EUR 2 573 million in 2017. 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 gross margin and lower net sales.
The higher gross profit in Nokia Software was due to higher gross
margin and higher net sales. IP Networks and Applications gross margin
in 2018 was 44.1%, compared to 44.8% in 2016.
Operating expenses
Nokia’s Networks business research and development expenses were
EUR 3 592 million in 2018, a decrease of EUR 138 million, or 4%,
compared to EUR 3 730 million in 2017. The decrease in Nokia’s
Networks business research and development expenses was primarily
due to Ultra Broadband Networks and IP Networks and Applications.
Ultra Broadband Networks research and development expenses were
EUR 2 273 million in 2018, a decrease of EUR 88 million, compared to
EUR 2 361 million in 2017. The decrease in Ultra Broadband Networks
research and development expenses was primarily due to Mobile
Networks. The lower research and development expenses in Mobile
Networks was primarily due to lower personnel expenses, reflecting
progress related to our cost savings program, as well as lower incentive
accruals. Global Services research and development expenses were
EUR 87 million in 2018, an increase of EUR 2 million, compared to
EUR 85 million in 2017. IP Networks and Applications research and
development expenses were EUR 1 232 million in 2018, a decrease of
EUR 52 million, compared to EUR 1 284 million in 2017. The decrease
in IP Networks and Applications was due to both Nokia Software and
IP/Optical Networks. The decrease in Nokia Software research and
development expenses was primarily due to improved productivity,
following the successful implementation of a common software
foundation. The decrease in IP/Optical Networks research and
development expenses was primarily due to net positive foreign
exchange fluctuations. IP Networks and Applications research and
development expenses also benefitted from lower incentive accruals
in 2018.
Nokia’s Networks business selling, general and administrative
expenses were EUR 2 576 million in 2018, a decrease of EUR 11 million,
or approximately flat, compared to EUR 2 587 million in 2017.
The decrease in Nokia’s Networks business selling, general and
administrative expenses was due to Ultra Broadband Networks,
partially offset by IP Networks and Applications and Global Services.
Ultra Broadband Networks selling, general and administrative
expenses were EUR 1 079 million in 2018, a decrease of EUR 83 million,
compared to EUR 1 162 million in 2017. The decrease in Ultra
Broadband Networks selling, general and administrative expenses was
primarily due to Mobile Networks. The decrease in Mobile Networks
selling, general and administrative expenses was primarily due to
progress related to Nokia’s cost savings program, partially offset by
higher costs related to 5G customer trials. Ultra Broadband Networks
selling, general and administrative expenses also benefitted from
lower incentive accruals in 2018. Global Services selling, general and
administrative expenses were EUR 652 million in 2018, an increase
of EUR 21 million, compared to EUR 631 million in 2017. The increase
in Global Services selling, general and administrative expenses
was primarily due to higher costs related to 5G customer trials.
IP Networks and Applications selling, general and administrative
expenses were EUR 845 million in 2018, an increase of EUR 51 million,
compared to EUR 794 million in 2017. The increase in IP Networks and
Applications selling, general and administrative expenses was due
to both IP/Optical Networks and Nokia Software. The higher selling,
general and administrative expenses in IP/Optical Networks was
primarily due to higher investments to drive future growth and higher
returns. The higher selling, general and administrative expenses in
Nokia Software was primarily due to investments to build a dedicated
software sales force, with specialized go to market capabilities.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
41
Operating and financial review and prospects Results of segments continued
Nokia’s Networks business other income and expenses was an
expense of EUR 33 million in 2018, a change of EUR 128 million
compared to an income of EUR 95 million in 2017. The net negative
fluctuation in other income and expenses was due to Ultra Broadband
Networks, Global Services and IP Networks and Applications. The net
negative fluctuation in Ultra Broadband Networks other income and
expenses was primarily related to foreign exchange hedging. The net
negative fluctuation in Global Services other income and expenses
was primarily related to foreign exchange hedging and higher doubtful
account allowances. The net negative fluctuation in IP Networks and
Applications other income and expenses was primarily due to foreign
exchange hedging and higher doubtful account allowances.
Operating profit
Nokia’s Networks business operating profit was EUR 1 199 million in
2018, a decrease of EUR 512 million compared to EUR 1 711 million in
2017. Nokia’s Networks business operating margin in 2018 was 6.0%
compared to 8.3% in 2017. The decrease in operating margin was
attributable to decreases in Ultra Broadband Networks, Global Services
and IP Networks and Applications operating margin. Ultra Broadband
Networks operating margin decreased from 8.7% in 2017 to 5.9% in
2018. Global Services operating margin decreased from 7.1% in 2017
to 4.2% in 2018. IP Networks and Applications operating margin
decreased from 9.0% in 2017 to 7.8% in 2018. The decreases in Ultra
Broadband Networks, Global Services and IP Networks and Applications
operating margins in 2018 were primarily due to lower gross profit and
a net negative fluctuation in other income and expenses, partially
offset by lower research and development expenses.
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)
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
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
Networks
total
2017
EURm
20 523
(12 590)
7 933
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)
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
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 5, Segment information, of our consolidated financial statements included in this annual report on Form 20-F.
(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.
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.
42
NOKIA ANNUAL REPORT ON FORM 20-F 2018
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.
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, and related
to three specific customers.
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. The decrease in systems
integration was attributable to the winding down of a specific set of
legacy Alcatel Lucent contracts.
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. In addition, IP routing net sales
were adversely affected by lower resale of third party IP routers.
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 research and development 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 research and development 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 research and development expenses was primarily
attributable to Ultra Broadband Networks research and development
expenses, and to a lesser extent, Global Services research and
development expenses. Ultra Broadband Networks research and
development 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 research and development expenses was
primarily due to Mobile Networks, partially offset by Fixed Networks.
The lower research and development expenses in Mobile Networks was
primarily due to lower personnel expenses, reflecting progress related
to our cost savings program, with reduced research and development
related to legacy technologies, partially offset by an increase in
research and development related to 5G. The higher research and
development 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 research and development expenses were
negatively affected by the absence of a benefit related to lower
incentive accruals for full year 2016. Global Services research and
development 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 research and development expenses was primarily
due to lower personnel expenses, reflecting progress related to our
cost savings program. IP Networks and Applications research and
development 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
43
Operating and financial review and prospects Results of segments continued
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.
Nokia Technologies
For the year ended December 31, 2018 compared to the year ended December 31, 2017
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
2018
EURm % of net sales
2017
EURm % of net sales
Year-on-year
change %
1 501
(22)
1 479
(145)
(127)
(4)
1 203
100.0
(1.5)
98.5
(9.7)
(8.5)
(0.3)
80.1
1 654
(71)
1 583
(235)
(218)
(6)
1 124
100.0
(4.3)
95.7
(14.2)
(13.2)
(0.4)
68.0
(9)
(69)
(7)
(38)
(42)
–
7
Net sales
Nokia Technologies net sales in 2018 were EUR 1 501 million, a
decrease of EUR 153 million, or 9%, compared to EUR 1 654 million
in 2017. In 2018, EUR 1 476 million of net sales related to patent and
brand licensing and EUR 25 million of net sales related to digital health
and digital media. 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 decrease in Nokia Technologies
net sales was primarily due to lower one-time net sales, partially
offset by higher recurring licensing net sales.
Gross profit
Nokia Technologies gross profit in 2018 was EUR 1 479 million, a
decrease of EUR 104 million, or 7%, compared to EUR 1 583 million in
2017. The lower gross profit in Nokia Technologies was primarily due
to lower net sales, partially offset by higher gross margin, reflecting
the discontinuation of our digital media product business and the
absence of costs related to digital health, following the sale of our
digital health business in 2018.
44
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Operating expenses
Nokia Technologies research and development expenses in 2018 were
EUR 145 million, a decrease of EUR 90 million, or 38%, compared to
EUR 235 million in 2017. The decrease in Nokia Technologies research
and development expenses was primarily due to reduced investments
in digital media and the absence of costs related to digital health,
following the sale of our digital health business in 2018, as well as
lower patent portfolio costs.
Nokia Technologies selling, general and administrative expenses
in 2018 were EUR 127 million, a decrease of EUR 91 million, or 42%,
compared to EUR 218 million in 2017. The decrease in Nokia
Technologies selling, general and administrative expenses was
primarily due to lower licensing-related litigation costs and lower
costs due to the discontinuation of our digital media and digital
health businesses.
Nokia Technologies other income and expense in 2018 was a net
expense of EUR 4 million, a change of EUR 2 million compared to a net
expense of EUR 6 million in 2017.
Operating profit
Nokia Technologies operating profit in 2018 was EUR 1 203 million,
an increase of EUR 79 million, or 7%, compared to an operating profit
of EUR 1 124 million in 2017. The increase in Nokia Technologies
operating profit was primarily due to lower selling, general and
administrative and research and development expenses, partially
offset by lower gross profit. Nokia Technologies operating margin
in 2018 was 80.1% compared to 68.0% in 2017.
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
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 Global. 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.
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.
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
Operating expenses
Nokia Technologies research and development 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
research and development 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
45
Operating and financial review and prospects Results of segments continued
Group Common and Other
For the year ended December 31, 2018 compared to the year ended
December 31, 2017
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
2018
EURm
1 021
(865)
156
(277)
(193)
92
(222)
2017
EURm
1 114
(956)
158
(260)
(219)
73
(248)
Net sales
Group Common and Other net sales in 2018 were EUR 1 021 million,
a decrease of EUR 93 million, or 8%, compared to EUR 1 114 million
in 2017. 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 2018 was EUR 156 million,
a decrease of EUR 2 million, or 1%, compared to EUR 158 million in
2017. The lower gross profit was primarily due to Alcatel Submarine
Networks, partially offset by Radio Frequency Systems. Group
Common and Other gross margin in 2018 was 15.3% compared
to 14.2% in 2017.
Operating expenses
Group Common and Other research and development expenses
in 2018 were EUR 277 million, an increase of EUR 17 million, or 7%,
compared to EUR 260 million in 2017. The increase in Group Common
and Other research and development expenses was primarily due
to higher costs related to Nokia Bell Labs.
Group Common and Other selling, general and administrative
expenses in 2018 were EUR 193 million, a decrease of EUR 26 million,
or 12%, compared to EUR 219 million in 2017. The decrease in Group
Common and Other selling, general and administrative expenses was
primarily due to lower support function costs, reflecting progress
related to our cost savings program.
Group Common and Other other income and expense in 2018 was a
net income of EUR 92 million, a change of EUR 20 million compared to
a net income of EUR 73 million in 2017. The net positive fluctuation in
other income and expenses was primarily due to higher gains in
venture fund investments, partially offset by the absence of the
unwinding of a reinsurance contract and an expiration of a former
Alcatel Lucent stock option liability, both of which benefitted 2017.
Operating loss
Group Common and Other operating loss in 2018 was EUR 222 million,
a decrease of EUR 26 million, compared to an operating loss of
EUR 248 million in 2017. The change in Group Common and Other
operating loss was primarily attributable to a positive fluctuation
in other income and expense, and lower selling, general and
administrative expenses, partly offset by higher research and
development expenses.
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
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)
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 research and development expenses
in 2017 were EUR 260 million, a decrease of EUR 27 million, or 9%,
compared to EUR 287 million in 2016. The decrease in Group Common
and Other research and development 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 decrease 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.
46
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Liquidity and
capital resources
Financial position
As of December 31, 2018, our total cash and current financial
investments (defined as cash and cash equivalents and current
financial investments) equaled EUR 6 873 million, a decrease of
EUR 1 407 million, compared to EUR 8 280 million as of December 31,
2017. The decrease was primarily attributable to payment of
dividends of EUR 1 081 million; EUR 943 million cash tied-up as net
working capital and capital expenditures of EUR 672 million. As of
December 31, 2016, our total cash and current financial investments
equaled EUR 9 326 million.
As of December 31, 2018, our net cash and current financial
investments (defined as total cash and current financial investments
less long-term and short-term interest-bearing liabilities) equaled
EUR 3 051 million, a decrease of EUR 1 463 million, compared to
EUR 4 514 million as of December 31, 2017. The decrease was mainly
attributable to drivers affecting our total cash and current financial
investments as described above. As of December 31, 2016, our net
cash and current financial investments equaled EUR 5 299 million.
As of December 31, 2018, our cash and cash equivalents equaled
EUR 6 261 million, a decrease of EUR 1 108 million compared to
EUR 7 369 million as of December 31, 2017. As of December 31,
2016, our cash and cash equivalents equaled EUR 7 497 million.
Cash flow
2018
Our cash inflow from operating activities in 2018 was EUR 360 million
a decrease of EUR 1 451 million compared to a cash inflow of
EUR 1 811 million in 2017. The decrease was primarily attributable to
EUR 943 million cash tied-up to net working capital in 2018 compared
to EUR 504 million cash release in 2017 and net profit, adjusted for
non-cash items, of EUR 1 758 million, a decrease of EUR 460 million
compared to EUR 2 218 million in 2017. The primary driver for the
increase in net working capital was related to a decrease in liabilities of
EUR 645 million compared to an increase of EUR 1 221 million in 2017,
and an increase in inventories of EUR 544 million compared to an
increase of EUR 296 million in 2017. The decrease in liabilities was
primarily attributable to a restructuring and associated cash outflows,
decrease in deferred revenue and the payment of employee incentives
related to Nokia’s business performance in 2017, partially offset by an
increase in trade payables. The increase in inventories was attributable
to a decision to ensure sufficient flexibility to deliver higher levels of
equipment sales, particularly related to 5G. The decrease in liabilities
and the increase in inventories were partially offset by a decrease in
receivables of EUR 246 million.
Cash flow from operating activities included interest paid of
EUR 159 million, a decrease of EUR 250 million compared to
EUR 409 million in 2017; paid taxes of EUR 364 million, a decrease of
EUR 191 million compared to EUR 555 million in 2017; and interest
received of EUR 68 million, an increase of EUR 15 million compared
to EUR 53 million in 2017. In 2018, out of EUR 364 million paid taxes,
approximately EUR 100 million were non-recurring in nature and
related to the resolution of a tax dispute in India. In 2018, out of
EUR 159 million interest paid, approximately EUR 40 million were
non-recurring in nature and primarily related to the disposal of the
former Alcatel Lucent railway signaling business to Thalés in 2006.
In 2018, our cash outflow from investing activities equaled
EUR 315 million, a decrease of EUR 325 million compared to
EUR 10 million cash inflow in 2017. Cash outflow from investing
activities was primarily driven by cash outflow due to the capital
expenditure of EUR 672 million partially offset by net cash inflow
of EUR 293 million resulting from proceeds from maturities and sale
of current financial investments of EUR 2 397 million and purchase
of current financial investments of EUR 2 104 million.
Major items of capital expenditure in 2018 included investments in
R&D equipment, test equipment, hardware for telecommunication
and cloud environment, plants, buildings and construction for
transformation projects, and repair or improvements of sites.
In 2018, our cash outflow from financing activities was EUR 969 million
a decrease of EUR 780 million in comparison to EUR 1 749 million cash
outflow in 2017. The decrease in cash outflows was primarily due to
the absence of repurchases of shares related to the two-year capital
structure optimization program completed in 2017. The decrease in
cash outflow was partially offset by paid dividends of EUR 1 081 million
compared to EUR 970 million in 2017.
2017
Our cash inflow from operating activities in 2017 was EUR 1 811 million
an increase of EUR 3 265 million compared to a cash outflow of
EUR 1 454 million in 2016. The increase was primarily attributable
to EUR 504 million cash release from net working capital in 2017
compared to EUR 2 187 million cash being tied-up in 2016; and net
profit, adjusted for non-cash items, of EUR 2 218 million, an increase
of EUR 758 million compared to EUR 1 460 million in 2016. The
primary driver for the decrease in net working capital was related to
an increase in liabilities of EUR 1 221 million compared to a decrease
of EUR 2 738 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 trade payables 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 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 to Thalés in 2006 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 partially offset by net
cash inflow of EUR 860 million resulting from proceeds from maturities
and sale of current financial investments of EUR 3 589 million and
purchase of current financial investments of EUR 2 729 million.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
47
Operating and financial review and prospects Liquidity and capital resources continued
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 was
EUR 1 749 million a decrease of 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.
Financial assets and debt
As of December 31, 2018, our net cash and current financial
investments equaled EUR 3 051 million consisting of EUR 6 873 million
in total cash and current financial investments, and EUR 3 822 million
of long-term and short-term interest-bearing liabilities.
We hold our cash and current financial investments predominantly in
euro. Our current financial investments mainly include 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. The facility has no financial
covenants and was undrawn on December 31, 2018.
As of December 31, 2018, 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 294 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 August 2018, we signed a loan facility agreement of EUR 500 million
for financing research and development of 5G technology with the
European Investment Bank (EIB). The availability period of the loan
facility ends in February 2020. The loan facility was not disbursed
as of December 31, 2018 and will have an average maturity of
approximately five years after disbursement.
In December 2018, we signed a loan facility agreement of
EUR 250 million for financing research and development of 5G
technology with the Nordic Investment Bank (NIB). The initial
availability period of the loan facility ended in February 2019.
Subsequently in February 2019, the availability period of the loan
facility was extended until August 2019. The loan facility was
not disbursed as of December 31, 2018 and will have an average
maturity of approximately five years after disbursement.
We consider that with EUR 6 873 million of cash and current financial
investments 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 2019. 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 2019.
We aim to re-establish our investment grade credit rating.
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.
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, 2018, our total customer financing,
outstanding and committed, equaled EUR 499 million, a decrease
of EUR 156 million as compared to EUR 655 million in 2017. As of
December 31, 2016, our total customer financing, outstanding and
committed, equaled EUR 352 million. Customer financing primarily
consisted of financing commitments to network operators.
Refer to Note 36, Financial 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 current financial investments and through cash flow
from operations.
As of December 31, 2018, guarantees of our performance consisted
of bank guarantees given on behalf of Nokia to its customers for
EUR 1 570 million (EUR 1 678 million as of December 31, 2017). In
addition, Nokia issued corporate guarantees directly to our customers
with primary obligation for EUR 1 041 million (EUR 1 114 million as of
December 31, 2017). 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.
48
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Significant
subsequent events
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, 2018, our unlisted venture fund investments
equaled EUR 682 million, compared to EUR 661 million as of
December 31, 2017. 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, 2018, our venture fund commitments equaled
EUR 314 million, compared to EUR 396 million as of December 31,
2017. 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 risk 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.
Changes in organizational structure
Nokia announced organizational changes to accelerate its strategy
execution on October 25, November 22 and December 31, 2018.
Starting January 1, 2019, Nokia revised its financial reporting
structure to better reflect its strategy, organizational structure and
the way it evaluates operational performance and allocates resources.
As of the first quarter 2019, Nokia will have three reportable
segments: (i) Networks, (ii) Nokia Software and (iii) Nokia Technologies.
In addition, Nokia will disclose segment-level data for Group Common
and Other. For each reportable segment, Nokia will provide detailed
financial disclosure, including net sales and operating profit.
In addition, Nokia will provide net sales disclosure for the following
businesses: (i) Mobile Access, (ii) Fixed Access, (iii) IP Routing and
(iv) Optical Networks, which together comprise the new Networks
reportable segment. Nokia will also provide separate net sales
disclosure for its different customer types: (i) Communication Service
Providers, (ii) Enterprises and (iii) Licensees. Net sales by region will
be provided at the Group level.
Financing transactions
On February 4, 2019, Nokia repaid EUR 231 million 6.75% Senior
Notes in cash at the maturity.
On February 14, 2019, the availability period of EUR 250 million loan
facility with the Nordic Investment Bank (NIB) was extended until
August 2019.
On March 11, 2019, Nokia issued a tranche of senior unsecured notes
in an aggregate principal amount of EUR 750 million. The notes will
mature on March 11, 2026, and have a 2.00% fixed coupon.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
49
Operating and financial review and prospects Sustainability and
corporate responsibility
We create the technology to connect
the world in a responsible way.
1 bnWe have set the target of helping our
customers to connect the next billion by 2022
43%The networks we modernized brought
on average energy savings of 43% for
our customers
We truly believe the positive impact of the
technology and solutions we create and
deliver, our daily work, far outweigh any
negative impacts. Communications
technologies provide access to better
healthcare and education, more efficient
industry and resource use, economic
opportunity, a more equitable, secure society,
and a cleaner, safer planet. Every day we
can change the world for the better.
We continue to work to enable a more socially,
ethically and environmentally responsible
world. We purposefully design technologies to
drive social, environmental, and economic
progress, and wherever we can, seek to
harness the opportunities of connectivity and
technology for people and our planet. We
continue to put in place and further develop
the processes, policies and programs that
align with globally recognized ethical and
responsible business practices and
frameworks. We understand and aim to
mitigate the potential risks and impact
associated with our business across
technology, supply chain, climate and people,
while also driving the opportunities within and
beyond our business to accelerate the
achievement of the UN Sustainable
Development Goals (SDGs).
Our greatest impact in accelerating realization
of the SDGs remains in the development and
delivery of our technology. With the advent
of such technologies as 5G, IoT, and AI,
individuals and communities will be more
economically and socially empowered.
Through technology we are already seeing
the initial efficiency promised by the fourth
industrial revolution: smart cities that are
more efficient, safer, cleaner and more secure;
increased access to digital health; and better
management of natural resources through
digitalized utilities, building towards a
purpose-driven economic model. As we
move into a new era of technology, we also
recognize and aim to mitigate potential risks,
many already hotly debated in society as a
whole. The social issues related to technology
include automation and the changing
landscape of jobs and talent acquisition,
the role of AI and big data in privacy, the
enhanced security of smart cities, the misuse
of technology, and the impact of smart
devices on society.
Security will be one of the cornerstones of
new technologies. Even today, although we
endeavor to develop products and services
that meet the appropriate security standards,
including effective data protection, we or our
products 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, 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. Fourth industrial
revolution will no doubt accelerate this
development as well. We continue to invest
in risk mitigation actions, such as security
culture and customer security requirement
programs, IT security and cybersecurity
operations, product and services security,
breach management process and third party
security management, in order to reduce
the risks related to such illegal activity.
As regards privacy, we have established
a comprehensive company-wide privacy
program that is based on relevant laws, best
practices, and standards. This program is
supported by, and aligned with corporate,
business-group, and central functions-level
policies and processes. Our objective is to
mitigate privacy risk in relation to the data we
collect, process, and store. Essential to this
approach is observing the concept of data
minimization, meaning we endeavor only to
collect personal data that is necessary for the
purpose for which they are collected and to
retain such data for no longer than necessary.
We then implement appropriate controls to
ensure that all personal data is only accessed
by persons with a clear and justifiable need
to know. Should a personal data breach occur,
we have a formal process in place to manage
and mitigate any related risk to data subjects.
These processes also include mechanisms
to communicate with supervisory authorities,
should that be required. To drive and maintain
privacy awareness, we have designed and
delivered a program of awareness training
targeting high-risk groups as well as all Nokia
colleagues through a mandatory e-learning
module. Employee responsibilities towards
privacy are also covered in our Code
of Conduct.
Other potential risks to our business and
reputation are also evident. Corruption,
unethical behavior, and a lack of respect for
human rights and fair labor conditions in
operations and supply chains remain growing
concerns in many countries, resulting in the
need for greater transparency and integrity
from companies, going beyond the increasing
regulatory sphere. However, we also believe
the technology we provide can help other
organizations increase transparency and
50
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Overall in 2018 we focused on connectivity,
its positive impact on people’s lives, and the
creation and delivery of more sustainable and
energy efficient products and services, circular
economy, and climate change challenges.
We further improved the robustness of our
ethical business practices through an ombuds
network, and supported initiatives and
activities around data privacy, modern slavery,
and freedom of expression, supply chain
responsibility and transparency, health &
safety, and employee engagement and
diversity. Our latest People & Planet Report
can be found at www.nokia.com/
people&planet.
Targets and recognition
In May 2018, we reported on our
achievements and current status of the 46
short and long term targets we had set in
2017, including our science-based climate
targets (SBTs) accepted in 2017. The table
below is a short snapshot of some of our
targets which can all be found online at
www.nokia.com/sustainability.
efficiency. Climate change and the depletion
of natural resources perhaps provide the
most pressing social and business risk of our
time. The potential effects of climate change
are wide ranging, from the natural disasters
that could affect our customers, our own
operations, supply chain and the world
economy, to rising energy prices, greater
regulation, and materials scarcity affecting
production. But we also see the opportunity
for the technology we develop to help others
drive down their negative impact on the
environment with energy efficient products,
best use of materials, greater automation,
and the digitalization of industries
and society.
We have implemented a systematic and
structured approach to risk management
across our business operations and
processes. Key risks and opportunities are
primarily identified against business targets,
either in business operations or as an integral
part of financial planning. These key risks and
opportunities are analyzed, managed,
monitored and identified as part of overall
business performance management. Risk
management covers strategic, operational,
financial, and hazard risks and the aim is to
systematically capitalize on, control, and
manage rather than solely eliminate risks.
Potential external global environmental, social,
and ethical risks are discussed in more detail
under the relevant topic areas below.
Our sustainability priorities
In 2018, we continued to focus our corporate
responsibility activities on the most material
topics in relation to our business and the
impact on sustainable development. Our
key sustainability priorities are: 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 Group
Leadership Team.
Our material topics are based on factors
which include our strategy and vision, risks
and opportunities, feedback from stakeholder
interaction, customer requirements, both
macro and market trends, international
sustainability frameworks, and the SDGs. In
2018, we further embedded the SDGs into
our business and corporate responsibility
approach and activities, and report activity
examples against all 17 SDGs not only the
most material ones for our business, as we
believe the technology we provide can play
a positive role in the achievement of all
17 SDGs.
For example, in June 2018, our President and
CEO joined other CEOs across 11 major Nordic
companies in engaging with the governments
of the Nordic countries to explore ways to
accelerate achievement of the SDGs across
the region through collaboration between
industries and civil society. Further in
November, we were also acknowledged by
the independent annual sustainability report
review, commissioned by FIBS, Finland’s
leading non-profit corporate responsibility
network for our reporting on the SDGs in our
2017 People & Planet Report.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
51
Operating and financial review and prospects Sustainability and
corporate responsibility continued
Our key targets, and performance
Targets
2022 Helping our customers to connect the next billion
measured by number of subscriptions in Nokia radio
customers’ networks and by number of fixed network lines
shipped to our customers.
2025 Improve the life of 2 000 000 persons through our
corporate and key regional community investment programs
(cumulative from 2016 baseline) focusing our action on
gender balance, education and health and on how Nokia
products and services improve people’s lives.
2030 GHG reduction of 75%, compared to the 2014
baseline (scope 3, use of sold products). (This target is
accepted by Science Based Target initiative)
2030 GHG emission reduction of 41%, compared to the
2014 baseline (Scopes 1&2). (This target is accepted by
Science Based Target initiative)
2018 Achieve at least 25% utilization of renewable
electricity, compared to total purchased electricity.
2020 180 suppliers setting emission reduction targets.
2018 Ethical Business training (EBT) completion: 95%.
2018 Conduct a formal Human Rights Impact Assessment
for the new Nokia product portfolio with an externally
verified expert.
2020 Comprehensive supplier sustainability risk mitigation
(90% of Suppliers assessed with Satisfactory Sustainability
Score and 100 on-site audits conducted per year).
2018 Achieve full traceability to the smelters in our supply
chain and their conflict-free status (Mobile Networks).
2020 Achieve full traceability to the smelters in our supply
chain and their conflict-free status (Nokia Group).
2018 100% of all suppliers delivering high risk activity to be
assessed using Nokia H&S Supplier Maturity Assessment
Process.
2020 Sustained focus on CEO-sponsored Nokia Culture
Principles.
2020 Increasing the % of women in leadership by 25%
(baseline 2016).
Achievements 2018
At the end of 2018 the radio networks we delivered to our
customers served around 6.1 billion subscriptions worldwide,
compared to around 5.5 billion at the end of 2016.
In 2018, our corporate and key regional community investment
programs had around 304 200 direct beneficiaries. Since 2016,
already around 1 426 600 people have benefitted from
our programs.
Scope 3 emissions included in SBT are on target.
Scope 1&2 emissions included in SBT are on target.
27% of our total purchased electricity was from renewable
sources.
In 2018, 187 of our suppliers had emission reduction targets
in place via CDP Supply Chain program.
In 2018, the training was completed by 95 % of employees.
Human Rights Impact Assessment for the Nokia product
portfolio was conducted with an externally verified expert
between July 2018 and March 2019.
74% suppliers achieved a satisfactory EcoVadis score
(71% in 2017) and we conducted 75 audits (72 in 2017).
97% of our suppliers have achieved full visibility to the
smelters in our supply chain. 84% of smelters identified
as part of Nokia’s supply chain were validated as conflict-free
or are active in the validation process. (The same percentages
are valid both for Mobile Networks and Nokia Group.)
100% of suppliers delivering high risk activities were covered
by H&S Maturity Assessments and 89% of assessed suppliers
met “H&S compliant supplier”-status. (Compliant=3/5 scores).
In 2018 we continued to measure the favorability of employee
perceptions with an anonymous employee survey (CCT). Two
CCT target question scores (company direction = 80%, culture
direction = 79%) remain in green, albeit the average for %
favorability for these two CCT target questions was 2% down
on 2017.
In 2018, we had 15.3% women in leadership positions, down
from the 2016 baseline of 15.5%. We continue working,
within our five-year gender balance action plan, towards the
2020 target.
Status
On-going
– on-track
On-going
– on-track
On-going
– on-track
On-going
– on-track
Achieved
Achieved
Achieved
Achieved
On-going
– not on-track
Not achieved
On-going
– on-track
Achieved
On-going
– on-track
On-going
– not on-track
52
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Recognitions
In 2018 we were again recognized by
a number of sustainability evaluation
platforms for our work. We provided annual
sustainability information to EcoVadis for
evaluation which was then shared with
customers as requested. We again made
it into the top 1% of suppliers assessed,
achieving excellent scores in environment,
sustainable procurement, and labor practices.
Also, as a result of Sustainalytics ESG Rating
published in February 2018, we were judged
to be amongst the best, at leader level.
Other recognitions in 2018 included being
listed in the Europe, Eurozone, and World 120
indices of Euronext Vigeo, as well as being
again amongst the Corporate Knights Global
100 Most Sustainable Corporations in the
world. Besides the SDGs reporting award
given by the Finnish Corporate Responsibility
business and civic community mentioned
earlier, we were very proud to be recognized
by the same group of organizations in
two other categories: winning Finland’s
sustainability report of the year for the first
time in our history, and being chosen as the
investors’ favorite report.
We have provided detailed reports on our
progress and performance in sustainability
and corporate responsibility matters annually
since 1999, and online for over a decade. For
further information, refer to our People &
Planet Report, which is prepared in accordance
with the GRI Standards and UN Global
Compact sustainability reporting guidelines,
at http://www.nokia.com/en_int/about-us/
sustainability.
Improving people’s lives
through technology
Our customers’ radio networks serve around
6.1 billion subscriptions worldwide, an increase
of 0.4 billion on the previous year. Our public
target remains to help our customers connect
the next billion, based on 2016 baseline,
measured by number of subscriptions in Nokia
radio customers’ networks and by number
of fixed lines shipped to our customers.
In India we announced the launch of the
Smartpur project in May 2018 that aims
to develop 500 digitally integrated and
sustainable villages across India in line with
the government’s vision of Digital India. In
phase 1 of the project, a pilot was rolled out
in Haryana and Tamil Nadu with the Digital
Empowerment Foundation (DEF), who will
work as the implementation partner to
develop ten such villages in each state.
The public safety community has long called
for mobile broadband to support its mission
to save lives. With the adoption of LTE mobile
broadband technology, public safety networks
can benefit from the advantages of fast and
reliable broadband data and real-time video
services, opening up new communications
possibilities for rescue missions and disaster
recovery situations. In 2018 we launched the
Advanced Command Center. The solution is
a step towards next generation 911 and 112
standards, enabling rich media call taking,
360-degree situational awareness through
video and IoT, and enhanced multi-agency
cooperation through virtual emergency
response centers.
We continued our work with NGOs, customers,
and communities as part of our corporate
community investment (CCI). Our key themes
remained as: connecting the unconnected,
empowering women, and saving lives. In 2018
we continued our greenlight4girls program
globally, encouraging girls into STEM and
technology careers (www.greenlightforgirls.
org). We further developed our work with Save
the Children in Myanmar and India, on child
development and disaster preparedness
respectively, and our programs with Unicef in
Indonesia on health, as well as a new project
in Kenya on last mile connectivity for schools.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
53
Operating and financial review and prospects Sustainability and
corporate responsibility continued
Protecting the environment
As a company with global operations, natural
and man-made disasters, many of which are
said by scientists to become more frequent
and severe due to climate change, may affect
countries where we have manufacturing or
suppliers. These effects could have a material
adverse impact on our ability to supply
products and services, and therefore on our
potential sales. We recognize that we provide
products and services globally, which inevitably
affects the environment as manufacturing,
distributing, and operating these products
require energy and other resources. However,
we believe that the opportunities our
technology provides and the measures we
have taken in our operations can positively
contribute to counterbalancing these
negative impacts.
We minimize the impact of our operations
and our products in use through a robust
environmental management system, putting
in place the process, procedure, and policy
on a global level. The system helps us to
monitor our progress and identify needed
improvements. Our own operational
footprint is certified under ISO 14001:2015
environmental management system standard
and the current coverage of employees within
the scope of that certification is around 83%.
We constantly strive to drive down the
energy required by our products in use in
our customers’ communications networks,
helping them to reduce their carbon footprint
as this is by far the greater part of our own
carbon footprint.
As part of our circular economy approach, we
offer refurbishment, reuse and recycling of
older equipment under our Asset Recovery
program, as an integral component of the
product lifecycle management. In 2018,
we sent around 4 100 metric tons of old
telecommunications equipment for materials
recovery and we refurbished or reused
approximately 56 000 units.
Energy efficiency and good waste
management remain key in our operations.
Our long-term Science Based Target,
www.sciencebasedtargets.org, is to reduce
operational emissions by 41% by 2030, against
2014 baseline. In 2018, for example, our
electricity consumption across our facilities
decreased by 3% as compared to 2017 and
27% of our total purchased electricity was
from renewable sources. These actions reduce
our Scope 1 and 2 emissions and help us
in reaching the long-term climate target.
Zero emissions and liquid cooling
Our SBT target for scope 3 emissions covers
emissions from customer use of our products,
by far the greater part of our total carbon
footprint. Our target is to reduce these
emissions by 75% by 2030 compared to
2014 baseline. We are currently on track.
In 2018, we continued to develop and offer
our zero-emissions radio network solutions,
including energy-saving software features and
services. Our work with liquid cooling for radio
base stations, which removes the need for
energy-hungry air cooling systems and allows
the potential to recapture wasted heat and
redirect it to be used in the heating
of buildings, also took a major step forward
in 2018. In late November, we announced
the first commercial deployment of our
liquid-cooled base station solution in a
Helsinki apartment block. We worked with
Elisa, one of Finland’s main telecom operators,
and other parties.
In 2018, we delivered zero emission products
to around 140 customers globally, helping
them reduce their emissions. Modernization
of legacy networks drives improved energy
efficiency. The customer base-station sites we
modernized used on average 43% less energy
than those where our customers did not
modernize. Not only does this reduce
environmental impacts, it also provides an
improved financial upside for our customers.
We have aligned our climate related disclosures,
including risks, in our CDP report according
to the guidance of the Task Force on
Climate-related Financial Disclosures (TCFD).
Conducting our business
with integrity
We consider our long-standing reputation for
acting with unyielding integrity as our most
important asset. Throughout our more than
150-year history we have developed and
maintained a culture of high integrity, where
each and every employee holds responsibility
and accountability for our ethical values.
Corruption, unethical behavior, and a lack
of respect for human rights and fair
labor conditions are major obstacles to
development in many countries. Calls for
greater transparency and increased integrity
are growing as is increased regulation. As we
build on our long tradition of integrity, we strive
every day to ensure that excellence and
innovation also define compliance at Nokia.
Our compliance program and processes have
remained agile against the backdrop of an
ever-shifting risk landscape, as issues such
as privacy, information security and trade
compliance take on ever-greater importance.
By upholding high standards of ethics and
human rights in our own activities and
throughout our value chain, we can be part of
a positive solution. Neglecting these issues
would present a major risk for our reputation
and our business.
To mitigate the risks, our Code of Conduct is
applied across our operations to protect our
reputation and to help build greater personal
integrity across our employee base, from top
management to individual employees. This is
further supplemented with a Code of Ethics
applicable to Nokia’s President and Chief
Executive Officer, Chief Financial Officer,
Deputy Chief Financial Officer and Corporate
Controller (the “Officers”). The Code of
Conduct sets down the key principles and
practices of our ethical business approach
and provides clear guidance to our employees
as well as other stakeholders we work with.
The Code of Conduct is further enhanced by
14 key business policy statements which cover:
Improper Payments/Anti-Corruption, Conflict
of Interests, Fair Competition, Privacy, Dealing
with Government Officials, Intellectual Property
& Confidential Information, Working with
Suppliers, Trade Compliance, Insider Trading,
54
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Health, Safety & Labor Conditions,
Controllership, Fair Employment Practices,
Human Rights, Environment, and operational
guidance on third-party screening and
corporate hospitality. In 2018, we also
deployed a separate code of conduct for
third parties, along with relevant training.
Our engagement on these issues with our
employee base continued in 2018. Our Ethical
Business Training was again mandatory for
all employees. In 2018, the training was
completed by 95% of our employees,
reaching the target of 95%.
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. We employ a
multi-faceted approach to anti-corruption
issues. We have clear and unequivocal policies
concerning improper payments, facilitation
payments, gifts and hospitality, sponsorships
and donations, and other risk areas. We carry
out training and regularly communicate to our
employees regarding risks, and we review these
risks and our mitigation measures with the
company’s senior leadership and Audit
Committee. We conduct periodic audits and
risk assessments to ensure that we identify
and respond to anti-corruption risks. We also
have a Compliance Controls Framework (CCF).
This is a bottom-up exercise which includes
internal gap-analysis workshops and localized
risk mitigation plans. As per our target, the
Ethics & Compliance team together with
relevant senior leaders carried out 22 CCF
reviews during 2018 . We carried out 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.
Targeted training is delivered via multiple
mediums, ranging from online courses to
instructional videos to face-to-face training. In
2018, anti-corruption training was delivered to
business groups; to relevant stakeholders; to
regional groups, including country engagement
sessions; and to service companies, with
over 7 800 individuals receiving face-to-face
training in the 236 live training sessions held
across the globe. We also celebrated Nokia’s
Integrity Day on November 8, 2018, where
face-to-face events were held at 90 sites
across the world with over 7 500 employees
enthusiastically participating in our numerous
events that are aimed at creating awareness.
Oversight and grievance mechanisms
In 2018, as in previous years, leadership
involvement and oversight of ethics and
compliance were provided by the Board via
the Audit Committee, which convened eight
times in 2018, and covered ethics and
compliance topics in six of those meetings.
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 2018, our Ethics & Compliance office
received 887 concerns, of which 248 were
investigated by our Business Integrity group as
alleged violations of our Code of Conduct. We
also implemented corrective actions including
24 dismissals and 16 written warnings following
these and other investigations. Specifically, two
concerns were received as alleged violations
of our anti-bribery policies, involving third
parties, but neither of these concerns was
substantiated. The Ombuds Program
continues to be deployed across the globe
to further strengthen our speak-up culture.
The vast network of 200+ Local Ombuds
Leaders actively promotes the program and
serves as confidential and neutral resources
for employees that have compliance questions
and concerns. In 2018, 8% of Ethics Helpline
cases were reported through our ombuds
channels, clearly showing a steady increase
in utilization.
We were honored by the Ethisphere Institute
both in 2018 and in 2019 as one of the World’s
Most Ethical Companies, owing to our strong
compliance program, culture, and bold vision
for the future.
Human rights – Freedom of expression
and privacy
Our Code of Conduct together with our Human
Rights Policy sets out our approach to human
rights. Our Human Rights Due Diligence
process, which is embedded in our global sales
process, provides the mechanism and tools to
effectively deal with our most salient human
rights risks arising from the potential misuse of
the products and technology we provide. We
aim to ensure the technology we provide is not
used to infringe human rights, including the
right to privacy, freedom of expression and
assembly. In addition to potential product
misuse, our biggest human rights risks lay in
our global supply chain. Our supply chain risks
and activities are further discussed in the
Responsible Sourcing section below.
In 2018, we undertook an internal
product-related Human Rights Impact
Assessment conducted by an external human
rights expert. This assessment will help us
identify areas for improvement or further
development. It also serves as preparation for
a full blown external Human Rights assessment
in 2019 as part of our continued membership
in the Global Network Initiative (GNI). The GNI is
a multi-stakeholder group of companies, civil
society organizations (including human rights
and press freedom groups), investors, and
academics working together to protect and
advance freedom of expression and privacy
in the ICT sector. The internal and external
assessments are carried out against the GNI
Guiding Principles available on the GNI website
at www.globalnetworkinitiative.org.
Combatting modern slavery
Our work on Modern Slavery continued in
2018, as we worked with other members
and advisory organizations to define the
longer-term strategy and activities of the
Tech against Trafficking initiative launched
in June 2018. The initiative looks at the role
of digital technology in combatting modern
slavery, and is initially mapping and analyzing
the landscape of existing tech-focused
solutions that tackle modern slavery. During
the year we also published our second Modern
Slavery statement.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
55
Operating and financial review and prospects Sustainability and
corporate responsibility continued
Responsible sourcing
Our Code of Conduct primarily directs how
we work in Nokia, but we also encourage
our suppliers to support our Code, which is
supplemented with our Supplier Requirements.
Our Supplier Requirements are applied to all
our suppliers, included in supplier contract
appendices detailing our requirements related
to suppliers. The Requirements cover such
topics as environment, security, privacy, risk
management, human resources management
and health. We further carry out assessments
and audits of our suppliers, as well as training,
to ensure they meet our ethical requirements
and continually improve on their performance.
In 2018, we implemented 364 supply chain
audits (393 in 2017), including 75 on-site
audits on corporate responsibility topics:
38 were on-site audits against our supplier
requirements and 251 suppliers were assessed
using the EcoVadis scorecards. We also ran
training workshops for suppliers operating in
high-risk countries. In 2018, we organized
online training for example on climate
change, conflict-free sourcing and corporate
responsibility topics, and arranged
face-to-face training workshops establishing
improvement plans and actions. These
trainings covered altogether 393 suppliers.
We continued our work with the Joint Audit
Committee (JAC), a group of our major
customers who collaborate to drive
improvement and transparency in supply
chain management. In 2018, we signed an
agreement with the JAC organization to
participate in the JAC Academy involving
common training of supply chain auditors.
Health & Safety remained a key component of
our work with suppliers, particularly through
our H&S Maturity Assessments with high-risk
suppliers covering those who drive, work at
height or with electricity. By the end of 2018,
100% of suppliers delivering high-risk activity
had been assessed using our H&S Maturity
Assessment Process and 89% of assessed
suppliers met “H&S compliant supplier” -status.
The potential risks associated with the mining
and minerals trade of metals that provide
key minerals in electronic components may
include impacts related to military conflict,
human rights violations, as well as negative
environmental impacts. This is one reason why
the traceability of our materials and ensuring
our products are conflict-free is a priority for
us, as evident in our Conflict Minerals Policy
which can be found online. While our focus has
previously been on tin, tantalum, tungsten
and gold, in 2018 we also added cobalt into
our due diligence scope.
In 2018, 84% (83% in 2017) of smelters
identified as part of Nokia’s supply chain have
been validated as conflict-free or are active in
the validation process. Our Conflict Minerals
Report was also updated during the year. It can
be found at http://www.nokia.com/en_int/
about-us/sustainability/downloads.
We continued our work with our supply chain
through the CDP Supply Chain Program,
creating environmental improvement
programs and improving our upstream indirect
emissions that occur in the chain. In 2018, 314
of our key suppliers responded to the CDPs
request to disclose their climate performance
information and 187 also provided emission
reduction targets. For the first time, we also
had 150 suppliers responding on the water
aspect via the CDP program.
All of our above mentioned assessment
programs were incorporated into the
sustainability pillar of our Supplier
Performance Evaluation.
Respecting our people
The market for skilled employees in our
business remains extremely competitive. The
ability to attract, motivate, and keep talent has
an impact on how well we are able to manage
our revenue and cost-related opportunities
and risks. Ongoing strategy implementation
to achieve our business goals has over recent
years meant fluctuation in our workforce. The
effects of such changes can cause disruption
among employees and even fatigue, it is
therefore essential that we continue to build a
motivational corporate culture that provides
equal opportunity and fosters innovation and
continuous learning.
In 2018, the average number of employees
was 103 083 (101 731 in 2017 and 102 687 in
2016). The total amount of salaries and wages
paid in 2018 was EUR 6 356 million (EUR 6 456
million in 2017 and EUR 6 275 million in 2016).
Refer to Note 10, 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 2018, by geographical location:
Region
Finland
Other European countries
Middle East & Africa
China
Asia-Pacific
North America
Latin America
Total
Average number
of employees
6 159
34 362
3 747
17 214
23 066
14 247
4 288
103 083
In 2018, we again measured the favorability
of employee perceptions about company and
culture with an anonymous employee survey.
The survey result was 79.5% favorable towards
the company, down by 2%, as measured by the
average of the two target questions. The target
question “Overall, as a company, Nokia is
heading in the right direction” was 80%
favorable, down 3 points from 2017 and the
other target question “Overall, Nokia’s culture
is heading in the right direction” was 79%
favorable, off one point from 2017. In 2018,
we engaged employees with initiatives which
helped apply our cultural principles. We
concentrated on global webcasts, educational
and fun cartoon strips, a roving reporter who
discovered true cases of the company spirit, as
well as through applied neuroscientific solutions.
We are committed to employee development
and career growth. In 2018, we conducted
multiple sessions on equipping employees
on how to manage personal and career
development. In addition, we maximized
visibility by promoting our personal and career
development offering including coaching,
mentoring, personal development plan,
regular quarterly dialog, 360° feedback,
Harvard Manage Mentor, Insights, and Team
Management Profile. In 2018, we also included
job rotations to our internal job market.
With job rotations we give employees the
opportunity to test drive new functional areas
and develop new competences.
To nurture the learning culture, we introduced
the Learning Index, measuring formal and
social learning. Employees are awarded points
for learning and sharing activities, where
critical, priority-based learning is allocated
bonus points. With the Learning Index,
we are able to track our commitment
as an organization to learning and sharing
knowledge. Overall in 2018, each employee
spent an average of approximately 34 hours
on training (16 in 2017).
We again emphasized diversity, inclusion and
anti-discrimination as a key premise of our
employee makeup. In 2018, we trained around
900 managers on inclusive leadership best
practices. We signed the United Nations’
Global Standards of Conduct, which specifically
pledges for LGBT+ rights at the workplace.
Our Chief Legal Officer and Head of Nokia
Technologies, Maria Varsellona, is the sponsor
of the LGBT+ community rights at Nokia.
We also contributed to a Europe-wide
commitment to inclusion by signing a pledge
of the European Round Table of Industrialists
(ERT). ERT and Nokia Chairman of the Board,
Risto Siilasmaa, as the sponsor of inclusion, call
for a series of inclusion actions to help maintain
and strengthen the workplace, and society.
56
NOKIA ANNUAL REPORT ON FORM 20-F 2018
We reached our gender goal of 40% of the
Board of Directors being women by 2020. In
2018, approximately 15.3% (15.2% in 2017) of
our leadership positions were held by women.
In total, women accounted for 22% (22% in
2017) of Nokia’s workforce in 2018.
Labor conditions
Our labor conditions are founded on our
Code of Conduct, supported by a full 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 we meet the
requirements of labor laws and regulations
wherever we have operations, in many
instances where possible attempting to exceed
those laws and regulations.
We work hard to ensure decent working
conditions and fair employment, taking into
account both international and local laws
and guidelines.
Health and safety remains a key priority for us.
We implement training, analysis, assessments
and consequence management to address
job-related health and safety risks. We run a
wide range of programs targeted at constantly
improving our health and safety performance,
while also encouraging employees and
contractors to report near misses and
dangerous incidents. We see the highest risk
in the health and safety of our contractors who
for example work at height or with electricity.
Consequently, we have set stringent key
performance indicators related to the supplier
Health and Safety Maturity Assessment
Process. Internally, we continued to build on
our corporate wellness program Healthier
Together, providing opportunities for all
employees to enjoy an active lifestyle and
contributing to making Nokia a healthy place
to work.
Making change happen together
We understand in order to achieve the greatest
impact in our work to help achieve the SDGs,
we need to work with a broad range of
stakeholders, including our customers,
suppliers, non-governmental organizations
(NGOs), academia, governmental organizations,
authorities and other industries.
Cooperating with others in our industry
and beyond
In 2018, we held memberships in, for example,
the United Nations Global Compact, Global
e-Sustainability Initiative, CDP supply chain
program, Global Network Initiative, Digital
Europe, Responsible Mineral Initiative (formerly
Conflict-Free Sourcing Initiative), GSMA
Humanitarian Connectivity Charter and several
standardization and university cooperation
groups. We continued our structured
engagement with the World Economic Forum,
the Broadband Commission and ITU Telecom
World, amongst others.
Working with NGOs
Core to our Corporate Community Investment
work is the longer-term target to improve the
lives of 2 000 000 people over the period
2016 to 2025 through our corporate and key
regional social investment programs. In 2018,
we again focused our action on gender
balance, connectivity, and health, and the
use of technology to improve people’s lives.
By the end of 2018, around 1 426 600 people
have directly benefitted from our programs.
In 2018, we continued our support for the
UNICEF mHealth program in Indonesia which
uses technology to transform and ensure the
delivery of health and nutrition services. We
also undertook a UNICEF program to connect
schools in Kenya using our technology. The
multi-year signature program with Save the
Children in Myanmar again emphasized early
childhood care and education development
centers. Our offices around the world also
continued to run greenlight4girls days inviting
local schoolgirls, many from less privileged
backgrounds, to experience technology and
encourage them into STEM education. We also
worked with several local NGOs within tens
of our sites, providing support for the
surrounding communities and common
volunteering experiences for our employees.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
57
Operating and financial review and prospects Shares and
share capital
Share details
Nokia has one class of shares. Each Nokia
share entitles the holder to one vote at
General Meetings of Nokia.
As of December 31, 2018, the total number
of Nokia shares was 5 635 945 159 and our
share capital equaled EUR 245 896 461.96.
As of December 31, 2018, Nokia and its
subsidiary companies owned a total of
42 782 966 Nokia shares, representing
approximately 0.8% of the total number of
the shares and voting rights of the company.
For information on remuneration and shares
held by the Board of Directors, the President
and CEO and the other members of the
Group Leadership Team, refer to “Corporate
governance—Corporate governance
statement and —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.
On February 2, 2018, Nokia cancelled
207 897 644 shares.
In 2018, under the authorization held by the
Board of Directors, we issued 424 500 new
shares following the holders of stock options
issued in 2012 and 2013 exercising their
option rights. In addition, we issued 4 014 000
new shares without consideration to Nokia to
be transferred to fulfil our obligation under
the Nokia Equity Programs.
In 2018, under the authorization held by
the Board of Directors, we issued a total
of 13 220 987 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, 2018.
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 2018 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” and “General facts
on Nokia—Shares” 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.
Dividend
The Board of Directors proposes that the
2019 Annual General Meeting authorizes the
Board to resolve on the maximum annual
distribution of EUR 0.20 per share to be paid
quarterly during the authorization period.
The annual distribution would be paid as
quarterly dividends from retained earnings
and/or assets from the fund for invested
unrestricted equity.
The proposed dividend is in line with
our distribution target. The dividend to
shareholders is Nokia’s principal method
of distributing earnings to shareholders.
Over the long term, Nokia targets to deliver
an earnings-based growing dividend by
distributing approximately 40% to 70%
of diluted earnings per share (EPS), excluding
unallocated items(1), taking into account
Nokia’s cash position and expected cash flow
generation. Beginning with the distribution
for 2018, Nokia plans to pay dividends in
quarterly installments.
We distribute distributable funds, 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, assets from the fund for invested
unrestricted equity, 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 and/or
assets from the fund for invested unrestricted
equity, if any, will depend on our future results
and financial conditions.
Under the Finnish Companies Act, we may
distribute retained earnings and/or assets
from the fund for invested unrestricted equity
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.
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 obligations to redeem our shares.
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.
(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.
58
NOKIA ANNUAL REPORT ON FORM 20-F 2018
NOKIA ANNUAL REPORT ON FORM 20-F 2018
59
Operating and financial review and prospects 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 October 2018, we announced plans to
accelerate strategy execution, sharpen
customer focus, and maintain long-term
cost leadership. 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. 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, answer
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 2018 we acquired SpaceTime
Insights and Unium for the purpose of
advancing our strategies regarding Software,
IoT and Fixed Networks business. 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 financial 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 and financial market
conditions both globally and regionally. We
have manufacturing facilities and suppliers
located in various countries around the world
which may equally be impacted by these
conditions. 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 devices 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. 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. These all could have
a material adverse effect on our business,
financial condition, and results of operations.
General uncertainty and adverse
developments in the financial markets and
the general economy could have a material
adverse effect on our or our suppliers’ ability
to obtain sufficient or affordable financing on
satisfying terms. Uncertain market conditions
may increase the price of financing or
decrease its availability. We or our suppliers
could also encounter difficulties in raising
funds or accessing liquidity necessary to
maintain financial condition and results
of operations.
60
NOKIA ANNUAL REPORT ON FORM 20-F 2018
We face intense competition and are
dependent on development of the
industries and markets in which we
operate. The information technology and
communications industries and related
services market are cyclical and are affected
by many factors, including the general
economic environment, technological
changes, competitor behavior, purchase
and spending behavior of service providers,
consumers and businesses, deployments
and roll-out timing.
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. 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.
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.
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. In addition, the investments of the
mobile operators in the new spectrum assets
may reduce their funds available for investing
the new network infrastructure and related
services. Furthermore, 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. In addition, a portion of our
revenues is driven by the timing of completion
and customer acceptances, which particularly
in relation to 5G are further dependent on
maturity of the whole 5G ecosystem. As a
result of the uncertainty and variations in the
telecommunications and vertical industries,
accurately forecasting revenues, results and
cash flow remains difficult.
Market developments favoring new
technological solutions, such as SDN, could,
and virtualization 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.
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
barriers of entry for IT companies in the
traditional telecommunications industry or
they may build up tight strategic partnerships
with our traditional competitors. 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 expect to generate a significant share of
our growth from new customers, including
webscale companies and vertical customers
in energy, transport, public sector,
manufacturing 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. Furthermore, there are various
incumbent and new players competing
with Nokia in these customer groups we
strategically target. With these types of
customers, the nature of competition and
the required capabilities can be significantly
different from the communications service
provider market, including competition based
on access network, core network, Cloud
infrastructure, platforms, applications and
devices, and related services.
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.
Examples of other risks and uncertainties
impacting our success in the industries we
operate, include:
■ 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, as well as with our
vertical customers in energy, transport,
public sector, webscale, manufacturing
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; and
■ our ability to continue utilizing current
customer relations to advance our sales of
related services, or pursue new service-led
growth opportunities.
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.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
61
Operating and financial review and prospects Risk factors continued
We 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. 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. As a result, 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 while keeping
prices and costs at competitive levels.
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 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 competitive
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
cost-efficient and 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;
■ maintaining and building up strategic
partnerships in our value creation chain
(e.g. in product creation and in project
delivery); and
■ leveraging our technological strengths.
Any failure by us to effectively and profitably
invest in new competitive products, services,
upgrades or technologies (such as 5G, IoT, the
cloud or software) and bring them to market
in a cost-efficient, 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.
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, 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.
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 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
62
NOKIA ANNUAL REPORT ON FORM 20-F 2018
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.
Furthermore, our customer agreements
may involve complex transformation of the
networks as the customers deploy new
technologies and the related costs and scope
of required deliverables may differ from our
expectations at the time we enter into these
such agreements. 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 a long history of investing
significantly in R&D to develop new relevant
technologies, products and services for our
business, and continue to do so. We have one
of the industry’s strongest intellectual
property portfolios, including numerous
standardized or proprietary patented
technologies in our Nokia Technologies
business group and in our other business
groups. 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 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.
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.
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.
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
NOKIA ANNUAL REPORT ON FORM 20-F 2018
63
Operating and financial review and prospects Risk factors continued
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 Devices & Services
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.
We conduct our business globally, being
subject to direct and indirect regulation and
exposing us to geopolitical risks, including
unfavorable or unpredictable treatment
in relation to trade tariffs, tax matters,
exchange controls, and other restrictions.
Changes in various types of regulations
or their application, 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
fail to prevent regulatory penalties at
corporate level, operating subsidiaries
and in joint ventures.
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. We
generate sales from, collaborate and have
R&D and manufacturing facilities and
suppliers located in, various countries
around the world. Regulatory and economic
developments, sometimes unexpected and
dramatical, impacting our ability to timely
react to such developments, political turmoil,
trade barriers, military actions, labor unrest,
civil unrest, and public health and safety
threats (such as disease outbreaks), 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.
Changes in various types of regulations or
their application, 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 General Data
Protection Regulation effective as of May
2018, the exit of UK from EU without an
agreement on the treatment of personal data,
the upcoming eEvidence and e-Privacy
Regulations 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. For instance,
countries could require governmental
interception capabilities or regulations aimed
at allowing direct governmental access to data
for the products and services we offer that
could adversely affect us, if by way of our
human rights policy we decide to reduce our
sales to such markets or limiting our ability to
use components or software that we have
developed or sourced from other companies.
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 protection or data localization)
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 and privacy 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.
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.
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.
Furthermore, our business and results of
operations may be adversely affected by
regulation 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. 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. For example, many
countries have adopted new competition laws
in recent years. These laws can be applied in
ways that favor local suppliers or which are
simply unpredictable, creating obstacles to
our business activities. 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. Restrictive
government policies or actions, such as
limitations on visas or work permits for certain
foreign workers may make it difficult for us to
move our employees into and out of these
jurisdictions. 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.
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 new markets. 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
64
NOKIA ANNUAL REPORT ON FORM 20-F 2018
affect our sales and results of operations.
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.
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. The US’ unilateral
withdrawal from the international agreement
on Iran’s nuclear activities has led to the
reimposition of US sanctions while the EU
and other signatories remain fully committed
to the international agreement relaxing the
sanctions against Iran. The diverging EU and
US regulatory framework governing business
activities in Iran will be far more complex in the
future. As a European company it will be quite
challenging to reconcile the opposing foreign
policy regimes of the US and the EU. The
changed US foreign and economic sanctions
policy necessitates a reassessment of our
operations in Iran which may require us to
significantly reduce our business and maintain
preexisting contractual commitments in full
alignment with applicable economic sanctions.
Also, 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). 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 business and activities cover multiple
jurisdictions and are subject to complex
regulatory frameworks. We are observing that
the adoption of surveillance, data localization,
national sourcing and national hiring
requirements, regulations and policies are
increasing. An increase in regulation of digital
telecommunications and the failure by
governments to achieve a uniform and
reasonable common position on 5G spectrum
licensing in various parts of the world,
including, especially in the European Union,
might impose additional costs or burdens on
our customers and on Nokia itself. 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. Nokia must monitor
and assess its internal control over financial
reporting and its compliance with the
applicable rules and regulations. Corporate
function’s, 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.
Our efforts aimed at managing and
improving our competitiveness, financial
or operational performance 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.
We operate in highly competitive industries
and we are continuously targeting increased
efficiency of our operations through various
initiatives. For instance, we have announced
targeted operating cost and production
overheads savings by the end of 2020 and
plan these savings come from a wide range of
areas, including investments in digitalization
to drive more automation and productivity,
further process and tool simplification,
significant reduction in central support
functions to reach best-in-class cost levels,
prioritization of R&D programs to best create
long-term value, a sharp reduction of R&D
in legacy products, driving efficiency from
further application of our common software
foundation and innovative software
development techniques, the consolidation
of selected cross-company activities, and
further reductions in real estate and other
overhead costs. These planned savings are
expected to result in a net reduction of
employees globally. Also, we may, in the
ordinary course of business, institute
new plans for restructuring measures.
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, and
there can be no assurance that such plans
will be met as planned in contemplated
timeframes or at all, or result in sustainable
NOKIA ANNUAL REPORT ON FORM 20-F 2018
65
Operating and financial review and prospects Risk factors continued
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 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;
■ 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;
■ legislative constraints or 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;
■ 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 affect 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;
■ disruptions to regular business operations
caused by the plans, including to unaffected
parts of Nokia;
■ 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
competitiveness and financial and operational
performance, 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.
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, suppliers 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
66
NOKIA ANNUAL REPORT ON FORM 20-F 2018
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
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.
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.
Our business and operations rely on
confidentiality of proprietary information
as well as sensitive information, for instance
related to our employees, consumers and
our customers. 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, accessible by our partners or
subcontractors according to the roles and
responsibilities defined.
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
NOKIA ANNUAL REPORT ON FORM 20-F 2018
67
Operating and financial review and prospects Risk factors continued
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. 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.
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. 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. 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. 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, impairing our reputation.
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.
Inefficiencies, breaches, malfunctions or
disruptions of information technology
systems and processes could have a material
adverse effect on our business and results
of operations. 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 also have a material adverse
effect on our business.
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. 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.
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
primarily through licensing of the Nokia
patents, technologies and the Nokia brand.
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. We
may also be subject to liabilities related
to our divested Digital Health business.
In addition to patent licensing and
monetization, the Nokia Technologies
business group generates net sales and
profits through business ventures related
to Nokia brand and technology licensing.
In 2018, we sold the Digital Health business
and focused the Nokia Technologies business
group on licensing. Although we divested the
Digital Health business and no longer own or
control it, the possibility of continuing
liabilities remains, be it from the buyer of the
business, consumers or other purchases of
digital health products bearing the Nokia
name, or regulatory or enforcement bodies
68
NOKIA ANNUAL REPORT ON FORM 20-F 2018
seeking to hold Nokia responsible for
regulatory or compliance failures relating
to the products that occurred on our watch.
The outcome of any such claims or
proceedings may be difficult to predict and
could have a material adverse effect on our
financial condition.
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.
Nokia Technologies has a strategic agreement
covering branding rights and intellectual
property licensing with HMD Global. Refer
to “Business overview—Our strategy” and
“Business overview—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
patent licensing. As such, the amount of
income and royalty payments for Nokia are
dependent on the sales volumes and financial
position of HMD Global and HMD Global
continuing to make payments to Nokia. In
2018, HMD Global renewed and extended
devices in its Nokia-branded mobile phone
portfolio. Nokia is also exploring new
opportunities to license the brand beyond
mobile devices and tablets. 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 to other companies 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 has limitations in its ability to influence
HMD Global in its business and other
operations, exposing us 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 through association and
HMD Global being a licensee of the Nokia brand.
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.
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
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.
We operate in many 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 customers
are government-owned entities and that our
projects and agreements often require
approvals from public officials, there is a risk
that our employees, suppliers, consultants or
commercial third party representatives may
take actions that are in violation of our policies
and of applicable 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.
With the 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, trade compliance,
non-compliance with applicable laws and
regulations, improper accounting policies
or other improper activities.
Any damages, fines, penalties or other
sanctions or consequences attributable to
us could have a material adverse effect on
our brand, reputation or financial position.
We may be adversely affected by
developments with respect to 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
69
Operating and financial review and prospects Risk factors continued
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.
Taxation or other fees collected by
governments or governmental agencies may
result in unexpected payment obligations, and
in response to prevailing difficult economic
conditions in the public sector, coupled with
fundamental changes in international tax
regulations, there may be an increased
aggressiveness in collecting such fees. 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. Our business and activities
cover multiple jurisdictions and are subject to
complex tax laws and rules as well as diverse
tax authority practices and interpretations.
Despite our governance and compliance
procedures, there might be unintended
consequences from changes in interpretation
of complex tax regulations or retroactive
implications in tax reforms to our business,
subsidiaries and joint ventures. For instance,
the U.S. government passed a comprehensive
set of tax reforms in 2017 that impact many
multinational businesses, including ours.
The U.S. tax authority continues to issue
regulatory guidance on many of these
reforms, and interpretation of the reform
package’s provisions is likewise on-going. Such
regulatory guidance or new interpretations
may have an unfavorable impact on us. 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 or global guidance in the area of transfer
pricing 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
of 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.
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.
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 or may fail in workforce balancing.
Our success is dependent on our ability
to retain, motivate, develop and recruit
appropriately skilled employees. The
market for skilled employees and leaders
70
NOKIA ANNUAL REPORT ON FORM 20-F 2018
in our business is extremely competitive.
We continuously work on developing 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, and maximize
operational efficiency. 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.
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.
Having skillful, motivated people in the right
places is a key factor for the success of our
strategy. However, we may fail in our efforts to
rebalance our workforce as planned and may
result in larger than expected costs, or we may
not be able to complete such efforts, for
instance, due to legal restrictions, resulting
in a non-optimal workforce that could hinder
our ability to reach targeted cost savings.
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, exposure to environmental
liabilities or other claims and vulnerability to
adverse natural or man-made disasters. Also,
our dependence on third-party suppliers has
increased as a result of our strategic decisions
to outsource certain activities. 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 monitored and
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. 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 at
the same time 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.
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,
NOKIA ANNUAL REPORT ON FORM 20-F 2018
71
Operating and financial review and prospects Risk factors continued
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. We rely on efficient logistic chain
elements, such as regional distribution hubs
or transport chain elements (main ports,
streets, and airways). In the event that any of
these geographic areas are affected by any
adverse conditions, such as severe impacts
of climate change or other environmental
events, natural or man-made 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 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 favorable 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.
In the event our credit rating is downgraded,
it could have a material adverse effect, for
instance, on our cost of funds and related
margins, our business and results of
operations, financial condition, liquidity,
or access to capital markets.
72
NOKIA ANNUAL REPORT ON FORM 20-F 2018
We may be unable to successfully implement
planned transactions or transactions may
result in liabilities. We may be unable to
realize the anticipated benefits, synergies,
cost savings or efficiencies from
acquisitions, and we may encounter issues
or inefficiencies related to our organizational
and operational structure, including being
unable to successfully implement our
business plans.
From time to time, we may consider possible
transactions that could complement our
existing operations and enable us to grow
our business or shift focus via divest of
our existing businesses or operations. We
have made a number of acquisitions and
divestments, in addition to the recent
acquisitions of SpaceTime Insight and Unium
and divestment of Digital Health business. 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.
There can be no assurance that these
transactions will be successful or yield
expected benefits and results or that
investments will result in new successful
technologies that we will be able to monetize.
We cannot provide any assurances that any
transaction we initiate, 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, the
assumptions may be incorrect in evaluating
a transaction. Therefore, we may be exposed
to unknown, larger 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 a
transaction, 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 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.
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.
The level of effort required for successful
integration depends on the complexity of
the acquired business. 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 and potentially targeted
cost savings 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 related to acquisitions
that we may encounter regarding the
integration process and operations, 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;
■ 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;
■ 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;
NOKIA ANNUAL REPORT ON FORM 20-F 2018
73
Operating and financial review and prospects Risk factors continued
■ 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;
■ 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; and
■ our ability to eliminate the complexity
of our corporate structure following
the acquisition.
During the course of the ongoing integration
process, we have been made aware of certain
practices relating to compliance issues at the
former Alcatel Lucent business that have
raised concerns. We have initiated an internal
investigation and voluntarily reported the
matter to the relevant regulatory authorities,
with whom we are cooperating with a view to
resolving the matter. The resolution of this
matter could result in potential criminal or
civil penalties, including the possibility of
monetary fines, which could have a material
adverse effect on our business, brand,
reputation or financial position.
Additionally, the anticipated cost reductions
and other benefits expected to arise from the
acquisitions and integration of businesses,
as well as related costs to implement such
measures, are derived from our estimates,
which are uncertain. 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.
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, if
a partner acts 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.
In many areas, including IT, 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. 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. 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. Concerns could equally arise from
giving third parties access to confidential
data, strategic technology applications and
books and records. 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.
74
NOKIA ANNUAL REPORT ON FORM 20-F 2018
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.
The amount of dividend and equity return
distributed to shareholders for each
financial period is uncertain.
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.
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 laying
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.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
75
Operating and financial review and prospects Corporate
governance
76
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Corporate governance
Contents
Corporate governance statement
Introduction
Regulatory framework
Main corporate governance
78
78
80
bodies of Nokia
80
General meeting of shareholders 80
81
Board of Directors
Group Leadership Team and
President and CEO
Risk management, internal control
and internal audit functions
at Nokia
Main features of risk
management systems
Description of internal control
procedures in relation to the
financial reporting process
Description of the organization
88
93
93
93
of the internal audit function 93
Main procedures relating to
insider administration
Share ownership of the Board of
Directors and the Nokia Group
Leadership Team
Auditor fees and services
Compensation
Highlights
Word from the Chair of
the Personnel Committee
Pay overview of the President
and CEO
Remuneration Policy
Remuneration Report
Remuneration governance
Nokia Group Leadership Team
remuneration
Review of our incentive plans
Nokia Equity Program
94
94
95
96
96
96
98
99
102
105
107
109
110
NOKIA ANNUAL REPORT ON FORM 20-F 2018
77
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”).
Introduction
In 2018, we continued on delivering on Nokia’s
commitment to strong corporate governance
and related practices. To do that, the Board
activities were structured to develop the
Company’s strategy and to enable the Board
to support the management on the delivery
of it within a transparent governance
framework. In addition to regular business and
financial updates at each Board meeting, the
table below sets out a high-level overview of
the key areas of focus for the Board’s and its
Committee’s activities during the year.
Furthermore, we engaged with our
shareholders at the Annual General Meeting
held in May where shareholders exercised
decision-making power and their right to
present questions to the Board and
management. At that meeting, we also met
our aim to have representation of at least
40% of both genders on our Board well in
advance of the target date of January 1,
2020. In addition, the Board established a
Technology Committee to review high level
innovation and technology strategies of the
Company and to engage in a dialogue with
the management with respect to major
January
March
April
May
July
October
November
Board
– Approval of the long-range
and annual plans
– Group key risks
– Capital structure
– AI strategy
– Strategic deep-dive into
a business unit
– Privacy
– Compliance and litigation
– Equity programs
– Board evaluation
– Strategy update
– Approval of financial
statements
– AGM proposals and convening
of the AGM
– Talent development and
leadership succession
– Board composition and
– AGM proposals
remuneration
– Board evaluation results
– Corporate Governance statement
– Corporate Governance update
– Achievement & performance
outcomes
– Incentive targets and objectives
– Equity programs
– Culture update
– Q4 and full year financials
– Compliance, Internal Audit and
Internal Controls updates
– Review of audit services
– Audit firm rotation
– Incentive finalization
– Succession update
– Executive compensation
review
– Culture, demography
and diversity updates
– Review of Annual reports
– AGM proposals
– Audit firm rotation
CGN
Committee
Personnel
Committee
Audit
Committee
Technology
Committee
– Corporate strategy and
strategy use cases review
– Past M&A cases
– Corporate responsibility
– Customer Operations and
business group strategy
execution update
– Bond refinancing
– Appointment of the Chairs
– Privacy
and Committees
– Establishment of Technology
Committee
– Annual strategy meeting
– Talent development and
leadership succession
– Corporate and detailed business
group strategy recapitulation
– IT and Security
– Proposal for the Chair and
Vice Chair of the Board and
composition of the Board’s
Committees
– Board evaluation planning
– Board composition
– Board remuneration
– Corporate Governance
benchmarking
Statement
– Corporate Governance update
– Diversity review
– Compensation strategy
and philosophy
– Talent summit review
– Incentive framework
– Detailed equity plans
– Compensation risk assessment
– Q1 financials
– Compliance, Internal Audit
and Internal Controls updates
– Annual audit plan
– Review of Auditor services
– Security
– Audit firm rotation
– Technology presentations by
the Audit firm candidates
– Q2 financials
– Audit scope
– Q3 financials
– Financial update
– Pension assets and liabilities
– Enterprise Risk Management
– Review of audit services
– Security
– Compliance, Internal Audit and
– Audit firm rotation
(ERM) update
– Audit firm rotation
Internal Controls updates
– Audit firm rotation
– Review of new strategic
technology initiatives
– Updates on major innovation
and technology trends
– Review of new strategic
technology initiatives
– Updates on major innovation
and technology trends
78
NOKIA ANNUAL REPORT ON FORM 20-F 2018
innovation and technology trends, related
risks and opportunities and the Company’s
technology competitiveness and bets. We also
noted in the Annual General Meeting that we
have started a tender process regarding the
rotation of our audit firm in accordance with
the EU Audit Regulation. This has been one
of the key focus areas of the Board’s Audit
Committee in 2018. During 2018, the Chair of
the Personnel Committee also engaged with
our largest investors to discuss executive
remuneration as well as the related
governance and disclosure practices.
Board
– Approval of the long-range
– Strategy update
– Approval of financial
statements
– AGM proposals and convening
of the AGM
– Talent development and
leadership succession
and annual plans
– Group key risks
– Capital structure
– AI strategy
– Strategic deep-dive into
a business unit
– Privacy
– Compliance and litigation
– Equity programs
– Board evaluation
– Board composition and
– AGM proposals
remuneration
– Board evaluation results
– Corporate Governance statement
– Corporate Governance update
– Achievement & performance
outcomes
– Incentive finalization
– Succession update
– Incentive targets and objectives
– Executive compensation
– Equity programs
– Culture update
review
– Culture, demography
and diversity updates
CGN
Committee
Personnel
Committee
Audit
Committee
Technology
Committee
January
March
April
May
July
October
November
– Corporate strategy and
strategy use cases review
– Past M&A cases
– Corporate responsibility
– Appointment of the Chairs
and Committees
– Establishment of Technology
Committee
– Customer Operations and
business group strategy
execution update
– Bond refinancing
– Privacy
– Annual strategy meeting
– Talent development and
leadership succession
– Corporate and detailed business
group strategy recapitulation
– IT and Security
– Proposal for the Chair and
Vice Chair of the Board and
composition of the Board’s
Committees
– Board evaluation planning
– Board remuneration
– Board composition
– Corporate Governance
benchmarking
Statement
– Corporate Governance update
– Diversity review
– Compensation strategy
and philosophy
– Talent summit review
– Incentive framework
– Detailed equity plans
– Compensation risk assessment
– Q4 and full year financials
– Review of Annual reports
– Q1 financials
– Compliance, Internal Audit and
– AGM proposals
– Audit firm rotation
Internal Controls updates
– Review of audit services
– Audit firm rotation
– Compliance, Internal Audit
and Internal Controls updates
– Annual audit plan
– Review of Auditor services
– Security
– Audit firm rotation
– Technology presentations by
the Audit firm candidates
– Q2 financials
– Audit scope
– Review of audit services
– Compliance, Internal Audit and
– Q3 financials
– Pension assets and liabilities
– Security
– Audit firm rotation
– Financial update
– Enterprise Risk Management
(ERM) update
– Audit firm rotation
Internal Controls updates
– Audit firm rotation
– Review of new strategic
technology initiatives
– Updates on major innovation
and technology trends
– Review of new strategic
technology initiatives
– Updates on major innovation
and technology trends
NOKIA ANNUAL REPORT ON FORM 20-F 2018
79
Corporate governance Corporate governance statement continued
Corporate governance framework
General Meeting of Shareholders
External
Audit
Board of Directors
Audit Committee
Personnel Committee
Corporate Governance and
Nomination Committee
Technology Committee
Internal
Audit
President and CEO
Group Leadership Team
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. Under the Finnish Corporate Governance
Code a company is deemed to be in
compliance with the Corporate Governance
Code even if it departs from individual
recommendations, provided that the
departures are reported and explained.
In 2018, we complied with the Finnish
Corporate Governance Code, with the
exception that we were not in full compliance
with the recommendation 24 as 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 are and will be
granted on a limited basis for exceptional
purposes related to retention and recruitment
to ensure Nokia is able to retain and recruit
vital talent for the future success of the
company. The restricted share plan for 2019
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 to us 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 applicable
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 available at http://nysemanual.nyse.
com/lcm/. We comply with these standards
to the extent such provisions are applicable
to us.
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 the
U.S. 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 a 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 are approved by the
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. The Corporate
Governance Guidelines include the directors’
responsibilities, the composition and election
of the members of the Board, its committees
and certain other matters relating to
corporate governance. In addition, the
Committees of the Board have adopted
charters that define committees’ main duties
and operating principles. We also have a Code
of Conduct that is applicable to all of our
employees, directors and management and
the Code of Ethics applicable to the President
and CEO, Chief Financial Officer, Deputy Chief
Financial Officer, and Corporate Controller. All
of the mentioned documents 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
Nokia shareholders play a key role in corporate
governance, with our Annual General Meeting
offering a regular opportunity to exercise
their decision-making power in the company.
In addition, at the meeting the shareholders
may exercise their right to speak and ask
questions. Each Nokia share entitles a
shareholder to one vote at general meetings
of Nokia. 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.
80
NOKIA ANNUAL REPORT ON FORM 20-F 2018
In addition to the Annual General Meeting,
an Extraordinary General Meeting may 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.
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, election of the Chair and Vice
Chair of the Board and the Chairs and
members of the Board’s Committees
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 begins 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.
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. 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.
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
take place at the Board’s assembly meeting
following the general meeting.
Board diversity
The Board has adopted principles concerning
Board diversity describing our commitment
to promoting diverse Board composition and
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, the 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. The 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. 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. In 2018
we met our aim to have representation of at
least 40% of both genders on our Board by
January 1, 2020.
Currently there are five different nationalities represented in the Board and 40% of the Board members are female.
Gender
Year of birth
Nationality
On Board since
Tenure at AGM 2018
Risto
Siilasmaa
Male
1966
Finnish
2008
10
Olivier
Piou
Male
1958
French
2016
2
Experience and skills of the Board members
Sari
Baldauf
Female
1955
Bruce
Brown
Male
1958
Finnish American
2012
6
2018
0
Edward
Kozel
Male
1955
Louis R.
Hughes
Male
1949
Elizabeth
Jeanette
Nelson
Horan
Female
Female
1960
1955
British American American American
2012
2017
6
1
2016
2
2017
1
Carla Smits-
Nusteling
Female
1966
Dutch
2016
2
Kari
Stadigh
Male
1955
Finnish
2011
7
General management and business operations
Finance and accounting
Chief executive officer
Chief financial officer
Communications Service Provider market
Enterprise business
Chief technology officer
Technology
NOKIA ANNUAL REPORT ON FORM 20-F 2018
81
Corporate governance Corporate governance statement continued
Members of the Board of Directors
The Annual General Meeting held on May 30,
2018 elected ten members Sari Baldauf,
Bruce Brown, Jeanette Horan, Louis Hughes,
Edward Kozel, Elizabeth Nelson, Olivier Piou,
Risto Siilasmaa, Carla Smits-Nusteling and Kari
Stadigh to the Board for a term ending at the
close of the Annual General Meeting in 2019.
Following the meeting, the Board also
re-elected Risto Siilasmaa to continue to
serve as the Chair and Olivier Piou as the
Vice 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,
all Board member candidates were
determined to be independent under the
Finnish corporate governance standards
and the rules of the NYSE.
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.
Our 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 2018, Rajeev Suri served as the
President and CEO while Risto Siilasmaa
served as the Chair of the Board.
Biographical details of our current
Board members
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 and member of the
Technology Committee.
Master of Science (Eng.), Helsinki University
of Technology, Finland.
President and CEO of F-Secure Oyj
1988–2006.
Chairman of the Board of Directors of
F-Secure Oyj. Member of the Board of
Directors of Futurice Oy. Member of the Board
of Directors of Technology Industries of
Finland. Member of European Roundtable of
Industrialists. Member of the Global Tech
panel, an initiative of EU High Representative
Federica Mogherini.
Member 2013–2016 and Vice Chairman of
the Board of Directors of the Confederation
of Finnish Industries (EK) 2017–2018. Vice
Chairman 2013–2015 and Chairman of the
Board of Directors of Technology Industries
of Finland 2016–2018. Chairman of the Board
of Directors of Elisa Corporation 2008–2012.
Sari Baldauf
b. 1955
Nokia Board member since 2018. Member of
the Personnel Committee and the Corporate
Governance and Nomination Committee.
Master of Business Administration,
Helsinki School of Economics and Business
Administration. Bachelor of Science,
Helsinki School of Economics and Business
Administration. Honorary doctorates in
Technology (Helsinki University of Technology)
and Business Administration (Turku School of
Economics and Business Administration and
Aalto University School of Business).
Executive Vice President and General Manager,
Networks Business Group, Nokia, 1998–2005.
Various executive positions at Nokia in Finland
and the United States 1983–1998.
Member of the Supervisory Board and
Member of the Nomination Committee of
Daimler AG. Member of the Board of Directors
of Aalto University. Chair of the Vexve Holding
Oy. Senior Advisor of DevCo Partners Oy.
Member of the Supervisory Board of
Deutsche Telekom AG 2012–2018. Chair of
the Board of Directors of Fortum Oyj 2011–
2018. Member of the Board of Directors of
Akzo Nobel 2012–2017. Member of the Board
of Directors of F-Secure Oyj 2005–2014.
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 Technology
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 and the Technology Committee.
MBA, 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, 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.
Member of the Board of Directors of Agency
for Science, Technology & Research (A*STAR)
in Singapore 2011–2018.
82
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Chair Risto Siilasmaa
Vice Chair Olivier Piou
Sari Baldauf
Bruce Brown
Jeanette Horan
Louis R. Hughes
Jeanette Horan
b. 1955
Nokia Board member since 2017. Member
of the Audit Committee and the Technology
Committee.
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 R. Hughes
b. 1949
Nokia Board member since 2016. Member
of the Audit Committee and the Technology
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). Executive
advisor partner of Wind Point Partners.
Member of the Advisory Board, Cognomotiv
(the United States).
Independent director and member of the
Audit Committee of AkzoNobel 2006–2018.
Independent director 2003–2018 and
Chairman of the Audit, Finance and
Compliance Committee of ABB 2011–2018.
Member of the Board of Directors of
Alcatel Lucent SA 2008–2016.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
83
Corporate governance Corporate governance statement continued
Edward Kozel
b. 1955
Nokia Board member since 2017. Chair of the
Technology Committee and 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.
Elizabeth Nelson
b. 1960
Nokia Board member since 2012. Member
of the Audit Committee and the Personnel
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. Independent
Director and Chair of the Audit Committee
of Upwork Inc.
Member of the Board of Directors of Pandora
Media 2013–2017. Member of the Board of
Directors of Brightcove, Inc. 2010–2014.
Carla Smits-Nusteling
b. 1966
Nokia Board member since 2016. Chair of
the Audit Committee and member of the
Corporate Governance and Nomination
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.
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.
Chairman of the Board of Directors of
Mandatum Life Insurance Company Limited.
Member of the Board of Directors of Waypoint
Capital Group Holdings SA.
Chairman of the Board of Directors of If P&C
Insurance Holding Ltd 2002-2019. Member
of the Board of Directors of Nordea Bank AB
(publ) 2010–2018. Chair of the Board Risk
Committee (BRIC) of Nordea Bank AB (publ)
2011–2018. Member of the Board of Directors
of Niilo Helanderin Säätiö 2005–2018.
Edward Kozel
Elizabeth Nelson
Carla Smits-Nusteling
Kari Stadigh
84
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Operations of the Board of Directors
The Board represents and is accountable to
the shareholders of Nokia. While its ultimate
statutory accountability is to the shareholders,
the Board also takes into account the interests
of the Company’s other stakeholders. The
Board’s responsibilities are active, not passive,
and include the responsibility to evaluate the
strategic direction of Nokia, its management
policies and the effectiveness of the
implementation of such by the management
on a regular basis. It is the responsibility of the
members of the Board to act in good faith and
with due care, so as to exercise their business
judgment on an informed basis, in a manner
which they reasonably and honestly believe
to be in the best interests of Nokia and its
shareholders. In discharging that obligation,
the members of the Board must inform
themselves of all relevant information
reasonably available to them. The Board
and each Board committee also have the
power to appoint independent legal, financial
or other advisers as they deem necessary.
The Company will provide sufficient funding to
the Board and to each committee to exercise
their functions and provide compensation
for the services of their advisers.
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 and non-financial
commitments that may not be exceeded
without a 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, the
Chief Executive Officer, Chief Financial Officer
and Chief Legal Officer. 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.
Board evaluation
In line with our Corporate Governance
Guidelines, the Board conducts annual
performance evaluation which also include
evaluation of the Board committees’ work,
the Board and Committee Chairs and
individual Board members. In connection
with the same, the Board conducts an
evaluation of the President and CEO. In 2018,
an independent external evaluator conducted
the Board’s evaluation processes consisting
of Board self-evaluations, peer evaluations
and interviews as well as the evaluation of the
President and CEO. The evaluation process
included both numeric assessments and the
possibility to provide more detailed written
and verbal comments. Feedback was also
requested from selected members of
management as part of the Board evaluation
process. Each year, the results of the
evaluation are discussed and analyzed by
the entire Board and improvement actions
are agreed based on such discussion.
Meetings of the Board of Directors
The Board held 19 meetings excluding committee meetings during 2018, of which approximately 37% were regularly scheduled meetings held
in person, occasionally complemented by access via video or conference calls. The other meetings were held in writing.
Full Board
Audit Committee
Personnel Committee
Corporate Governance and Nomination Committee
Technology Committee(1)
(1) From May 30, 2018 when the Board’s Technology Committee was officially established.
Number of
meetings
in person
7
8
6
5
2
Number of
meetings
in writing
12
–
5
–
–
Attendance in
all meetings %
100
98
100
100
100
NOKIA ANNUAL REPORT ON FORM 20-F 2018
85
Corporate governance Corporate governance statement continued
Directors’ attendance at Board and Committee meetings in 2018 is set forth in the table below:
Risto Siilasmaa (Board Chair)
Olivier Piou (Board Vice Chair)
Sari Baldauf (from May 30, 2018)
Bruce Brown
Jeanette Horan
Louis R. Hughes
Edward Kozel
Jean Monty (until May 30, 2018)
Elizabeth Nelson
Carla Smits-Nusteling
Kari Stadigh
Board
meetings
%
100
100
100
100
100
100
100
100
100
100
100
Audit
Committee
meetings
%
88
100
100
100
100
Corporate
Governance
and Nomination
Committee
meetings
%
100
100
100
100(3)
100
Personnel
Committee
meetings
%
100(2)
100
100
100
100(3)
100
Technology
Committee
meetings(1)
%
100
100
100
100
100
100
(1) From May 30, 2018 when the Board’s Technology Committee was officially established.
(2) Until May 30, 2018.
(3) From May 30, 2018.
Additionally, many of the directors attended,
as non-voting observers, meetings of a
committee of which they were not a member.
Directors meet without management in
connection with each regularly scheduled
meeting. According to Board practices,
meetings without management present
would only be attended by non-executive
directors and be 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 would meet separately
at least once annually. In 2018 all members
of the Board were non-executive and
determined to be independent under the
Finnish corporate governance standards and
the rules of the NYSE.
All the directors, excluding Jean Monty, who
served on the Board for the term until the
close of the Annual General Meeting in 2018
attended Nokia’s Annual General Meeting held
on May 30, 2018.
Committees of the Board of Directors
The Board has four committees: the Audit
Committee, Corporate Governance and
Nomination Committee, Personnel
Committee and Technology Committee.
These committees assist the Board in its
duties pursuant to their respective committee
charters. 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. Any
director who so wishes may attend, as a
non-voting observer, meetings of committees
of which they are not members.
The Audit Committee
The 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 and the rules of Nasdaq Helsinki
and the NYSE. From May 30, 2018, the Audit
Committee has consisted of the following five
members of the Board: Carla Smits-Nusteling
(Chair), Jeanette Horan, Louis R. Hughes,
Edward Kozel and Elizabeth Nelson.
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.
In discharging its oversight role, the Audit
Committee has full access to all company
books, records, facilities and personnel.
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.
86
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Under Finnish law, an external auditor is
elected by a simple majority vote of the
shareholders 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 2018,
refer to “–Auditor fees and services” below.
The Board has determined that all members
of the Audit Committee, including its Chair,
Carla Smits-Nusteling, 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. Smits-Nusteling 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. Additionally,
any director who so wishes may attend
meetings of the Audit Committee as a
non-voting observer.
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.
The Corporate Governance and
Nomination Committee
The Committee consists of three to five
members of the Board who meet all applicable
independence requirements as stipulated by
Finnish law and the rules of Nasdaq Helsinki
and the NYSE. From May 30, 2018 the
Corporate Governance and Nomination
Committee has consisted of the following
five members of the Board: Risto Siilasmaa
(Chair), Sari Baldauf, Bruce Brown,
Carla Smits-Nusteling 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 and practice
to appoint a recruitment firm to identify
appropriate new director candidates.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
87
Corporate governance Corporate governance statement continued
During 2018, the following members of
the Group Leadership Team resigned:
■ Igor Leprince, President of Global Services,
stepped down from the Group Leadership
Team as of March 31, 2018;
■ Gregory Lee, President of Nokia
Technologies, stepped down from the
Group Leadership Team as of May 31, 2018;
■ Marc Rouanne, President of Mobile Networks,
stepped down from the Group Leadership
Team as of November 22, 2018; and
■ Ashish Chowdhary, Chief Customer
Operations Officer, stepped down from the
Group Leadership Team as of December
31, 2018.
Furthermore, during 2018 and thereafter,
the following changes took place within the
Group Leadership Team:
■ Maria Varsellona, Chief Legal Officer and
member of the Group Leadership Team was
in addition to her role as Chief Legal Officer
appointed President of Nokia Technologies
as of May 31, 2018;
■ Kathrin Buvac, Chief Strategy Officer and
member of the Group Leadership Team
was in addition to her role as Chief Strategy
Officer appointed President of Nokia
Enterprise as of January 1, 2019; and
■ Federico Guillén, President of Fixed
Networks and member of the Group
Leadership Team was appointed President
of Customer Operations, EMEA & APAC
as of January 1, 2019.
In its dialogue with and provision of opinions
and advice to the management, the
Committee will periodically review:
■ the Company’s approach to major
technological innovations;
■ key technology trends that may result
in disruptive threats or opportunities;
■ high-level risks and opportunities
associated with the Company’s Research
and Development Programs; and
■ the Company’s technologic
competitiveness and new strategic
technology initiatives.
Group Leadership Team and the
President and CEO
We have a Group Leadership Team that is
responsible for the operative management of
Nokia. The Group Leadership Team is chaired
by the President and CEO. The President and
CEO’s rights and responsibilities include those
allotted to the President under Finnish law.
Members of the Nokia Group
Leadership Team
Set forth below are the current members
of the Group Leadership Team and their
biographical details.
During 2018 and thereafter, the following
new appointments were made to the Group
Leadership Team:
■ Sanjay Goel was appointed President of
Global Services and member of the Group
Leadership Team as of April 1, 2018;
■ Sri Reddy was appointed Co-president of
IP/Optical Networks and member of the
Group Leadership Team as of May 15, 2018;
■ Ricky Corker was appointed President
of Customer Operations, Americas and
member of the Group Leadership Team
as of January 1, 2019;
■ Tommi Uitto was appointed President of
Mobile Networks on November 22, 2018
and joined Group Leadership Team as of
January 31, 2019; and
■ Sandra Motley was appointed President
of Fixed Networks on January 1, 2019
and joined Group Leadership Team as
of January 31, 2019.
The Personnel Committee
The Committee consists of a minimum of
three members of the Board who meet all
applicable independence requirements as
stipulated by Finnish law and the rules of
Nasdaq Helsinki and the NYSE. From May 30,
2018 the Personnel Committee has consisted
of the following five members of the Board:
Bruce Brown (Chair), Sari Baldauf, Elizabeth
Nelson, 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 Technology Committee
The Committee was established as of May 30,
2018 and consists of a minimum of three
members of the Board who meet applicable
independence requirements as stipulated by
Finnish law and the rules of Nasdaq Helsinki
and the NYSE and have such skills in
innovation, technology and science matters
as the Board determines adequate from time
to time. From May 30, 2018 the Technology
Committee has consisted of the following six
members of the Board: Edward Kozel (Chair),
Bruce Brown, Jeanette Horan, Louis R. Hughes,
Olivier Piou and Risto Siilasmaa.
The primary purpose of the Technology
Committee is to engage in a dialogue with and
provide opinions and advice to management
with respect to significant innovation and
technology strategies of the Company
which are formulated and executed by the
management of the Company, as described
in the Committee charter.
88
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Kathrin Buvac
b. 1980
President of Nokia Enterprise
and Chief Strategy Officer. Group
Leadership Team member since
2016. Joined Nokia Siemens
Networks in 2007.
Degree in Business Information
Systems from University of
Cooperative Education, Germany.
Bachelor Degree in Business
Administration from Open
University, London, the United
Kingdom.
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.
Rajeev Suri
Basil Alwan
Hans-Jürgen Bill
Kathrin Buvac
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.
Member of the Board of Directors
of Stryker Corporation.
Basil Alwan
b. 1962
Co-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 2014–2016.
Head of Human Resources, NSN
2009–2014. Head of West South
Europe region, NSN 2007–2009.
Head of Asia Pacific for Mobile
Networks, Siemens 2003–2007.
Head of Operations for Mobile
Networks, Siemens 2001–2003.
Head of Region Central-East and
North Europe for Mobile
Networks, Siemens 1998–2001.
Head of Mobile Networks in
Indonesia, Siemens 1994–1998.
Various management positions,
Siemens 1983–1994.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
89
Corporate governance Corporate governance statement continued
Sanjay Goel
b. 1967
President of Global Services.
Group Leadership Team member
since 2018. Joined Nokia
Networks in 2001.
Bachelor’s Degree in Engineering
in Electronics and Communications
from Manipal Institute of
Technology, Karnataka, India.
Senior Vice President, Global
Services Sales, Global Services
2015–2018. 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.
Ricky Corker
Joerg Erlemeier
Barry French
Sanjay Goel
Ricky Corker
b. 1967
President of Customer
Operations, Americas. Group
Leadership Team member since
2019. Joined Nokia in 1993.
Bachelor in Communications and
Electronic Engineering from the
Royal Melbourne Institute of
Technology, Australia.
Executive Vice President and
President of North America, Nokia
2011–2018. Head of APAC, Nokia
Siemens Networks 2009–2011.
Head of Sales, APAC, Nokia
Siemens Networks 2009. Head of
Asia North Region, Nokia Siemens
Networks 2008–2009. Head of
Hutchison Global Customer
Business Team, Nokia Siemens
Networks 2007–2008. Vice
President APAC, Nokia Networks
2005–2007. Lead Sales Director
APAC, Nokia Networks
2004–2005. Account Director
Telstra, Nokia Networks
2002–2003. Account Director
Vodafone Australia and New
Zealand, Sales Director Vodafone
APAC Customer Business Team,
Nokia Networks 2001–2002.
Commercial Director Global
Accounts British Telecom, Nokia
Networks 2001. Held senior sales
and marketing positions at Nokia
1993–2001.
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,
2013–2014. 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.
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.
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.
90
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Bhaskar Gorti
Bhaskar Gorti
b. 1966
President of Nokia Software.
Group Leadership Team member
since 2016. Joined Nokia in 2016.
Sandra Motley
b. 1959
President of Fixed Networks.
Group Leadership Team member
since 2019. Joined Nokia in 2016.
Kristian Pullola
b. 1973
Chief Financial Officer. Group
Leadership Team member since
2017. Joined Nokia in 1999.
Master of Science (Economics),
the Hanken School of Economics,
Helsinki, Finland. Finance diploma,
the Stockholm School of
Economics, Stockholm, Sweden.
Senior Vice President, Corporate
Controller, Nokia 2011–2016. Vice
President, Treasury & Investor
Relations, Nokia 2009–2011. Vice
President, Corporate Treasurer,
Nokia 2006–2008. Director,
Treasury Finance & Control, Nokia
2003–2006. Various roles in Nokia
Treasury 1999–2003. Associate,
Citibank International
1998–1999.
Member of the Board of Directors
of Ilmarinen Mutual Pension
Insurance Company.
Master of Business Administration
(Finance), Farleigh Dickinson
University, New Jersey, the United
States. Executive Business
Program graduate, Smith College,
Massachusetts, the United States.
Post-Masters Mechanical
Engineering studies at Columbia
University, New York. Degree in
Mechanical Engineering from
State University of New York
at Buffalo.
Chief Operating Officer, Fixed
Networks, Nokia 2017–2018.
Chief Operating Officer, Wireless
Business, Alcatel-Lucent
2011–2013. Vice President Sales,
U.S. Wireless Accounts,
Alcatel-Lucent 2009–2011. Vice
President and General Manager
of the CDMA Product Unit,
Alcatel-Lucent 2007–2009.
Various roles in North America &
CALA in pre- and post-sales
and business operations for
Alcatel-Lucent’s Wireless business.
Member of the Board of Advisors
for Light Reading’s Women in
Communications.
Federico Guillén
Sandra Motley
Kristian Pullola
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.
Federico Guillén
b. 1963
President of Customer
Operations, EMEA & APAC. 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,
Nokia, 2016–2018. 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
91
Corporate governance Corporate governance statement continued
Sri Reddy
b. 1964
Co-president of IP/Optical
Networks. Group Leadership
Team member since 2018.
Joined Nokia in 2016.
Bachelor of Electrical Engineering,
Jawaharlal Nehru Technological
University, India. Masters of
Electrical Engineering and
Computer Science, Oregon State
University, the United States.
Master of Business Administration
from Santa Clara University,
the United States.
Senior Vice President and General
Manager, IP Routing and Packet
Core Business Unit, Nokia,
2016–2018. Vice President,
Engineering, IP Routing,
Alcatel-Lucent, 2003–2016. Vice
President, Engineering, Timetra,
2000–2003. Vice President,
Engineering, Bay Networks,
1991–1999.
Tommi Uitto
b. 1969
President of Mobile Networks.
Group Leadership Team member
since 2019. Joined Nokia in 1996.
Master’s degree in industrial
management, Helsinki University
of Technology, Finland.
Master’s degree in operations
management, Michigan
Technological University,
the United States.
Senior Vice President, Global
Product Sales, Mobile Networks,
Nokia 2016 – 2018. Senior Vice
President, Global MBB Sales,
Customer Operations, Nokia
Networks, 2015 – 2016. Senior
Vice President, West Europe,
Customer Operations, Nokia
Networks, 2013–2015. Head
of Radio Cluster (SVP), Mobile
Broadband, Nokia Siemens
Networks, 2012 – 2013. Head of
Global LTE Radio Access Business
Line (VP), Mobile Broadband,
Nokia Siemens Networks,
2011–2012. Head of Quality,
Mobile Broadband, 2012. Head of
Product Management, Network
Systems, Nokia Siemens
Networks, 2010. Head of Product
Management, Radio Access,
Nokia Siemens Networks, 2009.
Head of WCDMA/HSPA and Radio
Platforms Product Management,
Nokia Siemens Networks, 2008.
Head of WCDMA/HSPA Product
Line Management, Nokia Siemens
Networks, 2007. General
Manager, Radio Controller
Product Management, Nokia
Networks 2005–2007. Director,
Sales & Marketing (Lead Sales
Director), France Telecom/
Orangse Nokia Networks,
2002–2005. Operations Director,
Northeast Europe, Central &
Eastern Europe and Middle East,
Nokia Networks, 1999 – 2002.
Sri Reddy
Tommi Uitto
Maria Varsellona
Marcus Weldon
Maria Varsellona
b. 1970
President of Nokia Technologies
and 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.
92
NOKIA ANNUAL REPORT ON FORM 20-F 2018
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 2018, 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. The 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. The 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. 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, the internal audit
function communicates the progress of the internal audit plan
completion, including the results of the closed audits, to the
Audit Committee.
The internal audit also works closely with our Ethics and Compliance
office to review any financial concerns brought to light from various
channels and, where relevant, works with Enterprise Risk Management
to ensure priority risk areas are reviewed through audits.
In 2018, the internal audit plan was completed and all results of these
reviews were reported to the management and to the Audit Committee.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
93
Corporate governance Corporate governance statement continued
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 the 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.
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 designated 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.
Share ownership of the Board of Directors and
the Nokia Group Leadership Team
The following table sets forth the number of shares and ADSs held
by the members of the Board at December 31, 2018 when they held
a total of 2 384 135 shares and ADSs in Nokia, which represented
approximately 0.04% of our outstanding shares and total voting rights
excluding shares held by Nokia Group.
Name
Risto Siilasmaa
Olivier Piou
Sari Baldauf
Bruce Brown
Jeanette Horan
Louis R. Hughes
Edward Kozel
Elizabeth Nelson
Carla Smits-Nusteling
Kari Stadigh
Shares(1)
ADSs(1)
1 347 954
280 193
98 436
25 949
67 776
27 529
41 055
273 726
128 135
20 525
72 857
(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 section
“—Compensation” and Note 35, Related party transactions, of our consolidated financial
statements included in this annual report on Form 20-F.
94
NOKIA ANNUAL REPORT ON FORM 20-F 2018
The following table sets forth the number of shares and ADSs held by the President and CEO and the other members of the Group Leadership
Team in office at December 31, 2018 when they held a total of 4 838 873 shares and ADSs in Nokia, which represented approximately 0.09%
of our outstanding shares and total voting rights excluding shares held by Nokia Group.
Name
Rajeev Suri
Basil Alwan
Hans-Jürgen Bill
Kathrin Buvac
Ashish Chowdhary
Joerg Erlemeier
Barry French
Sanjay Goel
Bhaskar Gorti
Federico Guillén
Kristian Pullola
Sri Reddy
Maria Varsellona
Marcus Weldon
Position in 2018
President and CEO
Co-president of IP/Optical Networks
Chief Human Resources Officer
Chief Strategy Officer
Chief Customer Operations Officer
Chief Operating Officer
Chief Marketing Officer
President of Global Services
President of Nokia Software
President of Fixed Networks
Chief Financial Officer
Co-president of IP/Optical Networks
President of Nokia Technologies and Chief Legal Officer
Chief Technology Officer and President of Bell Labs
Beneficially
owned shares
ADSs(1)
81 000
100 000
Shares(1)
2 473 450
193 355
216 869
125 502
46 469
119 604
254 889
159 512
171 493
132 817
333 598
364 179
66 136
(1) The number of shares or ADSs includes shares received as executive 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 further information on compensation refer to section “ –Compensation”.
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, 2018. 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’ network of firms for the years ended December 31:
EURm
Audit fees(1)
Audit-related fees(2)
Tax fees(3)
All other fees(4)
Total
2018
24.9
2.1
1.8
0.2
29.0
2017
25.3
1.8
1.2
0.1
28.4
(1) Audit fees consist of fees incurred for the annual audit of the Group’s consolidated financial statements and the statutory financial statements of the Group’s subsidiaries.
(2) Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Group’s financial statements or that are
traditionally performed by the independent auditor, and include consultations concerning financial accounting and reporting standards; advice and assistance in connection with local statutory
accounting requirements; due diligence related to mergers and acquisitions; 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; compliance reviews, advice and assistance on other indirect taxes; and transaction cost analysis; (ii) service related to tax audits;
(iii) services related to individual compliance (preparation of individual tax returns and registrations for employees (non-executives), assistance with applying visa, residency, work permits and tax
status for expatriates); (iv) services related to technical guidance on tax matters; (v) services related to transfer pricing advice and assistance with tax clearances; and (vi) tax consultation and planning
(advice on stock-based remuneration, local employer tax laws, social security laws, employment laws and compensation programs and tax implications on short-term international transfers).
(4) Other fees include fees billed for company establishments; liquidations; forensic accounting, data security, other consulting services and reference materials and services.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
95
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, other than the President
and CEO, for 2018. We report information
applicable to executive compensation in accordance
with Finnish regulatory requirements and with
requirements set forth by the U.S. Securities and
Exchange Commission.
Highlights
■ While Q4 performance of the business was encouraging, 2018
was another challenging year and this is reflected in the annual
bonus of the President and CEO, which paid out at 67% of target.
While our revenue was down year-on-year we grew market share,
however our operating profit performance and free cash flow were
below expectation.
■ For 2019, we have shifted the President and CEO’s pay mix, to align
more closely with European norms. As a result, the President and
CEO’s target total compensation for 2019 increased by 2%, with his
base pay increasing by 24%, and his long-term incentive target for
2019 decreasing by 14%. This returns his compensation mix to
approximately 80% of total compensation being dependent on
the performance of the company.
■ For 2019, driven by investor feedback and identification of metrics
that better align with industry volatility, we have changed the
long-term incentive policy and plan to be based on a three-year
performance period.
■ For 2018, the Board decided to implement a co-investment
long-term incentive award for the President and CEO and the
Group Leadership Team, driven by: the short-term challenges in
the business; the incremental investments required to position
Nokia for the coming 5G investment cycle and growth in software
and enterprise businesses; and retention challenges from higher
long-term incentive awards by peer technology companies in the
United States. The President and CEO invested EUR 3 024 000 in
Nokia shares and received a matching performance share long-term
incentive award target of EUR 6 048 000. The final value of the match
is subject to the performance of the company, and therefore aligned
with shareholder value creation.
Word from the Chair of the Personnel Committee
Dear Fellow Shareholder,
Below we present our 2018 report on our compensation outcomes,
and policy for 2019. As we move towards the Finnish implementation
of the European Shareholder Rights Directive II (SRD), we reached out
to nine of our largest shareholders, to consult with them on our policy
and programs. We have made some policy changes for 2019 and we
have integrated their feedback on disclosures in the way we have
structured this year’s report. We have also taken steps to prepare
for the SRD driven disclosures we will need to make in the future.
Business context
■ The outlook for Nokia’s business remains positive given the:
upcoming investment cycle in 5G, and our unique and differentiated
end to end portfolio as operators invest in and update their
networks across multiple domains; the progress made in the
Nokia Software business; and the Nokia Enterprise business
rapidly becoming a pillar of growth.
■ While Q4 performance of the business was encouraging, 2018
was another challenging year for the business.
■ Despite a 1-2% decline in our primary addressable market,
revenue grew 1% in 2018 excluding the impact of changes in
foreign currency exchange rates. We have continued to execute our
rebalancing for growth strategy. Profit performance was however
below target, driven by increased market R&D investment in 5G
technology and competitive pressure. Cash performance was
also below target driven primarily by the swap costs of legacy
Alcatel Lucent products, and continued restructuring costs.
■ In Q4 we re-organized and optimized the company structure to
accelerate the strategy by sharpening customer focus, and driving
focus and alignment around growing our four core businesses: Nokia
Networks; Nokia Software, Nokia Enterprise and Nokia Technologies.
We expect these changes will increase the probability of delivering
the mid- and long-term targets that will drive the value creation
our shareholders expect. The new structure became effective
from January 1, 2019.
■ The Personnel Committee is confident that our compensation policy
supports the execution of the strategy.
Strategy and compensation
At the core of Nokia’s philosophy lie two principles:
■ pay for performance; and aligning the interests of employees and
shareholders; and
■ ensuring that compensation programs and policies support the
delivery of the corporate strategy and create long-term sustainable
shareholder value.
Over the mid- to long-term, it is our intent to deliver revenue growth
at a higher level than the growth of our primary addressable market,
to deliver earnings growth based on revenue growth and improving
operating performance, and to deliver cash growth to pay for a stable
and growing annual dividend to our shareholders, as well as fund
investments in the future growth of the business. To support this,
the metrics in our short and long-term incentive plans focus on
revenue, profit and cash flow.
96
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Delivering sustainable value – Long-term incentive
Market share
Earnings per share
Maintain and grow
market share,
positioning for
the future
Efficient capital
management and
profitable growth
Free cash flow
Ensuring the ability
to invest and pay
dividends
Delivering the next year’s step in the strategic plan –
Short-term incentive
Revenue
Operating profit
Free cash flow
Deliver annual plan
revenues
Deliver annual plan
profitability
Deliver planned
annual free cash flow
Shareholder outreach
During 2018 we met with nine of our largest shareholders to hear
their views on our compensation policies, programs and associated
disclosures. Two strong themes stood out:
■ further clarifying our disclosures, and
■ increasing the performance period on performance shares to
three years.
The 2019 long-term incentive plan will be based on performance
over a three-year period. The Board believes the chosen metrics will
incentivize the management to deliver the strategy and are aligned
with shareholder value creation, and the Board is confident these
metrics are a good match to the historic volatility of this market.
The disclosures in this report have been focused to simplify and
to increase transparency of how we compensate our President and
CEO and also the Group Leadership Team.
2018 compensation structure
Changes were made during 2018 to the compensation arrangements,
in two main areas, to better align with our stated intent and to align
senior managers interests further with those of our shareholders.
Amendment of the metrics on the long-term incentive plan in 2018
We changed the balance of the measures to three equally weighted
metrics better aligned to our strategy:
■ earnings per share
■ free cash flow
■ market share
We believe that these metrics best balance between operational
performance and growing our market share in our primary addressable
market, while ensuring we improve profitability, and improve our cash
discipline to fund a stable and growing dividend as well as growth
opportunities for the company. These performance metrics are also
used for the 2019 performance share plan.
Co-investment arrangement for senior leaders
For 2018, the Board decided to implement a co-investment
arrangement for the President and CEO and a targeted number
of senior leaders, driven by:
■ the short-term challenges in the business, balanced by the mid-
and long-term opportunities to create shareholder value;
■ the incremental investments required to position Nokia for the
coming 5G investment cycle and growth in Nokia Software and
Nokia Enterprise;
■ ensuring we retain key talent in the face of higher long-term
incentive awards by peer technology companies in the United States.
The co-investment arrangement allowed the targeted employees to
invest their own money in Nokia shares (up to a limit), and for each
share purchased, to receive two performance shares under the 2018
long-term incentive plan as a match. The final value of the match
is subject to the performance of the company, and therefore very
aligned with shareholder value creation. The program was designed
to ensure managements’ and shareholders interests are inextricably
linked. The program was well received by the targeted group with an
88% participation rate. Final payout from this plan would be in 2021,
subject to the performance of the company.
As mentioned above, the President and CEO invested EUR 3 024 000
in Nokia shares and received a matching performance share long-term
incentive award target of EUR 6 048 000.
This program was only done in 2018, and not repeated in 2019. As
mentioned above, it is a three-year program. Looking forward this
arrangement will have a lower opportunity, but the Board will retain
it as an option to ensure that the company has the ability to attract,
retain and motivate the right talent to lead the company.
2018 remuneration outcomes
With over 80% of the President and CEO’s compensation based on
performance, his total compensation depends on delivery of results.
For 2018, while revenue growth was strong, profit and cash flow
performance were below expectations.
The President and CEO received a payout from his 2015 long-term
incentive award. The 2015 long-term incentive vested on January 1,
2018 with 123.75% of the target award vesting based on achievement
against the revenue and earnings per share targets during the
performance period years of 2015 and 2016.
The President and CEO also received the second tranche of a special
long-term incentive award granted in 2016 to incentivize the delivery
of synergies from the Alcatel Lucent acquisition.
The President and CEO’s base salary remained at EUR 1 050 000 in
2018, the third year in which his base salary has remained at that level.
While revenue growth was strong, profit and cash flow performance
were below target which was reflected in the President and CEO’s
annual short-term incentive award for 2018 being below target at
67%, equivalent to EUR 873 862.
Share ownership requirement
The President and CEO is required to own three times his base salary
in Nokia shares and currently exceeds this requirement significantly.
Since November 2016, the President and CEO has purchased Nokia
shares in the market worth EUR 5 000 000 in addition to retaining
shares that have vested from long-term incentives.
Looking to 2019
Looking ahead to 2019 we have made further changes to the
structure of the compensation arrangements for the President and
CEO and also to the long-term incentive plan in which our senior
leaders participate. We reviewed the peer group to ensure its
relevance and Rolls-Royce and Hexagon were removed from the group
while Atos, Cap Gemini and BAe Systems were added as high technology
companies based in Europe with comparable scale and complexity.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
97
Corporate governance Compensation continued
Key changes in variable compensation
■ The long-term incentive performance will now be assessed over
a three-year period (increase from two years previously).
■ Performance metrics remain unchanged however we have
rebalanced the weight of metrics in the short-term incentive with
all financial metrics (revenue, operating profit and free cash flow)
now equally weighted. The long-term incentive metrics remain
unchanged with market share (in previous disclosures referred
to as revenue relative to market), earnings per share and free cash
flow equally weighted.
■ Variable pay remains subject to clawback provisions.
Compensation of the President and CEO
The President and CEO invested EUR 3 024 000 in the co-investment
arrangement launched in 2018 with a matching performance
share award of EUR 6 048 000 at target value, the equivalent to
EUR 2 016 000 per annum. To rebalance the mix of his compensation
in 2019 toward a more European pay mix, the President and CEO
has been awarded an increase in his base compensation offset by a
reduction in his long-term incentive award. As a result, the President
and CEO’s target compensation for 2019 increased by 2%, with his
base pay increasing by 24%, and his long-term incentive target for
2019 decreasing by 14%.
Long-term incentives
The 2019 long-term incentive will be based on performance over
the life of the three-year plan, financial years 2019, 2020 and 2021.
The metrics will continue to be market share, earnings per share and
free cash flow, as described above.
The 2016 long-term incentive and performance share plan vested
on January 1, 2019 with 46.25% of target award vesting based on
the achievement against the revenue and earnings per share targets
during the performance period of financial years 2016 and 2017.
The President and CEO will also receive the final tranche of a special
long-term incentive award granted in 2016 to incentivize the delivery
of synergies from the Alcatel Lucent acquisition.
Going forward
We will continue to work to ensure our compensation programs
properly incentivize the management to deliver the strategy, and to
ensure shareholder and management interests remain aligned. We will
also continue to strive to increase transparency and understanding
of our compensation plans and policies and share our analysis of their
effectiveness. We continue to work to improve our disclosures and
engagement and look forward to working with you, our shareholders,
as we move toward a new era in Finland and Europe with the
Shareholder Rights Directive II.
Bruce Brown, Chair of the Personnel Committee
Pay overview of the President and CEO
Element
Base salary
Short-term
incentives(1)
Year ended 31 December 2019
EUR 1 300 000
Target award: 125% of base salary
Minimum 0% of base salary
Maximum 281.25% of base salary
Measures:
■ 80% Nokia scorecard
– 1⁄3 revenue
– 1⁄3 operating profit
– 1⁄3 free cash flow
Year ended 31 December 2018
EUR 1 050 000
Target award: 125% of base salary
Minimum 0% of base salary
Maximum 281.25% of base salary
Measures:
■ 80% Nokia scorecard
– 1⁄5 revenue
– 2⁄5 operating profit
– 2⁄5 free cash flow
Long-term
incentives
(Performance
Shares)(1)
■ 20% Personal strategic objectives
■ 20% Personal strategic objectives
Achievement against measures is multiplied by the
business results multiplier (operating profit), the overriding
affordability measure.
Target award: 200% of base salary EUR 2 600 000
Achievement against measures is multiplied by the
business results multiplier (operating profit), the overriding
affordability measure.
Target award: 288% of base salary EUR 3 024 000
Minimum payout 0%
Maximum payout 200%
Metrics:
■ Market share
■ Earnings per share
■ Free cash flow
Minimum payout 0%
Maximum payout 200%
Metrics:
■ Market share
■ Earnings per share
■ Free cash flow
98
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Element
Year ended 31 December 2019
Co-investment
arrangement
Year ended 31 December 2018
Matching performance share award of 2 times the shares
purchased by the President and CEO under the arrangement
in 2018.
The President and CEO purchased EUR 3 024 000 of
shares in May 2018 and was granted a matching award
of EUR 6 048 000 of performance shares, payout subject
to performance condition.
Pension
Benefits &
mobility
Total Target
Remuneration
Share ownership
requirement
Contribution to the mandatory TyEL pension plan in Finland. Contribution to the mandatory TyEL pension plan in Finland.
Mobility related benefits, life and critical illness insurance
and private medical insurance.
EUR 7 541 000
Mobility related benefits, life and critical illness insurance
and private medical insurance.
EUR 7 402 000
Target: 3 times base salary
Target: 3 times base salary
(1) Revenue, operating profit and earnings per share 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.
Remuneration Policy
In this section, we describe our remuneration policy for the President and CEO and the Board of Directors. This includes our considerations when
determining the policy and operation of the policy. Below we also describe the principles of remunerating our Group Leadership Team, excluding
the President and CEO.
While we are a Finnish company we compete in a global market for talent in the technology sector. In forming the policy we take into account the
views of shareholders and the needs of the company to attract, retain and motivate individuals of suitable caliber and experience to lead Nokia.
We also take into account the performance of the company, and where appropriate the individuals when assessing any potential changes
against market practices and conditions and the compensation paid to our employees more broadly.
The Board regularly monitors the effectiveness of the measures used in our incentive plans to ensure that they align with and drive the strategy
of the company.
Revenue, operating profit and earnings per share measures referred to in the Remuneration Policy 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 as applicable.
The President and CEO
The table below summarizes the main components of the compensation for the President and CEO.
Element
Base pay
Purpose
Provide competitive
base salary to attract
and retain individual with
the requisite level of
knowledge, skills and
experience to lead
our businesses.
Short-term
incentives
To incentivize and
reward performance
against delivery of the
annual business plan.
Operation
Base pay is normally reviewed annually taking
into consideration a variety of factors, including,
for example, the following:
■ performance of the company and the individual;
■ remuneration of our external comparator group;
■ changes in individual responsibilities; and
■ employee salary increases across Nokia and in the
local market.
Short-term incentives are based on performance
against single year targets and normally 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 the
delivery of Nokia’s strategy.
Achievement is assessed at the end of the year.
Short-term incentives are subject to the clawback
policy (see below).
Opportunity
Pay reviews are set within the context of
employee increases and changes within the
Nokia peer group. Changes reflect not only
improving performance but also improving
competence and skills as would be applied
to any other employee in Nokia.
On target opportunity up to 125% of base
salary with a range between 0% to 281.25%
of base salary depending on performance.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
99
Corporate governance Compensation continued
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.
Operation
Annual long-term incentive awards are normally made
in performance shares and paid for performance
against longer-term targets.
Targets are set in the context of the Nokia long-term
plans, analyst forecasts ensuring that they are
considered both demanding and motivational.
Long-term incentives are subject to the clawback
policy (see below).
Benefits &
perquisites
To attract, retain and
protect the President
and CEO.
Relocation
& mobility
Retirement
plans
To support the
international mobility
and ensure the right
person is in the right
location to meet
business needs.
To provide for
retirement with a level
of certainty.
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
dependents or the reasonable costs of commuting.
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.
No supplemental pension arrangements are provided
in Finland.
Opportunity
Target award level is 200% of base salary
with a range of 0% and 200% of the target
award (i.e. a maximum of 400% of base pay
at face value) depending on performance.
The Personnel Committee retains discretion
to make awards up to twice that level in
exceptional circumstances such as for
example upon recruitment, significant
change in responsibilities, significant
strategic change or other similar events.
The use of discretion would be explained
at the time.
The value will be the cost to the company.
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.
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. The amount is
disclosed in the Remuneration Report.
Illustration of the earning opportunity for the President and CEO
The illustration below shows the minimum, target and maximum
earning opportunity for the President and CEO.
Earning opportunity of the President and CEO (EURm)
16.00
14.00
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
Co-investment arrangement
(long-term incentive)
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.
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. Any offer would be expected to fit within
the framework described above.
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.
100
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Fees
Fees consist of annual fees and meeting fees.
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. In the
case of unintentional misstatement payments made within the last
three years may be subject to the policy at the discretion of the
Personnel Committee.
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”.
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.
Incentives
Pensions
Share
ownership
requirement
Board of Directors
The Board’s Corporate Governance and Nomination Committee
periodically reviews the remuneration for the Chair and members of
the Board against companies of similar size and complexity to ensure
Nokia is able to attract a suitably diverse and relevant mix of skills and
experience in order to maximize the value creation for shareholders.
Other
The Annual General Meeting resolves annually on the remuneration
to the Chair and members of the Board. The Chair of the Board’s
remuneration was last changed in 2008. The Board members’ annual
fees were last changed in 2016 with the previous change in 2007. The
structure of the current Board remuneration is laid in the table below.
Approximately 40% of the annual fee is paid in Nokia
shares purchased from the market on behalf of the
Board members or alternatively delivered as treasury
shares held by the Company. The balance is paid in
cash, most of which is typically used to cover taxes
arising from the paid remuneration.
Meeting fees are paid in cash.
Meeting fees are not paid to the Chair of the Board.
Non-executive directors are not eligible to participate
in any Nokia incentive plans 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.
Non-executive directors do not participate in any
Nokia benefit or pension plans.
Members of the Board shall normally 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 in the Board (the net amount
received after deducting those shares needed to
offset any costs relating to the acquisition of the
shares, including taxes).
Directors are compensated for travel and
accommodation expenses as well as other costs
directly related to Board and Committee work.
The compensation is paid in cash.
Remuneration for the term that began at the Annual General Meeting
held on May 30, 2018 and ends at the close of the Annual General
Meeting in 2019 consists of the following fees:
Annual fee
Chair
Vice Chair
Member
Chair of Audit Committee
Member of Audit Committee
Chair of Personnel Committee
Chair of Technology 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
20 000
EUR
5 000
2 000
(1) Paid for a maximum of seven meetings per term. Not paid to the Chair of the Board.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
101
Corporate governance Compensation continued
Remuneration Report
The Remuneration Report provides information on the remuneration
of the President and CEO and the Board of Directors between January
1, 2018 and December 31, 2018. We also describe the remuneration
to our Group Leadership Team, excluding the President and CEO, on
aggregate level below. 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.
The President and CEO
The following table shows the remuneration received by the President
and CEO in 2018 and 2017. The long-term incentive payments reflect
actual payments in the respective years attributable to the vesting of
the 2014 plan in 2017, the 2015 Nokia performance share plan in
2018 and a special long-term incentive related to delivery of synergies
from the Alcatel Lucent acquisition which pays in three tranches,
in 2017, 2018 and 2019.
EUR
Salary
Short-term incentive(¹)
Long-term incentive
Other compensation(2)
Total
2018
1 050 000
873 862
2 597 426
129 721
4 651 009
2017
1 050 000
997 369
4 261 633
114 557
6 423 559
(1) Short-term incentives represent amounts earned in respect of the financial year, but that are
paid in April of the following year.
(2) Other compensation includes compensation for housing equaling EUR 45 890 (2017:
EUR 44 463); travel assistance equaling EUR 35 454 (2017: EUR 22 628); Tax services equaling
EUR 12 230 (2017: EUR 17 595) and other benefits including mobile phone, driver and
supplemental medical and disability insurance equaling EUR 36 147 (2017: EUR 29 871).
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 2018, payments to the Finnish state pension system
equaled EUR 312 607 (EUR 338 787 in 2017).
Short-term incentive
The 2018 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 above. Performance against these defined targets was then
multiplied by a business results multiplier, which acts as a funding
factor (based on operating profit) for the incentive plan for most
employees, to determine the final payment.
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 2018, the short-term
incentive of the President and CEO equaled EUR 873 862, or 66.57%
of the target award, reflecting the over-delivery on revenue, but below
target delivery of operating profit and free cash flow. Achievement by
each element of the short-term incentive plan was as follows:
Metric
Revenue
Operating profit
Free cash flow
Weight
20%
20%
40%
Target
EURm
21 952
2 288
230
Achievement
123.35%
76.72%
24.34%
Long-term incentive
In 2018, the President and CEO’s 2015 performance share award
vested at 123.75% of the target award valued at EUR 2 255 161.
This was based on performance of financial years 2015 and 2016.
In 2016, the President and CEO was granted a 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 second of which
was in 2018 and worth EUR 342 265.
For 2018, the Board decided to implement a co-investment long-term
incentive award for the President and CEO and a targeted number of
senior leaders, to further increase alignment of management’s and
shareholders’ interests and to maximize long-term shareholder value
creation, driven by:
■ the short-term challenges in the business, balanced by the mid-
and long-term opportunities to create shareholder value;
■ the incremental investments required to position Nokia for the
coming 5G investment cycle and growth in Nokia Software and
Nokia Enterprise; and
■ ensuring we retain key talent in the face of higher long-term
incentive awards by peer technology companies in the United States.
Under the co-investment arrangement, the participants were offered
a matching award of two 2018 Performance Shares for each Nokia
share that they purchase voluntarily with their own funds from the
open market, with the payout of the Performance Shares subject
to the performance of the company. For each participant, the
arrangement was offered in addition to their normal annual long-term
incentive award, and the maximum investment value corresponded to
their normal annual long-term incentive award set by the company.
The related purchases of shares by the President and CEO were
executed in May 2018 and the shares purchased under the
arrangement must be held until January 1, 2021 in order for the
matching performance share award to vest.
The President and CEO invested EUR 3 024 000 to purchase 575 309
Nokia shares under the co-investment arrangement in May 2018.
102
NOKIA ANNUAL REPORT ON FORM 20-F 2018
In 2018, the President and CEO was awarded the following equity awards under the Nokia equity program:
Performance share awards(1)
Awarded as regular performance share award
Awarded as matching performance share award
under the co-investment agreement
Units awarded
677 600
Grant date fair value (EUR)
2 975 477
Grant date
July 4, 2018
Vesting date
January 1, 2021
1 150 618
5 052 594
July 4, 2018
January 1, 2021
(1) The 2018 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 the
President and CEO. 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, 2018
Vested shares under the 2016 performance share plan delivered on February 12, 2019(2)
Unvested shares under outstanding Nokia equity plans(3)
Total
Units
2 473 450
263 071
2 000 584
4 737 105
Value(1) (EUR)
12 441 454
1 323 247
10 062 938
23 827 639
(1) The values are based on the closing price of a Nokia share of EUR 5.03 on Nasdaq Helsinki on December 28, 2018.
(2) The value of the shares at delivery was based on fair market value of a Nokia share of EUR 5.45 on Nasdaq Helsinki on February 12, 2019 giving a total value delivered of EUR 1 433 737. The number
of shares delivered reflects 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, 2018 including the payout factor of the 2017 performance share plan and excluding the 2016 performance share
plan that vested on January 1, 2019.
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 2018
103
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.
Board of Directors
In 2018, the aggregate amount of compensation paid to the members
of the Board for their services on the Board and its committees
equaled EUR 2 203 000.
The Annual General Meeting held on May 30, 2018 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 2019: Bruce Brown, Jeanette Horan, Louis R. Hughes,
Edward Kozel, Elizabeth Nelson, Olivier Piou, Risto Siilasmaa, Carla
Smits-Nusteling and Kari Stadigh. Sari Baldauf was elected as a new
member of the Board for the same term. For director remuneration
resolved by the Annual General Meeting for the current term refer
to “Remuneration Policy—Board of Directors” above.
The following table outlines the total annual compensation paid in
2018 to the members of the Board for their services, as resolved by
the shareholders. The table does not include the meeting fees as
resolved by the Annual General Meeting in 2018 since those fees
for the ongoing term will be paid in 2019. For details of Nokia shares
held by the members of the Board, refer to “Corporate Governance
Statement—Share ownership of the Board of Directors” above.
Risto Siilasmaa, Board Chair
Olivier Piou, Board Vice Chair
Sari Baldauf
Bruce Brown
Jeanette Horan
Louis R. Hughes
Edward Kozel
Jean C. Monty
Elizabeth Nelson
Carla Smits-Nusteling
Kari Stadigh
Total
Annual fee
(EUR)
440 000
185 000
160 000
190 000
175 000
175 000
195 000
–
175 000
190 000
160 000
Meeting fees
(EUR)
–
11 000
–
24 000
20 000
24 000
22 000
14 000
17 000
16 000
10 000
Total remuneration paid
(EUR)
440 000
196 000
160 000
214 000
195 000
199 000
217 000
14 000
192 000
206 000
170 000
2 203 000
Number of shares
Approximately 40%
of the annual fee
34 749
14 610
12 636
15 005
13 820
13 820
15 400
–
13 820
15 005
12 636
161 501
104
NOKIA ANNUAL REPORT ON FORM 20-F 2018
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.
■ 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.
■ 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
105
Corporate governance Compensation continued
Work of the Personnel Committee
The Personnel Committee convened six times during 2018 with a
general theme for each meeting. In addition to meetings in person,
the Committee held five meetings in writing.
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
October:
■ Compensation strategy
and philosophy review
■ Talent overview
■ Review of Alcatel Lucent 2014
performance share plan
■ Update on:
– market and legal
environment; and
– adviser market practices
November:
■ Review of:
– framework for the
short-term incentive
program for 2019;
– framework for the long-term
incentive program for 2019;
and
– the Remuneration Statement
and Report for 2018
■ Risk review
January:
■ 2017 achievement review and
short-term incentive plan
payment approvals including
review of the performance of
the President and CEO
■ Budget approval for the 2018
Nokia equity program and
performance review for the
2016 performance share plan
■ Review of the Group
Leadership Team succession
planning
March:
■ Share ownership policy
compliance review
■ Review of the 2017
Remuneration Statement
and Report
■ Group Leadership Team
compensation reviews
July:
Review of:
■ The EU Shareholder Rights
Directive II
■ Shareholder outreach
feedback
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 Willis Towers Watson, 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.
106
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Nokia Group Leadership Team remuneration
At the end of 2018, the Group Leadership Team consisted of 14 persons split between Finland, other European countries and the United States.
Changes to the Group Leadership Team as of January 1, 2019 are described in the Corporate Governance Statement above.
Name
Rajeev Suri
Basil Alwan
Hans-Jürgen Bill
Kathrin Buvac(1)
Ashish Chowdhary(2)
Joerg Erlemeier
Barry French
Sanjay Goel
Bhaskar Gorti
Federico Guillén
Kristian Pullola
Sri Reddy
Maria Varsellona(3)
Marcus Weldon
Position in 2018
President and CEO
Co-president of IP/Optical Networks
Chief Human Resources Officer
Chief Strategy Officer
Chief Customer Operations Officer
Chief Operating Officer
Chief Marketing Officer
President of Global Services
President of Nokia Software
President of Fixed Networks
Chief Financial Officer
Co-president of IP/Optical Networks
President of Nokia Technologies and Chief Legal Officer
Chief Technology Officer and President of Bell Labs
(1) Kathrin Buvac was nominated President of Nokia Enterprise from January 1, 2019, in addition to her existing role as Chief Strategy Officer.
(2) Ashish Chowdhary was a member of the Group Leadership Team until December 31, 2018.
(3) Maria Varsellona was nominated President of Nokia Technologies from May 31, 2018, in addition to her existing role as Chief Legal Officer.
The following persons stepped down from the Group Leadership Team during 2018.
Appointment date
May 1, 2014
January 8, 2016
January 8, 2016
January 8, 2016
January 8, 2016
December 11, 2017
January 8, 2016
April 1, 2018
January 8, 2016
January 8, 2016
January 1, 2017
May 15, 2018
January 8, 2016
April 1, 2017
Name
Gregory Lee
Igor Leprince
Marc Rouanne
Position in 2018
President of Nokia Technologies
President of Global Services
President of Mobile Networks
Appointment date
June 30, 2017
April 1, 2017
January 8, 2016
Leaving date
May 31, 2018
March 31, 2018
November 22, 2018
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.
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 and will take into account any
conditions attached to the awards and the likely performance
against such conditions.
Clawback
Our executives are subject to a clawback policy where any restatement
of financial results may result in the reclaiming of amounts previously
paid which had been based on numbers which have since been
materially restated. Any such reclaimed amount, and the period
over which payments can be reclaimed, will take into account the
circumstances and duration of any misstatement.
Share ownership 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 2018 there were no change of control
agreements in place for the Group Leadership Team members.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
107
Corporate governance Compensation continued
Remuneration of the Group Leadership Team in 2018
Remuneration of the Group Leadership Team (excluding the President and CEO) in 2018 and 2017, in the aggregate, was as follows:
Salary, short-term incentives and other compensation(2)
Long-term incentives(3)
Total
2018
EURm(1)
20.5
3.6
24.1
2017
EURm(1)
20.3
7.0
27.3
(1) The values represent each member’s time on the Group Leadership Team.
(2) Short-term incentives represent amounts earned in respect of 2018 performance. Other compensation includes mobility related payments, local benefits and pension costs.
(3) The amounts represent the value of equity awards vesting or stock options exercised.
The members of the Group Leadership Team (excluding the President and CEO) purchased a total of 1 088 623 Nokia shares under the co-investment
arrangement in May and August 2018. Consequently, these Group Leadership Team members were awarded the following equity awards under the
Nokia equity program in 2018:
Award
Awarded as regular performance share award(2)
Awarded as matching performance share award
under the co-investment arrangement(2)
Restricted shares(3)
Units awarded(1)
1 531 500
Grant date fair value
(EUR)
6 725 123
2 177 246
363 700
9 549 131
1 594 825
Grant date
July 4, 2018
July 4, 2018 and
October 3, 2018
July 4, 2018
Vesting date
January 1, 2021
January 1, 2021
October 1, 2019, 2020 and 2021
(1) Includes units awarded to persons who were Group Leadership Team members during 2018.
(2) The 2018 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.
(3) No restricted shares were issued to the Group Leadership Team members in Europe, the award was made to a U.S. based executive in common with local practice.
Unvested equity awards held by the Nokia Group Leadership Team, including the President and CEO
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, 2018:
Number of equity awards held by the Group
Leadership Team(1)
% of the outstanding shares(2)
% of the total outstanding equity incentives
(per instrument)(3)
Shares receivable
through
stock options
Shares receivable
through performance
shares at grant
Shares receivable
through performance
shares at maximum(4)
Shares receivable
through restricted
shares
–
–
8 294 556
0.15%
16 589 112
0.30%
11.37%
11.37%
734 042
0.01%
20.49%
(1) Includes the 14 members of the Group Leadership Team in office as of December 31, 2018. 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, 2018, 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, 2018, the payout would be 200% and the table reflects this potential maximum payout. The restriction
period for the performance share plan 2016 and the performance period for the performance share plan 2017 ended on December 31, 2018 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 2016 plan took place in February 2019 and the
settlement for the performance share 2017 plan is expected to take place in the beginning of 2020 after the restriction period ends.
108
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Share price and total shareholder return vs long-term
incentive performance
250%
200%
150%
100%
50%
0
TSR
value
25.72% 23.75%
86.25%
100% 100%
Nil
Nil
46.25%
28.90%
2011
2012
2013
2014
2015
2016
2017
2018*
Long-term incentive plan, as of 31 December
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 were based on a mix
of revenue, operating profit and cash flow as well as personal targets.
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 2018 represent the challenging
business environment in which Nokia has been operating with
median payout at 67% of target.
Long-term incentives
We annually review of compensation against key metrics such as total
shareholder return and share price to validate the effectiveness of
our equity plans.
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 vested 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).
The 2017 performance share plan will vest on January 1, 2020 with
28.9% of the target award vesting based on the achievement against
the revenue and earnings per share targets during the performance
period (financial years 2017 and 2018).
Pay for performance
Core to our compensation philosophy is a desire to pay for performance.
Each year we review overall total shareholder return is compared to
long-term incentive payouts mapping the performance of the plans
against the total shareholder return curve.
Looking at the performance of our long-term incentive plans against
total shareholder return there is a reasonable alignment with the
performance of the plans declining as total shareholder return declines
and the trend lines are reasonably aligned.
Following the change in the performance metrics in the 2018 long-term
incentive plan to better fit with the needs of the business, the Board
continues to actively monitor the performance of our long-term
incentive plans to ensure that they deliver value for shareholders.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
109
Corporate governance Compensation continued
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
Airbus
Atos
BAe Systems
BT
Cap Gemini
Deutsche Telekom
Ericsson
Infineon
Kone
Phillips
SAP
Vodafone
Nokia Equity Program
The Nokia equity program includes the following equity instruments:
Eligible employees
Purpose
Vesting schedule
Performance
period
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
From 2019, a three-year
performance period based on
financial targets. Prior to 2019
two-year performance period based
on financial targets and one-year
restriction period.
Three years
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
Conditions may be applied before
grant of the award
n/a
Performance share plan
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.
Under the 2019 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: earnings per share,
free cash flow and market share (formerly called revenue relative to
market). Market share is measured by comparing Nokia’s revenue
in constant currency to our defined primary addressable market.
Data on the primary addressable market is obtained externally.
The criteria 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.
The 2019 performance share plan has a three-year performance
period (2019-2021). 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 2019 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 2019 will not receive any settlement.
Under the 2019 plan approved by the Board the company has
authority to award up to 37 million performance shares during the year
which could result in an aggregate maximum settlement of 74 million
Nokia shares in the event of maximum performance being 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.
110
NOKIA ANNUAL REPORT ON FORM 20-F 2018
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 2019 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.
Under the 2019 plan approved by the Board the company has
authority to award up to 2.5 million restricted shares during the year,
which could result in a maximum settlement of 2.5 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 2019 “Share in Success”,
eligible employees can elect to make monthly contributions from their
salary to purchase Nokia shares. The aggregate maximum amount
of contributions that employees can make during the plan cycle
commencing in 2019 is approximately EUR 60 million. The contribution
per employee cannot exceed EUR 2 100 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 72 countries for the plan cycle commencing in 2019.
Legacy equity programs
Stock Options
Nokia does not have any stock option plans and there are no more
outstanding stock options under the earlier Nokia stock option plans.
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.
Authorizations and resolutions of the Board concerning remuneration
Valid authorizations
The Annual General Meeting held on May 30, 2018 resolved to
authorize the Board to resolve to issue a maximum of 550 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 30, 2019 and the
authorization terminated the earlier shareholder authorization for the
Board to issue shares and special rights entitling to shares resolved at
the Annual General Meeting on May 23, 2017. 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, 2019, the Board approved the Nokia equity program
for 2019 and the issuance, without consideration, of a maximum
of 7.5 million Nokia shares held by the company to settle its
commitments to Nokia’s equity plan participants during 2019.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
111
Corporate governance General facts
on Nokia
112
NOKIA ANNUAL REPORT ON FORM 20-F 2018
NOKIA ANNUAL REPORT ON FORM 20-F 2018
General facts on Nokia
Contents
Our history
Memorandum and Articles
of Association
Selected financial data
Shares
Shareholders
American Depositary Shares
Production of infrastructure
equipment and products
Controls and procedures
Government regulation
Sales in United States-sanctioned
countries
Taxation
114
115
117
118
121
123
124
124
125
125
126
NOKIA ANNUAL REPORT ON FORM 20-F 2018
NOKIA ANNUAL REPORT ON FORM 20-F 2018
113
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 Devices & Services 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
in 2015.
Acquisition of Alcatel Lucent and beyond
The acquisition of Alcatel Lucent, completed in 2016, 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, Deepfield, and Comptel, we can deliver today a near
100% end-to-end portfolio of networks products and services 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.
114
NOKIA ANNUAL REPORT ON FORM 20-F 2018
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. 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, 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.
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.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
115
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. 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. Subject to certain exceptions, 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. Subject to certain
exceptions, 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.
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 then 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
Economic Affairs and Employment 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 Economic Affairs and Employment 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 Economic Affairs and Employment 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.
116
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Selected financial data
Five-year consolidated financial information
The selected financial data set forth below as of and for each of the years in the five-year period ended December 31, 2018 has been derived
from, and should be read in conjunction with, our consolidated financial statements prepared in accordance with IFRS. The consolidated
financial statements as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016 are included in this
annual report on Form 20-F.
In 2018 the Group applied IFRS 9, Financial Instruments, and IFRS 15, Contracts with Customers, for the first time. As the new standards were
not adopted retrospectively, the financial information for the comparative periods has not been restated for the effects of the new standards.
Refer to Note 3, New and amended standards and interpretations, in the consolidated financial statements included in this annual report on
Form 20-F. In January 2016, the Group acquired Alcatel Lucent; consequently the acquisition is reflected in the selected financial data presented
as of and for the years ended December 31, 2018, 2017 and 2016 only.
For the year ended December 31
From the consolidated income statement(2)
Net sales
Operating (loss)/profit
(Loss)/profit before tax
(Loss)/profit for the year from Continuing operations
Profit/(loss) 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 attributable to equity holders
of the parent
Basic earnings per share, EUR
Continuing operations
(Loss)/profit for the year
Diluted earnings per share, EUR
Continuing operations
(Loss)/profit for the year
Cash dividends per share, EUR(2)
Average number of shares (millions of shares)
Basic
Diluted
Continuing operations
(Loss)/profit for the year
2018
USDm(1)
26 647
(70)
(425)
(648)
253
(396)
(654)
(402)
(0.12)
(0.07)
(0.12)
(0.07)
0.24
5 588
5 588
5 588
2018
2017
2016
2015
2014
22 563
(59)
(360)
(549)
214
(335)
(554)
(340)
(0.10)
(0.06)
(0.10)
(0.06)
0.20
23 147
16
(510)
(1 437)
(21)
(1 458)
(1 473)
(1 494)
(0.26)
(0.26)
(0.26)
(0.26)
0.19
EURm
23 641
(1 100)
(1 369)
(912)
(15)
(927)
(751)
(766)
(0.13)
(0.13)
(0.13)
(0.13)
0.17
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
5 588
5 652
5 732
3 671
3 699
5 588
5 588
5 652
5 652
5 741
5 741
3 949
3 949
4 132
4 132
(1) In 2018, average rate of USD per EUR 1.1810 has been used to translate the consolidated income statement items.
(2) Planned maximum annual distribution for 2018 is EUR 0.20 per share to be paid quarterly subject to shareholders’ and the Board of Directors’ approval.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
117
General facts on Nokia General facts on Nokia continued
As of December 31
From the consolidated statement of financial position
Non-current assets(2)
Total cash and current financial investments(2)(3)
Other current assets
Assets 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
Short-term interest-bearing liabilities
Other current liabilities
Total shareholders’ equity and liabilities
Net cash and current financial investments(2)(4)
Share capital
2018
USDm(1)
24 327
7 870
13 045
6
45 247
17 506
94
3 238
8 260
1 138
15 011
45 247
3 493
282
2018
2017
2016
2015
2014
21 246
6 873
11 393
5
39 517
15 289
82
2 828
7 214
994
13 110
39 517
3 051
246
21 160
8 280
11 561
23
41 024
16 138
80
3 457
8 605
309
12 435
41 024
4 514
246
EURm
24 182
9 326
11 349
44
44 901
20 094
881
3 657
7 664
370
12 235
44 901
5 299
246
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
(1) In 2018, end of period rate of USD per EUR 1.1450 has been used to translate the consolidated statement of financial position items.
(2) Related to the adoption of IFRS 9, Financial Instruments on January 1, 2018, financial instruments previously presented within “Available for sale investments” are now presented within “Non-current
financial investments”, and financial instruments previously presented within “Available for sale investments, liquid assets” and “Investments at fair value though profit and loss, liquid assets” are now
presented within “Current financial investments”. Despite the changes in the presentation of comparatives, IFRS 9 has not been adopted retrospectively.
(3) Total cash and current financial investments consist of the following line items from our consolidated statement of financial position: cash and cash equivalents and current financial investments.
(4) Net cash and current financial investments equal total cash and current financial investments less long-term and short-term interest-bearing liabilities.
Shares
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, 2018, the share capital of Nokia Corporation equaled EUR 245 896 461.96 and the total number of shares issued was
5 635 945 159. As of December 31, 2018, the total number of shares included 42 782 966 shares owned by Group companies representing
approximately 0.8% 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
during the year, (000s), basic(1)
Average number of shares excluding shares owned by the Group
during the year, (000s), diluted(1)
Number of registered shareholders(2)
2018
246
5 635 945
42 783
5 593 162
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
5 588 020
5 651 814
5 732 371
3 670 934
3 698 723
5 588 020
243 409
5 651 814
247 717
5 741 117
237 700
3 949 312
209 509
4 131 602
216 830
(1) Used in calculation of earnings per share for profit or loss for the year attributable to equity holders of the parent.
(2) Each account operator is included in the figure as only one registered shareholder.
118
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Key ratios
For the year ended December 31, Continuing operations
2018
2017
2016
2015
2014
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, %(1)(2)
(0.10)
(0.10)
neg.
0.20
1 119
neg.
3.98
(0.26)
(0.26)
neg.
0.19
1 063
neg.
4.88
(0.13)
(0.13)
neg.
0.17
963
neg.
3.70
0.32
0.31
20.63
0.26
1 501
0.81
3.94
0.73
0.67
8.99
0.14
511
0.19
2.13
As of December 31
Shareholders’ equity per share, EUR(4)
Market capitalization, EURm(1)(4)
2018
2.73
28 134
2017
2.89
21 704
2016
3.51
26 257
2015
2.67
25 999
2014
2.36
23 932
(1) Based on Nokia closing share price at year-end.
(2) Planned maximum annual distribution for 2018 is EUR 0.20 per share to be paid quarterly subject to shareholders’ and the Board of Directors’ approval.
(3) For 2018, the figure represents the maximum amount to be distributed as dividends, based on the number of shares as of December 31, 2018, 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.
Share turnover
For the year ended December 31
Share turnover (000s)(1)
Total number of shares (000s)
% of total number of shares
2018
8 960 687
5 635 945
159
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
9 278 853
3 745 044
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.
Share price development
Annual data
2018 Full year High/Low
2018 Full year Average (Volume-weighted)
Year-end value December 31, 2018
Year-end value December 31, 2017
Change from December 31, 2017 to December 31, 2018
Nasdaq Helsinki
New York Stock Exchange
Euronext Paris
High
Low
Value
High
Low
Value
High
Low
Value
5.39
EUR
3.85
6.41
USD
4.68
5.39
EUR
3.85
4.74
5.03
3.89
29.2%
5.63
5.82
4.66
24.9%
4.62
5.06
3.89
30.0%
NOKIA ANNUAL REPORT ON FORM 20-F 2018
119
General facts on Nokia
General facts on Nokia continued
Stock option exercises 2014–2018
Year
2014
2015
2016
2017
Stock option category
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
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
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
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
0
0
0
0
0
0
0
0
50
0
50
0
0
0
0
442
212
90
0
213
285
1 242
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
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
Net proceeds
EURm
0.00
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
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
0.89
New share capital
EURm
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
120
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Year
2018
Stock option category
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
3.48
2.08
1.82
1.76
2.58
2.35
2.72
5.41
Number of new
shares 000s
0
128
170
0
0
127
0
0
425
Date of
payment
2018
2018
2018
2018
2018
2018
2018
2018
Net proceeds
EURm
0.00
0.27
0.31
0.00
0.00
0.30
0.00
0.00
0.87
New share capital
EURm
–
–
–
–
–
–
–
–
Shareholders
As of December 31, 2018, shareholders registered in Finland represented approximately 21% and shareholders registered in the name of a
nominee represented approximately 79% of the total number of shares of Nokia Corporation. The number of directly registered shareholders
was 243 409 as of December 31, 2018. Each account operator (13) is included in this figure as only one registered shareholder.
Largest shareholders registered in Finland as of December 31, 2018(1)
Shareholder
Solidium Oy
Keskinäinen Työeläkevakuutusyhtiö Varma
Valtion Eläkerahasto
Keskinäinen Eläkevakuutusyhtiö Ilmarinen
Schweizerische Nationalbank
Keskinäinen Työeläkevakuutusyhtiö Elo
Lival Oy Ab
OP-Suomi-Sijoitusrahasto
Svenska Litteratursällskapet i Finland rf
KEVA
Total number
of shares 000s
206 000
67 222
37 000
36 750
25 485
17 100
16 240
15 739
15 678
12 356
% of all shares
3.66
1.19
0.66
0.65
0.45
0.30
0.29
0.28
0.28
0.22
% of all voting rights
3.66
1.19
0.66
0.65
0.45
0.30
0.29
0.28
0.28
0.22
(1) Excluding nominee registered shares and shares owned by Nokia Corporation. Nokia Corporation owned 42 782 966 shares as of December 31, 2018.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
121
General facts on Nokia General facts on Nokia continued
Breakdown of share ownership as of December 31, 2018(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
51 767
116 445
66 101
8 551
427
38
56
24
243 409
% of
shareholders
21.27
47.84
27.16
3.51
0.18
0.02
0.02
0.01
100.00
Total number
of shares
2 881 948
52 935 062
206 362 853
209 722 973
85 068 579
27 161 167
118 984 665
4 932 827 912
5 635 945 159
% of
all shares
0.05
0.94
3.66
3.72
1.51
0.48
2.11
87.52
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
79.22
20.78
100.00
% of shares
2.26
8.21
2.18
1.20
6.93
20.78
As of December 31, 2018, a total of 663 102 934 ADSs (equivalent to the same number of shares or approximately 11.77% of the total
outstanding shares) were outstanding and held of record by 126 586 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, 2018 was 413 650.
Based on information known to us as of February 5, 2019, as of December 31, 2018 Blackrock, Inc. beneficially owned 300 482 139 Nokia shares,
which at that time corresponded to approximately 5.3% 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, 2018, the members of our Board and the Group Leadership team held a total of 7 223 008 shares and ADSs in Nokia,
which represented approximately 0.13% of our outstanding shares and total voting rights excluding shares held by the Nokia Group.
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.
122
NOKIA ANNUAL REPORT ON FORM 20-F 2018
American Depositary Shares
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
ADS 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 2018, the Depositary did not collect these fees. However, for 2019 a dividend fee is intended to be implemented for ADSs. Such fees are offset against the related distribution made to the ADS holder.
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.
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 ADS holder.
Payments
In 2018, our Depositary made the following payments on our behalf in relation to our ADS 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
876 594.79
877 171.52
98 753.96
–
500 000.00
2 352 520.27
Additionally for 2018, our Depositary reimbursed us USD 950,000 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
123
General facts on Nokia General facts on Nokia continued
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, 2018, we had ten manufacturing facilities globally:
one in Australia, one in Brazil, one 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, 2018.
Location and products(1)
Country
Australia Kilsyth: radio frequency systems
Embu: radio frequency systems
Brazil
Suzhou: radio frequency systems
China
Oulu: base stations
Finland
Calais: submarine cables
France
France
Trignac: radio frequency systems
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)
5 400
7 800
12 500
13 800
63 000
7 500
20 300
12 000
19 500
31 000
(1) We consider the production capacity of our manufacturing network to be sufficient to meet
the requirements of our 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.
Controls and procedures
Our management, with the participation of our President and CEO and
our Chief Financial Officer, conducted an evaluation pursuant to Rules
13a-15(e) and 15d-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, 2018. 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 Treadway Commission (COSO). Based on this
evaluation, our management has assessed the effectiveness of
Nokia’s internal control over financial reporting at December 31, 2018
and concluded that such internal control over financial reporting
is effective.
The effectiveness of our internal control over financial reporting as of
December 31, 2018 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
There have been no changes in our internal control over financial
reporting during 2018, other than the remediation of a material
weakness identified during the year referred to below, that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
During Q3 2018, management identified a material weakness in the
design of controls related to the reporting of contract assets, contract
liabilities and related balances in accordance with IFRS 15 Revenue
from Contracts with Customers. The original control design,
implemented in Q1 2018, did not adequately incorporate the precision
necessary to evaluate contract related balances to present contract
assets and liabilities in a materially accurate manner. Note, that this
material weakness does not relate to the 2017 financial statements.
Upon identification of the material weakness, management
implemented a remediation plan to 1) redesign the related internal
controls to focus on contract level balances, 2) provide additional
technical training to control operators and 3) provide enhanced
information technology reports at a contract level. Collectively, this
remediation plan enhanced the precision of the internal controls
surrounding the reporting of contract assets, contract liabilities and
related balances, in accordance with IFRS 15.
As of December 31, 2018, management has concluded that these
redesigned controls have operated effectively for a reasonable period
of time, and therefore have concluded that this material weakness has
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.
124
NOKIA ANNUAL REPORT ON FORM 20-F 2018
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.
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 2018 through a branch of a Finnish subsidiary and four
employees through a branch of Alcatel Lucent International. Nokia is
the controlling shareholder in Pishahang Communications Network
Development Company (Pishahang). The other minority shareholder
in Pishahang is Information Technology Application Development
TACFAM Company (Tacfam). 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. In 2018, Nokia entered a two-step transaction with Tacfam,
pursuant to which Nokia diluted the stake of Tacfam in Pishahang via
a debt conversion into equity. The first step was completed in 2018
and the second step is expected to be completed in 2019. Upon
completion of the second step of this transaction, Nokia will have
a 90% interest in Pishahang and Tacfam will have a 10% interest.
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.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
125
General facts on Nokia General facts on Nokia continued
To our knowledge, none of our sales in Iran in 2018 are required to be
disclosed pursuant to ITRA Section 219, with the possible exception
of the following:
In 2018, 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 one local internet service provider HiWeb. We also provided
some 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 2018 sold wireless infrastructure products through an Iranian
distributor, FourSat Kish. Additionally, in 2018, we purchased certain
fixed line telephony services from TCI and mobile phone subscriptions
from MCCI.
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, 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.
Nokia does not normally allocate net profit on a country-by-country
or activity-by-activity basis, other than as set forth in Nokia’s
consolidated financial statements prepared in accordance with
IFRS. Therefore, for this exercise Nokia will reflect its sales margin
in lieu of the net profit / loss. In 2018, we recognized net sales of
EUR 11.5 million and a positive sale margin of EUR 6.33 million from
business with MCCI, net sales of EUR 35.28 million and a negative sale
margin of EUR 8.33 million from business with MTN Irancell, net sales
of EUR 2.03 million and a negative sale margin of EUR 0.24 million from
business with TCI, as well as net sales of EUR 0 million and a positive
sale margin of EUR 1.79 million from business with TIC. Furthermore,
we recognized net sales of EUR 5.68 million and a positive sale
margin of EUR 3.17 million from business with HiWeb. Moreover,
RFS recognized sales revenue of approximately EUR 0.09 million,
and positive sale margin of EUR 0.01 million from business with
FourSat Kish.
Although we evaluate our business activities on an ongoing basis,
we currently do not intend to accept any new business in Iran in 2019
and intend to only complete existing contractual obligations in Iran
in compliance with applicable economic sanctions and other
trade-related laws.
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.
126
NOKIA ANNUAL REPORT ON FORM 20-F 2018
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.
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, 2018 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.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
127
General facts on Nokia General facts on Nokia continued
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.
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.
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.
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.
128
NOKIA ANNUAL REPORT ON FORM 20-F 2018
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. New and amended standards
and interpretations
4. Use of estimates and critical
accounting judgments
5. Segment information
6. Acquisitions and disposals
7. Discontinued operations
8. Revenue recognition
9. Expenses by nature
10. Personnel expenses
11. Other income and expenses
12. Financial income and expenses
13. Income taxes
14. Earnings per share
15. Intangible assets
16. Property, plant and equipment
17. Impairment
130
131
132
133
134
136
136
136
18. Inventories
19. Prepaid expenses and
accrued income
20. Shares of the Parent Company
21. Translation differences, 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
147
28. Accrued expenses, deferred
revenue and other liabilities
29. Provisions
30. Commitments and contingencies
31. Notes to the consolidated
168
168
169
170
171
172
173
175
176
178
187
187
189
statement of cash flows
189
32. Principal Group companies
190
33. Significant partly-owned subsidiaries 191
34. Investments in associated
companies and joint ventures
35. Related party transactions
36. Financial risk management
37. Subsequent events
Report of Independent Registered
Public Accounting Firm
192
192
194
203
204
151
153
155
156
157
158
159
159
160
161
164
165
166
167
NOKIA ANNUAL REPORT ON FORM 20-F 2018
129
Financial statements Consolidated income statement
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other income
Other expenses
Operating (loss)/profit
Share of results of associated companies and joint ventures
Financial income and expenses
Loss before tax
Income tax (expense)/benefit
Loss for the year from Continuing operations
Loss for the year from Continuing operations attributable to:
Equity holders of the parent
Non-controlling interests
Loss for the year from Continuing operations
Profit/(loss) for the year from Discontinued operations attributable to:
Equity holders of the parent
Non-controlling interests
Profit/(loss) for the year from Discontinued operations
Loss for the year attributable to:
Equity holders of the parent
Non-controlling interests
Loss for the year
Earnings per share attributable to equity holders of the parent
Basic earnings per share
Continuing operations
Discontinued operations
Loss for the year
Diluted earnings per share
Continuing operations
Discontinued operations
Loss for the year
Average number of shares
Basic
Continuing operations
Discontinued operations
Loss for the year
Diluted
Continuing operations
Discontinued operations
Loss for the year
The notes are an integral part of these consolidated financial statements.
Notes
5, 8
9
9
9
11
9, 11
34
12
13
7
2018
EURm
22 563
(14 117)
8 446
(4 620)
(3 463)
290
(712)
(59)
12
(313)
(360)
(189)
(549)
(554)
5
(549)
214
–
214
(340)
5
(335)
2017
EURm
23 147
(14 008)
9 139
(4 916)
(3 615)
363
(955)
16
11
(537)
(510)
(927)
(1 437)
(1 473)
36
(1 437)
(21)
–
(21)
(1 494)
36
(1 458)
2016
EURm
23 641
(15 117)
8 524
(4 997)
(3 767)
117
(977)
(1 100)
18
(287)
(1 369)
457
(912)
(751)
(161)
(912)
(15)
–
(15)
(766)
(161)
(927)
14
EUR
EUR
EUR
(0.10)
0.04
(0.06)
(0.10)
0.04
(0.06)
(0.26)
0.00
(0.26)
(0.26)
0.00
(0.26)
(0.13)
0.00
(0.13)
(0.13)
0.00
(0.13)
14
000s shares
000s shares
000s shares
5 588 020
5 588 020
5 588 020
5 651 814
5 651 814
5 651 814
5 732 371
5 732 371
5 732 371
5 588 020
5 612 477
5 588 020
5 651 814
5 651 814
5 651 814
5 741 117
5 741 117
5 741 117
130
130
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Consolidated statement
of comprehensive income
For the year ended December 31
Loss for the year
Other comprehensive income
Items that will not be reclassified to profit or loss:
Remeasurements of 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 and other hedges
Financial assets at fair value through other comprehensive income
Available-for-sale investments
Other increase/(decrease), net
Income tax related to items that may be reclassified subsequently to profit
or loss
Other comprehensive income/(loss), net of tax
Total comprehensive income/(loss) for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Total comprehensive income/(loss) 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.
Notes
2018
EURm
(335)
2017
EURm
(1 458)
22
388
(90)
401
(73)
(53)
(45)
–
1
33
562
227
221
6
227
7
214
221
6
–
6
723
(58)
(1 819)
440
35
–
(88)
(1)
(92)
(860)
(2 318)
(2 304)
(14)
(2 318)
(2 283)
(21)
(2 304)
(14)
–
(14)
2016
EURm
(927)
613
(269)
251
(103)
14
–
(75)
(6)
20
445
(482)
(277)
(205)
(482)
(262)
(15)
(277)
(205)
–
(205)
Consolidated income statement
For the year ended December 31
Net sales
Cost of sales
Gross profit
Other income
Other expenses
Operating (loss)/profit
Research and development expenses
Selling, general and administrative expenses
Share of results of associated companies and joint ventures
Financial income and expenses
Loss before tax
Income tax (expense)/benefit
Loss for the year from Continuing operations
Loss for the year from Continuing operations attributable to:
Equity holders of the parent
Non-controlling interests
Loss for the year from Continuing operations
Profit/(loss) for the year from Discontinued operations attributable to:
Equity holders of the parent
Non-controlling interests
Loss for the year attributable to:
Equity holders of the parent
Non-controlling interests
Loss for the year
Basic earnings per share
Continuing operations
Discontinued operations
Loss for the year
Diluted earnings per share
Continuing operations
Discontinued operations
Loss for the year
Average number of shares
Basic
Continuing operations
Discontinued operations
Loss for the year
Diluted
Continuing operations
Discontinued operations
Loss for the year
The notes are an integral part of these consolidated financial statements.
Notes
5, 8
9
9
9
11
9, 11
34
12
13
2018
EURm
2017
EURm
2016
EURm
22 563
23 147
23 641
(14 117)
(14 008)
(15 117)
8 446
(4 620)
(3 463)
290
(712)
(59)
12
(313)
(360)
(189)
(549)
9 139
(4 916)
(3 615)
363
(955)
16
11
(537)
(510)
(927)
(1 437)
(554)
(1 473)
5
36
(549)
(1 437)
214
–
214
(21)
–
(21)
(340)
(1 494)
5
36
(335)
(1 458)
(0.10)
0.04
(0.06)
(0.10)
0.04
(0.06)
(0.26)
0.00
(0.26)
(0.26)
0.00
(0.26)
8 524
(4 997)
(3 767)
117
(977)
(1 100)
18
(287)
(1 369)
457
(912)
(751)
(161)
(912)
(15)
–
(15)
(766)
(161)
(927)
(0.13)
0.00
(0.13)
(0.13)
0.00
(0.13)
14
000s shares
000s shares
000s shares
5 588 020
5 651 814
5 732 371
5 588 020
5 651 814
5 732 371
5 588 020
5 651 814
5 732 371
5 588 020
5 651 814
5 741 117
5 612 477
5 651 814
5 741 117
5 588 020
5 651 814
5 741 117
Profit/(loss) for the year from Discontinued operations
7
Earnings per share attributable to equity holders of the parent
14
EUR
EUR
EUR
130
NOKIA ANNUAL REPORT ON FORM 20-F 2018
131
131
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
Non-current financial investments(1)
Deferred tax assets
Other non-current financial assets
Defined benefit pension assets
Other non-current assets
Total non-current assets
Current assets
Inventories
Trade receivables
Contract assets
Prepaid expenses and accrued income
Current income tax assets
Other financial assets
Current financial investments(1)
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 unrestricted equity
(Accumulated deficit)/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
Contract 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
Trade payables
Contract liabilities
Accrued expenses, deferred revenue and other liabilities
Provisions
Total current liabilities
Total liabilities
Total shareholders’ equity and liabilities
Notes
2018
EURm
2017
EURm
15, 17
16, 17
34
24
13
24, 36
27
19
18
24, 36
8, 36
19
24, 25, 36
24, 36
24, 36
20
21
21
23, 24, 36
13
27
8
24, 28
29
23, 24, 36
24, 25, 36
24, 36
8
28
29
8 805
1 790
145
690
4 911
373
4 224
308
21 246
3 168
4 856
1 875
1 024
227
243
612
6 261
18 266
5
39 517
246
436
(408)
(592)
1 063
15 606
(1 062)
15 289
82
15 371
2 828
350
4 327
1 113
852
572
10 042
994
891
268
4 773
2 383
3 940
855
14 104
24 146
39 517
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
(1) Related to the adoption of IFRS 9, Financial Instruments on January 1, 2018, financial instruments previously presented within “Available for sale investments" are now presented within
“Non-current financial investments”, and financial instruments previously presented within “Available for sale investments, liquid assets” and “Investments at fair value though profit and loss,
liquid assets” are now presented within “Current financial investments”. Despite the changes in the presentation of comparatives, IFRS 9 has not been adopted retrospectively.
The notes are an integral part of these consolidated financial statements.
132
132
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Consolidated statement of financial position
Consolidated statement of cash flows
SHAREHOLDERS’ EQUITY AND LIABILITIES
Capital and reserves attributable to equity holders of the parent
As of December 31
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Investments in associated companies and joint ventures
Non-current financial investments(1)
Deferred tax assets
Other non-current financial assets
Defined benefit pension assets
Other non-current assets
Total non-current assets
Current assets
Inventories
Trade receivables
Contract assets
Prepaid expenses and accrued income
Current income tax assets
Other financial assets
Current financial investments(1)
Cash and cash equivalents
Total current assets
Assets held for sale
Total assets
Share capital
Share issue premium
Treasury shares
Translation differences
Fair value and other reserves
Reserve for invested unrestricted equity
(Accumulated deficit)/retained earnings
Non-controlling interests
Total equity
Non-current liabilities
Long-term interest-bearing liabilities
Deferred tax liabilities
Defined benefit pension and post-retirement liabilities
Contract liabilities
Provisions
Deferred revenue and other long-term liabilities
Total non-current liabilities
Current liabilities
Short-term interest-bearing liabilities
Other financial liabilities
Current income tax liabilities
Trade payables
Contract liabilities
Provisions
Total current liabilities
Total liabilities
Total shareholders’ equity and liabilities
Accrued expenses, deferred revenue and other liabilities
Total capital and reserves attributable to equity holders of the parent
Notes
2018
EURm
2017
EURm
15, 17
16, 17
34
24
13
27
19
24, 36
18
24, 36
8, 36
19
24, 25, 36
24, 36
24, 36
20
21
21
23, 24, 36
13
27
8
29
24, 28
23, 24, 36
24, 25, 36
24, 36
8
28
29
21 246
21 160
39 517
41 024
8 805
1 790
145
690
4 911
373
4 224
308
3 168
4 856
1 875
1 024
227
243
612
6 261
18 266
5
246
436
(408)
(592)
1 063
15 606
(1 062)
15 289
82
2 828
350
4 327
1 113
852
572
994
891
268
4 773
2 383
3 940
855
14 104
24 146
39 517
9 219
1 853
128
816
4 582
215
3 979
368
2 646
6 880
–
1 259
474
302
911
7 369
19 841
23
246
447
(1 480)
(932)
1 094
15 616
1 147
16 138
80
3 457
413
4 440
–
2 986
766
309
268
383
3 996
–
6 666
1 122
12 744
24 806
41 024
15 371
16 218
10 042
12 062
For the year ended December 31
Cash flow from operating activities
Loss for the year
Adjustments, total
Change in net working capital(1)
Decrease/(increase) in receivables
(Increase)/decrease in inventories
(Decrease)/increase in non-interest bearing liabilities
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
Purchase of property, plant and equipment and intangible assets
Proceeds from sale of property, plant and equipment and intangible assets
Acquisition of businesses, net of acquired cash
Proceeds from disposal of businesses, net of disposed cash
Purchase of current financial investments(3)
Proceeds from maturities and sale of current financial investments(3)
Purchase of non-current financial investments
Proceeds from sale of non-current financial investments
Other
Net cash (used in)/from investing activities
Cash flow from financing activities
Proceeds from stock option exercises
Purchase of treasury shares
Purchase of equity instruments of subsidiaries(3)
Proceeds from long-term borrowings
Repayment of long-term borrowings(3)
Proceeds from/(repayment) of short-term borrowings
Dividends paid
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
Notes
31
2018
EURm
2017(2)
EURm
2016(2)
EURm
(335)
2 093
(1 458)
3 676
(927)
2 387
246
(544)
(645)
815
68
(159)
(364)
360
(672)
88
(31)
(18)
(2 104)
2 397
(145)
170
–
(315)
1
–
1
139
(31)
2
(1 081)
(969)
(184)
(1 108)
7 369
6 261
(421)
(296)
1 221
2 722
53
(409)
(555)
1 811
(601)
67
(394)
(16)
(2 729)
3 589
(104)
207
(9)
10
1
(785)
(38)
2 129
(2 044)
(42)
(970)
(1 749)
(200)
(128)
7 497
7 369
18
533
(2 738)
(727)
85
(309)
(503)
(1 454)
(477)
28
5 819
6
(4 131)
5 489
(73)
134
41
6 836
6
(216)
(724)
225
(2 599)
(100)
(1 515)
(4 923)
43
502
6 995
7 497
(1) Net working capital includes both short-term and long-term items.
(2) Comparatives for 2017 and 2016 have been recasted to reflect the change in the presentation of operating and investing cash flows in 2018. The change was made to simplify the
presentation and did not have an impact on net cash used in operating or net cash used in investing activities.
(3) 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 financial
investments. 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 financial investments.
The consolidated statement of cash flows combines cash flows from both the Continuing and the Discontinued operations. Refer to Note 7,
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.
(1) Related to the adoption of IFRS 9, Financial Instruments on January 1, 2018, financial instruments previously presented within “Available for sale investments" are now presented within
“Non-current financial investments”, and financial instruments previously presented within “Available for sale investments, liquid assets” and “Investments at fair value though profit and loss,
liquid assets” are now presented within “Current financial investments”. Despite the changes in the presentation of comparatives, IFRS 9 has not been adopted retrospectively.
The notes are an integral part of these consolidated financial statements.
132
NOKIA ANNUAL REPORT ON FORM 20-F 2018
133
133
Financial statements
Consolidated statement of changes
in shareholders’ equity
EURm
As of January 1, 2016
Remeasurements of defined benefit
pension plans, net of tax
Translation differences
Net investment hedges, net of tax
Cash flow hedges, net of tax
Available-for-sale investments,
net of tax
Other decrease, net
Loss for the year
Total comprehensive loss 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 exercised
Dividends(1)
Acquisitions through business
Number
of shares
outstanding
000s
3 939 195
Notes
Share
capital
246
Share
issue
premium
380
Treasury
shares
(718)
Translation
differences
292
Fair value
and other
reserves
204
Reserve for
invested
unrestricted
equity
3 820
(Accumulated
deficit)/
Retained
earnings
6 279
Attributable
to equity
holders of
the parent
10 503
Non-
controlling
interests
Total
equity
21 10 524
21
21
21
21
21
289
(83)
348
12
(73)
(1)
–
–
117
–
206
286
–
20
3 408
(54 296)
1 074
(6)
(22)
3
68
(231)
348
289
(83)
12
(73)
(4)
(766)
(277)
117
(6)
(4)
(38)
(2)
(161)
(205)
344
251
(83)
12
(73)
(6)
(927)
(482)
117
(6)
(3)
(766)
(769)
(52)
3
(6)
(231)
6
(1 501)
(6)
(231)
6
(14) (1 515)
(1 501)
combinations
6 1 765 358
11 616
11 616
1 714 13 330
Equity issuance costs related to
acquisitions
Acquisition of non-controlling interests
Vested portion of share-based
payment awards related to
acquisitions
Convertible bond equity component
Other movements
Total other equity movements
As of December 31, 2016
Remeasurements of defined benefit
65 778
(15)
(2)
(16)
359
(459)
(16)
(117)
(635)
(16)
(752)
6
(14)
5 720 503
–
246
6
(38)
(1)
59
439
(163)
(881)
(15)
483
(2)
488
1
11 911
15 731
38
(1 922)
3 588
6
–
–
9 868
20 094
6
–
–
1 065 10 933
881 20 975
pension plans, net of tax
Translation differences
Net investment hedges, net of tax
Cash flow hedges, net of tax
Available-for-sale investments,
net of tax
21
21
21
21
21
Other increase, net
Loss for the year
Total comprehensive 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 exercised
Dividends(1)
Acquisitions through business
combinations
Acquisition of non-controlling interests
Disposal of subsidiaries
Other movements
Total other equity movements
As of December 31, 2017
(1 768)
352
662
28
(86)
2
–
(1 416)
606
–
(1 494)
(1 494)
–
–
92
(7)
662
(1 768)
352
28
(86)
2
(1 494)
(2 304)
92
(7)
(25)
(769)
1
(963)
662
(50) (1 818)
352
28
(86)
2
36
(1 458)
(14) (2 318)
92
(7)
(25)
(769)
1
(970)
(7)
20
20
20
12 199
(153 601)
416
(79)
170
(769)
(116)
1
(963)
2
8
(599)
447 (1 480)
1
1
–
(932) 1 094
–
246
(115)
15 616
5 579 517
–
12
–
7
(1 652)
16 138
12
4
(947)
1 147
17
(788)
(9)
17
(776)
(9)
7
(787) (2 439)
80 16 218
134
134
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Consolidated statement of changes
in shareholders’ equity
21
21
21
21
21
Remeasurements of defined benefit
pension plans, net of tax
Translation differences
Net investment hedges, net of tax
Cash flow hedges, net of tax
Available-for-sale investments,
net of tax
Other decrease, net
Loss for the year
Total comprehensive loss for the year
Share-based payment
Excess tax benefit on share-based
payment
Settlement of performance and
restricted shares
Stock options exercised
Dividends(1)
Acquisitions through business
Equity issuance costs related to
combinations
acquisitions
Vested portion of share-based
payment awards related to
acquisitions
6
Convertible bond equity component
Total other equity movements
As of December 31, 2016
Remeasurements of defined benefit
pension plans, net of tax
Translation differences
Net investment hedges, 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 for the year
Share-based payment
Excess tax benefit on share-based
21
21
21
21
21
payment
Settlement of performance and
restricted shares
Acquisition of treasury shares
Stock options exercised
Dividends(1)
Acquisitions through business
combinations
Acquisition of non-controlling interests
Disposal of subsidiaries
Other movements
Total other equity movements
As of December 31, 2017
–
–
117
(6)
6
(38)
(1)
–
92
(7)
(1 768)
352
662
28
(86)
2
(1 768)
(50) (1 818)
–
–
(1 416)
606
–
(1 494)
(2 304)
(14) (2 318)
(1 494)
(1 494)
36
(1 458)
20
20
20
12 199
(153 601)
416
(79)
170
(769)
(116)
1
–
(599)
–
(115)
(947)
(1 652)
(787) (2 439)
5 579 517
246
447 (1 480)
(932) 1 094
15 616
1 147
16 138
80 16 218
2
8
1
1
(963)
(963)
(7)
(970)
12
4
–
12
–
7
17
17
(788)
(776)
(9)
(9)
7
Total
equity
344
251
(83)
12
(73)
(6)
117
(6)
(6)
(231)
6
6
–
–
662
352
28
(86)
2
92
(7)
(25)
(769)
1
348
289
(83)
12
(73)
(4)
(766)
(277)
117
(6)
(6)
(231)
6
6
–
–
662
352
28
(86)
2
92
(7)
(25)
(769)
1
EURm
outstanding
Share
Treasury
Translation
and other
unrestricted
Retained
holders of
controlling
Notes
000s
capital
premium
shares
differences
reserves
equity
earnings
the parent
interests
As of January 1, 2016
3 939 195
246
380
(718)
292
204
3 820
6 279
10 503
21 10 524
Number
of shares
Share
issue
Reserve for
(Accumulated
Attributable
Fair value
invested
deficit)/
to equity
Non-
289
(83)
348
12
(73)
(1)
(4)
(38)
–
206
286
–
(3)
(766)
(769)
(2)
(161)
(927)
(205)
(482)
EURm
As of December 31, 2017
Adoption of IFRS 9 and IFRS 15
As of January 1, 2018
Remeasurements of defined benefit
pension plans, net of tax
Translation differences
Net investment hedges, net of tax
Cash flow hedges, net of tax
Financial assets at fair value through
other comprehensive income,
net of tax
Other increase, net
Loss for the year
Number
of shares
outstanding
000s
5 579 517
Notes
Share
capital
246
Share
issue
premium
447
Treasury
shares
(1 480)
5 579 517
246
447
(1 480)
21
21
21
21
21
402
(61)
293
3
(43)
(38)
6
Acquisition of treasury shares
20
(54 296)
(231)
3 408
(22)
68
1 074
3
6 1 765 358
11 616
11 616
1 714 13 330
Acquisition of non-controlling interests
65 778
(15)
(2)
(459)
(117)
(635)
(752)
(52)
3
(16)
359
(1 501)
(1 501)
(14) (1 515)
(16)
(16)
Total comprehensive income for the year
Share-based payment
Excess tax benefit on share-based
payment
Settlement of performance and
restricted shares
Cancellation of treasury shares
Stock options exercised
Dividends(1)
Acquisition of non-controlling interests
Other movements
–
341
221
–
–
–
68
6
20
20
20
13 221
(85)
72
1 000
424
(11)
1
Total other equity movements
As of December 31, 2018
5 593 162
–
246
(11)
436
1 072
(408)
(1)
(1)
–
(592) 1 063
(10)
15 606
293
402
(58)
(43)
(38)
5
(340)
221
68
6
293
402
(58)
(43)
(38)
6
(335)
227
68
6
1
5
6
(1)
(340)
(341)
(1 000)
(1 063)
(1)
(2)
(2 066)
(1 062)
(24)
–
1
(1 063)
(1)
(3)
(1 016)
15 289
(24)
–
1
(5) (1 068)
–
1
(3)
(4) (1 020)
82 15 371
Translation
differences
Fair value
and other
reserves
(932) 1 094
(252)
842
(932)
Reserve for
invested
unrestricted
equity
15 616
15 616
(Accumulated
deficit)/
Retained
earnings
1 147
198
1 345
Attributable
to equity
holders of
the parent
16 138
(54)
16 084
Non-
controlling
interests
Total
equity
80 16 218
(54)
80 16 164
Other movements
(14)
38
1
5 720 503
246
–
59
439
(163)
(881)
(15)
483
(2)
11 911
(1 922)
9 868
1 065 10 933
488
15 731
3 588
20 094
881 20 975
and dividend EUR 0.17 per share for 2016).
The notes are an integral part of these consolidated financial statements.
(1) Planned maximum annual distribution for 2018 is EUR 0.20 per share to be paid quarterly subject to shareholders’ and the Board of Directors’ approval (dividend EUR 0.19 per share for 2017
134
NOKIA ANNUAL REPORT ON FORM 20-F 2018
135
135
Financial statements
Notes to consolidated financial statements
All intercompany transactions are eliminated as part of the
consolidation process. Non-controlling interests are presented
separately as a component of net profit or loss 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.
1. Corporate information
Nokia Corporation, 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 21, 2019 the Board of Directors authorized the financial
statements for 2018 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 2018, the presentation of certain comparative items in the
consolidated statement of financial position and consolidated
statement of cash flows have been modified to conform with current
year presentation. The changes related to the adoption of IFRS 9,
Financial Instruments, and the simplification of presentation of
cash flows.
Other information
This paragraph is included in connection with statutory reporting
requirements in Germany. The fully consolidated German subsidiary,
Nokia Solutions and Networks GmbH & Co. KG, registered in the
commercial register of Munich under HRA 88537, has made use
of the exemption available under § 264b and § 291 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.
136
136
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements
All intercompany transactions are eliminated as part of the
consolidation process. Non-controlling interests are presented
separately as a component of net profit or loss 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.
1. Corporate information
Nokia Corporation, 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 21, 2019 the Board of Directors authorized the financial
statements for 2018 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 2018, the presentation of certain comparative items in the
consolidated statement of financial position and consolidated
statement of cash flows have been modified to conform with current
year presentation. The changes related to the adoption of IFRS 9,
Financial Instruments, and the simplification of presentation of
cash flows.
Other information
This paragraph is included in connection with statutory reporting
requirements in Germany. The fully consolidated German subsidiary,
Nokia Solutions and Networks GmbH & Co. KG, registered in the
commercial register of Munich under HRA 88537, has made use
of the exemption available under § 264b and § 291 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.
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
On January 1, 2018, the Group adopted IFRS 15, Revenue from
Contracts with Customers. IFRS 15 establishes a five-step model
that applies to revenue arising from contracts with customers.
Under IFRS 15, revenue is recognized to reflect the transfer of
promised goods and services to customers for amounts that
reflect the consideration to which the Group expects to be entitled
in exchange for those goods and services.
The Group accounts for a contract with a customer when the
contract has been approved in writing and both parties are
committed to perform their respective obligations, the rights,
including payment terms, regarding the goods and services to
be transferred can be identified, the contract has commercial
substance, and collection of the consideration to which the Group
expects to be entitled is probable. In accordance with IFRS 15,
management considers only legally enforceable rights in evaluating
the accounting for contracts with customers. As such, frame
agreements that do not create legally enforceable rights and
obligations are accounted for based on the issuance of subsequent
legally binding purchase orders under the frame agreements.
Since a significant part of the Group’s business is conducted under
framework agreements with no fixed commitment on the overall
project scope, consideration on whether the subsequent purchase
orders should be treated as separate contracts or modifications
to the existing contract is deemed as a critical judgment impacting
both timing and allocation of revenue. A contract modification or a
purchase order is accounted for as a separate contract if the scope
of the contract increases by additional distinct goods or services,
and the price of the contract increases by an amount that reflects
the standalone selling price of those additional goods or services.
In case the additional goods or services are distinct but not sold at a
standalone selling price, the contract modification is accounted for
prospectively. In cases where the additional goods or services are not
distinct, the modification is accounted for through a cumulative
catch-up adjustment.
The Group recognizes revenue from contracts with customers to
reflect the transfer of promised goods and services to customers
for amounts that reflect the consideration to which the Group
expects to be entitled in exchange for those goods and services.
The consideration may include a variable amount which the Group
estimates using the most likely amount method. Items causing
variability include for example volume discounts and sales-based or
usage-based royalties. The Group includes variable consideration
into the transaction price only to the extent that it is highly probable
that a significant revenue reversal will not occur. The transaction
price also excludes amounts collected on behalf of third parties.
The Group’s payment terms are on average 90 to 180 days. Invoices
are generally issued as control transfers and/or as services are
rendered. When this is not the case the Group recognizes a contract
asset or liability depending on the timing of payment versus transfer
of control. In case the timing of payments provides either the
customer or the Group with a significant benefit of financing, the
transaction price is adjusted for the effect of financing and the
related interest revenue or interest expense is presented separately
from revenue. As a practical expedient, the Group does not account
for financing components if the consideration is received in one year
or less before or after the goods or services have been transferred
to the customer.
The Group enters into contracts with customers consisting of
any combination of hardware, services and intellectual property.
The associated revenue recognized for such contracts depends
on the nature of the underlying goods and services provided. The
Group identifies all the promised goods and services in a customer
contract at contract inception to determine which represent distinct
goods and services. The promises in the contract might include
for example sale of goods, granting licenses, and granting options
to purchase additional goods or services that may provide the
customer with a material right. The Group considers there to be a
distinct performance obligation if the customer can benefit from the
good or service either on its own or together with other resources
readily available, and if the Group’s promise to transfer the good or
service is separately identifiable from other promises in the contract.
The Group allocates the transaction price to each distinct
performance obligation on the basis of their stand-alone selling
prices, relative to the overall transaction price. If a stand-alone selling
price is not observable, it is estimated. The transaction price may
include a discount or a variable amount of consideration that relates
entirely to a part of the contract. Except when the Group has
observable evidence that the entire discount relates to only one or
more, but not all, performance obligations in a contract, the Group
allocates the discount proportionately to all performance obligations
in the contract.
Revenue is recognized when, or as, the Group satisfies a
performance obligation by transferring a promised good or service
to a customer which is when the customer obtains control of that
good or service. The amount of revenue recognized is the amount
allocated to the satisfied performance obligation based on the
relative standalone selling prices. A performance obligation may
be satisfied at a point in time or over time.
136
NOKIA ANNUAL REPORT ON FORM 20-F 2018
137
137
Financial statements
Notes to consolidated financial statements continued
Sale of products
The Group manufactures and sells a range of networking equipment,
covering the end-to-end requirements of network operators.
Revenue for these products is recognized when control of the
products has transferred, the determination of which may require
judgment. Typically, for standard equipment sales, control transfers
upon delivery. For more complex solutions, control generally
transfers upon acceptance.
In some arrangements, mainly within the submarine cable business,
the Group provides its customer with products in a way that
meets the over time revenue recognition criteria, as the Group’s
performance does not create an asset with an alternative use,
and the Group has enforceable rights to payment for the work
completed to date. In these arrangements, progress is measured
by using the output method, as that is a faithful depiction of how
the customer obtains control of the performance by the Group.
The output measure selected by the Group may vary from each
contract depending on the nature of contract.
Sale of services
The Group provides services related to the provision of networking
equipment, ranging from managing a customer’s network and
product maintenance services to network installation, integration
and optimization. Revenue for each separate service performance
obligation is recognized as or when the customer obtains the
benefits of the Group’s performance. Service revenue is recognized
over time for managed and maintenance services, as in these
cases the Group performs throughout a fixed contract term and
the customer simultaneously receives and consumes the benefits
as the Group performs. In some cases, services provided by the
Group must be accepted by the Customer after such services are
performed. In these cases, revenue is generally recognized when
the Group receives the customer acceptance.
Sale of intellectual property licenses
The Group provides its customers with licenses to intellectual
property (IP) owned by the Group both by granting licenses of
software developed by the Group and by granting customers with
rights to benefit from the Group’s IP in their products. When a
software license is sold, revenue is recognized upon delivery or
acceptance of the software, as the Group has determined its
software meets the right-to-use criteria established under IFRS 15.
When the Group grants customers a license to use IP owned by
the Group, the associated license fee revenue is recognized in
accordance with the substance of the relevant agreements. In the
majority of cases, the Group retains obligations to continue to
develop and make available to the customer the latest IP in the
licensed assets during the contract term, and therefore revenue
is recognized pro rata over the period during which the Group is
expected to perform. Recognition of the revenue as pro rata over
the term of the license is considered the most faithful depiction
of the Group’s satisfaction of the performance obligation as the
IP being licensed towards the customer includes new inventions
patented by the Group that are highly interdependent and
interrelated and created through the course of its continuous
R&D efforts. Such R&D efforts are relatively stable throughout the
year. In some contracts, the Group has no remaining obligations to
perform after granting a license to the initial IP, and licensing fees
are non-refundable. In these cases, revenue is recognized at the
beginning of the license term.
One License Agreement continues to be accounted for under IAS 18
Revenue as it was determined to be a completed contract as defined
in the transition guidance of the IFRS 15 standard, refer to Note 8,
Revenue recognition.
Refer to Note 4, Use of estimates and critical accounting judgments,
related to the determination of revenue to be recognized each period.
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.
The liability or asset recognized in the consolidated statement
of financial position is the present value of the defined benefit
obligation as of the reporting date less the fair value of plan assets
including effects of any asset ceiling.
138
138
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
Sale of products
One License Agreement continues to be accounted for under IAS 18
The Group manufactures and sells a range of networking equipment,
Revenue as it was determined to be a completed contract as defined
covering the end-to-end requirements of network operators.
in the transition guidance of the IFRS 15 standard, refer to Note 8,
Revenue for these products is recognized when control of the
Revenue recognition.
products has transferred, the determination of which may require
judgment. Typically, for standard equipment sales, control transfers
upon delivery. For more complex solutions, control generally
transfers upon acceptance.
In some arrangements, mainly within the submarine cable business,
the Group provides its customer with products in a way that
meets the over time revenue recognition criteria, as the Group’s
performance does not create an asset with an alternative use,
and the Group has enforceable rights to payment for the work
completed to date. In these arrangements, progress is measured
by using the output method, as that is a faithful depiction of how
the customer obtains control of the performance by the Group.
The output measure selected by the Group may vary from each
contract depending on the nature of contract.
Sale of services
The Group provides services related to the provision of networking
equipment, ranging from managing a customer’s network and
product maintenance services to network installation, integration
and optimization. Revenue for each separate service performance
obligation is recognized as or when the customer obtains the
benefits of the Group’s performance. Service revenue is recognized
over time for managed and maintenance services, as in these
cases the Group performs throughout a fixed contract term and
the customer simultaneously receives and consumes the benefits
as the Group performs. In some cases, services provided by the
Group must be accepted by the Customer after such services are
performed. In these cases, revenue is generally recognized when
the Group receives the customer acceptance.
Sale of intellectual property licenses
The Group provides its customers with licenses to intellectual
property (IP) owned by the Group both by granting licenses of
software developed by the Group and by granting customers with
rights to benefit from the Group’s IP in their products. When a
software license is sold, revenue is recognized upon delivery or
acceptance of the software, as the Group has determined its
software meets the right-to-use criteria established under IFRS 15.
When the Group grants customers a license to use IP owned by
the Group, the associated license fee revenue is recognized in
accordance with the substance of the relevant agreements. In the
majority of cases, the Group retains obligations to continue to
develop and make available to the customer the latest IP in the
licensed assets during the contract term, and therefore revenue
is recognized pro rata over the period during which the Group is
expected to perform. Recognition of the revenue as pro rata over
the term of the license is considered the most faithful depiction
of the Group’s satisfaction of the performance obligation as the
IP being licensed towards the customer includes new inventions
patented by the Group that are highly interdependent and
interrelated and created through the course of its continuous
R&D efforts. Such R&D efforts are relatively stable throughout the
year. In some contracts, the Group has no remaining obligations to
perform after granting a license to the initial IP, and licensing fees
are non-refundable. In these cases, revenue is recognized at the
beginning of the license term.
Refer to Note 4, Use of estimates and critical accounting judgments,
related to the determination of revenue to be recognized each period.
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.
The liability or asset recognized in the consolidated statement
of financial position is the present value of the defined benefit
obligation as of the reporting date less the fair value of plan assets
including effects of any asset ceiling.
Service cost related to employees’ service in the current period
is presented within cost of sales, research and development
expenses or selling, general and administrative expenses and
net interest is presented within financial income and expenses
in the consolidated income statement. Past service costs or gains
arising from plan amendments and curtailments, as well as gains
and losses on settlements, are recognized immediately in the
consolidated income statement as part of other operating
income or expense when the plan amendment, curtailment or
settlement occurs. Remeasurements in the defined benefit liability
and asset comprise actuarial gains and losses arising from experience
adjustments, changes in actuarial assumptions, changes in the effect
of the asset ceiling and the return on plan assets, excluding amounts
recognized in net interest. Remeasurements are recognized
immediately in the consolidated statement of financial position
with a corresponding debit or credit to fair value and other reserves
in shareholders’ equity through other comprehensive income
in the period in which they occur and 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
plan amendment, curtailment or settlement 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
are accounted for in income taxes where determined to represent
a tax on net income.
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 it is probable that future taxable profit will
be available against which the unused tax losses, unused tax credits
and deductible temporary differences can be utilized in the relevant
jurisdictions. 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.
138
NOKIA ANNUAL REPORT ON FORM 20-F 2018
139
139
Financial statements
Notes to consolidated financial statements continued
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. 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 in the consolidated income
statement. Unrealized foreign exchange gains and losses related
to non-monetary non-current financial investments are included in
the fair value measurement of these investments and recognized in
other income and expenses in the consolidated income statement.
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. Depending
on the nature of the intangible asset, the amortization charges
are presented within cost of sales, research and development
expenses or selling, general and administrative expenses in the
consolidated income statement.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and accumulated impairment losses. Depreciation is
recorded on a straight-line basis over the expected useful lives
of the assets as follows:
Buildings and constructions
Buildings and constructions
Light buildings and constructions
Machinery and equipment
Production machinery, measuring and test equipment
Other machinery and equipment
20–33 years
3–20 years
1–5 years
3–10 years
Land and water areas are not depreciated.
Maintenance, repairs and renewals are generally expensed in the
period in which they are incurred. However, major renovations are
capitalized and included in the carrying amount of the asset when it
is probable that future economic benefits in excess of the originally
assessed standard of performance of the existing asset will flow to
the Group. Major renovations are depreciated over the remaining
useful life of the related asset. Leasehold improvements are
depreciated over the shorter of the lease term and the useful life.
Gains and losses on the disposal of property, plant and equipment
are included in operating profit or loss.
Leases
Leases are classified as finance leases whenever the terms of the
lease transfer substantially all the risks and rewards incidental
to ownership to the lessee. All other leases are classified as
operating leases.
The Group has entered into various operating lease contracts as
a lessee. The related payments are treated as rental expenses and
recognized in the consolidated income statement on a straight-line
basis over the lease terms unless another systematic approach
is more representative of the pattern of the benefit.
The Group does not have any significant finance lease arrangements.
Impairment of goodwill, other intangible assets and property,
plant and equipment
The Group assesses the recoverability of the carrying value
of goodwill, other intangible assets and property, plant and
equipment if events or changes in circumstances indicate that the
carrying value may be impaired. In addition, the Group tests the
carrying value of goodwill for impairment annually even if there
is no indication of impairment.
Factors that the Group considers when it reviews indications of
impairment include, but are not limited to, underperformance
of the asset relative to its historical or projected future results,
significant changes in the manner of using the asset or the
strategy for the overall business, and significant negative industry
or economic trends.
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 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
140
140
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
Foreign currency translation
Functional and presentation currency
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
The financial statements of all Group companies are measured using
depreciation and accumulated impairment losses. Depreciation is
functional currency, which is the currency of the primary economic
recorded on a straight-line basis over the expected useful lives
environment in which the entity operates. The consolidated financial
of the assets as follows:
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. Monetary assets and
liabilities denominated in foreign currency are valued at the exchange
Buildings and constructions
Buildings and constructions
Light buildings and constructions
Machinery and equipment
Production machinery, measuring and test equipment
Other machinery and equipment
20–33 years
3–20 years
1–5 years
3–10 years
rates prevailing at the end of the reporting period. Foreign exchange
Land and water areas are not depreciated.
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 in the consolidated income
statement. Unrealized foreign exchange gains and losses related
to non-monetary non-current financial investments are included in
the fair value measurement of these investments and recognized in
other income and expenses in the consolidated income statement.
Foreign Group companies
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.
All income and expenses of foreign Group companies where the
Gains and losses on the disposal of property, plant and equipment
functional currency is not the euro are translated into euro at
are included in operating profit or loss.
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
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,
business combination is their fair value as of the date of acquisition.
plant and equipment
Internally generated intangibles, except for development costs that
The Group assesses the recoverability of the carrying value
may be capitalized, are expensed as incurred. Development costs are
of goodwill, other intangible assets and property, plant and
capitalized only if the Group has the technical feasibility to complete
equipment if events or changes in circumstances indicate that the
the asset; has an ability and intention to use or sell the asset; can
carrying value may be impaired. In addition, the Group tests the
demonstrate that the asset will generate future economic benefits;
carrying value of goodwill for impairment annually even if there
has resources available to complete the asset; and has the ability
is no indication of impairment.
to measure reliably the expenditure during development.
Following initial recognition, intangible assets are carried at cost
impairment include, but are not limited to, underperformance
less accumulated amortization and accumulated impairment losses.
of the asset relative to its historical or projected future results,
Intangible assets are amortized over their useful lives, generally
significant changes in the manner of using the asset or the
three to ten years, using the straight-line method which is
strategy for the overall business, and significant negative industry
considered reflecting best the pattern in which the asset’s future
or economic trends.
Factors that the Group considers when it reviews indications of
economic benefits are expected to be consumed. Depending
on the nature of the intangible asset, the amortization charges
are presented within cost of sales, research and development
expenses or selling, general and administrative expenses in the
consolidated income statement.
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 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 1—Quoted (unadjusted) market prices for exchange-traded
products in active markets for identical assets or liabilities;
Level 2—Valuation techniques for which significant inputs other
than quoted prices are directly or indirectly observable; and
Level 3—Valuation techniques for which significant inputs are
unobservable.
The Group categorizes assets and liabilities that are measured
at fair value on a recurring basis into an appropriate level of the
fair value hierarchy at the end of each reporting period.
Classification and measurement of financial assets
The Group has classified its financial assets in the following three
categories: financial assets measured at amortized cost, financial
assets measured at fair value through other comprehensive income
and financial assets measured at fair value through profit and loss.
The selection of the appropriate category is made based on both
the Group’s business model for managing the financial asset and
on the contractual cash flow characteristics of the asset.
The Group’s business model for managing financial assets is defined
on portfolio level. The business model must be observable on
practical level by the way business is managed. The cash flows of
financial assets measured at amortized cost are solely payments
of principal and interest. These assets are held within a business
model which has an objective to hold assets to collect contractual
cash flows. Financial assets measured at fair value through other
comprehensive income have cash flows that are solely payments
of principal and interest and these assets are held within a business
model which has an objective that is achieved both by holding
financial assets to collect contractual cash flows and selling financial
assets. Financial assets measured at fair value through profit and
loss are assets that do not fall in either of these two categories.
In addition to the classification as described above, the accounting
for financial assets is impacted if the financial asset is part of a
hedging relationship (see below the section on Hedge accounting).
All purchases and sales of financial assets are recorded on the
trade date, that is, when the Group commits to purchase or sell
the asset. A financial asset is de-recognized when substantially
all the risks and rewards related to the financial asset have
been transferred to a third party that assumes control of the
financial asset.
Non-current financial investments
Non-current financial investments include investments in unlisted
private equity shares, technology-related publicly quoted shares and
unlisted venture funds and are classified as fair value through profit
and loss. These equity investments are initially recognized and
subsequently remeasured at fair value.
Fair value is estimated using a number of methods, including, but
not limited to: quoted market rates; 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.
Fair value adjustments, foreign exchange gains and losses as well
as realized gains and losses from the disposal of these investments
are recognized within other income and expenses in the consolidated
income statement. Weighted average method is used to determine
the cost basis of the investments disposed.
140
NOKIA ANNUAL REPORT ON FORM 20-F 2018
141
141
Financial statements
Notes to consolidated financial statements continued
Other non-current financial assets
Other non-current financial assets include restricted assets and
other receivables, customer and vendor financing related loan
receivables and certain other investments of a long-term nature.
Restricted assets and other receivables include restricted bank
deposits and other loan receivables. These assets are initially
measured at fair value and in subsequent periods at amortized
cost using the effective interest method. Interest calculated using
the effective interest method as well as foreign exchange gains
and losses are recognized in financial income and expenses in the
consolidated income statement. For these assets, a loss allowance
is calculated on a quarterly basis based on a review of collectability
and available collateral, recorded as an adjustment to the carrying
amount of the investment and recognized in other financial
expenses in the consolidated income statement.
Customer and vendor related loan receivables are managed in a
portfolio with a business model of holding investments to collect
principal and interest as well as selling investments. They are initially
recognized and subsequently remeasured at fair value determined
using discounted cash flow method. The changes in fair value are
recognized in fair value reserve in other comprehensive income.
Interest calculated using the effective interest method as well as
foreign exchange gains and losses are recognized in financial income
and expenses in the consolidated income statement. Estimated
credit loss is typically based on 12 month expected credit loss for
existing loans and estimated additional draw-downs during that
period, refer to Impairments section for further detail. Loss
allowance is calculated on a quarterly basis based on a review
of collectability and available collateral, derecognized from other
comprehensive income and recognized in other financial expenses in
the consolidated income statement. In case a receivable is sold, the
impact of expected credit loss is reversed, and the full gain or loss
incurred for the sale is recorded in financial income and expenses
in the consolidated income statement.
The cash flows of other investments of a long-term nature do not
fulfil the criteria of being solely payments of principal and interest.
These investments are initially recognized and subsequently
remeasured at fair value using quoted market rates, discounted
cash flow models or other appropriate valuation methods as of
the reporting date. Fair value adjustments, foreign exchange gains
and losses as well as realized gains and losses from the disposal
of these investments are mainly recognized within financial income
and expenses in the consolidated income statement.
Other current financial assets
Other current financial assets include current part of other non-
current financial assets and short-term loan receivables as well
as derivative assets that are discussed separately in Derivative
financial instruments section below.
Short-term loan receivables are initially measured at fair value
and in subsequent periods measured at amortized cost using the
effective interest method. Interest calculated using the effective
interest method as well as foreign exchange gains and losses are
recognized in financial income and expenses in the consolidated
income statement. For these loans, a loss allowance is calculated
on a quarterly basis based on a review of collectability and available
collateral, recorded as an adjustment to the carrying amount of
the investment and recognized in other financial expenses in the
consolidated income statement.
Trade receivables
Trade receivables arise from contracts with customers and represent
an unconditional right to receive the consideration and only the
passage of time is required before the consideration is received.
The business model for managing trade receivables is holding
receivables to collect contractual cash flows and selling receivables.
Trade receivables are initially recognized and subsequently
remeasured at fair value, determined using discounted cash flow
method. The changes in fair value are recognized in fair value reserve
in other comprehensive income. Upon adoption of IFRS 9, the Group
applies a simplified approach to recognizing a loss allowance on
trade receivables based on measurement of lifetime expected credit
losses arising from trade receivables without significant financing
components. Refer to Note 4, Use of estimates and critical
accounting judgments, for disclosure of the use of estimates and
critical accounting judgments necessary in the estimation of such
loss allowances. Loss allowances on trade receivables are recognized
in other operating expenses in the consolidated income statement.
If trade receivables are sold, the difference between the carrying
amount derecognized and the consideration received is recognized
in financial expenses in the consolidated income statement.
Current financial investments
The Group invests a portion of the corporate cash needed to cover
the projected cash outflows of its ongoing business operations
in highly liquid, interest-bearing investments. Current financial
investments may include investments measured at amortized cost,
investments measured at fair value through other comprehensive
income and investments measured at fair value through profit
and loss.
Corporate cash investments in bank deposits used as collaterals
for derivative transactions are initially measured at fair value and
in subsequent periods measured at amortized cost using the
effective interest method. Interest calculated using the effective
interest method as well as foreign exchange gains and losses are
recognized in financial income and expenses in the consolidated
income statement.
Corporate cash investments in bank deposits as well as fixed income
and money market securities with initial maturity or put feature
longer than three months that have characteristics of solely
payments of principal and interest and are not part of a structured
investments, are managed in a portfolio with a business model
of holding investments to collect principal and interest as well as
selling investments, and are classified as fair value through other
comprehensive income. In this portfolio investments are executed
with the main purpose of collecting contractual cash flows and
principal repayments. However, investments are sold from time to
time for bucket rebalancing needs as well as liquidity management
and market risk mitigation purposes.
The fair value of these investments is determined using quoted
market rates, discounted cash flow models or other appropriate
valuation methods as of the reporting date. The changes in fair value
are recognized in fair value reserve in other comprehensive income.
Interest calculated using the effective interest method as well as
foreign exchange gains and losses are recognized in financial income
and expenses in the consolidated income statement. When an
investment is disposed of, the related accumulated fair value
changes are derecognized from other comprehensive income and
recognized in financial income and expenses in the consolidated
income statement. The FIFO method is used to determine the
cost basis of fixed-income securities being disposed of.
142
142
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
Other non-current financial assets
Trade receivables
Other non-current financial assets include restricted assets and
Trade receivables arise from contracts with customers and represent
other receivables, customer and vendor financing related loan
an unconditional right to receive the consideration and only the
receivables and certain other investments of a long-term nature.
passage of time is required before the consideration is received.
Restricted assets and other receivables include restricted bank
deposits and other loan receivables. These assets are initially
measured at fair value and in subsequent periods at amortized
cost using the effective interest method. Interest calculated using
the effective interest method as well as foreign exchange gains
and losses are recognized in financial income and expenses in the
consolidated income statement. For these assets, a loss allowance
is calculated on a quarterly basis based on a review of collectability
and available collateral, recorded as an adjustment to the carrying
amount of the investment and recognized in other financial
expenses in the consolidated income statement.
Customer and vendor related loan receivables are managed in a
portfolio with a business model of holding investments to collect
principal and interest as well as selling investments. They are initially
recognized and subsequently remeasured at fair value determined
using discounted cash flow method. The changes in fair value are
recognized in fair value reserve in other comprehensive income.
Interest calculated using the effective interest method as well as
foreign exchange gains and losses are recognized in financial income
and expenses in the consolidated income statement. Estimated
credit loss is typically based on 12 month expected credit loss for
existing loans and estimated additional draw-downs during that
period, refer to Impairments section for further detail. Loss
allowance is calculated on a quarterly basis based on a review
of collectability and available collateral, derecognized from other
The business model for managing trade receivables is holding
receivables to collect contractual cash flows and selling receivables.
Trade receivables are initially recognized and subsequently
remeasured at fair value, determined using discounted cash flow
method. The changes in fair value are recognized in fair value reserve
in other comprehensive income. Upon adoption of IFRS 9, the Group
applies a simplified approach to recognizing a loss allowance on
trade receivables based on measurement of lifetime expected credit
losses arising from trade receivables without significant financing
components. Refer to Note 4, Use of estimates and critical
accounting judgments, for disclosure of the use of estimates and
critical accounting judgments necessary in the estimation of such
loss allowances. Loss allowances on trade receivables are recognized
in other operating expenses in the consolidated income statement.
If trade receivables are sold, the difference between the carrying
amount derecognized and the consideration received is recognized
in financial expenses in the consolidated income statement.
Current financial investments
The Group invests a portion of the corporate cash needed to cover
the projected cash outflows of its ongoing business operations
in highly liquid, interest-bearing investments. Current financial
investments may include investments measured at amortized cost,
investments measured at fair value through other comprehensive
income and investments measured at fair value through profit
and loss.
comprehensive income and recognized in other financial expenses in
Corporate cash investments in bank deposits used as collaterals
the consolidated income statement. In case a receivable is sold, the
for derivative transactions are initially measured at fair value and
impact of expected credit loss is reversed, and the full gain or loss
in subsequent periods measured at amortized cost using the
incurred for the sale is recorded in financial income and expenses
effective interest method. Interest calculated using the effective
in the consolidated income statement.
interest method as well as foreign exchange gains and losses are
recognized in financial income and expenses in the consolidated
The cash flows of other investments of a long-term nature do not
fulfil the criteria of being solely payments of principal and interest.
income statement.
These investments are initially recognized and subsequently
Corporate cash investments in bank deposits as well as fixed income
remeasured at fair value using quoted market rates, discounted
and money market securities with initial maturity or put feature
cash flow models or other appropriate valuation methods as of
longer than three months that have characteristics of solely
the reporting date. Fair value adjustments, foreign exchange gains
payments of principal and interest and are not part of a structured
and losses as well as realized gains and losses from the disposal
investments, are managed in a portfolio with a business model
of these investments are mainly recognized within financial income
of holding investments to collect principal and interest as well as
and expenses in the consolidated income statement.
Other current financial assets
Other current financial assets include current part of other non-
current financial assets and short-term loan receivables as well
as derivative assets that are discussed separately in Derivative
financial instruments section below.
Short-term loan receivables are initially measured at fair value
and in subsequent periods measured at amortized cost using the
effective interest method. Interest calculated using the effective
interest method as well as foreign exchange gains and losses are
recognized in financial income and expenses in the consolidated
income statement. For these loans, a loss allowance is calculated
on a quarterly basis based on a review of collectability and available
collateral, recorded as an adjustment to the carrying amount of
the investment and recognized in other financial expenses in the
consolidated income statement.
selling investments, and are classified as fair value through other
comprehensive income. In this portfolio investments are executed
with the main purpose of collecting contractual cash flows and
principal repayments. However, investments are sold from time to
time for bucket rebalancing needs as well as liquidity management
and market risk mitigation purposes.
The fair value of these investments is determined using quoted
market rates, discounted cash flow models or other appropriate
valuation methods as of the reporting date. The changes in fair value
are recognized in fair value reserve in other comprehensive income.
Interest calculated using the effective interest method as well as
foreign exchange gains and losses are recognized in financial income
and expenses in the consolidated income statement. When an
investment is disposed of, the related accumulated fair value
changes are derecognized from other comprehensive income and
recognized in financial income and expenses in the consolidated
income statement. The FIFO method is used to determine the
cost basis of fixed-income securities being disposed of.
Due to the high credit quality of the Group’s investment portfolio,
the estimated credit loss is normally based on 12 month expected
credit loss. Loss allowance is calculated on a quarterly basis,
derecognized from other comprehensive income and recognized
in other financial expenses in the consolidated income statement.
Corporate cash investments may also include money market funds
that do not qualify as cash equivalents, investments acquired for
trading purposes, investment structures consisting of securities
traded in combination with derivatives with complementing and
typically offsetting risk factors and other investments that have
cash flows not being solely payments of principal and interest.
In this portfolio investments are executed with the purpose of
collecting contractual cash flows and principal repayments as
well as for capital appreciation and can be sold at any time.
These investments are initially recognized and subsequently
remeasured at fair value determined using quoted market rates,
discounted cash flow models or other appropriate valuation
methods as of the reporting date. Fair value adjustments, foreign
exchange gains and losses and realized gains and losses are
recognized in financial income and expenses in the consolidated
income statement.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand as well
as 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 afore-mentioned criteria are also classified as
cash equivalents. Investments that have cash flows that are solely
payments of principal and interest are measured at amortized cost.
All other investments are measured at fair value through profit
and loss.
Classification and measurement of financial liabilities
The Group has classified its financial liabilities in the following
categories: financial liabilities measured at amortized cost and
financial liabilities measured at fair value through profit and loss.
The Group classifies derivative liabilities at fair value through
profit and loss and all other financial liabilities at amortized cost.
All financial liabilities are initially recognized at fair value and,
in case of borrowings and payables, net of transaction costs.
Financial liabilities are derecognized when the related obligation
is discharged or cancelled or expired. Additionally, a substantial
modification of the terms of an existing financial liability is
accounted for as a derecognition of the original financial liability
and the recognition of a new financial liability. On derecognition
of a financial liability, the difference between the carrying amount
extinguished and the consideration paid is recognized in interest
expenses in the consolidated income statement.
Interest-bearing liabilities
Long-term interest-bearing liabilities are measured at amortized
cost using the effective interest method. Short-term interest-
bearing liabilities, including current part of long-term interest-
bearing liabilities and collaterals for derivative transactions, are
measured at amortized cost using the effective interest method.
Transaction costs, interest calculated using the effective
interest method as well as foreign exchange gains and losses
are recognized in financial income and expenses in the consolidated
income statement.
Other financial liabilities
Other financial liabilities mainly include a 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 present value discount
on the financial liability is recognized in interest expenses and any
changes in the estimated future cash settlement is recognized in
financial income and expense in the consolidated income statement.
Other financial liabilities also include derivative liabilities that
are discussed separately in Derivative financial instruments
section below.
Trade payables
Trade payables are carried at invoiced amount which is considered
to be equal to the fair value due to the short-term nature of the
Group’s trade payables.
Impairments
Impairment requirements apply to the recognition of a loss
allowance for expected credit losses (ECL) on financial assets
measured at amortized cost, financial assets measured at fair
value through other comprehensive income, financial guarantee
contracts and loan commitments. The Group continuously assesses
its financial instruments on a forward-looking basis and accounts for
the changes in ECL on a quarterly basis using the following method:
ECL = PD x LGD x EAD
Probability of Default (PD) is estimated separately for the
centralized investment portfolio and non-centralized investments.
The estimate is based on the credit rating profile of these
investments, unless there are specific events that would indicate
that the credit rating would not be an appropriate basis for
estimating credit risk at the reporting date.
For Loss Given Default (LGD) the recovery rate is also estimated
separately for centralized investment portfolios and non-
centralized investments and is based on the type of investment
as well as related collateral arrangements, if any.
Exposure at Default (EAD) is normally the nominal value of the
investment or financial guarantee. For loan commitments EAD
is based on estimated draw-down amounts for the next
12 months.
All the Group’s current investments at amortized cost and fair
value through other comprehensive income are considered to
have low credit risk, and the loss allowance recognized during the
period is therefore limited to 12 months expected losses. Financial
instruments that are rated as investment grade are considered
to have low credit risk for the purposes of this assessment.
For other non-current financial assets, loans, loan commitments and
financial guarantees extended to third parties, the ECL is calculated
separately for each significant counterparty using the method
described above, including the impact of any collateral arrangements
or other credit enhancements to LGD. The estimate is based on
12-month ECL unless there has been a significant increase in
credit risk for the specific counterparty since the initial recognition,
in which case lifetime ECL is estimated. Breaches of contract, credit
rating downgrades and other credit measures are typical indicators
that the Group takes into consideration when assessing, whether the
credit risk on a financial instrument has increased significantly since
initial recognition.
142
NOKIA ANNUAL REPORT ON FORM 20-F 2018
143
143
Financial statements
Notes to consolidated financial statements continued
The change in the amount of loss allowance for ECL is recognized
as an impairment gain or loss in financial income and expenses
in the consolidated income statement. For assets carried at
amortized cost the loss allowance is recorded as an adjustment
to the carrying amount. For assets carried at fair value through
other comprehensive income the loss allowance is recorded as an
adjustment in other comprehensive income instead of adjusting
the carrying amount that has already been recorded at fair value.
For financial guarantee contracts the loss allowance is recognized
as an other liability in the statement of financial position.
Impairment losses on contract assets arising from the Group’s
contracts with customers are recognized as other operating
expenses in the consolidated income statement.
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.
The cash flows of a hedge are classified as cash flows from operating
activities in the consolidated statement of cash flows in case 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. Certain derivatives are hedging
the foreign exchange risk of the Group’s cash position and their
cash flows are included in foreign exchange adjustment in the
consolidated statement of cash flows.
Derivatives not designated in hedge accounting relationships
carried at fair value through profit and loss
Foreign exchange forward 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 method is used to value interest rate and cross currency
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 in the consolidated
income statement. The gains and losses on all other derivatives
not designated under hedge accounting are recognized in financial
income and expenses in the consolidated income statement.
Embedded derivatives included in contracts, if any, are identified
and monitored by the Group. For host contracts that are not
financial assets containing embedded derivatives that are not closely
related, the embedded derivatives are separated and measured
at fair value as of each reporting date with changes in fair value
recognized in financial income and expenses in the consolidated
income statement. For host contracts that are financial assets
containing embedded derivatives the whole contract is measured
at fair value as of each reporting date with changes in fair value
recognized in financial income and expenses in the consolidated
income statement.
Hedge accounting
The Group applies hedge accounting on certain foreign exchange
forward 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 purchased and written options are the same and the
nominal amount of the written option component is not greater
than that of the purchased option.
In the fair valuation of foreign exchange forward contracts,
the Group separates the spot element and the forward element
including the impact of foreign currency basis and forward points,
that is considered as the cost of hedging for foreign exchange
forward contracts. In the fair valuation of foreign exchange option
contracts, the Group separates the intrinsic value and time value,
that is considered as the cost of hedging for foreign exchange
option contracts. In the fair valuation of cross currency swaps,
the Group separates the foreign currency basis spread that is
considered as the cost of hedging for cross currency swaps.
Cash flow hedges: hedging of forecast foreign currency
denominated sales and purchases
The Group applies cash flow hedge accounting primarily to forecast
business foreign exchange exposure that arises from highly probable
forecast operative business transactions. The risk management
strategy is to hedge material net exposures (identified standard
sales exposure minus identified standard costs exposure) by using
foreign exchange forwards and foreign exchange options in a layered
hedging style that follows defined hedge ratio ranges and hedge
maturities in quarterly time buckets. The hedged item must be highly
probable and present an exposure to variations in cash flows that
could ultimately affect profit or loss.
The Group only designates the spot element of the foreign exchange
forward contract as the hedging instrument. Currency options, or
option strategies, may also be used for cash flow hedging, in which
case the intrinsic value of the option is designated as the hedging
instrument. Hedge effectiveness is assessed at inception and
quarterly during the hedge relationship to ensure that an economic
relationship exists. As the Group only enters in hedge relationships
where the critical terms match, the assessment of effectiveness
is done on a qualitative basis.
For qualifying foreign exchange forwards and foreign exchange
options, the change in fair value that reflects the change in spot
exchange rates on a discounted basis is recognized in hedging
reserve in other comprehensive income. The changes in the forward
element of the foreign exchange forwards and the time value
of the options that relate to hedged items are deferred in the
cost of hedging reserve in other comprehensive income and are
subsequently accounted for in the same way as the spot element
or intrinsic value.
In each quarter the Group evaluates whether the forecast sales
and purchases are still expected to occur. If a portion of the hedged
cash flow is no longer expected to occur, all related deferred gains
or losses are derecognized from other comprehensive income
and recognized in other income and expenses in the consolidated
income statement as hedge accounting criteria is no longer met.
If the hedged cash flow ceases to be highly probable, but is still
expected to occur, accumulated gains and losses remain in other
comprehensive income until the hedged cash flow affects profit
or loss.
144
144
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
The change in the amount of loss allowance for ECL is recognized
as an impairment gain or loss in financial income and expenses
in the consolidated income statement. For assets carried at
amortized cost the loss allowance is recorded as an adjustment
to the carrying amount. For assets carried at fair value through
other comprehensive income the loss allowance is recorded as an
adjustment in other comprehensive income instead of adjusting
the carrying amount that has already been recorded at fair value.
For financial guarantee contracts the loss allowance is recognized
as an other liability in the statement of financial position.
Impairment losses on contract assets arising from the Group’s
contracts with customers are recognized as other operating
expenses in the consolidated income statement.
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.
The cash flows of a hedge are classified as cash flows from operating
activities in the consolidated statement of cash flows in case 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. Certain derivatives are hedging
the foreign exchange risk of the Group’s cash position and their
cash flows are included in foreign exchange adjustment in the
consolidated statement of cash flows.
Derivatives not designated in hedge accounting relationships
carried at fair value through profit and loss
Foreign exchange forward 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 method is used to value interest rate and cross currency
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 in the consolidated
income statement. The gains and losses on all other derivatives
not designated under hedge accounting are recognized in financial
income and expenses in the consolidated income statement.
Embedded derivatives included in contracts, if any, are identified
and monitored by the Group. For host contracts that are not
financial assets containing embedded derivatives that are not closely
related, the embedded derivatives are separated and measured
at fair value as of each reporting date with changes in fair value
recognized in financial income and expenses in the consolidated
income statement. For host contracts that are financial assets
containing embedded derivatives the whole contract is measured
at fair value as of each reporting date with changes in fair value
recognized in financial income and expenses in the consolidated
income statement.
Hedge accounting
The Group applies hedge accounting on certain foreign exchange
forward 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 purchased and written options are the same and the
nominal amount of the written option component is not greater
than that of the purchased option.
In the fair valuation of foreign exchange forward contracts,
the Group separates the spot element and the forward element
including the impact of foreign currency basis and forward points,
that is considered as the cost of hedging for foreign exchange
forward contracts. In the fair valuation of foreign exchange option
contracts, the Group separates the intrinsic value and time value,
that is considered as the cost of hedging for foreign exchange
option contracts. In the fair valuation of cross currency swaps,
the Group separates the foreign currency basis spread that is
considered as the cost of hedging for cross currency swaps.
Cash flow hedges: hedging of forecast foreign currency
denominated sales and purchases
The Group applies cash flow hedge accounting primarily to forecast
business foreign exchange exposure that arises from highly probable
forecast operative business transactions. The risk management
strategy is to hedge material net exposures (identified standard
sales exposure minus identified standard costs exposure) by using
foreign exchange forwards and foreign exchange options in a layered
hedging style that follows defined hedge ratio ranges and hedge
maturities in quarterly time buckets. The hedged item must be highly
probable and present an exposure to variations in cash flows that
could ultimately affect profit or loss.
The Group only designates the spot element of the foreign exchange
forward contract as the hedging instrument. Currency options, or
option strategies, may also be used for cash flow hedging, in which
case the intrinsic value of the option is designated as the hedging
instrument. Hedge effectiveness is assessed at inception and
quarterly during the hedge relationship to ensure that an economic
relationship exists. As the Group only enters in hedge relationships
where the critical terms match, the assessment of effectiveness
is done on a qualitative basis.
For qualifying foreign exchange forwards and foreign exchange
options, the change in fair value that reflects the change in spot
exchange rates on a discounted basis is recognized in hedging
reserve in other comprehensive income. The changes in the forward
element of the foreign exchange forwards and the time value
of the options that relate to hedged items are deferred in the
cost of hedging reserve in other comprehensive income and are
subsequently accounted for in the same way as the spot element
or intrinsic value.
In each quarter the Group evaluates whether the forecast sales
and purchases are still expected to occur. If a portion of the hedged
cash flow is no longer expected to occur, all related deferred gains
or losses are derecognized from other comprehensive income
and recognized in other income and expenses in the consolidated
income statement as hedge accounting criteria is no longer met.
If the hedged cash flow ceases to be highly probable, but is still
expected to occur, accumulated gains and losses remain in other
comprehensive income until the hedged cash flow affects profit
or loss.
The Group’s risk management objective is to hedge forecast cash
flows until the related revenue has been recognized. Each hedge
relationship is discontinued during the quarter when the hedge
matures, which is also the quarter that it has been designated
to hedge. At this point the accumulated profit or loss of cash flow
hedges is recycled to other income and expenses in the consolidated
income statement. In case the forecast amount of revenue is not
recognized during a quarter, the full accumulated profit or loss
of cash flow hedges designated for said quarter is still recycled and
the portion related to forecast revenue that was not recognized
is disclosed as hedge ineffectiveness.
As cash flow hedges mature in the same quarter as the hedged item,
there is no significant ineffectiveness resulting from time value
of money. The group will validate the magnitude of the impact
of discounting related to the amount of profit or loss recognized
in other comprehensive income on a quarterly basis.
The Group also applies cash flow hedging to future interest cash
flows in foreign currency related to issued bonds. These future
interest cash flows are hedged with cross currency swaps that
have been designated partly as fair value hedges and partly as cash
flow hedges. The accumulated profit or loss for the part of these
cross currency swaps designated as cash flow hedges is initially
recorded in hedging reserve and recycled to profit or loss at the
time when the related interest cash flows are settled. The Group
separates the foreign currency basis spread from cross currency
swaps and excludes it from the hedge relationship as cost of
hedging that is initially recognized and subsequently measured
at fair value and recorded in cost of hedging reserve in other
comprehensive income.
The Group has also entered into foreign exchange forwards in
relation to forecast sales and purchases that do not qualify as
highly probable forecast transactions and hence do not satisfy the
requirements for hedge accounting. For these foreign exchange
forwards the gains and losses are recognized in other income
and expenses in 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 the cash flow variability
due to foreign currency risk inherent in highly probable business
acquisitions and other future transactions that result in the
recognition of non-financial assets. Due to hedge accounting the
fair value changes of the hedging instrument is deferred to hedging
reserve in other comprehensive income and when those non-
financial assets are recognized in the statement of financial position,
the accumulated gains and losses are derecognized from hedging
reserve and included in 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 effectiveness
assessment ensuring that an economic relationship exists between
the hedging instruments and the hedged item.
The Group only designates the spot element of the foreign exchange
forward contract as the hedging instrument. Currency options, or
option strategies, may also be used for cash flow hedging, in which
case the intrinsic value of the option is designated as the hedging
instrument. For qualifying foreign exchange forwards and foreign
exchange options, the change in fair value that reflects the change
in spot exchange rates on a discounted basis is recognized in
hedging reserve in other comprehensive income. The changes in
the forward element of the foreign exchange forwards and the time
value of the options that relate to hedged items are deferred in
the cost of hedging reserve in other comprehensive income and
are subsequently accounted for in the same way as the spot element
or intrinsic value.
Fair value hedges: hedging of foreign exchange exposure
In certain cases, mainly related to long-term construction
projects, 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 both spot
and forward elements of the 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. The Group uses interest
rate swaps and cross currency swaps aligned with the hedged items
to hedge interest rate risk and associated foreign exchange risk.
The Group has entered into long-term borrowings mainly at fixed
rate and swapped a portion of them into floating rates in line with
a defined target interest profile. The Group aims to mitigate the
adverse impacts from interest rate fluctuations by continuously
managing net interest exposure resulting from financial assets
and liabilities by setting appropriate risk management benchmarks
and risk limits. The hedged item is identified as a proportion of
the outstanding loans up to the notional amount of the swaps as
appropriate to achieve the risk management objective. The group
enters into interest rate swaps that have similar critical terms as the
hedged item, such as reference rate, reset dates, payment dates,
maturities and notional amount. The Group has not entered into
interest rate swaps where it would be paying fixed rate.
The Group’s borrowings are carried at amortized cost. 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 recorded in financial
income and expenses in the consolidated income statement.
The Group separates the foreign currency basis spread from cross
currency swaps and excludes it from the hedged risk as cost of
hedging that is initially recognized and subsequently measured
at fair value and recorded in cost of hedging reserve in other
comprehensive income. 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 as well as cost of hedging recorded in cost of hedging reserve
while the hedge was effective are recognized in financial income
and expenses in the consolidated income statement based on
the effective interest method.
144
NOKIA ANNUAL REPORT ON FORM 20-F 2018
145
145
Financial statements
Notes to consolidated financial statements continued
Hedges of net investments in foreign operations
The Group applies hedge accounting for its foreign currency hedging
of selected net investments. Hedged item can be an amount of net
assets equal to or less than the carrying amount of the net assets of
the foreign operation in the Group consolidated financial statements.
The risk management strategy is to protect the euro counter value
of the portion of this exposure expected to materialize as non-euro
cash repatriation in the foreseeable future.
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.
The Group only designates the spot element of the foreign exchange
forward contract as the hedging instrument. Currency options, or
option strategies, may also be used for net investment hedging,
in which case the intrinsic value of the option is designated as the
hedging instrument. Hedge effectiveness is assessed at inception
and quarterly during the hedge relationship to ensure that an
economic relationship exists. As the Group only enters in hedge
relationships where the critical terms match, the assessment
of effectiveness is done on a qualitative basis.
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.
For qualifying foreign exchange forwards, foreign exchange
options and option strategies, the change in fair value that reflects
the change in spot exchange rates is recognized in translation
differences within consolidated shareholders’ equity. The changes
in the forward element of foreign exchange forwards as well as
the changes in the time value of options (collectively known as
the “cost of hedging”) is recognized in cost of hedging reserve in
other comprehensive income. The cost of hedging at the date of
designation of the foreign exchange forward or option contract
as a hedging instrument is amortized to financial income and
expenses in the consolidated income statement over the duration
of the contract. Hence, in each reporting period, the change in fair
value of forward element of the foreign exchange forward contract
or time value of the option contract is recorded in cost of hedging
reserve, whilst the amortization amount is reclassified from cost
of hedging reserve to profit or loss.
Accumulated changes in fair value from qualifying hedges are
derecognized from translation differences within consolidated
shareholders’ equity on the disposal of all or part of a foreign
subsidiary by sale, liquidation, repayment of share capital or
abandonment. The cumulative amount or proportionate share
of changes in the fair value of qualifying hedges deferred in
translation differences is recognized as income or expense
when the gain or loss on disposal is recognized.
Provisions
Provisions are recognized when the Group has a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the obligation
and a reliable estimate of the amount can be made. When the
Group expects a provision to be reimbursed, the reimbursement
is recognized as an asset only when the reimbursement is virtually
certain. The Group assesses the adequacy of its existing provisions
and adjusts the amounts as necessary based on actual experience
and changes in facts and circumstances as of each reporting date.
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
Project loss provisions relate to contracts with customers and
are evaluated at a contract level. 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 uncertain taxes, 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 or other distributable funds
of the equity.
Dividends
Until 2018, Dividends proposed by the Board of Directors were
recognized in the consolidated financial statements when they were
approved by the shareholders at the Annual General Meeting. From
2019 onwards, and applicable for the first time for distribution of
funds for 2018, dividends and capital repayments are recognized in
the consolidated financial statements when the Board of Directors
has approved the quarterly payment in accordance with the
authorization granted by Annual General Meeting.
146
146
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
Hedges of net investments in foreign operations
Restructuring provisions
The Group applies hedge accounting for its foreign currency hedging
The Group provides for the estimated cost to restructure when
of selected net investments. Hedged item can be an amount of net
a detailed formal plan of restructuring has been completed,
assets equal to or less than the carrying amount of the net assets of
approved by management, and announced. Restructuring costs
the foreign operation in the Group consolidated financial statements.
consist primarily of personnel restructuring charges. The other main
The risk management strategy is to protect the euro counter value
components are costs associated with exiting real estate locations,
of the portion of this exposure expected to materialize as non-euro
and costs of terminating certain other contracts directly linked to
cash repatriation in the foreseeable future.
the restructuring.
The Group only designates the spot element of the foreign exchange
Warranty provisions
forward contract as the hedging instrument. Currency options, or
The Group provides for the estimated liability to repair or replace
option strategies, may also be used for net investment hedging,
products under standard warranty at the time revenue is recognized.
in which case the intrinsic value of the option is designated as the
The provision is an estimate based on historical experience of the
hedging instrument. Hedge effectiveness is assessed at inception
level of repairs and replacements.
and quarterly during the hedge relationship to ensure that an
economic relationship exists. As the Group only enters in hedge
relationships where the critical terms match, the assessment
of effectiveness is done on a qualitative basis.
For qualifying foreign exchange forwards, foreign exchange
options and option strategies, the change in fair value that reflects
the change in spot exchange rates is recognized in translation
differences within consolidated shareholders’ equity. The changes
in the forward element of foreign exchange forwards as well as
the changes in the time value of options (collectively known as
the “cost of hedging”) is recognized in cost of hedging reserve in
other comprehensive income. The cost of hedging at the date of
designation of the foreign exchange forward or option contract
as a hedging instrument is amortized to financial income and
expenses in the consolidated income statement over the duration
of the contract. Hence, in each reporting period, the change in fair
value of forward element of the foreign exchange forward contract
or time value of the option contract is recorded in cost of hedging
reserve, whilst the amortization amount is reclassified from cost
of hedging reserve to profit or loss.
Accumulated changes in fair value from qualifying hedges are
derecognized from translation differences within consolidated
shareholders’ equity on the disposal of all or part of a foreign
subsidiary by sale, liquidation, repayment of share capital or
abandonment. The cumulative amount or proportionate share
of changes in the fair value of qualifying hedges deferred in
translation differences is recognized as income or expense
when the gain or loss on disposal is recognized.
Provisions
Provisions are recognized when the Group has a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the obligation
and a reliable estimate of the amount can be made. When the
Group expects a provision to be reimbursed, the reimbursement
is recognized as an asset only when the reimbursement is virtually
certain. The Group assesses the adequacy of its existing provisions
and adjusts the amounts as necessary based on actual experience
and changes in facts and circumstances as of each reporting date.
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
Project loss provisions relate to contracts with customers and
are evaluated at a contract level. 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.
The Group provides for uncertain taxes, other legal and constructive
obligations based on the expected cost of executing any such
Other provisions
commitments.
Treasury shares
of the equity.
Dividends
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 or other distributable funds
Until 2018, Dividends proposed by the Board of Directors were
recognized in the consolidated financial statements when they were
approved by the shareholders at the Annual General Meeting. From
2019 onwards, and applicable for the first time for distribution of
funds for 2018, dividends and capital repayments are recognized in
the consolidated financial statements when the Board of Directors
has approved the quarterly payment in accordance with the
authorization granted by Annual General Meeting.
3. New and amended standards and interpretations
New and amended standards and interpretations adopted
The Group has adopted IFRS 9, Financial Instruments (IFRS 9) and IFRS 15, Revenue from Contracts with Customers (IFRS 15) on their
effective date of January 1, 2018. The impact of adoption on the Group’s consolidated financial statements is described in detail below.
Other amendments and interpretations effective in 2018 did not have a material impact on the Group’s consolidated financial statements.
The following table shows the adjustments recognized for each individual line item in the consolidated statement of financial position.
Line items that were not affected by the changes have not been included, and as a result, the subtotals and totals cannot be calculated
from the numbers provided. The adjustments are explained in more detail by standard below.
Consolidated statement of financial position (extract):
EURm
ASSETS
Non-current financial investments
Available-for-sale investments
Deferred tax assets
Other non-current financial assets
Non-current assets
Trade receivables
Contract assets
Prepaid expenses and accrued income
Other financial assets
Current financial investments
Available-for-sale investments, liquid assets
Current assets
Total assets
SHAREHOLDERS’ EQUITY AND LIABILITIES
Fair value and other reserves
Retained earnings
Total equity
Deferred tax liabilities
Contract liabilities
Deferred revenue and other long-term liabilities
Non-current liabilities
Contract liabilities
Accrued expenses, deferred revenue and other liabilities
Current liabilities
Total shareholders’ equity and liabilities
December 31, 2017
IFRS 9
IFRS 15
January 1, 2018
–
816
4 582
215
21 160
6 880
–
1 259
302
–
911
19 841
41 024
1 094
1 147
16 218
413
–
2 986
12 062
–
6 666
12 744
41 024
679
(816)
9
132
4
(46)
–
–
4
907
(911)
(46)
(43)
(252)
214
(38)
(5)
–
–
(5)
–
–
–
(43)
–
–
–
–
–
(1 728)
1 919
(217)
–
–
–
(26)
(26)
–
(16)
(16)
(5)
1 216
(1 216)
(5)
2 478
(2 483)
(5)
(26)
679
–
4 591
347
21 164
5 106
1 919
1 042
306
907
–
19 769
40 955
842
1 345
16 164
403
1 216
1 770
12 052
2 478
4 183
12 739
40 955
146
NOKIA ANNUAL REPORT ON FORM 20-F 2018
147
147
Financial statements
Notes to consolidated financial statements continued
IFRS 9 Financial Instruments
IFRS 9, Financial Instruments, was issued in July 2014 and it replaces
IAS 39, Financial Instruments: Recognition and Measurement (IAS 39).
IFRS 9 addresses the classification and measurement of financial
assets and liabilities, introduces a new impairment model and a new
hedge accounting model. On adoption, the Group has not restated
comparative periods but presents the cumulative effect of adopting
IFRS 9 as a transition adjustment to the opening balance of other
comprehensive income and retained earnings as of January 1, 2018.
The effect of changes to the Group’s financial statement due to
the adoption of IFRS 9 are described below. For IFRS 9 compliant
accounting principles for financial instruments, refer to Note 2,
Significant accounting policies.
Classification and measurement of financial assets
The Group has classified its financial assets in the following three
categories: financial assets measured at amortized cost, financial
assets measured at fair value through other comprehensive income
and financial assets measured at fair value through profit and loss.
The selection of the appropriate category is based both on the
Group’s business model for managing the financial asset and on
the contractual cash flows characteristics of the financial asset. The
new asset classes replace the following IAS 39 asset classification
categories: available-for-sale investments, derivative and other
current financial assets, loan receivables, trade receivables,
financial assets at fair value through profit or loss.
Non-current Investments: Investments in unlisted private equity
shares, technology-related publicly quoted shares and unlisted
venture funds are classified as fair value through profit and loss.
Under IAS 39 these items were classified as available-for-sale.
Fair valuation is recorded in other income and expenses based
on the business model assessment performed in conjunction with
IFRS 9 transition.
Other non-current financial assets: Restricted bank deposits are
classified as amortized cost. Under IAS 39 these items were classified
as available-for-sale.
Loan receivables: The Group’s business model for managing loans
to customers and suppliers is both to collect contractual cash flows
and to sell assets and hence customer finance assets are initially
recognized and subsequently re-measured at fair value through
other comprehensive income. Under IAS 39 these items were
measured at amortized cost less impairment using the effective
interest method.
Derivatives: There is no change in the classification or measurement
of derivative assets not designated in hedge accounting relationships
apart from embedded derivatives: based on IFRS 9, the whole
contract is evaluated based on the classification criteria and then
classified as its entirety. Based on IAS 39 embedded derivatives
were measured at fair value through profit and loss.
Current Investments: Fixed income and money market securities are
classified as fair value through other comprehensive income in case
the instrument characteristics fulfil the criteria of payments of solely
principal and interest and are not part of a structured investment
(formerly classified as available-for-sale investments). Other
investments are classified at fair value through profit or loss.
Trade receivables: The Group’s business model for managing trade
receivables is holding receivables to collect contractual cash flows
and selling receivables. Hence, trade receivables are initially
recognized at notional amounts and subsequently re-measured at
fair value through other comprehensive income. IAS 39 measured
these trade receivables at amortized cost.
Classification and measurement of financial liabilities
The Group classifies derivative liabilities at fair value through profit
and loss and all other financial liabilities at amortized cost. These
category classes replace the IAS 39 classes derivative and other
financial liabilities, compound financial instruments, loans payable,
and account payable. The implementation of IFRS 9 has not
had a material effect on the classification and measurement
of financial liabilities.
Impairment
The Group assesses expected credit losses on financial assets on
a forward-looking basis whereas the impairment provision under
IAS 39 was based on actual credit losses. Expected credit losses
are calculated based on credit rating profile and estimated recovery
rate as well as any other specific indicators on counterparty
creditworthiness. The impairment requirements concern the
following financial assets: customer loans and current investments
measured at fair value through other comprehensive income,
financial assets measured at amortized cost as well as financial
guarantee contracts and loan commitments. Based on the Group’s
assessment of these financial assets at the reporting date only
the expected credit loss for customer loans and loan commitments
was not deemed immaterial.
A loss allowance is recognized based on 12-month expected
credit losses unless the credit risk for the financial instrument has
increased significantly since initial recognition. For trade receivables
and contract assets the Group applies a simplified approach to
recognizing a loss allowance based on lifetime expected credit losses.
Hedge accounting
As the Group’s foreign exchange risk management policy and hedge
accounting model have been aligned with the requirements of IFRS 9,
all hedging relationships qualify for treatment as continuing hedging
relationship. The requirement for hedge effectiveness of 80-125 %
has been removed from IFRS 9 and the effectiveness of hedging is
evaluated based on the economic relationship between the hedging
instrument and hedged item. The Group is separating the forward
element and the spot element of a foreign exchange forward
contract and designates as the hedging instrument only the change
in the value of the spot element of the foreign exchange forward
contract. The Group also separates the time value of options and
the foreign currency basis spread of cross currency swaps. These
hedging costs are mainly recognized in other comprehensive income
and subsequently accounted for in the same way as the intrinsic
value. Under IAS 39 these costs were recognized in profit and loss
as they occurred.
148
148
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
IFRS 9 Financial Instruments
Trade receivables: The Group’s business model for managing trade
IFRS 9, Financial Instruments, was issued in July 2014 and it replaces
receivables is holding receivables to collect contractual cash flows
IAS 39, Financial Instruments: Recognition and Measurement (IAS 39).
and selling receivables. Hence, trade receivables are initially
IFRS 9 addresses the classification and measurement of financial
recognized at notional amounts and subsequently re-measured at
assets and liabilities, introduces a new impairment model and a new
fair value through other comprehensive income. IAS 39 measured
hedge accounting model. On adoption, the Group has not restated
these trade receivables at amortized cost.
comparative periods but presents the cumulative effect of adopting
IFRS 9 as a transition adjustment to the opening balance of other
comprehensive income and retained earnings as of January 1, 2018.
The effect of changes to the Group’s financial statement due to
the adoption of IFRS 9 are described below. For IFRS 9 compliant
accounting principles for financial instruments, refer to Note 2,
Significant accounting policies.
Classification and measurement of financial liabilities
The Group classifies derivative liabilities at fair value through profit
and loss and all other financial liabilities at amortized cost. These
category classes replace the IAS 39 classes derivative and other
financial liabilities, compound financial instruments, loans payable,
and account payable. The implementation of IFRS 9 has not
had a material effect on the classification and measurement
Classification and measurement of financial assets
The Group has classified its financial assets in the following three
categories: financial assets measured at amortized cost, financial
assets measured at fair value through other comprehensive income
and financial assets measured at fair value through profit and loss.
The selection of the appropriate category is based both on the
Group’s business model for managing the financial asset and on
the contractual cash flows characteristics of the financial asset. The
new asset classes replace the following IAS 39 asset classification
categories: available-for-sale investments, derivative and other
current financial assets, loan receivables, trade receivables,
financial assets at fair value through profit or loss.
Non-current Investments: Investments in unlisted private equity
shares, technology-related publicly quoted shares and unlisted
venture funds are classified as fair value through profit and loss.
Under IAS 39 these items were classified as available-for-sale.
Fair valuation is recorded in other income and expenses based
on the business model assessment performed in conjunction with
IFRS 9 transition.
Other non-current financial assets: Restricted bank deposits are
classified as amortized cost. Under IAS 39 these items were classified
Hedge accounting
as available-for-sale.
Loan receivables: The Group’s business model for managing loans
to customers and suppliers is both to collect contractual cash flows
and to sell assets and hence customer finance assets are initially
recognized and subsequently re-measured at fair value through
other comprehensive income. Under IAS 39 these items were
measured at amortized cost less impairment using the effective
interest method.
of financial liabilities.
Impairment
The Group assesses expected credit losses on financial assets on
a forward-looking basis whereas the impairment provision under
IAS 39 was based on actual credit losses. Expected credit losses
are calculated based on credit rating profile and estimated recovery
rate as well as any other specific indicators on counterparty
creditworthiness. The impairment requirements concern the
following financial assets: customer loans and current investments
measured at fair value through other comprehensive income,
financial assets measured at amortized cost as well as financial
guarantee contracts and loan commitments. Based on the Group’s
assessment of these financial assets at the reporting date only
the expected credit loss for customer loans and loan commitments
was not deemed immaterial.
A loss allowance is recognized based on 12-month expected
credit losses unless the credit risk for the financial instrument has
increased significantly since initial recognition. For trade receivables
and contract assets the Group applies a simplified approach to
recognizing a loss allowance based on lifetime expected credit losses.
As the Group’s foreign exchange risk management policy and hedge
accounting model have been aligned with the requirements of IFRS 9,
all hedging relationships qualify for treatment as continuing hedging
relationship. The requirement for hedge effectiveness of 80-125 %
has been removed from IFRS 9 and the effectiveness of hedging is
evaluated based on the economic relationship between the hedging
instrument and hedged item. The Group is separating the forward
element and the spot element of a foreign exchange forward
contract and designates as the hedging instrument only the change
Derivatives: There is no change in the classification or measurement
in the value of the spot element of the foreign exchange forward
of derivative assets not designated in hedge accounting relationships
contract. The Group also separates the time value of options and
apart from embedded derivatives: based on IFRS 9, the whole
the foreign currency basis spread of cross currency swaps. These
contract is evaluated based on the classification criteria and then
hedging costs are mainly recognized in other comprehensive income
classified as its entirety. Based on IAS 39 embedded derivatives
and subsequently accounted for in the same way as the intrinsic
were measured at fair value through profit and loss.
value. Under IAS 39 these costs were recognized in profit and loss
as they occurred.
Current Investments: Fixed income and money market securities are
classified as fair value through other comprehensive income in case
the instrument characteristics fulfil the criteria of payments of solely
principal and interest and are not part of a structured investment
(formerly classified as available-for-sale investments). Other
investments are classified at fair value through profit or loss.
The monetary and line-by-line impact of the changes to classification and measurement of financial assets in the consolidated statement
of financial position is described in more detail below.
IAS 39
classification
IFRS 9
classification
December 31, 2017
(IAS 39)
January 1, 2018
(IFRS 9)
Change in
classification
Change in
measurement
EURm
Non-current financial investments(1)
Investments in private equity(2)
Restricted bank deposits(3)
Other non-current financial assets
Restricted bank deposits(3)
Non-current customer financing(4)
Other non-current financial assets
Other non-current financial assets
Other current financial assets including
derivatives
Available-for-sale
Available-for-sale Amortized cost
FVPL
Available-for-sale Amortized cost
Amortized cost
FVPL
Amortized cost
FVOCI
FVPL
Amortized cost
Derivatives
Current portion of customer financing(4)
Other current financial assets(3)
Trade receivables
Trade receivables(5)
Current financial investments(1)
Available-for-sale investments, liquid assets(6)
FVOCI
Available-for-sale investments, liquid assets(3)(6) FVOCI
Cash and cash equivalents
Financial investments at fair value through
FVPL
Amortized cost
Amortized cost
Amortized cost
FVPL
FVOCI
Amortized cost
FVOCI
FVPL
FVOCI
679
137
75
107
33
196
84
22
679
137
70
107
33
196
84
26
(137)
137
4
(5)
6 880
6 834
(46)
911
84
823
84
(88)
profit and loss
Financial investments at amortized cost
Amortized cost
Amortized cost
FVPL
Amortized cost
1 962
5 407
1 962
5 407
Deferred tax assets and liabilities
Deferred tax assets
Deferred tax liabilities
Shareholders’ equity
Fair value and other reserves(2)(4)(5)(7)(8)
Retained earnings(2)(7)(8)
4 582
413
4 591
408
(2)
9
(3)
1 094
1 147
842
1 361
(210)
212
(42)
2
(1) In 2017, Non-current financial investments were presented as Available-for-sale investments and Current financial investments were presented as Available-for-sale investments,
liquid assets under IAS 39.
(2) Upon initial application of IFRS 9, the accumulated net positive fair value changes for the Group’s investments in venture funds, a gain of EUR 226 million, formerly recorded to other
comprehensive income, has been presented as a transition adjustment to opening balance of retained earnings. There was no change in the valuation nor carrying amount of these assets.
(3) Certain restricted bank deposits classified mainly as non-current available-for-sale investments under IAS 39 are classified as amortized cost. There was no change in the carrying amount
of these deposits.
(4) The initial fair value adjustment for customer finance assets of a loss of EUR 5 million has been presented in opening balance of other comprehensive income as a transition adjustment.
(5) The initial fair value adjustment for trade receivables of a loss of EUR 46 million has been presented in opening balance of other comprehensive income as a transition adjustment.
(6) The Group has assessed the investments classified under IAS 39 as current available-for-sale, liquid assets, and has classified certain investment funds to be measured at fair value through
profit or loss at the adoption of IFRS 9. The rest of these investments satisfy the conditions for classification at fair value through other comprehensive income.
(7) 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 is no significant impact
from the new model. There was an impact of EUR 9 million loss to loans extended to the Group’s customers as the new model results in an earlier recognition of credit losses that has been
recorded in opening balance of other comprehensive income and retained earnings as a transition adjustment.
(8) 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. As a result, a loss of
EUR 10 million for accumulated cost of hedging related to hedges under cash flow hedge accounting at the end of 2017 has been presented in opening balance of other comprehensive
income and retained earnings as a transition adjustment. 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 net investment hedging was not significant.
The numbers presented in the footnotes above are gross of tax. The tax impact of IFRS 9 transition adjustments has been recorded to
deferred tax assets, deferred tax liabilities, fair value and other reserves or retained earnings as applicable.
148
NOKIA ANNUAL REPORT ON FORM 20-F 2018
149
149
Financial statements
Notes to consolidated financial statements continued
IFRS 15 Revenue from Contracts with Customers
On January 1, 2018, the Group adopted IFRS 15, Revenue from
Contracts with Customers. IFRS 15 establishes a five-step model
that applies to revenue arising from contracts with customers and
replaces IAS 18, Revenue, and IAS 11, Construction contracts. Under
IFRS 15, revenue is recognized to reflect the transfer of promised
goods and services to customers for amounts that reflect the
consideration to which the Group expects to be entitled in
exchange for those goods and services.
The Group adopted the standard by applying the modified
retrospective transition method to all contracts that were not
completed contracts at the date of adoption and has presented
the cumulative effect of adopting IFRS 15 as an adjustment to
the opening balance of retained earnings as of January 1, 2018.
The IFRS 15 adoption-related adjustments to the year-end 2017
consolidated statement of financial position and the resulting 2018
opening balance sheet are presented above. Adoption of the
standard resulted in a post-tax decrease of retained earnings
of EUR 16 million in the opening balance sheet of 2018, with
offsetting entries in contract assets and contract liabilities.
The main impacts of the adoption of IFRS 15 are summarized
below including a significant change in presentation within the
consolidated statement of financial position.
Identification of a contract
In accordance with IFRS 15, management concluded that only legally
enforceable rights should be considered in evaluating the accounting
for contracts with customers. As such, frame agreements are
accounted for based on the issuance of subsequent purchase
orders under the frame agreements. Previously, a broader contract
definition was permitted for accounting purposes.
Software revenue
In accordance with IFRS 15, revenue related to licenses and other
software is recognized over time or at the point in time when a
performance obligation is satisfied. Previously, certain software
revenue arrangements were recorded as revenue over a fixed term
subscription period. Upon the adoption of IFRS 15, this change
may result in larger fluctuations in revenue between quarters than
under the previous standard. In 2018, this change did not have
a material impact.
Establishment of contract asset and contract liability balances
Upon adoption of IFRS 15, the Group has established contract asset
and contract liability balances for each of its customer contracts in
its consolidated statement of financial position, depending on the
relationship between the Group’s performance and the customer’s
payment for each individual contract. On a net basis, a contract asset
position represents where the Group has performed by transferring
goods or services to a customer before the customer has paid the
consideration or payment is due. Conversely, a contract liability
position represents where a customer has paid the consideration
or payment is due, but the Group has not yet transferred goods
or services to the customer. Upon adoption of the standard, the
Group identified discount accruals that do not require the customer
to purchase additional goods and services and should thus be
presented separately from contract liabilities in the consolidated
statement of financial position. Refer to Note 28, Accrued expenses,
deferred revenue and other liabilities.
New and amended standards and interpretations issued
but not yet effective
The following new and revised standards, amendments and
interpretations to existing standards that have been issued by
the IASB but are not yet effective are expected to be relevant
to the Group’s operations and financial position when adopted.
Other new and revised standards, 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 16 Leases
IFRS 16, Leases, (IFRS 16) was issued in January 2016 and sets out
the requirements for the recognition, measurement, presentation
and disclosure of leases. IFRS 16 provides a single lessee accounting
model, requiring lessees to recognize right-of-use assets and
lease liabilities for most leases, excluding short-term leases,
in the consolidated statement of financial position.
The Group will adopt IFRS 16 on the effective date of January 1,
2019 using the cumulative catch-up transition method. In
accordance with the IFRS 16 transition guidance, comparative
information will not be restated. On adoption, all right-of-use assets
(prior to adjustment for prepaid assets, accrued lease payments
and onerous lease contract provisions) will be recorded with an
equivalent value recorded for the related lease liabilities. Key
judgments and estimates used under IFRS 16 primarily relate
to the evaluation of lease terms and the use of discount rates.
In Note 30, Commitments and contingencies, the Group disclosed
non-cancellable operating lease commitments of EUR 1 099 million,
of which the majority relates to real estate operating lease
commitments. As of the date of this annual report, the impact of the
new standard on the Group's financial statements is not reasonably
estimable. The Group expects that the lease liability recorded at the
date of adoption will differ from non-cancellable lease commitments
mainly due to excluding non-cancellable operating lease commitments
for onerous lease contracts and for properties not available for use
by the Group at the adoption date, the judgments of including lease
extension option periods in determining lease term and the impact
from discounting future lease payments to present value.
IFRS 16 allows for entities to elect a number of practical expedients
to simplify the initial adoption of IFRS 16, as well as the ongoing
application of IFRS 16.
The Group will elect to adopt the following practical expedients
upon transition:
The Group will apply IFRS 16 to contracts that were previously
identified as leases applying IAS 17, Leases, and IFRIC 4,
Determining whether an Arrangement contains a Lease;
The Group will adjust the right-of-use assets by the amount of
onerous lease contract provisions recognized in the consolidated
statement of financial position in accordance with IAS 37,
Provisions, Contingent Liabilities and Contingent Assets;
The Group will exclude initial direct costs related to the execution
of lease contracts from the measurement of the right-of-use
assets; and
The Group will apply hindsight to estimate the lease term for all
lease contracts existing on the effective date of January 1, 2019.
150
150
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
IFRS 15 Revenue from Contracts with Customers
On January 1, 2018, the Group adopted IFRS 15, Revenue from
Contracts with Customers. IFRS 15 establishes a five-step model
that applies to revenue arising from contracts with customers and
replaces IAS 18, Revenue, and IAS 11, Construction contracts. Under
IFRS 15, revenue is recognized to reflect the transfer of promised
goods and services to customers for amounts that reflect the
consideration to which the Group expects to be entitled in
exchange for those goods and services.
The Group adopted the standard by applying the modified
retrospective transition method to all contracts that were not
completed contracts at the date of adoption and has presented
the cumulative effect of adopting IFRS 15 as an adjustment to
the opening balance of retained earnings as of January 1, 2018.
The IFRS 15 adoption-related adjustments to the year-end 2017
consolidated statement of financial position and the resulting 2018
opening balance sheet are presented above. Adoption of the
standard resulted in a post-tax decrease of retained earnings
of EUR 16 million in the opening balance sheet of 2018, with
offsetting entries in contract assets and contract liabilities.
The main impacts of the adoption of IFRS 15 are summarized
below including a significant change in presentation within the
consolidated statement of financial position.
Identification of a contract
In accordance with IFRS 15, management concluded that only legally
enforceable rights should be considered in evaluating the accounting
for contracts with customers. As such, frame agreements are
accounted for based on the issuance of subsequent purchase
orders under the frame agreements. Previously, a broader contract
definition was permitted for accounting purposes.
Software revenue
In accordance with IFRS 15, revenue related to licenses and other
software is recognized over time or at the point in time when a
performance obligation is satisfied. Previously, certain software
revenue arrangements were recorded as revenue over a fixed term
subscription period. Upon the adoption of IFRS 15, this change
may result in larger fluctuations in revenue between quarters than
under the previous standard. In 2018, this change did not have
a material impact.
New and amended standards and interpretations issued
but not yet effective
The following new and revised standards, amendments and
interpretations to existing standards that have been issued by
the IASB but are not yet effective are expected to be relevant
to the Group’s operations and financial position when adopted.
Other new and revised standards, 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 16 Leases
IFRS 16, Leases, (IFRS 16) was issued in January 2016 and sets out
the requirements for the recognition, measurement, presentation
and disclosure of leases. IFRS 16 provides a single lessee accounting
model, requiring lessees to recognize right-of-use assets and
lease liabilities for most leases, excluding short-term leases,
in the consolidated statement of financial position.
The Group will adopt IFRS 16 on the effective date of January 1,
2019 using the cumulative catch-up transition method. In
accordance with the IFRS 16 transition guidance, comparative
information will not be restated. On adoption, all right-of-use assets
(prior to adjustment for prepaid assets, accrued lease payments
and onerous lease contract provisions) will be recorded with an
equivalent value recorded for the related lease liabilities. Key
judgments and estimates used under IFRS 16 primarily relate
to the evaluation of lease terms and the use of discount rates.
In Note 30, Commitments and contingencies, the Group disclosed
non-cancellable operating lease commitments of EUR 1 099 million,
of which the majority relates to real estate operating lease
commitments. As of the date of this annual report, the impact of the
new standard on the Group's financial statements is not reasonably
estimable. The Group expects that the lease liability recorded at the
date of adoption will differ from non-cancellable lease commitments
mainly due to excluding non-cancellable operating lease commitments
for onerous lease contracts and for properties not available for use
by the Group at the adoption date, the judgments of including lease
Establishment of contract asset and contract liability balances
extension option periods in determining lease term and the impact
Upon adoption of IFRS 15, the Group has established contract asset
from discounting future lease payments to present value.
and contract liability balances for each of its customer contracts in
its consolidated statement of financial position, depending on the
relationship between the Group’s performance and the customer’s
payment for each individual contract. On a net basis, a contract asset
position represents where the Group has performed by transferring
goods or services to a customer before the customer has paid the
consideration or payment is due. Conversely, a contract liability
position represents where a customer has paid the consideration
or payment is due, but the Group has not yet transferred goods
or services to the customer. Upon adoption of the standard, the
Group identified discount accruals that do not require the customer
to purchase additional goods and services and should thus be
presented separately from contract liabilities in the consolidated
statement of financial position. Refer to Note 28, Accrued expenses,
deferred revenue and other liabilities.
IFRS 16 allows for entities to elect a number of practical expedients
to simplify the initial adoption of IFRS 16, as well as the ongoing
application of IFRS 16.
upon transition:
The Group will elect to adopt the following practical expedients
The Group will apply IFRS 16 to contracts that were previously
identified as leases applying IAS 17, Leases, and IFRIC 4,
Determining whether an Arrangement contains a Lease;
The Group will adjust the right-of-use assets by the amount of
onerous lease contract provisions recognized in the consolidated
statement of financial position in accordance with IAS 37,
Provisions, Contingent Liabilities and Contingent Assets;
The Group will exclude initial direct costs related to the execution
of lease contracts from the measurement of the right-of-use
assets; and
The Group will apply hindsight to estimate the lease term for all
lease contracts existing on the effective date of January 1, 2019.
The Group will elect to adopt the following practical expedients on
an ongoing basis:
The Group will not separate non-lease components from lease
components and will instead account for each lease component
and associated non-lease component as a single lease
component; and
The Group will not recognize any short-term leases on the
consolidated statement of financial position where the lease term
is 12 months or less at the lease commencement date. Instead,
the Group will recognize the lease payments associated with
short-term leases as an expense recognized on a basis
representative of the pattern of the lease’s benefit.
4. 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 6, Acquisitions
and disposals.
Revenue recognition
In addition to those identified within the significant accounting
policies in the revenue recognition section of Note 2, Significant
accounting policies, management has identified the following
estimates and critical accounting judgments necessary in the
determination of revenue to be recognized each period.
Contract modifications
A significant part of the Group’s business is conducted under
framework agreements with no fixed commitment on the overall
project scope. The accounting treatment of subsequent purchase
commitments received from the customer in the form of new
purchase orders is a critical judgment. Subsequent purchase orders
may be deemed either to represent separate contracts or to
represent a modification of the existing contract, which requires
combination with the original contract for accounting purposes.
The decision whether to segregate or combine subsequent
purchase orders can have a direct impact on the amount of
revenue recognized in a given period for arrangements with multiple
performance obligations including material rights as the transaction
price is allocated to the performance obligations identified within
the contract.
Determining and allocating the transaction price
As the Group often provides complex and extensive networking
solutions, the contracts for these may contain complex pricing
structures, many of which include discount programs that range
from volume-based discounts to lumpsum discounts provided
upon entering the contract. The revenue recognized for any contract
always reflects the net impact of list price and any estimated or
actual discounts. Revenue is only recognized to the extent that
it is highly probable that a significant reversal will not occur.
When the Group enters into contracts with customers consisting
of any combination of hardware, services and software, separate
performance obligations are identified and accounted for based
on their nature, considering the economic substance of the entire
arrangement. Hardware and software sold by the Group includes
warranty, which can either be assurance-type for repair of defects
and recognized as a centralized warranty provision (refer to Note 29,
Provisions), or service-type for scope beyond the repair of defects
or for a time period beyond the standard assurance-type warranty
period and considered a separate performance obligation within the
context of the contract. Revenue is allocated to each performance
obligation based on its standalone selling price in relation to the
overall transaction price. The standalone selling price of each
performance obligation is determined by considering factors such
as the price of the performance obligation if sold on a standalone
basis and the expected cost of the performance obligation plus a
reasonable margin when price references are not available. The
portion of the transaction price allocated to each performance
obligation is then recognized when the revenue recognition criteria
for that performance obligation have been met. The determination
of the standalone selling price for each performance obligation
and the resulting allocation of the total transaction price to each
performance obligation require the use of estimates and judgment
that may have a significant impact on the timing and amount
of revenue recognized.
In some customer contracts, the timing of revenue recognition
and collection of the consideration are more than a year apart
and therefore may contain a significant financing component
that must be recognized separately from revenue associated
with the arrangement’s performance obligations. In these cases,
150
NOKIA ANNUAL REPORT ON FORM 20-F 2018
151
151
Financial statements
Notes to consolidated financial statements continued
the Group values the financing component embedded in the
contract based on applicable market rates and excludes it from
the transaction price if considered significant. Such financing
components are presented within financial income and expense.
The Group does not adjust the promised amount of consideration
for the effects of a significant financing component if it expects,
at contract inception, that the period between when the promised
good or service transfers to the customer and when the Group
collects payment for that good or service, will be one year or less.
Refer to Note 8, Revenue recognition, for further details on revenue
recognition in 2018.
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 23 955 million
(EUR 25 497 million in 2017) and the fair value of plan assets
amounts to EUR 24 479 million (EUR 25 535 million in 2017).
Refer to Note 27, Pensions and other post-employment benefits.
Income taxes
The Group is subject to income taxes in the jurisdictions in which
it operates. Judgment is required in determining current tax
expense, uncertain tax positions, deferred tax assets and deferred
tax liabilities; and the extent to which deferred tax assets can
be recognized.
Estimates related to the recoverability of deferred tax assets are
based on forecasted future taxable income and tax planning
strategies. Based on these estimates and assumptions, the Group
has EUR 20 465 million (EUR 20 365 million in 2017) 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 13, Income taxes.
The utilization of deferred tax assets is dependent on future taxable
profit in excess of the profit arising from the reversal of existing
taxable temporary differences. The recognition of deferred tax
assets is based on the assessment of whether it is more likely than
not that sufficient taxable profit will be available in the future to
utilize the reversal of deductible temporary differences, unused
tax losses and unused tax credits before the unused tax losses
and unused tax credits expire. Recognition of deferred tax assets
involves judgment regarding the future financial performance of
the particular legal entity or tax group that has recognized the
deferred tax asset.
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 Canada, India, Saudi Arabia
and South Korea. 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 13, Income taxes.
Goodwill recoverability
The recoverable amounts of the groups of CGUs were based on fair
value less costs of disposal that was determined using a level 3 fair
value measurement based on a discounted cash flow calculation.
The cash flow projections used in calculating the recoverable
amounts were based on financial plans approved by management
covering an explicit forecast period of 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 rates,
the terminal growth rates, estimated revenue growth rates, gross
margins and operating margins. 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 operate.
The results of the impairment testing indicate adequate headroom
for each group of CGUs. Total goodwill amounts to EUR 5 452 million
as of December 31, 2018 (EUR 5 248 million in 2017). Refer to
Note 15, Intangible assets and Note 17, Impairment.
Loss allowances
Loss allowances are recognized for estimated losses resulting
from customers’ inability to meet payment obligations. Following
the adoption of IFRS 9, the Group applies a simplified approach
to recognizing a loss allowance on trade receivables based on
measurement of lifetime expected credit losses arising from trade
receivables without significant financing components. Estimation
and judgment are required in determining the value of loss
allowances at each reporting date. Management specifically analyzes
trade receivables and historical losses; customer concentrations;
customer creditworthiness; past due balances; current economic
trends; and changes in customer payment terms when determining
loss allowances. In addition to past events and current conditions,
reasonable and supportable forecasts affecting collectability are
considered when determining the amount of loss allowances.
Based on these estimates and assumptions, loss allowances are
EUR 195 million as of December 31, 2018 (EUR 192 million in 2017),
representing 3% of trade receivables and contract assets (3% in
2017). Refer to Note 36, Financial risk management.
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 521 million (EUR 432 million in 2017),
representing 14% of inventory (14% in 2017). Refer to Note 18,
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
152
152
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
the Group values the financing component embedded in the
contract based on applicable market rates and excludes it from
the transaction price if considered significant. Such financing
components are presented within financial income and expense.
The Group does not adjust the promised amount of consideration
for the effects of a significant financing component if it expects,
at contract inception, that the period between when the promised
good or service transfers to the customer and when the Group
collects payment for that good or service, will be one year or less.
Refer to Note 8, Revenue recognition, for further details on revenue
recognition in 2018.
and expenses
Pension and other post-employment benefit obligations
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
Goodwill recoverability
The recoverable amounts of the groups of CGUs were based on fair
value less costs of disposal that was determined using a level 3 fair
value measurement based on a discounted cash flow calculation.
The cash flow projections used in calculating the recoverable
amounts were based on financial plans approved by management
covering an explicit forecast period of 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 rates,
the terminal growth rates, estimated revenue growth rates, gross
margins and operating margins. 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 operate.
The results of the impairment testing indicate adequate headroom
for each group of CGUs. Total goodwill amounts to EUR 5 452 million
as of December 31, 2018 (EUR 5 248 million in 2017). Refer to
Note 15, Intangible assets and Note 17, Impairment.
future cash flow. Based on these estimates and assumptions,
Loss allowances
defined benefit obligations amount to EUR 23 955 million
(EUR 25 497 million in 2017) and the fair value of plan assets
amounts to EUR 24 479 million (EUR 25 535 million in 2017).
Loss allowances are recognized for estimated losses resulting
from customers’ inability to meet payment obligations. Following
the adoption of IFRS 9, the Group applies a simplified approach
Refer to Note 27, Pensions and other post-employment benefits.
to recognizing a loss allowance on trade receivables based on
Income taxes
The Group is subject to income taxes in the jurisdictions in which
it operates. Judgment is required in determining current tax
expense, uncertain tax positions, deferred tax assets and deferred
tax liabilities; and the extent to which deferred tax assets can
be recognized.
Estimates related to the recoverability of deferred tax assets are
based on forecasted future taxable income and tax planning
strategies. Based on these estimates and assumptions, the Group
has EUR 20 465 million (EUR 20 365 million in 2017) 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 13, Income taxes.
The utilization of deferred tax assets is dependent on future taxable
profit in excess of the profit arising from the reversal of existing
taxable temporary differences. The recognition of deferred tax
assets is based on the assessment of whether it is more likely than
not that sufficient taxable profit will be available in the future to
utilize the reversal of deductible temporary differences, unused
tax losses and unused tax credits before the unused tax losses
and unused tax credits expire. Recognition of deferred tax assets
involves judgment regarding the future financial performance of
the particular legal entity or tax group that has recognized the
deferred tax asset.
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 Canada, India, Saudi Arabia
and South Korea. 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 13, Income taxes.
measurement of lifetime expected credit losses arising from trade
receivables without significant financing components. Estimation
and judgment are required in determining the value of loss
allowances at each reporting date. Management specifically analyzes
trade receivables and historical losses; customer concentrations;
customer creditworthiness; past due balances; current economic
trends; and changes in customer payment terms when determining
loss allowances. In addition to past events and current conditions,
reasonable and supportable forecasts affecting collectability are
considered when determining the amount of loss allowances.
Based on these estimates and assumptions, loss allowances are
EUR 195 million as of December 31, 2018 (EUR 192 million in 2017),
representing 3% of trade receivables and contract assets (3% in
2017). Refer to Note 36, Financial risk management.
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 521 million (EUR 432 million in 2017),
representing 14% of inventory (14% in 2017). Refer to Note 18,
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 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 3 of the fair value hierarchy), is EUR 688
million (EUR 552 million in 2017), representing 8% of total financial
assets measured at fair value on a recurring basis (29% in 2017).
Level 3 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 total level 3 financial liabilities amount to
EUR 707 million (EUR 672 million in 2017), representing 78% of
total financial liabilities (71% in 2017) measured at fair value a on
recurring basis. Refer to Note 24, Fair value of financial instruments.
Provisions
Provisions are recognized when the Group has a present legal or
constructive obligation as a result of past events, it is probable that
an outflow of resources will be required to settle the obligation, and
a reliable estimate of the amount can be made. At times, judgment is
required in determining whether the Group has a present obligation;
estimation is required in determining the value of the obligation.
Whilst provisions are based on the best estimate of unavoidable
costs, management may be required to make a number of
assumptions surrounding the amount and likelihood of outflow
of economic resources, and the timing of payment. Changes
in estimates of timing or amounts of costs to be incurred may
become necessary as time passes and/or more accurate information
becomes available. Based on these estimates and assumptions,
provisions amount to EUR 1 427 million (EUR 1 888 million in 2017).
Refer to Note 29, Provisions.
Legal contingencies
Legal proceedings covering a wide range of matters are pending or
threatened in various jurisdictions. Provisions are recognized for
pending litigation when it is apparent that an unfavorable outcome is
probable and a best estimate of unavoidable costs can be reasonably
estimated. Due to the inherently uncertain nature of litigation, the
ultimate outcome or actual cost of settlement may vary materially
from estimates. Refer to Note 29, Provisions.
5. Segment information
The Group has two businesses: Nokia’s Networks business and Nokia
Technologies, and four reportable segments for financial reporting
purposes: (1) Ultra Broadband Networks, (2) Global Services and
(3) IP Networks and Applications within Nokia’s Networks business;
and (4) 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 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(1).
Accounting policies of the segments are the same as those described
in Note 2, Significant accounting policies. Inter-segment revenues
and transfers are accounted for as if the revenues were to third
parties, that is, at current market prices. Certain costs and revenue
adjustments are not allocated to the segments(1).
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, fiber and
cable 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, building on decades
of innovation and R&D leadership in technologies used in virtually
all mobile devices used today, is expanding the Nokia patent licensing
business, reintroducing the Nokia brand to smartphones through
brand licensing, and establishing a technology licensing business.
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)
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.
152
NOKIA ANNUAL REPORT ON FORM 20-F 2018
153
153
Financial statements
Notes to consolidated financial statements continued
Segment information
EURm
Continuing operations
2018
Net sales to external customers
Net sales to other segments
Depreciation and amortization
Operating profit/(loss)
Share of results of associated
Ultra
Broadband
Networks(1)
Global
Services
IP Networks
and
Applications(2)
Nokia’s
Networks
business
Total
Nokia
Technologies
Group
Common
and Other Eliminations
Segment
total
Unallocated
items(3)
Total
8 691
1
(236)
510
5 710
–
(66)
242
5 719
–
(147)
447
20 120
1
(449)
1 199
1 486
15
(21)
1 203
974
47
(45)
(222)
–
(63)
–
–
22 580
–
(515)
2 180
(17) 22 563
–
(1 455)
(59)
–
(940)
(2 239)
companies and joint ventures
12
–
–
12
–
–
–
12
–
12
2017
Net sales to external customers
Net sales to other segments
Depreciation and amortization
Operating profit/(loss)
Share of results of associated
8 970
–
(258)
781
5 810
–
(80)
411
5 743
–
(160)
519
20 523
–
(498)
1 711
1 639
15
(12)
1 124
1 060
54
(48)
(248)
–
(69)
–
–
23 222
–
(558)
2 587
(75) 23 147
–
(1 591)
16
–
(1 033)
(2 571)
companies and joint ventures
21
–
–
21
(10)
–
–
11
–
11
2016
Net sales to external customers
Net sales to other segments
Depreciation and amortization
Operating profit/(loss)
Share of results of associated
9 757
1
(270)
922
6 036
–
(70)
406
6 036
–
(160)
615
21 829
1
(500)
1 943
1 038
15
(9)
579
1 105
37
(43)
(350)
–
(53)
–
–
23 972
–
(552)
2 172
(331) 23 641
–
(1 594)
(1 100)
–
(1 042)
(3 272)
companies and joint ventures
18
–
–
18
–
–
–
18
–
18
(1) Includes Mobile Networks net sales of EUR 6 712 million (EUR 6 895 million in 2017 and EUR 7 357 million in 2016) and Fixed Networks net sales of EUR 1 980 million (EUR 2 075 million in 2017
and EUR 2 401 million in 2016).
(2) Includes IP Routing net sales of EUR 2 545 million (EUR 2 694 million in 2017 and EUR 2 941 million in 2016), Optical Networks net sales of EUR 1 606 million (EUR 1 499 million in 2017 and
EUR 1 564 million in 2016) and Nokia Software net sales of EUR 1 568 million (EUR 1 550 million in 2017 and EUR 1 531 million in 2016).
(3) 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
Product portfolio strategy costs
Restructuring and associated charges
Transaction and related costs, including integration costs relating to the
acquisition of Alcatel Lucent
Fair value changes of legacy IPR fund
Impairment of assets
Divestment of businesses
Release of acquisition-related fair value adjustments to deferred revenue
and inventory
Other
Total operating (loss)/profit
2018
2 180
(940)
(583)
(321)
(220)
(57)
(48)
(39)
(16)
(15)
(59)
2017
2 587
(1 033)
(536)
(579)
(206)
–
(173)
–
(55)
11
16
2016
2 172
(1 026)
(348)
(774)
(295)
–
–
–
(840)
11
(1 100)
154
154
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
Ultra
Broadband
Networks(1)
Global
Services
IP Networks
and
Applications(2)
Nokia’s
Networks
business
Nokia
Group
Common
Total
Technologies
and Other Eliminations
total
items(3)
Total
Segment
Unallocated
Segment information
Continuing operations
EURm
2018
Net sales to other segments
Depreciation and amortization
Operating profit/(loss)
Share of results of associated
Net sales to other segments
Depreciation and amortization
Operating profit/(loss)
Share of results of associated
2017
2016
Net sales to other segments
Depreciation and amortization
Operating profit/(loss)
Share of results of associated
and EUR 2 401 million in 2016).
Net sales to external customers
8 691
5 710
5 719
20 120
1 486
1
(236)
510
–
(66)
242
–
1
(147)
(449)
15
(21)
447
1 199
1 203
(222)
974
47
(45)
–
22 580
(17) 22 563
(63)
–
–
–
(515)
(940)
(1 455)
2 180
(2 239)
(59)
companies and joint ventures
12
–
–
12
–
–
12
Net sales to external customers
8 970
5 810
5 743
20 523
1 639
1 060
–
23 222
(75) 23 147
–
(258)
781
–
(80)
411
–
–
(160)
(498)
15
(12)
54
(48)
519
1 711
1 124
(248)
(69)
–
(558)
(1 033)
(1 591)
2 587
(2 571)
16
companies and joint ventures
21
–
–
21
(10)
–
11
Net sales to external customers
9 757
6 036
6 036
21 829
1 038
1 105
–
23 972
(331) 23 641
1
(270)
922
–
(70)
406
–
1
(160)
(500)
15
(9)
37
(43)
615
1 943
579
(350)
(53)
–
(552)
(1 042)
(1 594)
2 172
(3 272)
(1 100)
companies and joint ventures
18
–
–
18
–
–
18
–
18
(1) Includes Mobile Networks net sales of EUR 6 712 million (EUR 6 895 million in 2017 and EUR 7 357 million in 2016) and Fixed Networks net sales of EUR 1 980 million (EUR 2 075 million in 2017
(2) Includes IP Routing net sales of EUR 2 545 million (EUR 2 694 million in 2017 and EUR 2 941 million in 2016), Optical Networks net sales of EUR 1 606 million (EUR 1 499 million in 2017 and
EUR 1 564 million in 2016) and Nokia Software net sales of EUR 1 568 million (EUR 1 550 million in 2017 and EUR 1 531 million in 2016).
(3) 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.
–
–
–
–
12
–
11
–
–
–
–
–
–
–
–
–
–
Reconciliation of total segment operating profit to total operating profit/(loss)
Amortization and depreciation of acquired intangible assets and property,
Transaction and related costs, including integration costs relating to the
EURm
Total segment operating profit
plant and equipment
Product portfolio strategy costs
Restructuring and associated charges
acquisition of Alcatel Lucent
Fair value changes of legacy IPR fund
Impairment of assets
Divestment of businesses
and inventory
Other
Total operating (loss)/profit
Release of acquisition-related fair value adjustments to deferred revenue
2018
2 180
(940)
(583)
(321)
(220)
(57)
(48)
(39)
(16)
(15)
(59)
2017
2 587
(1 033)
(536)
(579)
(206)
(173)
–
–
(55)
11
16
2016
2 172
(1 026)
(348)
(774)
(295)
–
–
–
(840)
11
(1 100)
Information by geographies
Net sales to external customers by region(1)
EURm
Asia-Pacific
Europe
Greater China
Latin America
Middle East & Africa
North America
Total
(1) Net sales to external customers by region are based on the location of customer.
Net sales to external customers and non-current assets by country
EURm
Finland(3)
United States
China
India
France
Other
Total
(1) Net sales to external customers by country are based on the location of customer.
(2) Consists of goodwill and other intangible assets and property, plant and equipment.
(3) All Nokia Technologies IPR and licensing net sales are allocated to Finland.
No single customer represents 10% or more of revenues.
6. Acquisitions and disposals
2018
4 081
6 489
2 165
1 380
1 874
6 574
22 563
2017
4 228
6 833
2 516
1 279
1 907
6 384
23 147
2016
4 223
6 410
2 654
1 458
1 872
7 024
23 641
Net sales(1)
Non-current assets(2)
2018
1 556
6 204
1 754
1 629
1 179
10 241
22 563
2017
1 698
5 991
2 082
1 455
1 295
10 626
23 147
2016
1 138
6 639
2 248
1 288
1 055
11 273
23 641
2018
1 462
5 818
350
122
1 938
905
10 595
2017
1 437
6 132
377
125
1 949
1 052
11 072
Acquisitions
The Group completed the acquisitions of two businesses in 2018 and two businesses in 2017:
Company/business
2018
Unium Inc.
SpaceTime Insight Inc.
2017
Deepfield Networks Inc.
Description
Unium Inc. is a United States-based software company that specializes in solving complex wireless networking
problems for use in mission-critical and residential Wi-Fi applications. The Group acquired 100% ownership
interest on March 15, 2018. Goodwill was allocated to Fixed Networks operating segment.
SpaceTime Insight Inc. is a United States-based software company that provides machine learning-powered
analytics and IoT applications for some of the world’s largest transportation, energy and utilities organizations.
The Group acquired the business of SpaceTime Insight Inc. on April 30, 2018. Goodwill was allocated to Nokia
Software operating segment.
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 100% ownership interest on January 31,
2017. Goodwill was allocated to IP/Optical Networks operating segment.
Comptel Corporation
Comptel Corporation is a Finland-based telecommunications software company. The Group acquired 88.4%
of the share capital and voting rights as part of the tender offer on March 29, 2017. The Group acquired
100% ownership interest on June 29, 2017. Goodwill was allocated to Nokia Software operating segment.
154
NOKIA ANNUAL REPORT ON FORM 20-F 2018
155
155
Financial statements
Notes to consolidated financial statements continued
Acquisitions completed by the Group in 2018 and 2017 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 groups of cash-generating units expected to benefit from the synergies of the combination. Refer to
Note 17, Impairment. The majority of the goodwill acquired from these acquisitions is not expected to be deductible for tax purposes.
The Group also recognized 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
2018
–
(3)
(3)
32
29
2017
169
67
236
162
398
Disposals
In 2018, the gains and losses related to disposals recorded by the Group did not have a material effect on the Group’s consolidated financial
statements. In 2017, there were no disposals.
7. Discontinued operations
Discontinued operations include the continuing financial effects of the HERE business and the D&S business. The Group sold its HERE digital
mapping and location services business to a German automotive industry consortium comprised of AUDI AG, BMW Group and Daimler AG in a
transaction that was completed on December 4, 2015 (the sale of HERE business). The Group sold substantially all of its Devices & Services
business to Microsoft in a transaction that was completed on April 25, 2014 (the sale of D&S business).
Results of Discontinued operations
EURm
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other income and expenses
Operating profit/(loss)
Financial income and expenses
Profit/(loss) before tax
Income tax benefit/(expense)
Profit/(loss) for the year, ordinary activities(1)
Gain on the sale, net of tax(2)
Profit/(loss) for the year
2018
–
–
–
–
(9)
17
8
81
89
125
214
–
214
2017
–
–
–
–
(7)
(15)
(22)
6
(16)
(10)
(26)
5
(21)
2016
–
–
–
–
(11)
(4)
(15)
14
(1)
(28)
(29)
14
(15)
(1) In 2018, the results of discontinued operations mostly relate to a resolution reached in the tax dispute concerning the applicability of withholding tax in respect of payments by Nokia India
Private Limited to Nokia Corporation for the supply of operating software in D&S business as well as a release of uncertain tax positions related to HERE business.
(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
EURm
Net cash used in operating activities
Net cash from/(used in) investing activities
Net cash flow for the period
2018
(33)
10
(23)
2017
(14)
(16)
(30)
2016
(10)
3
(7)
156
156
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
Acquisitions completed by the Group in 2018 and 2017 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 groups of cash-generating units expected to benefit from the synergies of the combination. Refer to
Note 17, Impairment. The majority of the goodwill acquired from these acquisitions is not expected to be deductible for tax purposes.
The Group also recognized 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:
In 2018, the gains and losses related to disposals recorded by the Group did not have a material effect on the Group’s consolidated financial
Discontinued operations include the continuing financial effects of the HERE business and the D&S business. The Group sold its HERE digital
mapping and location services business to a German automotive industry consortium comprised of AUDI AG, BMW Group and Daimler AG in a
transaction that was completed on December 4, 2015 (the sale of HERE business). The Group sold substantially all of its Devices & Services
business to Microsoft in a transaction that was completed on April 25, 2014 (the sale of D&S business).
2018
2017
2016
EURm
Other intangible assets
Other net assets
Total identifiable net assets
Goodwill
Total purchase consideration
Disposals
statements. In 2017, there were no disposals.
7. Discontinued operations
Results of Discontinued operations
EURm
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other income and expenses
Operating profit/(loss)
Financial income and expenses
Profit/(loss) before tax
Income tax benefit/(expense)
Profit/(loss) for the year, ordinary activities(1)
Gain on the sale, net of tax(2)
Profit/(loss) for the year
Cash flows from Discontinued operations
EURm
Net cash used in operating activities
Net cash from/(used in) investing activities
Net cash flow for the period
2018
–
(3)
(3)
32
29
–
–
–
–
(7)
(15)
(22)
6
(16)
(10)
(26)
5
(21)
2017
(14)
(16)
(30)
2017
169
67
236
162
398
–
–
–
–
(11)
(4)
(15)
14
(1)
(28)
(29)
14
(15)
2016
(10)
3
(7)
–
–
–
–
(9)
17
8
81
89
125
214
–
214
2018
(33)
10
(23)
(1) In 2018, the results of discontinued operations mostly relate to a resolution reached in the tax dispute concerning the applicability of withholding tax in respect of payments by Nokia India
Private Limited to Nokia Corporation for the supply of operating software in D&S business as well as a release of uncertain tax positions related to HERE business.
(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.
8. Revenue recognition
The Group recognizes revenue from contracts with customers to reflect the transfer of promised goods and services to customers for
amounts that reflect the consideration to which the Group expects to be entitled in exchange for those goods and services. In accordance
with IFRS 15, the Group identifies only legally enforceable rights as contracts with customers. These contracts consist of any combination
of hardware, services and intellectual property, and the associated revenue recognized for such contracts depends on the nature of the
underlying goods and services provided, as described in Note 2, Significant accounting policies, and on the determination and allocation
of the transaction price to the various performance obligations, as described in Note 4, Use of estimates and critical accounting judgments.
Disaggregation of revenue from contracts with customers
Management has determined that the Group’s reported geographic areas depict how the nature, amount, timing and uncertainty of
revenue and cash flows are affected by economic factors. Those geographic areas are reported in Note 5, Segment Information. The Group’s
primary customer base consists of companies that operate on a country specific or a regional basis and are subject to macroeconomic
conditions specific to those geographic areas. Further, although the Group’s technology cycle is similar around the world, each country or
region is inherently in a different stage of that cycle, often influenced by macroeconomic conditions. As such, the prevailing macroeconomic
conditions in each geographic area influence the purchasing decisions, including investments in new technologies, and the payment behavior
of the Group’s customer base.
Each reportable segment, as described in Note 5, Segment Information, consists of customers that operate in all geographic areas disclosed
in the same note. No reportable segment has a specific revenue concentration in any geographic area other than Nokia Technologies,
which is included within Europe.
Contract assets and contract liabilities
In accordance with the requirements of IFRS 15, the Group has presented its customer contracts in the consolidated statement of financial
position as either a contract asset or a contract liability, depending on the relationship between the Group’s performance and the customer’s
payment for each individual contract. On a net basis, a contract asset position represents where the Group has performed by transferring
goods or services to a customer before the customer has provided the associated consideration or before payment is due. Conversely, a
contract liability position represents where a customer has paid consideration or payment is due, but the Group has not yet transferred
goods or services to the customer. Contract assets presented in the consolidated statement of financial position are current in nature while
contract liabilities can be either current or non-current. Invoiced receivables represent unconditional rights to payment and are presented
separately as Trade receivables in the consolidated statement of financial position.
The Group has recognized the following contract assets and liabilities:
EURm
Contract assets
Contract liabilities
Non-current
Current
As of
December 31, 2018
1 875
3 496
1 113
2 383
As of
January 1, 2018
1 919
3 694
1 216
2 478
Significant changes in both the contract asset and the contract liability balances shown above relate to the Group’s routine execution of its
contracts with customers. Specifically, the changes in contract assets relate to decreases as a result of balances that have been converted to
trade receivables as the rights to payment have become unconditional, and the changes in contract liabilities relate to decreases as a result
of balances that have been realized as revenue as the underlying performance obligations have been satisfied. These decreases were offset,
or partially offset, by the addition of contract assets and contract liabilities recognized in the normal course of the Group’s performance
under its contracts with customers. There were no material cumulative adjustments to revenue recognized arising from changes in
transaction prices, changes in measures of progress or changes in estimated variable consideration.
During the year, the Group has recognized EUR 1.7 billion of revenue that was included in the current contract liability balance at the
beginning of the period.
Completed Contracts
In April 2014, 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 10 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 the remaining life of the licensed patents. The Group received all cash consideration due for the sale of the 10-year license
and option upon closing of the License Agreement. Management has determined that, upon transition to IFRS 15, 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 18, 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 31, 2018, the balance of deferred revenue related to the License Agreement of EUR 825 million, recognized in deferred
revenue in the consolidated statement of financial position, is expected to be recognized as revenue through 2024.
156
NOKIA ANNUAL REPORT ON FORM 20-F 2018
157
157
Financial statements
Notes to consolidated financial statements continued
Order backlog
As of December 31, 2018, the aggregate amount of the transaction price allocated to partially or wholly unsatisfied performance obligations
arising from fixed contractual commitments amounted to EUR 21.1 billion. Management estimates that approximately 59% of the
unsatisfied performance obligations will be recognized as revenue during 2019, approximately 34% in 2020-2021 and the remainder
thereafter. The estimated timing of the satisfaction of these performance obligations is subject to change owing to factors beyond the
Group’s control such as customer and network demand, market conditions and, in some cases, restrictions imposed by the weather or other
factors impacting project logistics.
Revenue recognized in the reporting period from performance obligations satisfied (or partially satisfied) in previous periods (for example,
due to changes in transaction price) was not material.
Additional disclosure for comparative purposes
The disclosure below is presented for comparative purposes, owing to the Group’s adoption of IFRS 15 under the modified retrospective
transition method. For the fiscal year 2018, the difference in the amount of revenue recorded by the application of IFRS 15 as compared
to IAS 11, IAS 18 and related Interpretations that were in effect before the adoption of IFRS 15, was immaterial.
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) Contract revenue includes submarine projects, which account for the majority of the revenue.
9. Expenses by nature
EURm
Continuing operations
Personnel expenses (Note 10)
Cost of material
Depreciation and amortization (Notes 15, 16)
Rental expenses
Impairment charges
Other
Total operating expenses
2018
2017
2016
14 003
7 980
580
22 563
14 216
8 150
781
23 147
14 543
8 166
932
23 641
2018
2017
2016
7 835
7 544
1 455
338
55
5 685
22 912
7 845
7 776
1 591
339
210
5 733
23 494
7 814
7 260
1 594
344
17
7 829
24 858
Operating expenses include government grant income and R&D tax credits of EUR 124 million (EUR 140 million in 2017 and EUR 126 million
in 2016) that have been recognized in the consolidated income statement as a deduction against research and development expenses.
158
158
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
Order backlog
As of December 31, 2018, the aggregate amount of the transaction price allocated to partially or wholly unsatisfied performance obligations
arising from fixed contractual commitments amounted to EUR 21.1 billion. Management estimates that approximately 59% of the
unsatisfied performance obligations will be recognized as revenue during 2019, approximately 34% in 2020-2021 and the remainder
thereafter. The estimated timing of the satisfaction of these performance obligations is subject to change owing to factors beyond the
Group’s control such as customer and network demand, market conditions and, in some cases, restrictions imposed by the weather or other
factors impacting project logistics.
Revenue recognized in the reporting period from performance obligations satisfied (or partially satisfied) in previous periods (for example,
due to changes in transaction price) was not material.
Additional disclosure for comparative purposes
The disclosure below is presented for comparative purposes, owing to the Group’s adoption of IFRS 15 under the modified retrospective
transition method. For the fiscal year 2018, the difference in the amount of revenue recorded by the application of IFRS 15 as compared
to IAS 11, IAS 18 and related Interpretations that were in effect before the adoption of IFRS 15, was immaterial.
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) Contract revenue includes submarine projects, which account for the majority of the revenue.
9. Expenses by nature
EURm
Continuing operations
Personnel expenses (Note 10)
Cost of material
Rental expenses
Impairment charges
Other
Total operating expenses
Depreciation and amortization (Notes 15, 16)
2018
2017
2016
14 003
7 980
580
22 563
14 216
8 150
781
23 147
14 543
8 166
932
23 641
2018
2017
2016
7 835
7 544
1 455
338
55
5 685
22 912
7 845
7 776
1 591
339
210
5 733
23 494
7 814
7 260
1 594
344
17
7 829
24 858
Operating expenses include government grant income and R&D tax credits of EUR 124 million (EUR 140 million in 2017 and EUR 126 million
in 2016) that have been recognized in the consolidated income statement as a deduction against research and development expenses.
10. Personnel expenses
EURm
Continuing operations
Salaries and wages
Share-based payment expense(1)
Pension and other post-employment benefit expense, net
Social security costs
Total
(1) Includes EUR 62 million for equity-settled awards (EUR 97 million in 2017 and EUR 119 million in 2016).
The average number of employees is 103 083 (101 731 in 2017 and 102 687 in 2016).
11. Other income and expenses
EURm
Continuing operations
Other income
Gains from unlisted venture funds(1)
Pension curtailment and plan amendment income
Profit on sale of property, plant and equipment
Subsidies and government grants
Foreign exchange gain on hedging forecasted sales and purchases, net
Interest income from customer receivables and overdue payments(2)
Expiration of stock option liability
VAT and other indirect tax refunds and social security credits
Other
Total
Other expenses
Restructuring, cost reduction and associated charges
Losses and expenses related to unlisted venture funds(1)
Pension curtailment and plan amendment expenses
Impairment charges
Loss on sale of property, plant and equipment
Impairment losses on trade receivables
Foreign exchange loss on hedging forecasted sales and purchases, net
VAT and other indirect tax refunds and other provisions
Expenses related to sale of receivables transactions(3)
Other
Total
2018
2017
2016
6 356
62
465
952
7 835
6 456
99
445
845
7 845
6 275
130
458
951
7 814
2018
2017
2016
162
23
21
8
–
–
–
–
76
290
(266)
(118)
(79)
(55)
(52)
(45)
(27)
(13)
–
(57)
(712)
51
38
19
2
93
25
18
–
117
363
(568)
(6)
(41)
(210)
(23)
(24)
–
–
(37)
(46)
(955)
13
5
–
11
–
29
–
19
40
117
(759)
(4)
(7)
(17)
(3)
(116)
(54)
1
(42)
24
(977)
(1) All venture fund related gains and losses are presented in other income and expenses as a result of the adoption of IFRS 9 in the beginning of 2018. In 2017 and 2016 gains and losses for
certain venture funds were presented in financial income and expenses.
(2) As a result of the adoption of IFRS 15 in the beginning of 2018, interest income associated with customer receivables and overdue payments are presented in financial income and expenses
in 2018. Refer to Note 12, Financial income and expenses.
(3) As a result of the adoption of IFRS 15 in the beginning of 2018, expenses related to sale of receivables transactions are presented in financial income and expenses in 2018. Refer to Note 12,
Financial income and expenses.
158
NOKIA ANNUAL REPORT ON FORM 20-F 2018
159
159
Financial statements
Notes to consolidated financial statements continued
12. Financial income and expenses
EURm
Continuing operations
Interest income on financial investments at fair value through profit and loss
Interest income on other financial investments not measured at fair value
through profit and loss
Interest income on financing components of other contracts(1)
Net interest expense on derivatives not under hedge accounting
Interest expense on bonds and loans payable(2)(3)
Interest expense on financing components of other contracts(3)(4)
Net interest expense on defined benefit plans (Note 27)
Net realized (losses)/gains on investments at fair value through other
comprehensive income(5)
Net fair value losses on investments at fair value through profit and loss
Net gains 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(6)
Other financial expenses(7)
Total
2018
–
39
37
–
(105)
(162)
(15)
–
(1)
–
(7)
9
(100)
9
(17)
(313)
2017
–
35
–
–
(391)
(81)
(37)
(33)
–
–
42
(23)
(157)
172
(64)
(537)
2016
19
65
–
(18)
(234)
–
(65)
15
(18)
21
11
(15)
(9)
85
(144)
(287)
(1) In 2018 interest income associated with customer receivables and overdue payments is presented in financial income and expenses as a result of the adoption of IFRS 15 in the beginning
of 2018.
(2) 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 2028, USD 1 360 million
6.45% notes due March 2029, EUR 500 million 6.75% notes due February 2019 and USD 1 000 million 5.375% notes due May 2019. 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.
(3) An interest expense of EUR 472 million presented within “Interest expense on financial liabilities carried at amortized cost” in 2017 has been recategorized into EUR 391 million presented
within “Interest expense on bonds and loans payable” and EUR 81 million presented within “Interest expense on financing components of other contracts.”
(4) In 2018, includes interest expenses associated with the inclusion of new items such as costs of EUR 66 million related to the sale of receivables and expenses of EUR 58 million for financing
components from customer and other contracts as a result of the adoption of new IFRS standards in the beginning of 2018. In 2017, includes an interest expense of EUR 69 million related
to a change in uncertain tax positions.
(5) In 2017, includes a one-time charge of EUR 32 million related to the sale of certain financial assets.
(6) Venture fund related gains and losses are presented in other income and expenses as a result of the adoption of IFRS 9 in the beginning of 2018. In 2017, includes distributions of
EUR 80 million (EUR 66 million in 2016) 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.
(7) Venture fund related gains and losses are presented in other income and expenses as a result of the adoption of IFRS 9 in the beginning of 2018. 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 17, Impairment.
160
160
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
12. Financial income and expenses
EURm
Continuing operations
Interest income on financial investments at fair value through profit and loss
Interest income on other financial investments not measured at fair value
through profit and loss
Interest income on financing components of other contracts(1)
Net interest expense on derivatives not under hedge accounting
Interest expense on bonds and loans payable(2)(3)
Interest expense on financing components of other contracts(3)(4)
Net interest expense on defined benefit plans (Note 27)
Net realized (losses)/gains on investments at fair value through other
comprehensive income(5)
Net fair value losses on investments at fair value through profit and loss
Net gains 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(6)
Other financial expenses(7)
Total
of 2018.
–
39
37
–
(105)
(162)
(15)
–
(1)
–
(7)
9
(100)
9
(17)
(313)
–
35
–
–
(391)
(81)
(37)
(33)
–
–
42
(23)
(157)
172
(64)
(537)
19
65
–
(18)
(234)
–
(65)
15
(18)
21
11
(15)
(9)
85
(144)
(287)
(1) In 2018 interest income associated with customer receivables and overdue payments is presented in financial income and expenses as a result of the adoption of IFRS 15 in the beginning
(2) 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 2028, USD 1 360 million
6.45% notes due March 2029, EUR 500 million 6.75% notes due February 2019 and USD 1 000 million 5.375% notes due May 2019. 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.
(3) An interest expense of EUR 472 million presented within “Interest expense on financial liabilities carried at amortized cost” in 2017 has been recategorized into EUR 391 million presented
within “Interest expense on bonds and loans payable” and EUR 81 million presented within “Interest expense on financing components of other contracts.”
(4) In 2018, includes interest expenses associated with the inclusion of new items such as costs of EUR 66 million related to the sale of receivables and expenses of EUR 58 million for financing
components from customer and other contracts as a result of the adoption of new IFRS standards in the beginning of 2018. In 2017, includes an interest expense of EUR 69 million related
to a change in uncertain tax positions.
(5) In 2017, includes a one-time charge of EUR 32 million related to the sale of certain financial assets.
(6) Venture fund related gains and losses are presented in other income and expenses as a result of the adoption of IFRS 9 in the beginning of 2018. In 2017, includes distributions of
EUR 80 million (EUR 66 million in 2016) 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.
(7) Venture fund related gains and losses are presented in other income and expenses as a result of the adoption of IFRS 9 in the beginning of 2018. 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 17, Impairment.
2018
2017
2016
Components of the income tax (expense)/benefit
13. Income taxes
EURm
Continuing operations
Current tax
Deferred tax
Total
2018
2017
2016
(530)
341
(189)
(261)
(666)
(927)
(534)
991
457
Income tax reconciliation
Reconciliation of the difference between income tax computed at the statutory rate in Finland of 20% and income tax recognized in the
consolidated income statement:
EURm
Income tax benefit 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 in uncertain tax positions
Change in income tax rates(4)
Income taxes on undistributed earnings
Other
Total
2018
72
(22)
13
(24)
26
(31)
(205)
46
(43)
(45)
26
(2)
(189)
2017
102
85
(245)
(29)
(132)
178
(164)
56
–
(738)
(42)
2
(927)
2016
274
31
439
(42)
3
88
(318)
19
(20)
3
(23)
3
457
(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 2018, relates primarily to foreign withholding tax credits in Finland. 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.
Income tax liabilities and assets include a net EUR 177 million liability (EUR 344 million in 2017) relating to uncertain tax positions with
inherently uncertain timing of cash outflows. Net decrease in uncertain tax positions primarily relates to Discontinued Operations,
refer to Note 7, Discontinued operations.
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 Canada, India, Saudi Arabia and South Korea. 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.
160
NOKIA ANNUAL REPORT ON FORM 20-F 2018
161
161
Financial statements
Notes to consolidated financial statements continued
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
Adoption of IFRS 9 and IFRS 15
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
2017
Deferred
tax liabilities
Net balance
Deferred
tax assets
1 300
–
2 922
51
28
196
178
962
30
205
220
77
6 169
(1 258)
4 911
2018
Deferred
tax liabilities
Net balance
–
(80)
(299)
(1 028)
(21)
(16)
(16)
–
(10)
(47)
(84)
(7)
(1 608)
1 258
(350)
4 561
–
4 561
Deferred
tax assets
1 019
–
2 851
13
85
157
241
933
34
240
223
12
5 808
(1 226)
4 582
–
(106)
(353)
(940)
(6)
(1)
(7)
(60)
–
(55)
(78)
(33)
(1 639)
1 226
(413)
4 169
–
4 169
2017
5 298
–
(666)
2
(150)
(7)
(29)
(279)
4 169
2018
4 169
19
341
29
(57)
6
–
54
4 561
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
2018
1 600
18 757
108
20 465
2017
1 879
18 449
37
20 365
162
162
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
EURm
tax liabilities
Net balance
tax liabilities
Net balance
Deferred tax assets and liabilities
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
Other non-current liabilities
Provisions
Other current liabilities
Other temporary differences
Total before netting
Defined benefit pension and other post-retirement liabilities
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
Adoption of IFRS 9 and IFRS 15
Recognized in income statement, Continuing Operations
Recognized in income statement, Discontinued Operations
Recognized in other comprehensive income
Acquisitions through business combinations and disposals
Recognized in equity
Translation differences
As of December 31
uncertainty of utilization:
EURm
Temporary differences
Tax losses carried forward
Tax credits
Total
Deferred
tax assets
1 300
–
2 922
51
28
196
178
962
30
205
220
77
2018
Deferred
–
(80)
(299)
(1 028)
(21)
(16)
(16)
–
(10)
(47)
(84)
(7)
Deferred
tax assets
1 019
–
2 851
13
85
157
241
933
34
240
223
12
2017
Deferred
–
(106)
(353)
(940)
(6)
(1)
(7)
(60)
–
(55)
(78)
(33)
6 169
(1 608)
4 561
5 808
(1 639)
4 169
(1 258)
1 258
–
(1 226)
1 226
–
4 911
(350)
4 561
4 582
(413)
4 169
2018
4 169
19
341
29
(57)
6
–
54
4 561
2018
1 600
18 757
108
20 465
2017
5 298
(666)
–
2
(150)
(7)
(29)
(279)
4 169
2017
1 879
18 449
37
20 365
Amount of temporary differences, tax losses carried forward and tax credits for which no deferred tax asset was recognized due to
The majority of the unrecognized temporary differences and tax losses relate to France. Based on the pattern of losses in the past years and
in the absence of convincing other evidence of sufficient taxable profit in the future years, it is uncertain whether these deferred tax assets
can be utilized in the foreseeable future. A significant portion of the French unrecognized deferred tax assets are indefinite in nature and
available against future French tax liabilities, subject to a limitation of 50% of annual taxable profits.
Deferred tax assets are recognized to the extent it is probable that future taxable profit will be available against which the unused tax losses,
unused tax credits and deductible temporary differences 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 2.5 billion (EUR 2.5 billion
in 2017) and the United States of EUR 1.2 billion (EUR 1.0 billion in 2017). Based on the recent years’ profitability in Finland and the United
States, excluding certain integration costs in Finland related to the acquisition of Alcatel Lucent in 2016, and 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 the Group 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
2018
2017
Recognized
Unrecognized
Total
Recognized
Unrecognized
Total
2 195
353
1 497
4 045
1 698
58
17 001
18 757
3 893
411
18 498
22 802
249
204
11
464
92
5
11
108
341
209
22
572
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
The Group has undistributed earnings of EUR 709 million (EUR 1 578 million in 2017) for which a deferred tax liability has not been recognized
as these earnings will not be distributed in the foreseeable future.
162
NOKIA ANNUAL REPORT ON FORM 20-F 2018
163
163
Financial statements
Notes to consolidated financial statements continued
14. Earnings per share
Basic
Profit or loss attributable to equity holders of the parent
Continuing operations
Discontinued operations
Loss for the year
Diluted
Effect of profit or loss adjustments
Adjustment relating to Alcatel Lucent American Depositary Shares
Total effect of profit or loss adjustments
Profit or loss attributable to equity holders of the parent adjusted for the effect of dilution
Continuing operations
Discontinued operations
Loss for the year
Basic
Weighted average number of shares in issue
Diluted
Effect of dilutive shares
Effect of dilutive equity-settled share-based incentive programs
Restricted shares and other
Performance shares
Stock options
Total effect of dilutive equity-settled share-based incentive programs
Effect of other dilutive shares
Alcatel Lucent American Depositary Shares
Total effect of other dilutive-shares
Total effect of dilutive shares
Adjusted weighted average number of shares
Earnings per share attributable to equity holders of the parent
Basic earnings per share
Continuing operations
Discontinued operations
Loss for the year
Diluted earnings per share
Continuing operations
Discontinued operations
Loss for the year
2018
EURm
2017
EURm
2016
EURm
(554)
214
(340)
–
–
(554)
214
(340)
(1 473)
(21)
(1 494)
–
–
(1 473)
(21)
(1 494)
(751)
(15)
(766)
(8)
(8)
(759)
(15)
(774)
000s shares
000s shares
000s shares
5 588 020
5 651 814
5 732 371
3 656
20 577
224
24 457
–
–
–
–
–
–
–
–
–
–
24 457
5 612 477
–
–
–
5 651 814
8 746
8 746
8 746
5 741 117
EUR
EUR
EUR
(0.10)
0.04
(0.06)
(0.10)
0.04
(0.06)
(0.26)
0.00
(0.26)
(0.26)
0.00
(0.26)
(0.13)
0.00
(0.13)
(0.13)
0.00
(0.13)
Basic earnings per share is calculated by dividing the profit or loss attributable to equity holders of the parent by the weighted average
number of shares outstanding (does not include treasury shares) during the year. Diluted earnings per share is calculated by adjusting the
profit or loss attributable to equity holders of the parent, and the weighted average number of shares outstanding, for the effects of all
dilutive potential ordinary shares.
4 million restricted shares are outstanding (5 million in 2017 and 2016) that could potentially have a dilutive impact in the future but are
excluded from the calculation as they are determined to be anti-dilutive.
21 million performance shares are outstanding (14 million in 2017 and 10 million in 2016) that could potentially have a dilutive impact in the
future but are excluded from the calculation as they are determined to be anti-dilutive.
Stock options equivalent to fewer than 1 million shares (fewer than 1 million shares in 2017 and 2016) have been excluded from the
calculation of diluted shares as they are determined to be anti-dilutive.
164
164
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
14. Earnings per share
Basic
Continuing operations
Discontinued operations
Loss for the year
Diluted
Continuing operations
Discontinued operations
Loss for the year
Basic
Diluted
Restricted shares and other
Performance shares
Stock options
Basic earnings per share
Continuing operations
Discontinued operations
Loss for the year
Diluted earnings per share
Continuing operations
Discontinued operations
Loss for the year
Profit or loss attributable to equity holders of the parent
Effect of profit or loss adjustments
Adjustment relating to Alcatel Lucent American Depositary Shares
Total effect of profit or loss adjustments
Profit or loss attributable to equity holders of the parent adjusted for the effect of dilution
Weighted average number of shares in issue
5 588 020
5 651 814
5 732 371
000s shares
000s shares
000s shares
Effect of dilutive shares
Effect of dilutive equity-settled share-based incentive programs
Total effect of dilutive equity-settled share-based incentive programs
Effect of other dilutive shares
Alcatel Lucent American Depositary Shares
Total effect of other dilutive-shares
Total effect of dilutive shares
Adjusted weighted average number of shares
Earnings per share attributable to equity holders of the parent
EUR
EUR
EUR
5 612 477
5 651 814
5 741 117
2018
EURm
2017
EURm
2016
EURm
(554)
214
(340)
–
–
(554)
214
(340)
(1 473)
(21)
(1 494)
–
–
(1 473)
(21)
(1 494)
3 656
20 577
224
24 457
–
–
24 457
–
–
–
–
–
–
–
(0.10)
0.04
(0.06)
(0.10)
0.04
(0.06)
(0.26)
0.00
(0.26)
(0.26)
0.00
(0.26)
(751)
(15)
(766)
(8)
(8)
(759)
(15)
(774)
–
–
–
–
8 746
8 746
8 746
(0.13)
0.00
(0.13)
(0.13)
0.00
(0.13)
Basic earnings per share is calculated by dividing the profit or loss attributable to equity holders of the parent by the weighted average
number of shares outstanding (does not include treasury shares) during the year. Diluted earnings per share is calculated by adjusting the
profit or loss attributable to equity holders of the parent, and the weighted average number of shares outstanding, for the effects of all
dilutive potential ordinary shares.
4 million restricted shares are outstanding (5 million in 2017 and 2016) that could potentially have a dilutive impact in the future but are
excluded from the calculation as they are determined to be anti-dilutive.
21 million performance shares are outstanding (14 million in 2017 and 10 million in 2016) that could potentially have a dilutive impact in the
future but are excluded from the calculation as they are determined to be anti-dilutive.
Stock options equivalent to fewer than 1 million shares (fewer than 1 million shares in 2017 and 2016) have been excluded from the
calculation of diluted shares as they are determined to be anti-dilutive.
In 2016, the Group acquired 107 775 949 Alcatel Lucent shares from JPMorgan Chase Bank N.A., as depositary, pursuant to the share
purchase agreement announced on March 17, 2016. These shares represent Alcatel Lucent shares that remained in the Alcatel Lucent
American Depositary Receipts program after the cancellation period and following the program’s termination on April 25, 2016. On May 10,
2016 the Group registered with the Finnish Trade Register 59 276 772 new Nokia shares issued to the Alcatel depositary in settlement of the
transaction. 9 million potential shares have been included in the calculation of diluted shares from March 16, 2016 to reflect the part-year
effect of these shares, and were included in the calculation as dilutive shares until the registration date.
15. Intangible assets
EURm
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
Acquisition cost as of January 1, 2018
Translation differences
Additions
Acquisitions through business combinations
Disposals and retirements(1)
Acquisition cost as of December 31, 2018
Accumulated amortization and impairment charges as of January 1, 2018
Translation differences
Impairment charges
Disposals and retirements(1)
Amortization
Accumulated amortization and impairment charges as of December 31, 2018
Net book value as of January 1, 2018
Net book value as of December 31, 2018
Goodwill
6 632
(497)
–
162
–
6 297
(908)
–
(141)
–
–
(1 049)
5 724
5 248
6 297
172
–
32
(141)
6 360
(1 049)
–
–
141
–
(908)
5 248
5 452
(1) Includes goodwill with acquisition cost and accumulated impairment of EUR 141 million related to the Digital Health business disposal in 2018.
Net book value of other intangible assets by type of asset:
EURm
Customer relationships
Technologies
Tradenames and trademarks
Other
Total
Other
9 382
(521)
40
169
(73)
8 997
(4 146)
131
(33)
72
(1 050)
(5 026)
5 236
3 971
8 997
175
277
–
(25)
9 424
(5 026)
(80)
(16)
15
(964)
(6 071)
3 971
3 353
2018
2 063
582
191
517
3 353
Total
16 014
(1 018)
40
331
(73)
15 294
(5 054)
131
(174)
72
(1 050)
(6 075)
10 960
9 219
15 294
347
277
32
(166)
15 784
(6 075)
(80)
(16)
156
(964)
(6 979)
9 219
8 805
2017
2 306
1 107
233
325
3 971
The remaining amortization periods are approximately two to eight years for customer relationships, one to four years for developed
technology, one to five years for tradenames and trademarks and one to ten years for other.
164
NOKIA ANNUAL REPORT ON FORM 20-F 2018
165
165
Financial statements
Notes to consolidated financial statements continued
16. Property, plant and equipment
EURm
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 at December 31, 2017
Acquisition cost as of January 1, 2018
Translation differences
Additions
Reclassifications
Disposals and retirements
Acquisition cost as of December 31, 2018
Accumulated depreciation as of January 1, 2018
Translation differences
Impairment charges
Disposals and retirements
Depreciation
Accumulated depreciation as of December 31, 2018
Net book value as of January 1, 2018
Net book value as of December 31, 2018
Buildings and
constructions
999
(52)
115
1
42
(40)
1 065
(216)
20
–
22
(97)
Machinery and
equipment
2 693
(105)
370
1
43
(353)
2 649
(1 685)
67
(25)
315
(440)
(271)
783
794
1 065
8
65
31
(25)
1 144
(271)
(5)
(33)
15
(92)
(386)
794
758
(1 768)
1 008
881
2 649
6
366
49
(237)
2 833
(1 768)
(5)
(7)
194
(397)
(1 983)
881
850
Other
114
(9)
3
–
–
(2)
106
(13)
1
–
2
(4)
(14)
101
92
106
2
–
–
(3)
105
(14)
–
–
2
(2)
(14)
92
91
Assets under
construction
89
(5)
89
–
(85)
(2)
86
–
–
–
–
–
–
89
86
86
–
88
(80)
(3)
91
–
–
–
–
–
–
86
91
Total
3 895
(171)
577
2
–
(397)
3 906
(1 914)
88
(25)
339
(541)
(2 053)
1 981
1 853
3 906
16
519
–
(268)
4 173
(2 053)
(10)
(40)
211
(491)
(2 383)
1 853
1 790
In 2014, the tax authorities in India placed a lien which prohibited the Group from transferring the mobile devices-related facility in Chennai
to Microsoft as part of the sale of D&S Business.
166
166
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
16. Property, plant and equipment
EURm
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 at December 31, 2017
Acquisition cost as of January 1, 2018
Translation differences
Additions
Reclassifications
Disposals and retirements
Translation differences
Impairment charges
Disposals and retirements
Depreciation
Acquisition cost as of December 31, 2018
Accumulated depreciation as of January 1, 2018
Buildings and
constructions
Machinery and
equipment
Assets under
construction
999
(52)
115
1
42
(40)
1 065
(216)
20
–
22
(97)
(271)
783
794
1 065
8
65
31
(25)
1 144
(271)
(5)
(33)
15
(92)
794
758
2 693
(105)
370
1
43
(353)
2 649
(1 685)
67
(25)
315
(440)
(1 768)
1 008
881
2 649
6
366
49
(237)
2 833
(1 768)
(5)
(7)
194
(397)
881
850
Other
114
(9)
(2)
106
(13)
3
–
–
1
–
2
(4)
(14)
101
92
106
(3)
105
(14)
2
–
–
–
–
2
(2)
(14)
92
91
89
(5)
89
–
(85)
(2)
86
–
–
–
–
–
–
89
86
86
–
88
(80)
(3)
91
–
–
–
–
–
–
86
91
Total
3 895
(171)
577
2
–
(397)
3 906
(1 914)
88
(25)
339
(541)
(2 053)
1 981
1 853
3 906
16
519
–
(268)
4 173
(2 053)
(10)
(40)
211
(491)
(2 383)
1 853
1 790
Accumulated depreciation as of December 31, 2018
(386)
(1 983)
Net book value as of January 1, 2018
Net book value as of December 31, 2018
In 2014, the tax authorities in India placed a lien which prohibited the Group from transferring the mobile devices-related facility in Chennai
to Microsoft as part of the sale of D&S Business.
17. Impairment
Goodwill
The Group has allocated goodwill to the operating segments within Nokia’s Networks business corresponding to groups of cash generating
units (CGUs) in line with the Group’s operational and reporting structure (refer to Note 5, Segment information).
Allocation of goodwill
The following table presents the allocation of goodwill to groups of CGUs as of the annual impairment testing date October 1:
EURm
Mobile Networks
Fixed Networks
Global Services
IP/Optical Networks
Nokia Software
2018
963
836
1 306
1 871
434
2017
950
812
1 288
1 847
405
Recoverable amounts
The recoverable amounts of the groups of CGUs were based on fair value less costs of disposal that was determined using a level 3 fair value
measurement based on a discounted cash flow calculation. The cash flow projections used in calculating the recoverable amounts were based
on financial plans approved by management covering an explicit forecast period of 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 modelled 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 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 as of the annual impairment testing date October 1:
Key assumption %
Mobile Networks
Fixed Networks
Global Services
IP/Optical Networks
Nokia Software
Impairment charges by asset category
EURm
Goodwill
Other intangible assets
Property, plant and equipment
Available-for-sale investments
Total
2018
2017
2018
2017
Terminal growth rate
1.1
1.1
1.0
1.3
1.6
1.1
1.1
1.0
1.3
1.7
Post-tax discount rate
9.2
7.9
8.6
9.1
8.7
8.9
8.6
8.9
9.3
8.2
2018
–
16
39
–
55
2017
141
33
25
45
244
2016
–
9
–
116
125
Intangible assets and property, plant and equipment
In 2017, as a result of challenging business conditions, the Group recorded an impairment charge of EUR 141 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 impairments recorded by the Group in 2018, 2017 and 2016 are immaterial.
Available-for-sale investments
In 2017 and 2016 the Group recognized an impairment charge of EUR 45 million and EUR 116 million, respectively, primarily related to the
performance of certain private funds investing in IPR that were included in non-current available-for-sale equity investments at cost less
impairment. These charges were recorded in other expenses and financial income and expenses. As a result of the adoption of IFRS 9 on
January 1, 2018, venture fund investments are classified at fair value through profit and loss and the related gains and losses are presented
in other income and expenses.
166
NOKIA ANNUAL REPORT ON FORM 20-F 2018
167
167
Financial statements
Notes to consolidated financial statements continued
18. Inventories
EURm
Raw materials, supplies and other
Work in progress
Finished goods
Total
2018
462
1 398
1 308
3 168
2017
271
1 166
1 209
2 646
The cost of inventories recognized as an expense during the year and included in the cost of sales is EUR 7 569 million (EUR 7 803 million in
2017 and EUR 7 636 million in 2016).
Movements in allowances for excess and obsolete inventory for the years ended December 31:
EURm
As of January 1
Charged to income statement
Deductions(1)
As of December 31
(1) Deductions include utilization and releases of allowances.
19. Prepaid expenses and accrued income
Non-current
EURm
R&D tax credits and other indirect tax receivables
Deposits
Other
Total
Current
EURm
Social security, R&D tax credits, VAT and other indirect taxes
Divestment-related receivables
Deposits
Accrued revenue(1)
Other
Total
2018
432
153
(64)
521
2017
456
100
(124)
432
2018
155
56
97
308
2018
514
67
35
–
408
1 024
2016
195
354
(93)
456
2017
174
77
117
368
2017
552
79
28
232
368
1 259
(1) As a result of the adoption of IFRS 15 in the beginning of 2018, accrued revenue is presented within contract assets. Refer to Note 3, New and amended standards and interpretations
and Note 8, Revenue recognition.
168
168
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
Movements in allowances for excess and obsolete inventory for the years ended December 31:
2018
432
153
(64)
521
18. Inventories
EURm
Raw materials, supplies and other
Work in progress
Finished goods
Total
2017 and EUR 7 636 million in 2016).
EURm
As of January 1
Charged to income statement
Deductions(1)
As of December 31
Non-current
EURm
Deposits
Other
Total
Current
EURm
Deposits
Accrued revenue(1)
Other
Total
and Note 8, Revenue recognition.
(1) Deductions include utilization and releases of allowances.
19. Prepaid expenses and accrued income
R&D tax credits and other indirect tax receivables
Social security, R&D tax credits, VAT and other indirect taxes
Divestment-related receivables
2018
462
1 398
1 308
3 168
2017
456
100
(124)
432
2018
155
56
97
308
2018
514
67
35
–
408
1 024
2017
271
1 166
1 209
2 646
2016
195
354
(93)
456
2017
174
77
117
368
2017
552
79
28
232
368
1 259
(1) As a result of the adoption of IFRS 15 in the beginning of 2018, accrued revenue is presented within contract assets. Refer to Note 3, New and amended standards and interpretations
The cost of inventories recognized as an expense during the year and included in the cost of sales is EUR 7 569 million (EUR 7 803 million in
On February 2, 2018, the Parent Company cancelled 207 897 644 shares.
20. Shares of the Parent Company
Shares and share capital
Nokia Corporation (Parent Company) has one class of shares. Each share entitles the holder to one vote at General Meetings. As of December
31, 2018, the share capital of Nokia Corporation is EUR 245 896 461.96 and the total number of shares issued is 5 635 945 159. As of
December 31, 2018, the total number of shares includes 42 782 966 shares owned by Group companies representing 0.8% 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 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 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 was authorized to issue either
new shares or shares held by the Parent Company. The authorization included the right for the Board of Directors to resolve on all the
terms and conditions of such share and special rights issuances, including issuance in deviation from the shareholders’ pre-emptive rights.
The authorization may be used to develop the Parent Company’s capital structure, diversify the shareholder base, finance or carry out
acquisitions or other arrangements, settle the Parent Company’s equity-based incentive plans, or for other purposes resolved by the Board
of Directors. The authorization that would have been effective until November 23, 2018 was terminated by a resolution of Annual General
Meeting on May 30, 2018.
At the Annual General Meeting held on May 30, 2018, the shareholders authorized the Board of Directors to issue a maximum of 550 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 30, 2019.
In 2018, under the authorization held by the Board of Directors, the Parent Company issued 424 500 new shares following the holders
of stock options issued in 2012 and 2013 exercising their option rights.
In 2018, the Parent Company issued 4 014 000 new shares without consideration to the Parent Company to fulfil the company’s obligation
under the Nokia Equity Programs.
In 2018, under the authorization held by the Board of Directors, the Parent Company issued 13 220 987 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, 2018, the Board of Directors had no other authorizations to issue shares, convertible bonds, warrants or stock options.
Other authorizations
At the Annual General Meeting held on May 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 that would have been effective until November 23, 2018 was terminated by a resolution of the Annual General Meeting
on May 30, 2018.
At the Annual General Meeting held on May 30, 2018, the shareholders authorized the Board of Directors to repurchase a maximum
of 550 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 30, 2019.
168
NOKIA ANNUAL REPORT ON FORM 20-F 2018
169
169
Financial statements
Notes to consolidated financial statements continued
21. Translation differences, fair value and other reserves
EURm
As of January 1, 2016
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
Adoption of IFRS 9
As of January 1, 2018
Foreign exchange translation differences
Net investment hedging losses
Remeasurements of defined benefit plans
Net fair value losses
Transfer to income statement
Other (decrease)/increase
As of December 31, 2018
Translation
differences
292
265
(83)
–
–
(14)
(15)
38
483
(1 830)
352
–
–
12
1
50
(932)
–
(932)
444
(66)
–
–
(37)
(1)
(592)
Pension
remeasurements
(172)
–
–
343
–
–
(2)
4
173
–
–
662
–
–
3
–
838
–
838
–
–
293
–
–
6
1 137
Hedging
reserve
(2)
–
–
–
(13)
25
–
–
10
–
–
–
103
(75)
(1)
–
37
–
37
–
–
–
(28)
(30)
–
(21)
Cost of hedging
reserve
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(10)
(10)
–
3
–
(8)
23
–
8
Fair value
reserve
378
–
–
–
(10)
(63)
–
–
305
–
–
–
18
(104)
–
–
219
(242)
(23)
–
–
–
(116)
78
–
(61)
Translation differences consist of foreign exchange 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 or abandonment 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 in
the consolidated income statement when the gain or loss on disposal is recognized or when the abandonment occurs. Refer to Note 2,
Significant accounting policies.
Pension remeasurements reserve includes actuarial gains and losses as well as return on plan assets and changes in the effect of the asset
ceiling, excluding amounts recognized in net interest, related to the Group’s defined benefit plans. Refer to Note 2, Significant accounting
policies and Note 27, Pensions and other post-employment benefits.
Hedging reserve includes the change in fair value that reflects the change in spot exchange rates for certain foreign exchange forward
contracts that are designated as cash flow hedges to the extent that the hedge is effective. The accumulated gain or loss in the hedging
reserve for each hedge is recycled to other income and expenses in the consolidated income statement when the revenue or expense
related to the hedged item is recognized. Refer to Note 2, Significant accounting policies.
Cost of hedging reserve includes forward element of foreign exchange forward contracts and time value of foreign exchange options
related to cash flow hedging of forecasted foreign currency sale and purchase transactions. Additionally, cost of hedging reserve includes
the difference between the change in fair value of forward element of foreign exchange forward contracts and time value of option contracts
and the amortization of forward element of foreign exchange forward contracts and time value of option contracts related to net investment
hedging. Cost of hedging reserve also includes changes in fair value from foreign currency basis spread related to fair value hedging of
foreign currency denominated bonds. The accumulated gain or loss in the cost of hedging reserve for each hedge is recycled to other income
and expenses in the consolidated income statement when the revenue related to the hedged item is recognized. Cost of hedging reserve
is a new component of equity introduced as a result of the adoption of IFRS 9 in 2018. Refer to Note 2, Significant accounting policies and
Note 3, New and amended standards and interpretations.
In 2018, fair value reserve includes the changes in fair value of financial instruments that are managed in a portfolio with a business model
of holding investments to collect contractual cash flows including principal and interest as well as selling investments. These financial
instruments include certain current financial investments, customer or vendor related loan receivables and trade receivables. The fair values
of these instruments are reduced by amounts of loss allowances. Upon derecognition of the underlying financial instrument the related
cumulative gain or loss is recognized in financial income and expenses in the consolidated income statement. In 2017 and 2016 fair value
reserve included changes in the fair value of available-for-sale investments. Refer to Note 2, Significant accounting policies and Note 3,
New and amended standards and interpretations.
170
170
NOKIA ANNUAL REPORT ON FORM 20-F 2018
21. Translation differences, fair value and other reserves
22. Other comprehensive income
EURm
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 hedges
Net investment hedging (losses)/gains
Transfer to income statement
Net change during the year
Cash flow and other hedges
Net fair value (losses)/gains
Transfer to income statement
Net change during the year
Financial assets at fair value through
other comprehensive income(1)
Net fair value (losses)/gains
Transfer to income statement on impairment
Transfer to income statement on disposal
Net change during the year
Available-for-sale investments(1)
Net fair value gains/(losses)
Transfer to income statement on impairment
Transfer to income statement on disposal
Net change during the year
Other increase/(decrease), net
Total
2018
2017
2016
Gross
Tax
Net
Gross
Tax
Net
Gross
Tax
Net
388
388
(90)
(90)
298
298
723
723
(58)
(58)
665
665
613
613
(269)
(269)
344
344
443
(42)
401
(79)
6
(73)
(44)
(9)
(53)
(144)
33
66
(45)
–
–
–
–
1
619
1
–
1
16
(1)
15
8
2
10
28
(8)
(13)
7
–
–
–
–
–
(57)
444
(42)
402
(1 831)
12
(1 819)
1
–
1
(1 830)
12
(1 818)
(63)
5
(58)
(36)
(7)
(43)
(116)
25
53
(38)
–
–
–
–
1
562
440
–
440
129
(94)
35
–
–
–
–
(88)
–
(88)
(26)
19
(7)
–
–
–
–
352
–
352
103
(75)
28
–
–
–
–
19
14
(121)
(88)
(1)
(710)
(1)
(1)
4
2
–
(150)
18
13
(117)
(86)
(1)
(860)
265
(14)
251
(103)
–
(103)
(16)
30
14
–
–
–
–
(9)
25
(91)
(75)
(6)
694
–
–
–
20
–
20
3
(5)
(2)
–
–
–
–
(1)
(4)
7
2
–
(249)
265
(14)
251
(83)
–
(83)
(13)
25
12
–
–
–
–
(10)
21
(84)
(73)
(6)
445
(1) Related to the adoption of IFRS 9, investments in unlisted private equity shares, technology-related publicly quoted shares and unlisted venture funds that were classified as available-for-sale
investments are classified as fair value through profit and loss. Certain current financial investments, customer or vendor related loan receivables and trade receivables are classified as fair
value through other comprehensive income under IFRS 9.
Notes to consolidated financial statements continued
EURm
As of January 1, 2016
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
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)
As of December 31, 2017
Adoption of IFRS 9
As of January 1, 2018
Foreign exchange translation differences
Net investment hedging losses
Remeasurements of defined benefit plans
Net fair value losses
Transfer to income statement
Other (decrease)/increase
As of December 31, 2018
Translation
Pension
differences
remeasurements
Hedging
reserve
Cost of hedging
reserve
(172)
(2)
Fair value
reserve
378
(1 830)
352
292
265
(83)
–
–
(14)
(15)
38
483
–
–
12
1
50
(932)
–
(932)
444
(66)
–
–
(37)
(1)
343
(2)
4
173
662
–
–
–
–
–
–
–
–
3
–
–
–
–
–
–
6
838
838
293
(592)
1 137
(13)
25
10
–
–
–
–
–
–
–
–
103
(75)
(1)
–
37
–
37
–
–
–
(28)
(30)
–
(21)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(10)
(10)
–
3
–
(8)
23
–
8
–
–
–
–
–
–
–
–
–
–
–
–
–
(10)
(63)
305
18
(104)
219
(242)
(23)
(116)
78
–
(61)
Translation differences consist of foreign exchange 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 or abandonment 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 in
the consolidated income statement when the gain or loss on disposal is recognized or when the abandonment occurs. Refer to Note 2,
Significant accounting policies.
Pension remeasurements reserve includes actuarial gains and losses as well as return on plan assets and changes in the effect of the asset
ceiling, excluding amounts recognized in net interest, related to the Group’s defined benefit plans. Refer to Note 2, Significant accounting
policies and Note 27, Pensions and other post-employment benefits.
Hedging reserve includes the change in fair value that reflects the change in spot exchange rates for certain foreign exchange forward
contracts that are designated as cash flow hedges to the extent that the hedge is effective. The accumulated gain or loss in the hedging
reserve for each hedge is recycled to other income and expenses in the consolidated income statement when the revenue or expense
related to the hedged item is recognized. Refer to Note 2, Significant accounting policies.
Cost of hedging reserve includes forward element of foreign exchange forward contracts and time value of foreign exchange options
related to cash flow hedging of forecasted foreign currency sale and purchase transactions. Additionally, cost of hedging reserve includes
the difference between the change in fair value of forward element of foreign exchange forward contracts and time value of option contracts
and the amortization of forward element of foreign exchange forward contracts and time value of option contracts related to net investment
hedging. Cost of hedging reserve also includes changes in fair value from foreign currency basis spread related to fair value hedging of
foreign currency denominated bonds. The accumulated gain or loss in the cost of hedging reserve for each hedge is recycled to other income
and expenses in the consolidated income statement when the revenue related to the hedged item is recognized. Cost of hedging reserve
is a new component of equity introduced as a result of the adoption of IFRS 9 in 2018. Refer to Note 2, Significant accounting policies and
Note 3, New and amended standards and interpretations.
In 2018, fair value reserve includes the changes in fair value of financial instruments that are managed in a portfolio with a business model
of holding investments to collect contractual cash flows including principal and interest as well as selling investments. These financial
instruments include certain current financial investments, customer or vendor related loan receivables and trade receivables. The fair values
of these instruments are reduced by amounts of loss allowances. Upon derecognition of the underlying financial instrument the related
cumulative gain or loss is recognized in financial income and expenses in the consolidated income statement. In 2017 and 2016 fair value
reserve included changes in the fair value of available-for-sale investments. Refer to Note 2, Significant accounting policies and Note 3,
New and amended standards and interpretations.
170
NOKIA ANNUAL REPORT ON FORM 20-F 2018
171
171
Financial statements
Notes to consolidated financial statements continued
23. Interest-bearing liabilities
Instrument
6.75% Senior Notes
5.375% Senior Notes
1.00% Senior Notes
3.375% Senior Notes
2.00% Senior Notes
4.375% Senior Notes
Issuer/borrower
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia of America Corporation 6.50% Senior Notes
Nokia of America Corporation 6.45% Senior Notes
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation and
various subsidiaries
6.625% Senior Notes
Revolving Credit Facility
Loan facilities(1)(2)
Other liabilities
Total
Carrying amount EURm
Currency
EUR
USD
EUR
USD
EUR
USD
USD
USD
USD
EUR
EUR
Nominal (million)
231
581
500
500
750
500
74
206
500
1 579
750
Final maturity
February 2019
May 2019
March 2021
June 2022
March 2024
June 2027
January 2028
March 2029
May 2039
June 2020
2018
232
507
499
423
750
415
65
182
455
–
–
2017
241
487
498
406
744
404
62
174
424
–
–
294
3 822
326
3 766
(1) A loan facility agreement of EUR 500 million for financing research and development of 5G technology was signed with the European Investment Bank (EIB) in August 2018. The availability
period of the loan facility ends in February 2020. The loan facility has not yet been disbursed and will have an average maturity of approximately five years after disbursement.
(2) A loan facility agreement of EUR 250 million for financing research and development of 5G technology was signed with the Nordic Investment Bank (NIB) in December 2018. The availability
period of the loan facility ends in February 2019. The loan facility has not yet been disbursed and will have an average maturity of approximately five years after disbursement.
All borrowings presented above are senior unsecured and have no financial covenants.
The Group uses interest rate swaps and cross currency swaps to manage interest rate and foreign exchange risk related to the Group’s
interest-bearing liabilities. The most significant hedging instruments under fair value and cash flow hedge accounting related to the Group’s
interest-bearing liabilities as of December 31 are outlined in the table below:
Entity
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Total
Instrument(1)
Cross currency swaps
Cross currency swaps
Interest rate swaps
Cross currency swaps
Cross currency swaps
Currency
USD
USD
EUR
USD
USD
Notional (million)
581
500
600
500
400
Maturity
May 2019
June 2022
March 2024
June 2027
May 2039
Fair values EURm
December 31, 2018
(29)
(16)
7
(22)
20
(40)
(1) All cross currency swaps and interest rate swaps are fixed-to-floating swaps.
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
Cash flows
Non-cash changes:
Translation differences
Changes in fair value
Reclassification from long-term to short-term
Other
As of December 31, 2018
Long-term interest-
bearing liabilities
3 657
132
Short-term interest-
bearing liabilities
370
(40)
Derivatives held to
hedge long-term
borrowings
(30)
(49)
–
(291)
(46)
5
3 457
28
89
(4)
(739)
(3)
2 828
4
(12)
–
(13)
309
2
(1)
–
739
(55)
994
–
199
15
–
135
92
(138)
(32)
–
–
57
Total
3 997
43
4
(104)
(31)
(8)
3 901
122
(50)
(36)
–
(58)
3 879
172
172
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
23. Interest-bearing liabilities
Instrument
6.75% Senior Notes
5.375% Senior Notes
1.00% Senior Notes
3.375% Senior Notes
2.00% Senior Notes
4.375% Senior Notes
6.625% Senior Notes
Revolving Credit Facility
Loan facilities(1)(2)
Currency
Nominal (million)
Final maturity
231
February 2019
Carrying amount EURm
EUR
USD
EUR
USD
EUR
USD
USD
USD
USD
EUR
EUR
May 2019
March 2021
June 2022
March 2024
June 2027
74
January 2028
206
March 2029
May 2039
June 2020
581
500
500
750
500
500
1 579
750
2018
232
507
499
423
750
415
65
182
455
–
–
Nokia of America Corporation 6.50% Senior Notes
Nokia of America Corporation 6.45% Senior Notes
Issuer/borrower
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation and
Total
various subsidiaries
Other liabilities
294
3 822
326
3 766
(1) A loan facility agreement of EUR 500 million for financing research and development of 5G technology was signed with the European Investment Bank (EIB) in August 2018. The availability
period of the loan facility ends in February 2020. The loan facility has not yet been disbursed and will have an average maturity of approximately five years after disbursement.
(2) A loan facility agreement of EUR 250 million for financing research and development of 5G technology was signed with the Nordic Investment Bank (NIB) in December 2018. The availability
period of the loan facility ends in February 2019. The loan facility has not yet been disbursed and will have an average maturity of approximately five years after disbursement.
All borrowings presented above are senior unsecured and have no financial covenants.
The Group uses interest rate swaps and cross currency swaps to manage interest rate and foreign exchange risk related to the Group’s
interest-bearing liabilities. The most significant hedging instruments under fair value and cash flow hedge accounting related to the Group’s
interest-bearing liabilities as of December 31 are outlined in the table below:
Currency
Notional (million)
Maturity
December 31, 2018
Fair values EURm
Entity
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Total
Instrument(1)
Cross currency swaps
Cross currency swaps
Interest rate swaps
Cross currency swaps
Cross currency swaps
USD
USD
EUR
USD
USD
(1) All cross currency swaps and interest rate swaps are fixed-to-floating swaps.
Changes in interest-bearing liabilities arising from financing activities:
581
500
600
500
400
May 2019
June 2022
March 2024
June 2027
May 2039
As of January 1, 2017
Cash flows
Non-cash changes:
Acquisitions
Translation differences
Changes in fair value
Other
As of December 31, 2017
Cash flows
Non-cash changes:
Translation differences
Changes in fair value
Other
As of December 31, 2018
Reclassification from long-term to short-term
Long-term interest-
Short-term interest-
bearing liabilities
bearing liabilities
Derivatives held to
hedge long-term
borrowings
3 657
132
–
(291)
(46)
5
3 457
28
89
(4)
(739)
(3)
2 828
370
(40)
4
(12)
–
(13)
309
2
(1)
–
739
(55)
994
(30)
(49)
–
199
15
–
135
92
(138)
(32)
–
–
57
2017
241
487
498
406
744
404
62
174
424
–
–
(29)
(16)
7
(22)
20
(40)
Total
3 997
43
4
(104)
(31)
(8)
3 901
122
(50)
(36)
–
(58)
3 879
24. Fair value of financial instruments
Financial assets and liabilities recorded at fair value are categorized based on the amount of unobservable inputs used to measure their fair
value. Three hierarchical levels are based on an increasing amount of judgment associated with the inputs used to derive fair valuation for
these assets and liabilities, level 1 being market values for exchange traded products, level 2 being primarily based on quotes from third-
party pricing services, and level 3 requiring most management judgment. At the end of each reporting period, the Group categorizes its
financial assets and liabilities to appropriate level of fair value hierarchy. Items carried at fair value in the following table are measured at
fair value on a recurring basis.
EURm
2018
Non-current financial investments
Other non-current financial assets
Other current financial assets including derivatives
Trade receivables
Current financial investments
Cash and cash equivalents
Total financial assets
Long-term interest-bearing liabilities
Other long-term financial liabilities
Short-term interest-bearing liabilities
Other financial liabilities including derivatives
Trade payables
Total financial liabilities
EURm
2017
Non-current financial investments
Other non-current financial assets
Other current financial assets including derivatives
Trade receivables
Current financial investments
Cash and cash equivalents
Total financial assets
Long-term interest-bearing liabilities
Other long-term financial liabilities
Short-term interest-bearing liabilities
Other financial liabilities including derivatives
Trade payables
Total financial liabilities
Fair value through profit or loss
Fair value through other comprehensive income
Carrying amounts
Fair value(1)
Amortized cost
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Total
Total
–
188
20
–
106
4 531
4 845
2 828
–
994
–
4 773
8 595
8
–
–
–
–
–
8
–
–
–
–
–
–
–
94
131
–
52
1 730
2 007
–
–
–
198
–
198
682
6
–
–
–
–
688
–
14
–
693
–
707
–
–
–
–
–
–
–
–
–
–
–
–
–
–
85
92
4 856
454
–
5 487
–
–
–
–
–
–
690
–
373
–
243
–
4 856
–
612
–
–
6 261
– 13 035
2 828
–
14
–
994
–
891
–
4 773
–
9 500
–
690
357
243
4 856
612
6 261
13 019
2 820
14
997
891
4 773
9 495
Fair value through profit or loss
Fair value through other comprehensive income
Carrying amounts
Fair value(1)
Amortized cost
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Total
Total
119
108
106
6 880
–
7 369
14 582
3 457
44
309
–
3 996
7 806
–
–
–
–
–
–
–
–
–
–
–
–
–
–
99
196
–
–
–
295
–
–
–
268
–
268
–
8
–
–
–
–
8
–
672
–
–
–
672
16
–
–
–
–
–
16
–
–
–
–
–
–
137
–
–
–
911
–
1 048
–
–
–
–
–
–
544
–
–
–
–
–
816
215
302
6 880
911
7 369
544 16 493
3 457
716
309
268
3 996
8 746
–
–
–
–
–
–
816
195
302
6 880
911
7 369
16 473
3 574
716
309
268
3 996
8 863
(1) The following fair value measurement methods are used for items not carried at fair value: 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 loan receivables 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 1 category includes financial assets and liabilities that are measured in whole by reference to published quotes in an active market.
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, and
those prices represent actual and regularly occurring market transactions on an arm’s-length basis. This category includes only exchange
traded products.
The level 2 category includes financial assets and liabilities measured using a valuation technique based on assumptions that are supported
by prices from observable current market transactions. These include assets and liabilities with fair values based on quotes from third-party
pricing services, financial assets with fair values based on broker quotes and assets that are valued using the Group’s own valuation models
whereby the material assumptions are market observable. The majority of the Group’s listed bonds and other securities, over-the-counter
derivatives, trade receivables and certain other products are included within this category.
172
NOKIA ANNUAL REPORT ON FORM 20-F 2018
173
173
Financial statements
Notes to consolidated financial statements continued
The level 3 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. The fair value of level 3 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 3 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
3 investments are valued on a quarterly basis taking into consideration any changes, projections and assumptions, as well as any changes in
economic and other relevant conditions. The fair value may be adjusted to reflect illiquidity and/or non-transferability, with the amount of
such discount estimated by the managing partner in the absence of market information. Assumptions used by the managing partner due
to the lack of observable inputs may impact the resulting fair value of individual investments, but no individual input has a significant impact
on the total fair value of the level 3 investments.
Level 3 financial liabilities include a 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. The 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 3 financial liability. Refer to Note 33, Significant partly-owned subsidiaries.
Reconciliation of the opening and closing balances on level 3 financial assets and liabilities:
EURm
As of January 1, 2017
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
Adoption of IFRS 9(1)
As of January 1, 2018
Net gains/(losses) in income statement
Additions
Deductions
Other movements
As of December 31, 2018
Level 3 Financial
Assets
674
89
(89)
–
89
(182)
(29)
552
122
674
49
119
(150)
(4)
688
Level 3 Financial
Liabilities
(14)
79
–
(737)
–
–
–
(672)
–
(672)
(34)
–
8
(9)
(707)
(1) Non-current available-for-sale investments for which the fair value was estimated to equal cost less impairment under IAS 39, as their fair value was not possible to estimate reliably, are
classified as level 3 financial assets at fair value through profit or loss under IFRS 9.
The gains and losses from venture fund and similar investments categorized in level 3 are included in other operating income and expenses.
A net loss of EUR 96 million (net gain of EUR 63 million in 2017) related to level 3 financial instruments held as of December 31, 2018 is
recognized in the consolidated income statement.
174
174
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
The level 3 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. The fair value of level 3 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 3 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
3 investments are valued on a quarterly basis taking into consideration any changes, projections and assumptions, as well as any changes in
economic and other relevant conditions. The fair value may be adjusted to reflect illiquidity and/or non-transferability, with the amount of
such discount estimated by the managing partner in the absence of market information. Assumptions used by the managing partner due
to the lack of observable inputs may impact the resulting fair value of individual investments, but no individual input has a significant impact
on the total fair value of the level 3 investments.
Level 3 financial liabilities include a 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. The 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 3 financial liability. Refer to Note 33, Significant partly-owned subsidiaries.
Reconciliation of the opening and closing balances on level 3 financial assets and liabilities:
EURm
As of January 1, 2017
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
Adoption of IFRS 9(1)
As of January 1, 2018
Additions
Deductions
Other movements
As of December 31, 2018
Net gains/(losses) in income statement
Level 3 Financial
Level 3 Financial
Liabilities
Assets
674
89
(89)
–
89
(182)
(29)
552
122
674
49
119
(150)
(4)
688
(14)
79
–
(737)
–
–
–
–
(672)
(672)
(34)
–
8
(9)
(707)
(1) Non-current available-for-sale investments for which the fair value was estimated to equal cost less impairment under IAS 39, as their fair value was not possible to estimate reliably, are
classified as level 3 financial assets at fair value through profit or loss under IFRS 9.
The gains and losses from venture fund and similar investments categorized in level 3 are included in other operating income and expenses.
A net loss of EUR 96 million (net gain of EUR 63 million in 2017) related to level 3 financial instruments held as of December 31, 2018 is
recognized in the consolidated income statement.
25. Derivative financial instruments
EURm
2018
Hedges on net investment in foreign subsidiaries
Foreign exchange forward contracts
Currency options bought
Cash flow hedges
Foreign exchange forward contracts
Currency options bought
Currency options sold
Fair value hedges
Interest rate swaps
Foreign exchange forward 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
Foreign exchange forward contracts
Currency options bought
Other derivatives
Total
2017
Hedges on net investment in foreign subsidiaries
Foreign exchange forward contracts
Cash flow hedges
Foreign exchange forward contracts
Fair value hedges
Foreign exchange forward 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
Foreign exchange forward contracts
Currency options bought
Currency options sold
Other derivatives
Total
Assets
Liabilities
Fair value(1)
Notional(2)
Fair value(1)
Notional(2)
11
1
5
9
–
7
2
14
22
2 562
235
619
507
–
600
218
466
(23)
–
(26)
(0)
(0)
–
(6)
(1)
4 050
–
787
40
15
–
543
234
260
(69)
1 512
59
1
–
131
6 257
99
–
11 823
(43)
–
(10)
(178)
5 315
–
104
12 600
38
3 491
56
1 305
165
133
(2)
(6)
(1)
(24)
773
465
79
229
–
(141)
1 512
5 858
664
–
–
11 616
(88)
–
(4)
(2)
(268)
7 002
–
163
100
10 323
1
17
–
73
12
–
–
197
(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.
174
NOKIA ANNUAL REPORT ON FORM 20-F 2018
175
175
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 performance
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, including social security costs, for all equity-based incentive grants in the consolidated income
statement amounts to EUR 62 million (EUR 99 million in 2017 and EUR 130 million in 2016).
Active share-based payment plans by instrument
As of January 1, 2016
Granted
Forfeited
Vested(2)
As of December 31, 2016
Granted
Forfeited
Vested(2)
As of December 31, 2017
Granted
Forfeited
Vested(2)
As of December 31, 2018(3)
Performance shares outstanding at target
Restricted shares outstanding
Weighted average grant
date fair value
EUR(1)
4.70
5.08
4.39
Number of
performance
shares at target
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
36 943 251
(4 146 246)
(10 169 717)
83 143 531
Weighted average
grant date fair value
EUR(1)
4.73
4.90
4.47
Number of
restricted shares
outstanding
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
1 479 350
(1 431 215)
(2 034 789)
3 582 048
(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 18 969 595 performance shares for the Performance Share Plan 2016 and 178 428 Restricted Shares that vested on January 1, 2019.
Performance shares
In 2018, the Group administered four global performance share plans, the Performance Share Plans of 2015, 2016, 2017 and 2018. 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 2018 includes a minimum payout guarantee for performance shares granted to non-executive participants,
such that 25% 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 2018 do not include a
minimum payout guarantee.
Global performance share plans as of December 31, 2018:
Plan
2015
2016
2017
2018
Performance shares
outstanding at target
–
18 969 595
27 696 747
36 477 189
Confirmed payout
(% of target)
124
46
29
–
Performance
period
2015-2016
2016-2017
2017-2018
2018-2019
Restriction
period(1)
2017
2018
2019
2020
Settlement
year
2018
2019
2020
2021
(1) The restriction period will be no less than one year from the end of the performance period.
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. Under the 2018 performance share plan 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.
176
176
NOKIA ANNUAL REPORT ON FORM 20-F 2018
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 performance
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, including social security costs, for all equity-based incentive grants in the consolidated income
statement amounts to EUR 62 million (EUR 99 million in 2017 and EUR 130 million in 2016).
Active share-based payment plans by instrument
As of January 1, 2016
Granted
Forfeited
Vested(2)
Granted
Forfeited
Vested(2)
Granted
Forfeited
Vested(2)
As of December 31, 2016
As of December 31, 2017
As of December 31, 2018(3)
the vesting period.
Performance shares
Performance shares outstanding at target
Restricted shares outstanding
Number of
Weighted average grant
Number of
date fair value
restricted shares
Weighted average
grant date fair value
EUR(1)
EUR(1)
outstanding
2 104 474
4.70
5 406 682
4.73
5.08
2 366 008
4.90
4.39
1 479 350
4.47
(255 023)
(1 286 596)
5 969 537
(807 556)
(1 959 287)
5 568 702
(1 431 215)
(2 034 789)
3 582 048
performance
shares at target
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
36 943 251
(4 146 246)
(10 169 717)
83 143 531
(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
(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 18 969 595 performance shares for the Performance Share Plan 2016 and 178 428 Restricted Shares that vested on January 1, 2019.
In 2018, the Group administered four global performance share plans, the Performance Share Plans of 2015, 2016, 2017 and 2018. 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
The Performance Share Plan 2018 includes a minimum payout guarantee for performance shares granted to non-executive participants,
such that 25% 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 2018 do not include a
minimum payout guarantee.
Global performance share plans as of December 31, 2018:
Performance shares
outstanding at target
Confirmed payout
(% of target)
–
18 969 595
27 696 747
36 477 189
124
46
29
–
Performance
period
2015-2016
2016-2017
2017-2018
2018-2019
Restriction
period(1)
2017
2018
2019
2020
Settlement
year
2018
2019
2020
2021
to vesting.
Plan
2015
2016
2017
2018
(1) The restriction period will be no less than one year from the end of the performance period.
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. Under the 2018 performance share plan 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.
Restricted shares
In 2018, the Group administered four global restricted share plans: the Restricted Share Plans 2015, 2016, 2017 and 2018. 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 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 12-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 2018, 3 980 286 matching shares were issued as a
settlement to the participants of the Employee Share Purchase Plan 2017 (2 920 204 matching shares issued under the 2016 Plan in 2017
and 1 661 951 matching issued under the 2015 plan and 601 408 free shares issued under the 2016 plan in 2016).
Legacy equity compensation programs
Stock options
In 2018, the Group administered one global stock option plan, the Stock Option Plan 2011. The last stock options under this Plan were
granted in 2013. 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, 2016
Exercised
Forfeited
Expired
As of December 31, 2016
Exercised
Forfeited
Expired
As of December 31, 2017
Exercised
Forfeited
Expired
As of December 31, 2018
Number
of shares
3 640 286
(832 900)
(17 875)
(1 188 490)
1 601 021
(415 750)
(215 000)
(522 771)
447 500
(424 500)
–
–
23 000
Weighted
average exercise
price
EUR
4.67
2.52
2.57
7.81
3.34
2.13
2.71
5.65
2.07
2.06
Weighted
average share
price
EUR
4.87
Number of
options
exercisable
2 318 911
Weighted
average exercise
price
EUR
5.97
1 197 771
3.56
447 500
2.07
4.93
5.07
2.35
23 000
2.35
176
NOKIA ANNUAL REPORT ON FORM 20-F 2018
177
177
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 various countries including both defined benefit and defined contribution plans.
The Group participates in defined contribution plans, multi-employer and insured plans for which the Group contributions are recognized as
expense in the consolidated income statement in the period to which the contributions relate. 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 amount recognized in the consolidated
income statement related to defined contribution plans was EUR 246 million (EUR 231 million in 2017 and EUR 236 million in 2016).
The Group’s defined benefit plans comprise significant pension programs and 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 various risks such as investment risk, interest rate risk, life expectancy risk, and regulatory/compliance risk. The characteristics
and extent of these risks vary depending on the legal, fiscal, and economic requirements in each country. The amount recognized in the
consolidated income statement related to defined benefit plans was EUR 234 million (EUR 214 million in 2017 and EUR 222 million in 2016).
The total net defined benefit liability is EUR 103 million (EUR 461 million in 2017) consisting of net pension and other post-employment
benefit liabilities of EUR 4 327 million (EUR 4 440 million in 2017) and net pension and other post-employment benefit assets of
EUR 4 224 million (EUR 3 979 million in 2017).
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 92% (93% in 2017) of the Group’s total defined benefit obligation and 91% (91% in 2017) of the Group’s total plan assets.
The defined benefit obligations, the fair value of plan assets, the effects of the asset ceiling and the net defined benefit balance as
of December 31:
EURm
United States
Germany
United Kingdom
Other
Total
2018
2017
Defined
benefit
obligation
(18 346)
(2 650)
(1 122)
(1 837)
(23 955)
Fair value of
plan assets
19 616
1 145
1 459
2 259
24 479
Effects of
asset ceiling
(573)
–
–
(54)
(627)
Net defined
benefit
balance
697
(1 505)
337
368
(103)
Defined
benefit
obligation
(19 614)
(2 773)
(1 276)
(1 834)
(25 497)
Fair value of
plan assets
20 499
1 203
1 552
2 281
25 535
Effects of
asset ceiling
(453)
–
–
(46)
(499)
Net defined
benefit
balance
432
(1 570)
276
401
(461)
United States
The Group has significant defined benefit pension plans and a significant post-retirement (Opeb) 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 31, 2007 and fully frozen on December 31, 2009. Effective on January 1, 2015, the Group, then Alcatel Lucent,
adopted a new cash-balance program, for salaried, non-union member employees. The new program was extended to all United States-
based salaried employees, except the employees of Nokia Technologies, effective January 1, 2017. For active union-represented employees
and for former employees who, when active, were represented by a union, the Group maintains two defined benefit pension plans, both of
which are traditional service-based pension programs. The larger of the two, which represents 95% of the obligation, is a closed plan. Post-
retirement welfare benefits are maintained for certain retired former employees. Pursuant to an agreement with the Communications
Workers of America (CWA) and the International Brotherhood of Electrical Workers (IBEW) unions, the Group agreed to continue to provide
post-retirement healthcare benefits and life-insurance coverage for employees formerly represented by these two unions. That agreement
expires on December 31, 2019.
178
178
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
27. Pensions and other post-employment benefits
The Group maintains a number of post-employment plans in various countries including both defined benefit and defined contribution plans.
The Group participates in defined contribution plans, multi-employer and insured plans for which the Group contributions are recognized as
expense in the consolidated income statement in the period to which the contributions relate. 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 amount recognized in the consolidated
income statement related to defined contribution plans was EUR 246 million (EUR 231 million in 2017 and EUR 236 million in 2016).
The Group’s defined benefit plans comprise significant pension programs and 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 various risks such as investment risk, interest rate risk, life expectancy risk, and regulatory/compliance risk. The characteristics
and extent of these risks vary depending on the legal, fiscal, and economic requirements in each country. The amount recognized in the
consolidated income statement related to defined benefit plans was EUR 234 million (EUR 214 million in 2017 and EUR 222 million in 2016).
The total net defined benefit liability is EUR 103 million (EUR 461 million in 2017) consisting of net pension and other post-employment
benefit liabilities of EUR 4 327 million (EUR 4 440 million in 2017) and net pension and other post-employment benefit assets of
EUR 4 224 million (EUR 3 979 million in 2017).
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 92% (93% in 2017) of the Group’s total defined benefit obligation and 91% (91% in 2017) 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
2018
2017
Defined
benefit
obligation
Fair value of
plan assets
Effects of
asset ceiling
Net defined
benefit
balance
Defined
benefit
obligation
Fair value of
plan assets
Effects of
asset ceiling
(18 346)
19 616
(573)
697
(19 614)
20 499
(453)
(2 650)
(1 122)
(1 837)
1 145
1 459
2 259
(23 955)
24 479
–
–
(54)
(627)
(1 505)
337
368
(2 773)
(1 276)
(1 834)
1 203
1 552
2 281
(103)
(25 497)
25 535
–
–
(46)
(499)
Net defined
benefit
balance
432
(1 570)
276
401
(461)
of December 31:
EURm
United States
Germany
United Kingdom
Other
Total
United States
The Group has significant defined benefit pension plans and a significant post-retirement (Opeb) 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 31, 2007 and fully frozen on December 31, 2009. Effective on January 1, 2015, the Group, then Alcatel Lucent,
adopted a new cash-balance program, for salaried, non-union member employees. The new program was extended to all United States-
based salaried employees, except the employees of Nokia Technologies, effective January 1, 2017. For active union-represented employees
and for former employees who, when active, were represented by a union, the Group maintains two defined benefit pension plans, both of
which are traditional service-based pension programs. The larger of the two, which represents 95% of the obligation, is a closed plan. Post-
retirement welfare benefits are maintained for certain retired former employees. Pursuant to an agreement with the Communications
Workers of America (CWA) and the International Brotherhood of Electrical Workers (IBEW) unions, the Group agreed to continue to provide
post-retirement healthcare benefits and life-insurance coverage for employees formerly represented by these two unions. That agreement
expires on December 31, 2019.
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 31:
EURm
Pension benefits
Management (salaried and others)
Occupational (formerly union represented)
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
2018
2017
Defined
benefit
obligation
Fair value of
plan assets
Effects of
asset ceiling
Net defined
benefit
balance
Defined
benefit
obligation
Fair value of
plan assets
Effects of
asset ceiling
Net defined
benefit
balance
(12 860)
(2 766)
(336)
(15 962)
14 617
4 602
–
19 219
–
(573)
–
(573)
1 757
1 263
(336)
2 684
(13 750)
(2 995)
(351)
(17 096)
15 263
4 704
–
19 967
(2)
(451)
–
(453)
(66)
(972)
(885)
(460)
(1)
(2 384)
–
184
149
64
–
397
–
–
–
–
–
–
(66)
(788)
(736)
(396)
(1)
(1 987)
(76)
(1 026)
(929)
(486)
(1)
(2 518)
–
264
186
82
–
532
–
–
–
–
–
–
1 511
1 258
(351)
2 418
(76)
(762)
(743)
(404)
(1)
(1 986)
Germany
The Group maintains two primary plans in Germany which cover the majority of active employees: the cash balance plan Beitragsorientierter
Alterversorgungs Plan (BAP) for the Group’s former Nokia employees and a similar cash balance program (AVK Basis-/Matchingkonto) 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 trust is legally separate from the Group
and manage the plan assets in accordance with the respective trust agreements.
All other plans have been frozen or closed in prior years 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.
United Kingdom
The Group has two pension Trusts in the United Kingdom. Both trusts, legacy Nokia and legacy Alcatel-Lucent, have money purchase sections
with Guaranteed Minimum Pension (GMP) underpin and final salary sections. All final salary sections are closed to future benefit accrual, the
legacy Nokia plan closed on April 30, 2012 and the legacy Alcatel-Lucent plan on 30 April, 2018. 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.
178
NOKIA ANNUAL REPORT ON FORM 20-F 2018
179
179
Financial statements
Notes to consolidated financial statements continued
Impact on the consolidated financial statements
Movements in the defined benefit obligation, fair value of plan assets and the impact of the asset ceiling
The movements in the present value of the defined benefit obligation for the years ended December 31:
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
Gain/(loss) from change in financial
assumptions
Experience gain/(loss)
Total
Translation differences
Contributions from plan participants
Benefits paid
Other
Total
As of December 31
2018
2017
United States
pension
(17 096)
(70)
(540)
(44)
–
(654)
United States
Opeb
(2 518)
–
(79)
–
–
(79)
Other
pension
(5 883)
(93)
(106)
(8)
(1)
(208)
Total
(25 497)
(163)
(725)
(52)
(1)
(941)
United States
pension
(19 784)
(75)
(652)
(39)
13
(753)
United States
Opeb
(3 061)
–
(98)
(1)
–
(99)
Other
pension
(5 818)
(105)
(112)
43
10
(164)
Total
(28 663)
(180)
(862)
3
23
(1 016)
36
23
21
80
141
33
(38)
136
938
56
1 030
(717)
–
1 475
–
758
(15 962)
155
(10)
168
(105)
(115)
278
(13)
45
(2 384)
205
33
259
15
(23)
235
(4)
223
(5 609)
1 298
79
1 457
(807)
(138)
1 988
(16)
1 026
(23 955)
(747)
60
(546)
2 422
–
1 555
10
3 987
(17 096)
(141)
204
96
370
(111)
303
(16)
546
(2 518)
(148)
3
(183)
123
(24)
246
(63)
282
(5 883)
(1 036)
267
(633)
2 915
(135)
2 104
(69)
4 815
(25 497)
Present value of obligations includes EUR 17 593 million (EUR 18 940 million in 2017) of wholly funded obligations, EUR 5 162 million
(EUR 5 248 million in 2017) of partly funded obligations and EUR 1 200 million (EUR 1 310 million in 2017) of unfunded obligations.
The movements in the fair value of plan assets for the years ended December 31:
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
Benefits paid
Section 420 Transfer(1)
Other
Total
As of December 31
2018
2017
United States
pension
19 967
635
United States
Opeb
532
15
Other
pension
5 036
95
Total
25 535
745
United States
pension
22 301
738
United States
Opeb
579
16
Other
pension
4 890
101
Total
27 770
855
(17)
–
618
(775)
(775)
868
26
–
(1 475)
(13)
3
(591)
19 219
–
–
15
(25)
(25)
19
6
115
(278)
13
–
(125)
397
(1)
(3)
91
(18)
(3)
724
(17)
(12)
709
–
–
16
(1)
(11)
89
(18)
(23)
814
(187)
(187)
(21)
65
23
(145)
–
1
(77)
4 863
(987)
(987)
866
1 369
1 369
(2 725)
97
138
(1 898)
–
4
(793)
24 479
28
–
(1 555)
(160)
–
(4 412)
19 967
37
37
(71)
3
111
(303)
160
–
(100)
532
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
(1) Section 420 Transfer. Refer to ‘Future Cash Flow’ section below.
180
180
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
Impact on the consolidated financial statements
Movements in the defined benefit obligation, fair value of plan assets and the impact of the asset ceiling
The movements in the present value of the defined benefit obligation for the years ended December 31:
EURm
As of January 1
Current service cost
Interest expense
Settlements
Total
Remeasurements:
Past service cost and gains on curtailments
Gain/(loss) from change in demographic
assumptions
Gain/(loss) from change in financial
assumptions
Experience gain/(loss)
Total
Translation differences
Contributions from plan participants
Benefits paid
Other
Total
2018
2017
United States
United States
pension
Opeb
Other
pension
United States
United States
Total
pension
Opeb
Other
pension
(17 096)
(2 518)
(5 883)
(25 497)
(19 784)
(3 061)
(5 818)
(28 663)
(70)
(540)
(44)
–
(79)
–
–
–
(93)
(106)
(8)
(1)
(163)
(725)
(52)
(1)
(941)
(75)
(652)
(39)
13
(753)
–
(98)
(1)
–
(105)
(112)
43
10
(654)
(79)
(208)
(99)
(164)
(1 016)
Total
(180)
(862)
3
23
36
23
21
80
141
33
(38)
136
938
56
1 030
(717)
1 475
–
–
758
155
(10)
168
(105)
(115)
278
(13)
45
205
33
259
15
(23)
235
(4)
223
1 298
79
1 457
(807)
(138)
1 988
(16)
1 026
(747)
(141)
(148)
(1 036)
60
(546)
2 422
–
1 555
10
3 987
204
96
370
(111)
303
(16)
546
3
(183)
123
(24)
246
(63)
282
267
(633)
2 915
(135)
2 104
(69)
4 815
As of December 31
(15 962)
(2 384)
(5 609)
(23 955)
(17 096)
(2 518)
(5 883)
(25 497)
Present value of obligations includes EUR 17 593 million (EUR 18 940 million in 2017) of wholly funded obligations, EUR 5 162 million
(EUR 5 248 million in 2017) of partly funded obligations and EUR 1 200 million (EUR 1 310 million in 2017) of unfunded obligations.
Administrative expenses and interest on asset
Return on plan assets, excluding amounts
included in interest income
EURm
As of January 1
Interest income
ceiling
Settlements
Total
Remeasurements:
Total
Translation differences
Contributions:
Employers
Plan participants
Benefits paid
Section 420 Transfer(1)
Other
Total
As of December 31
pension
19 967
635
(17)
–
618
(775)
(775)
868
26
–
(1 475)
(13)
3
(591)
19 219
Opeb
532
15
–
–
15
(25)
(25)
19
6
115
(278)
13
–
(125)
397
(1) Section 420 Transfer. Refer to ‘Future Cash Flow’ section below.
(1)
(3)
91
(18)
(3)
724
(17)
(12)
709
(187)
(187)
(21)
65
23
–
1
(987)
(987)
866
97
138
1 369
1 369
28
–
–
4
(160)
–
(77)
(793)
(4 412)
4 863
24 479
19 967
–
–
16
37
37
(1)
(11)
89
(18)
(23)
814
183
183
1 589
1 589
3
111
(303)
160
–
(100)
532
129
24
–
(10)
160
135
–
(10)
(126)
(4 638)
5 036
25 535
(145)
(1 898)
(1 555)
(158)
(2 016)
(2 725)
(71)
(111)
(2 907)
The movements in the funded status for the years ended December 31:
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
2018
2017
United States
pension
2 871
(70)
78
(44)
–
(36)
United States
Opeb
(1 986)
–
(64)
–
–
(64)
Other
pension
(847)
(93)
(12)
(8)
(4)
(117)
Total
38
(163)
2
(52)
(4)
(217)
United States
pension
2 517
(75)
69
(39)
1
(44)
United States
Opeb
(2 482)
–
(82)
(1)
–
(83)
Other
pension
(928)
(105)
(12)
43
(1)
(75)
Total
(893)
(180)
(25)
3
–
(202)
included in interest income
(775)
(25)
(187)
(987)
1 369
37
183
1 589
Gain/(loss) from change in demographic
assumptions
Gain/(loss) from change in financial
assumptions
Experience gain/(loss)
Total
Translation differences
Employer contributions
Benefits paid
Section 420 Transfer(1)
Other
Total
As of December 31
(1) Section 420 Transfer. Refer to ‘Future Cash Flow’ section below.
36
23
21
80
141
33
(38)
136
938
56
255
151
26
–
(13)
3
167
3 257
155
(10)
143
(86)
6
–
13
(13)
(80)
(1 987)
205
33
72
(6)
65
90
–
(3)
146
(746)
1 298
79
470
59
97
90
–
(13)
233
524
(747)
60
823
(303)
28
–
(160)
10
(425)
2 871
(141)
204
133
299
3
–
160
(16)
446
(1 986)
(148)
3
–
12
129
88
–
(73)
156
(847)
(1 036)
267
956
8
160
88
–
(79)
177
38
The movements in the fair value of plan assets for the years ended December 31:
The movements in the impact of the asset ceiling limitation for the years ended December 31:
United States
United States
2018
Other
pension
United States
United States
Total
pension
5 036
25 535
22 301
95
745
738
2017
Opeb
579
16
Other
pension
Total
4 890
27 770
101
855
EURm
As of January 1
Interest expense
Remeasurements:
2018
2017
United States
pension
(453)
(16)
United States
Opeb
–
–
Other
pension
(46)
(1)
Total
(499)
(17)
United States
pension
(265)
(11)
United States
Opeb
–
–
Other
pension
(40)
(1)
Total
(305)
(12)
Change in asset ceiling, excluding amounts
included in interest expense
Translation differences
As of December 31
Net balances as of December 31:
(76)
(28)
(573)
(6)
(1)
(54)
(82)
(29)
(627)
(224)
47
(453)
–
–
–
2018
(9)
4
(46)
(233)
51
(499)
–
–
–
2017
EURm
As of December 31
United States
pension
2 684
United States
Opeb
(1 987)
Other
pension
(800)
Total
(103)
United States
pension
2 418
United States
Opeb
(1 986)
Other
pension
(893)
Total
(461)
180
NOKIA ANNUAL REPORT ON FORM 20-F 2018
181
181
Financial statements
Notes to consolidated financial statements continued
Asset ceiling limitation
IAS19, 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 most significant limitation of asset recognition
for the Group is from the overfunded US formerly represented pension plan. Under IAS 19 and current plan terms, the surplus is treated as
belonging to the plans and its participants and cannot be refunded to the sponsoring employer. The surplus is therefore not recognized by
the Group as a recoverable pension asset. However, Section 420 of the US tax code (described in the Future Cash Flows section) allows for
some portion of the surplus assets to be used to cover some portion of the opeb liabilities. This increases the amount of the asset surplus
that is recognizable in the US prepaid pension assets. All other countries where asset ceiling limits apply are not considered material.
The Group recognized an asset ceiling limitation in the amount of EUR 627 million (EUR 499 million in 2017).
Recognized in the income statement
Recognized in personnel expenses in the consolidated income statement for the years ended December 31:
EURm
Current service cost(1)
Past service cost and gains on curtailments(2)
Interest expense(3)
Settlements(2)
Total
Of which relates to:
United States pensions
United States Opeb
Other pensions
(1) Included in operating expenses within the consolidated income statement.
(2) Included in other operating income and expense within the consolidated income statement.
(3) Included in financial income and expense within the consolidated income statement.
Recognized in other comprehensive income
Recognized in other comprehensive income for the years ended December 31:
EURm
Return on plan assets, excluding amounts included in interest income
Gain from change in demographic assumptions
Gain/(loss) 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
2018
163
52
15
4
234
52
64
118
2018
(987)
80
1 298
79
(82)
388
179
143
66
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)
182
182
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
Asset ceiling limitation
IAS19, 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 most significant limitation of asset recognition
for the Group is from the overfunded US formerly represented pension plan. Under IAS 19 and current plan terms, the surplus is treated as
belonging to the plans and its participants and cannot be refunded to the sponsoring employer. The surplus is therefore not recognized by
the Group as a recoverable pension asset. However, Section 420 of the US tax code (described in the Future Cash Flows section) allows for
some portion of the surplus assets to be used to cover some portion of the opeb liabilities. This increases the amount of the asset surplus
that is recognizable in the US prepaid pension assets. All other countries where asset ceiling limits apply are not considered material.
The Group recognized an asset ceiling limitation in the amount of EUR 627 million (EUR 499 million in 2017).
Recognized in the income statement
Recognized in personnel expenses in the consolidated income statement for the years ended December 31:
Past service cost and gains on curtailments(2)
EURm
Current service cost(1)
Interest expense(3)
Settlements(2)
Total
Of which relates to:
United States pensions
United States Opeb
Other pensions
(1) Included in operating expenses within the consolidated income statement.
(2) Included in other operating income and expense within the consolidated income statement.
(3) Included in financial income and expense within the consolidated income statement.
Recognized in other comprehensive income
Recognized in other comprehensive income for the years ended December 31:
EURm
Return on plan assets, excluding amounts included in interest income
Gain from change in demographic assumptions
Gain/(loss) 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
2018
163
52
15
4
234
52
64
118
2018
(987)
80
1 298
79
(82)
388
179
143
66
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)
Actuarial assumptions and sensitivity analysis
Actuarial assumptions – Global View
Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in each country.
The discount rates and mortality tables used for the significant plans:
United States
Germany
United Kingdom(1)
Total weighted average for all countries
(1) Tables are adjusted with 1.5% long-term rate of improvement.
2018
2017
Discount rate %
3.9
1.6
2.7
3.5
3.3
1.3
2.5
2.9
2018
Mortality table
RP–2014 w/MP–2018
mortality projection scale
Heubeck 2018G
S2PA Light
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
Actuarial assumptions – United States
Actuarial assumptions used for determining the defined benefit obligation:
%
Benefit obligation, discount rate
Pension
Post-retirement healthcare and other
Post–retirement group life
Annual rate of increase in future compensation levels
Assumed healthcare cost trend rates
Healthcare costs trend rate assumed for next year
Healthcare cost trend rate assumed for next year (excluding post-retirement dental benefits)
Terminal growth rate
Year that the rate reaches the terminal growth value
2018
3.5
1.9
0.4
2.1
11 yrs
2017
2.9
1.9
0.4
2.1
11 yrs
2018
2017
3.9
3.7
4.0
2.05
6.3
6.4
4.9
2028
3.3
3.1
3.4
2.06
11.5
11.8
4.9
2028
182
NOKIA ANNUAL REPORT ON FORM 20-F 2018
183
183
Financial statements
Notes to consolidated financial statements continued
Sensitivity analysis – Global View
When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the present value of the defined benefit
obligation is calculated using the projected unit credit method. The 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, the effect on the defined benefit obligation may not be linear. Increases and
decreases in the principal assumptions 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.
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
2 154
(116)
(494)
(454)
(41)
(882)
Decrease in assumption(1)
EURm
(2 593)
100
430
367
34
829
(1) Positive movement indicates a reduction in the defined benefit obligation; a negative movement indicates an increase in the defined benefit obligation.
Investment strategies
The overall pension 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 pension 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
Fixed income securities
Insurance contracts
Real estate
Short-term investments
Private equity and other
Total
Quoted
1 735
17 195
–
–
515
114
19 559
2018
Unquoted
23
203
901
1 332
40
2 421
4 920
Total
1 758
17 398
901
1 332
555
2 535
24 479
%
7
71
4
5
2
11
100
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
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.
184
184
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
Sensitivity analysis – Global View
When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the present value of the defined benefit
obligation is calculated using the projected unit credit method. The 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, the effect on the defined benefit obligation may not be linear. Increases and
decreases in the principal assumptions 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.
The sensitivity of the defined benefit obligation to changes in the principal assumptions:
Change in assumption
Increase in assumption(1)
Decrease in assumption(1)
1.0%
1.0%
1.0%
1.0%
1.0%
1 year
EURm
2 154
(116)
(494)
(454)
(41)
(882)
EURm
(2 593)
100
430
367
34
829
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
Investment strategies
(1) Positive movement indicates a reduction in the defined benefit obligation; a negative movement indicates an increase in the defined benefit obligation.
The overall pension 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 pension 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
Fixed income securities
Insurance contracts
Real estate
Short-term investments
Private equity and other
Total
2018
Quoted
Unquoted
2017
Quoted
Unquoted
1 735
17 195
–
–
515
114
23
203
901
Total
1 758
17 398
901
1 332
1 332
40
555
2 421
2 535
1 857
17 810
–
–
–
709
1
44
1 013
1 350
14
Total
1 858
17 854
1 013
1 350
723
2 737
2 737
%
7
71
4
5
2
11
100
%
7
70
4
5
3
11
100
19 559
4 920
24 479
20 376
5 159
25 535
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.
United States plan
United States plan asset target and actual allocation range of the pension and opeb trust by asset category as of December 31, 2018:
%
Equity securities
Fixed income securities
Real estate
Short-term investments
Private equity and other
Total
Pension target
allocation range
5 – 9
67 – 89
4 – 8
–
6 – 13
Percentage of
plan assets
4
78
6
–
12
100
Post-retirement
target allocation
46
17
–
37
–
100
Percentage of post-
employment plan assets
46
17
–
37
–
100
The majority of the Group’s United States pension plan assets are held in a master pension trust. The opeb plan assets are held in two
separate trusts. The Pension & Benefits Investment Committee formally approves the target allocation ranges every few years on the
completion of the asset-liability study by external advisors and internal investment management. The overall United States pension plan
asset portfolio reflects a balance of investments split of approximately 22/78 between equity, including alternative investments for this
purpose, and fixed income securities.
United States pension plan assets included EUR 0.2 million of Nokia ordinary shares and EUR 0.5 million of Nokia bonds as of December 31,
2018 (EUR 0.15 million of Nokia ordinary shares and EUR 0.5 million of Nokia bonds in 2017).
Significant events in 2018
Plan amendments
UK GMP equalization
UK high court has ruled that the trustees of UK defined benefit pension schemes must compensate members for gender based differences
attributable to guaranteed minimum pensions (GMPs). Implementation of this ruling resulted in an expense of EUR 3 million, recognized
as past service costs in the consolidated income statement.
Germany Transition Payments ruling
German Federal Labor Court has ruled that employees that leave Nokia prior to retirement are also eligible to the transition payments
benefit. Implementation of this ruling resulted in an expense of EUR 15 million, recognized as past service costs in the consolidated income
statement.
Germany Mortality Table update
Heubeck AG published an update to the 2005 mortality table, Heubeck Richttafeln RT 2018 G. The update results in an increase of the
liability in Germany and resulted in an actuarial loss due to changes in demographic assumptions of EUR 27 million, recognized as pension
remeasurement in the consolidated statement of comprehensive income.
India Legislation update for Gratuity Plan
The Indian Government has passed a new bill doubling the tax exemption gratuity limit. Implementation of this increased gratuity has
resulted in an expense of EUR 4 million, recognized as past service costs in the consolidated income statement.
Curtailments
In 2018, the Group recognized curtailments in a number of countries. In the United States, restructuring activities resulted in a loss on
curtailment of EUR 44 million driven by severance-related pension benefit enhancement. Curtailments were recognized as past service
costs in the consolidated income statement.
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. Total contributions expected to be paid in 2019 total EUR 91 million.
United States pension plans
Funding methods
Funding requirements for the three United States qualified defined benefit pension plans are determined by the applicable statutes, namely
the Employee Retirement Income Security Act of 1974 (ERISA), the Internal Revenue Code of 1986, and regulations issued by the Internal
Revenue Service (IRS).
In determining funding requirements, ERISA allows assets to be either market value or an average value over a period of time; and liabilities
to be based on 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 2019. 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.
Healthcare benefits for both management and formerly union represented retirees’ benefits are capped for those who retired after February
28, 1990. The benefit obligation associated with this group of retirees is approximately 56% of the total United States retiree healthcare
obligation as of December 31, 2018. Medicare is the primary payer for those aged 65 and older, comprising almost all of uncapped retirees.
184
NOKIA ANNUAL REPORT ON FORM 20-F 2018
185
185
Financial statements
Notes to consolidated financial statements continued
Section 420 transfer
Section 420 of the US Internal Revenue Code (Section 420) allows for the transfer of pension assets in excess of specified thresholds (excess
pension assets) over the plan’s funding obligation to be used to fund healthcare benefits and/or life insurance coverage (Opeb) of retired
employees entitled to pension benefits under the plan. Section 420 requires employers making such transfers to continue to provide
healthcare benefits or life insurance coverage, as the case may be, 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 420 transfers from the formerly represented pension plan’s pension surplus. This is considered as a refund from
the pension plan when setting the asset ceiling.
Section 420 is currently set to expire on December 31, 2025. The Group expects to continue to make Section 420 transfers from the
formerly represented pension plan to fund healthcare benefits and group life insurance coverage for formerly represented retirees.
Group Contributions
The following table summarizes expected contributions to the Group pension and post-retirement plans for 2019 and for the US pension
and post-retirement plans until 2028. These figures include the reimbursements the Group expects to receive with respect to the US
coverage provided to US plan participants eligible for the Medicare prescription drug benefit. The Group did not make contributions to the
US qualified pension plans in 2018, nor does it expect to make any contributions in 2019. Actual contributions may differ from expected
contributions due to various factors, including performance of plan assets, interest rates and legislative changes.
US Pension
US Post-retirement
Other Countries
Total for Group
EURm
2019
2020
2021
2022
2023
2024-2028
Non-qualified
plans
26
26
25
25
24
114
Non-represented
9
8
8
8
7
30
Other benefit
plans
3
3
3
10
50
261
Medicare
subsidy for
formerly union
represented(1)
(14)
(13)
(13)
(12)
(12)
(49)
53
77
(1) Medicare Subsidy is recorded within other movements in the reconciliation of the present value of the defined benefit obligation.
Benefit payments
The following table summarizes expected benefit payments from the pension and post-retirement plans and other post-employment
benefit plans until 2028. 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 14 million.
EURm
2019
2020
2021
2022
2023
2024-2028
United States direct benefit payments
Other countries
Total
Qualified
management
1 284
1 089
1 045
1 008
970
4 275
Pension
Qualified
occupational
277
264
252
240
228
964
Post-retirement
Non-qualified
plans
26
26
25
25
24
114
Formerly union
represented
128
162
158
140
128
513
Non-union
represented
54
55
56
57
57
291
262
257
272
265
297
1 446
2 031
1 853
1 808
1 735
1 704
7 603
Benefits are paid from plan assets where there is sufficient funding available to the plan to cover the benefit obligation. Any payments
in excess of the plan assets are paid directly by Nokia. Direct benefit payments expected to be paid in 2019 total EUR 126 million.
186
186
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
Section 420 transfer
Section 420 of the US Internal Revenue Code (Section 420) allows for the transfer of pension assets in excess of specified thresholds (excess
pension assets) over the plan’s funding obligation to be used to fund healthcare benefits and/or life insurance coverage (Opeb) of retired
employees entitled to pension benefits under the plan. Section 420 requires employers making such transfers to continue to provide
healthcare benefits or life insurance coverage, as the case may be, 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 420 transfers from the formerly represented pension plan’s pension surplus. This is considered as a refund from
the pension plan when setting the asset ceiling.
Section 420 is currently set to expire on December 31, 2025. The Group expects to continue to make Section 420 transfers from the
formerly represented pension plan to fund healthcare benefits and group life insurance coverage for formerly represented retirees.
Group Contributions
The following table summarizes expected contributions to the Group pension and post-retirement plans for 2019 and for the US pension
and post-retirement plans until 2028. These figures include the reimbursements the Group expects to receive with respect to the US
coverage provided to US plan participants eligible for the Medicare prescription drug benefit. The Group did not make contributions to the
US qualified pension plans in 2018, nor does it expect to make any contributions in 2019. Actual contributions may differ from expected
contributions due to various factors, including performance of plan assets, interest rates and legislative changes.
(1) Medicare Subsidy is recorded within other movements in the reconciliation of the present value of the defined benefit obligation.
The following table summarizes expected benefit payments from the pension and post-retirement plans and other post-employment
benefit plans until 2028. 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 14 million.
US Pension
US Post-retirement
Other Countries
Total for Group
Non-qualified
plans
Non-represented
Other benefit
plans
53
77
26
26
25
25
24
114
9
8
8
8
7
30
Medicare
subsidy for
formerly union
represented(1)
(14)
(13)
(13)
(12)
(12)
(49)
3
3
3
10
50
261
United States direct benefit payments
Other countries
Total
Pension
Post-retirement
Qualified
Qualified
Non-qualified
Formerly union
Non-union
management
occupational
plans
represented
represented
1 284
1 089
1 045
1 008
970
4 275
277
264
252
240
228
964
26
26
25
25
24
114
128
162
158
140
128
513
54
55
56
57
57
262
257
272
265
297
291
1 446
2 031
1 853
1 808
1 735
1 704
7 603
EURm
2019
2020
2021
2022
2023
2024-2028
Benefit payments
EURm
2019
2020
2021
2022
2023
2024-2028
Benefits are paid from plan assets where there is sufficient funding available to the plan to cover the benefit obligation. Any payments
in excess of the plan assets are paid directly by Nokia. Direct benefit payments expected to be paid in 2019 total EUR 126 million.
28. Accrued expenses, deferred revenue and other liabilities
Non-current
EURm
Deferred revenue(1)
Discounted non-interest-bearing liabilities(2)
Salaries, wages and social charges
Other
Total
Current
EURm
Deferred revenue(1)
Salaries, wages and social charges
VAT and other indirect taxes
Discount accruals(3)
Accrued expenses related to customer projects
Other
Total
2018
770
–
54
28
852
2018
155
1 426
387
604
617
751
3 940
2017
2 204
690
59
33
2 986
2017
3 057
1 551
453
–
704
901
6 666
(1) Non-current deferred revenue EUR 770 million (EUR 924 million in 2017) and current deferred revenue EUR 155 million (EUR 155 million in 2017) relates to an IP licensing contract which was
determined to be a completed contract as defined in the transition guidance of the IFRS 15 standard. Other liabilities related to contracts with customers presented in deferred revenue in
2017 are included in non-current and current contract liabilities following the adoption of IFRS 15. Refer to Note 2, Significant accounting policies, Note 3, New and amended standards and
interpretations and Note 8, Revenue recognition.
(2) In 2017, discounted non-interest bearing liabilities included 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. In 2018, the Group
reclassified the financial liability to other financial liabilities within current liabilities in line with the option exercise period. Refer to Note 33, Significant partly-owned subsidiaries.
(3) Discount accruals represent customer credits without any outstanding future performance obligations.
Other accruals include accrued royalties, research and development expenses, marketing expenses and interest expenses, as well as various
amounts which are individually insignificant.
29. Provisions
EURm
As of January 1, 2017
Acquisitions through business
combinations
Translation differences
Reclassification
Charged to income statement:
Additional provisions
Changes in estimates
Total charged to income statement
Utilized during year(2)
As of December 31, 2017
Translation differences
Reclassification
Charged to income statement:
Additional provisions
Changes in estimates(1)
Total charged to income statement
Utilized during year(2)
As of December 31, 2018
Restructuring
713
Warranty
207
Litigation Environmental
134
183
Project
losses
131
Divestment-
related
110
Material
liability
77
Other
523
Total
2 078
–
(13)
–
577
(55)
522
(500)
722
2
(18)
289
(51)
238
(451)
493
–
(10)
–
146
(56)
90
(77)
210
–
–
171
(75)
96
(111)
195
–
(9)
7
56
(30)
26
(77)
130
(11)
9
32
(9)
23
(42)
109
–
(11)
(12)
14
(1)
13
(17)
107
4
(1)
11
(3)
8
(10)
108
–
(6)
–
8
(1)
7
(56)
76
1
–
–
(10)
(10)
(12)
55
–
(8)
(4)
15
(7)
8
(30)
76
(5)
–
–
(5)
(5)
–
66
–
(4)
15
56
(38)
18
(40)
66
2
(1)
81
(51)
30
(25)
72
6
(23)
(2)
261
(52)
209
(212)
501
3
11
86
(206)
(120)
(66)
329
6
(84)
4
1 133
(240)
893
(1 009)
1 888
(4)
–
670
(410)
260
(717)
1 427
(1) The changes in estimates in other provisions include a release of EUR 110 million due to resolution of a tax dispute related to discontinued operations.
(2) The utilization of restructuring provision includes items transferred to accrued expenses, of which EUR 55 million remained in accrued expenses as of December 31, 2018 (EUR 56 million
in 2017).
186
NOKIA ANNUAL REPORT ON FORM 20-F 2018
187
187
Financial statements
Notes to consolidated financial statements continued
As of December 31, 2018, the restructuring provision amounted to EUR 493 million including personnel and other restructuring related
costs, such as real estate exit costs. The provision consists of EUR 427 million global provision related to the announcement on April 6, 2016
and EUR 66 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 18 months.
The litigation provision includes estimated potential future settlements for litigation. Cash outflows related to the litigation provision are
inherently uncertain and generally occur over several periods.
The environmental provision includes estimated costs to sufficiently clean and refurbish contaminated sites, to the extent necessary, and
where necessary, continuing surveillance at sites where the environmental remediation exposure is less significant. Cash outflows related
to the environmental liability are inherently uncertain and generally occur over several periods.
The project loss provision relates to onerous customer contracts. Cash outflows related to the project loss provision are generally expected
to occur over the next 12 months.
The divestment-related provision relates to the sale of businesses, and includes certain liabilities where the Group is required to indemnify
the buyer. Cash outflows related to the divestment-related provision are inherently uncertain.
The material liability provision relates to non-cancellable purchase commitments with suppliers, 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 12 months.
Other provisions include provisions for various contractual obligations, other obligations and uncertain tax positions. Cash outflows related to
other provisions are generally expected to occur over the next two years.
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, privacy matters
and compliance. 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
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
judgment. 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 300 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.
188
188
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
As of December 31, 2018, the restructuring provision amounted to EUR 493 million including personnel and other restructuring related
costs, such as real estate exit costs. The provision consists of EUR 427 million global provision related to the announcement on April 6, 2016
and EUR 66 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 18 months.
The litigation provision includes estimated potential future settlements for litigation. Cash outflows related to the litigation provision are
inherently uncertain and generally occur over several periods.
The environmental provision includes estimated costs to sufficiently clean and refurbish contaminated sites, to the extent necessary, and
where necessary, continuing surveillance at sites where the environmental remediation exposure is less significant. Cash outflows related
to the environmental liability are inherently uncertain and generally occur over several periods.
The project loss provision relates to onerous customer contracts. Cash outflows related to the project loss provision are generally expected
to occur over the next 12 months.
The divestment-related provision relates to the sale of businesses, and includes certain liabilities where the Group is required to indemnify
the buyer. Cash outflows related to the divestment-related provision are inherently uncertain.
The material liability provision relates to non-cancellable purchase commitments with suppliers, 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 12 months.
Other provisions include provisions for various contractual obligations, other obligations and uncertain tax positions. Cash outflows related to
other provisions are generally expected to occur over the next two years.
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, privacy matters
and compliance. 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
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
judgment. 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 300 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.
30. Commitments and contingencies
Contractual obligations
Payments due for contractual obligations as of December 31, 2018 by due date:
EURm
Purchase obligations(1)
Operating leases(2)
Total
Within 1 year
2 837
270
3 107
1 to 3 years
357
319
676
4 to 5 years More than 5 years
13
303
316
41
207
248
Total
3 248
1 099
4 347
(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. Leasing obligations include EUR 217 million related to properties that
are not yet available for use by the Group as of December 31, 2018.
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 other companies
Other guarantees
Financing commitments
Customer finance commitments(2)
Financing commitments to associated companies
Venture fund commitments(3)
2018
–
1 570
505
25
313
20
314
2017
5
1 678
487
27
495
20
396
(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 1 041 million (EUR 1 114 million in 2017). 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, Financial risk management.
(3) 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.
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 non-current financial
investments
Share of results of associated companies and joint ventures (Note 34)
Financial income and expenses
Income tax expense/(benefit)
Loss/(gain) on the sale of businesses
Other income and expenses
Total
2018
2017
2016
1 455
68
55
238
(60)
(12)
232
64
24
29
2 093
1 591
92
244
522
(121)
(11)
402
937
(5)
25
3 676
1 594
113
125
751
(82)
(18)
308
(429)
(14)
39
2 387
(1) Includes Continuing and Discontinued operations. Refer to Note 7, 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 2018 and 2017. In 2016, the purchase consideration in
relation to the acquisition of Alcatel Lucent comprised the issuance of new Nokia shares in addition to cash payments.
188
NOKIA ANNUAL REPORT ON FORM 20-F 2018
189
189
Financial statements
Notes to consolidated financial statements continued
32. Principal Group companies
The Group’s significant subsidiaries as of December 31, 2018:
Company name
Nokia Solutions and Networks B.V.
Nokia Solutions and Networks Oy
Nokia of America Corporation
Nokia Solutions and Networks India Private Limited
Nokia Technologies Oy
Alcatel-Lucent Participations SA
Nokia Canada Inc.
Nokia Shanghai Bell Co., Ltd(1)
Nokia Solutions and Networks Branch Operations Oy
Nokia Solutions and Networks Japan G.K.
Alcatel Submarine Networks SAS
Nokia Spain, S.A.
Alcatel-Lucent Italia S.p.A.(2)
Alcatel Lucent SAS
Nokia UK Limited
Nokia Solutions and Networks GmbH & Co. KG
Alcatel-Lucent International SA
Nokia Services Limited
PT Nokia Solutions and Networks Indonesia
Alcatel-Lucent Brasil Telecomunicações Ltda
Nokia Solutions and Networks do Brasil Telecomunicações Ltda.
Country of incorporation
Netherlands
Finland
USA
India
Finland
France
Canada
China
Finland
Japan
France
Spain
Italy
France
UK
Germany
France
Australia
Indonesia
Brazil
Brazil
Parent
holding
%
–
100.0
–
–
100.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Group ownership
interest
%
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
100.0
(1) Nokia Shanghai Bell Co., Ltd is the parent company of the Nokia Shanghai Bell joint venture of which the Group owns 50% plus one share with China Huaxin, an entity controlled by the Chinese
government, holding the remaining ownership interests. Refer to Note 33, Significant partly-owned subsidiaries.
(2) Alcatel-Lucent Italia S.p.A. merged into Nokia Solutions and Networks Italia S.p.A., effective January 1, 2019.
190
190
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
32. Principal Group companies
The Group’s significant subsidiaries as of December 31, 2018:
Nokia Solutions and Networks India Private Limited
Company name
Nokia Solutions and Networks B.V.
Nokia Solutions and Networks Oy
Nokia of America Corporation
Nokia Technologies Oy
Alcatel-Lucent Participations SA
Nokia Canada Inc.
Nokia Shanghai Bell Co., Ltd(1)
Nokia Solutions and Networks Branch Operations Oy
Nokia Solutions and Networks Japan G.K.
Alcatel Submarine Networks SAS
Nokia Spain, S.A.
Alcatel-Lucent Italia S.p.A.(2)
Alcatel Lucent SAS
Nokia UK Limited
Nokia Solutions and Networks GmbH & Co. KG
Alcatel-Lucent International SA
Nokia Services Limited
PT Nokia Solutions and Networks Indonesia
Alcatel-Lucent Brasil Telecomunicações Ltda
Finland
USA
India
Finland
France
Canada
China
Finland
Japan
France
Spain
Italy
France
UK
Germany
France
Australia
Indonesia
Brazil
Brazil
Country of incorporation
Netherlands
Parent
holding
Group ownership
100.0
100.0
%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
interest
%
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
100.0
Nokia Solutions and Networks do Brasil Telecomunicações Ltda.
(1) Nokia Shanghai Bell Co., Ltd is the parent company of the Nokia Shanghai Bell joint venture of which the Group owns 50% plus one share with China Huaxin, an entity controlled by the Chinese
government, holding the remaining ownership interests. Refer to Note 33, Significant partly-owned subsidiaries.
(2) Alcatel-Lucent Italia S.p.A. merged into Nokia Solutions and Networks Italia S.p.A., effective January 1, 2019.
33. Significant partly-owned subsidiaries
As part of the acquisition of Alcatel Lucent on January 4, 2016, the Group acquired a partly-owned consolidated subsidiary, Alcatel-Lucent
Shanghai Bell Co., Ltd. On May 18, 2017, 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.
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 3, 2017, the Group and China Huaxin commenced operations of the new Nokia Shanghai Bell joint venture. The Group holds an
ownership interest of 50% 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 derecognized the non-controlling interest balance related to Nokia Shanghai
Bell of EUR 772 million partly offset by the recognition of a related financial liability of EUR 737 million with the difference of EUR 35 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 2018, the net present value of the expected future cash settlement amounted to EUR 693 million (EUR 672 million
in 2017) and an interest expense of EUR 39 million (EUR 18 million in 2017) was recorded to reflect the recognition of the present value
discount on the financial liability. In addition, the Group decreased the value of the financial liability to reflect a change in estimate of the
future cash settlement resulting in the recognition of a EUR 6 million gain (EUR 64 million in 2017) in financial income and expenses in the
consolidated income statement. In 2018, the Group reclassified the financial liability from non-current liabilities to current liabilities which
is in line with the option exercise period.
Financial information for the Nokia Shanghai Bell Group(1):
EURm
Summarized income statement
Net sales(2)
Operating profit
Profit for the year
Profit 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(5)
Non-controlling interests(6)
Summarized statement of cash flows
Net (used in)/from operating activities
Net cash used in investing activities
Net cash used in financing activities
Net decrease in cash and cash equivalents
2018
2017
2 518
54
25
25
–
600
(127)
473
3 340
(2 209)
1 131
1 604
–
(103)
(92)
(63)
(258)
2 276
83
52
15
37
589
(130)
459
3 888
(2 765)
1 123
1 582
–
438
(184)
(442)
(188)
(1) 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 268 million (EUR 328 million in 2017) 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 738 million (EUR 1 001 million in 2017) of cash and cash equivalents and current financial investments.
(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.
190
NOKIA ANNUAL REPORT ON FORM 20-F 2018
191
191
Financial statements
Notes to consolidated financial statements continued
34. Investments in associated companies and joint ventures
EURm
Net carrying amount as of January 1
Translation differences
Acquisitions through business combinations
Additions
Share of results
Dividends
Net carrying amount as of December 31
2018
128
4
–
2
12
(1)
145
2017
116
(8)
1
9
11
(1)
128
Shareholdings in associated companies and joint ventures comprise investments in unlisted companies.
35. Related party transactions
The Group has related party transactions with pension funds, associated companies, joint ventures and other entities where the Group has
significant influence, as well as the management and the Board of Directors. Transactions and balances with companies over which the Group
exercises control are eliminated on consolidation. Refer to Note 2, Significant accounting policies, and Note 32, Principal Group companies.
Transactions with pension funds
The Group has borrowings of EUR 69 million (EUR 69 million in 2017) from Nokia Unterstützungsgesellschaft mbH, the Group’s German
pension fund, a separate legal entity. The loan bears interest at the rate of 6% per annum and its duration is pending until further notice
by the loan counterparties even though they have the right to terminate the loan with a 90-day notice. The loan is included in short-term
interest-bearing liabilities in the consolidated statement of financial position. For more information on the Group’s pension plans refer
to Note 27, Pensions and other post-employment benefits.
Other entities where the Group has significant influence
In addition to associated companies and joint ventures, the Group has determined that it exercises significant influence over HMD global Oy
(HMD) despite holding no voting power in it. In 2016, the Group engaged in 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.
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
2018
12
1
145
167
(159)
58
(32)
2017
11
1
128
117
(252)
41
(19)
2016
18
1
116
62
(322)
13
(38)
The Group has financial commitments of EUR 20 million (guaranteed a loan of EUR 20 million in 2017) 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
(1) Represents the expense for all outstanding equity grants recorded during the year.
2018
1 050 000
873 862
1 978 268
312 607
4 214 737
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
192
192
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
EURm
Net carrying amount as of January 1
Translation differences
Acquisitions through business combinations
Additions
Share of results
Dividends
Net carrying amount as of December 31
35. Related party transactions
34. Investments in associated companies and joint ventures
Total remuneration awarded to the Group Leadership Team for their time as members of the Group Leadership Team:
2018
128
4
–
2
12
(1)
145
2017
116
(8)
1
9
11
(1)
128
EURm
Short-term benefits
Post-employment benefits(1)
Share-based payment
Termination benefits(2)
Total
2018
23
1
6
5
35
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.
Shareholdings in associated companies and joint ventures comprise investments in unlisted companies.
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:
The Group has related party transactions with pension funds, associated companies, joint ventures and other entities where the Group has
significant influence, as well as the management and the Board of Directors. Transactions and balances with companies over which the Group
exercises control are eliminated on consolidation. Refer to Note 2, Significant accounting policies, and Note 32, Principal Group companies.
Transactions with pension funds
The Group has borrowings of EUR 69 million (EUR 69 million in 2017) from Nokia Unterstützungsgesellschaft mbH, the Group’s German
pension fund, a separate legal entity. The loan bears interest at the rate of 6% per annum and its duration is pending until further notice
by the loan counterparties even though they have the right to terminate the loan with a 90-day notice. The loan is included in short-term
interest-bearing liabilities in the consolidated statement of financial position. For more information on the Group’s pension plans refer
to Note 27, Pensions and other post-employment benefits.
Other entities where the Group has significant influence
In addition to associated companies and joint ventures, the Group has determined that it exercises significant influence over HMD global Oy
(HMD) despite holding no voting power in it. In 2016, the Group engaged in 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.
Transactions with associated companies, joint ventures and other entities where the Group has significant influence
Risto Siilasmaa, Chair
Olivier Piou, Vice Chair(3)
Vivek Badrinath
Sari Baldauf(4)
Bruce Brown(5)
Jeanette Horan(6)
Louis R. Hughes(7)
Edward Kozel(8)
Jean C. Monty(9)
Elizabeth Nelson(10)
Carla Smits-Nusteling(11)
Kari Stadigh(12)
Total
Gross annual
fee(1)
EUR
440 000
196 000
–
160 000
214 000
195 000
199 000
217 000
14 000
192 000
206 000
170 000
2 203 000
2018
2017
Shares
received(2)
number
34 749
14 610
–
12 636
15 005
13 820
13 820
15 400
–
13 820
15 005
12 636
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
Shares
received(2)
number
30 497
12 823
–
–
13 169
12 129
12 129
12 129
11 090
13 169
12 129
11 090
2016
Gross annual
fee(1)
EUR
440 000
255 082
175 000
–
190 000
–
240 410
–
225 410
190 000
175 000
160 000
Shares
received(2)
number
35 001
19 892
13 921
–
15 114
–
18 752
–
17 558
15 114
13 921
12 727
2 138 000
2 050 902
The Group has financial commitments of EUR 20 million (guaranteed a loan of EUR 20 million in 2017) for an associated company.
EURm
Share of results
Dividend income
Share of shareholders’ equity
Sales
Purchases
Receivables
Payables
Management compensation
Compensation information for the President and CEO:
EUR
Base salary/fee
Cash incentive payments
Share-based payment expenses(1)
Pension expenses
Total
(1) Represents the expense for all outstanding equity grants recorded during the year.
2018
12
1
145
167
(159)
58
(32)
2017
11
1
128
117
(252)
41
(19)
2016
18
1
116
62
(322)
13
(38)
2018
1 050 000
873 862
1 978 268
312 607
4 214 737
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
(1) The meeting fees for the term that ended at the close of the Annual General meeting in 2018 were paid in cash in 2018 and are included in the table. The meeting fees for the current term
as resolved by the Annual General Meeting in 2018 will be paid in cash in 2019 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 Vice Chair of the Board and meeting fees of EUR 11 000.
(4) Consists of EUR 160 000 for services as a member of the Board.
(5) Consists of EUR 160 000 for services as a member of the Board and EUR 30 000 for services as the Chair of the Personnel Committee and meeting fees of EUR 24 000.
(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 20 000.
(7) 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 24 000.
(8) Consists of EUR 160 000 for services as a member of the Board and EUR 20 000 for services as the Chair of the Technology Committee, EUR 15 000 for services as a member of the Audit
Committee, and meeting fees of EUR 22 000.
(9) Served as a member of the Board until the Annual General Meeting 2018. No annual fee was paid to him during financial year 2018, but he received the annual fee for the term until the
Annual General Meeting 2018 in the financial year 2017 including meeting fees of EUR 14 000.
(10) 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 17 000.
(11) 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 16 000.
(12) 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 2018, 2017 or 2016.
Terms of termination of employment of the President and CEO
The President and CEO, Rajeev Suri, may terminate his service contract at any time with six months’ prior notice. The Group may terminate
his service contract for reasons other than cause at any time with an 18 months’ notice period. If there is a change of control event as
defined in Mr. Suri’s service contract and the service contract is terminated either by the Group or its successor without cause, or by him for
“good reason”, he would be entitled to a severance payment equaling up to 18 months of compensation and cash payment of the pro-rated
value of his outstanding unvested equity awards, if he is dismissed within 18 months of the change in control event.
192
NOKIA ANNUAL REPORT ON FORM 20-F 2018
193
193
Financial statements
Notes to consolidated financial statements continued
36. Financial 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, including financial risk management,
is reflected in other key policies and operating procedures.
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 risk 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. The objective of foreign exchange risk
management is to mitigate adverse impacts from foreign exchange fluctuations on the Group profitability and cash flows. Treasury applies
global portfolio approach to manage foreign exchange risks within approved guidelines and limits.
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 foreign exchange forward
contracts and foreign exchange options with most of the hedging instruments having a duration of less than a year.
Layered hedging approach is typically used for hedging of highly probable forecast foreign currency denominated cash flows with quarterly
hedged items defined based on set hedge ratio ranges for each successive quarter. Hedged items defined for successive quarters are
hedged with foreign exchange forward contracts and foreign exchange options with a hedge ratio of 1:1. Hedging levels are adjusted on a
monthly basis including hedging instrument designation and documentation as appropriate. In case hedges exceed the hedge ratio range
for any specific quarter, the hedge portfolio for that specific quarter is adjusted accordingly.
In certain cases, mainly related to long-term construction projects, 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 the related firm commitments due to changes in foreign
exchange rates. Exposures are mainly hedged with foreign exchange forward contracts with most of the hedging instruments having a
duration of less than a year. The Group continuously manages the portfolio of hedging instruments to ensure appropriate alignment with
the portfolio of hedged items at a hedging ratio of 1:1.
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. Changes in shareholders’ equity caused by movements in foreign exchange rates are shown as currency translation
differences in the consolidated financial statements. The risk management strategy is to protect the euro counter value of the portion of
this exposure expected to materialize as foreign currency repatriation cash flows in the foreseeable future. Exposures are mainly hedged
with derivative financial instruments, such as foreign exchange forward contracts and foreign exchange options with most of the hedging
instruments having a duration of less than a year.
Hedged items are defined based on conservative expectations of repatriation cash flows based on a range of considerations. Net investment
exposures are reviewed, hedged items designated, and hedging levels adjusted at minimum on a quarterly basis with a hedge ratio of 1:1.
Additionally, hedging levels are adjusted whenever there are significant events impacting expected repatriation cash flows.
The foreign exchange risk arising from foreign currency denominated interest-bearing liabilities is primarily hedged using cross currency
swaps that are also used to manage the Group’s interest rate profile (see interest rate risk section below).
194
194
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
36. Financial 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, including financial risk management,
is reflected in other key policies and operating procedures.
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 risk 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. The objective of foreign exchange risk
management is to mitigate adverse impacts from foreign exchange fluctuations on the Group profitability and cash flows. Treasury applies
global portfolio approach to manage foreign exchange risks within approved guidelines and limits.
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 foreign exchange forward
contracts and foreign exchange options with most of the hedging instruments having a duration of less than a year.
Layered hedging approach is typically used for hedging of highly probable forecast foreign currency denominated cash flows with quarterly
hedged items defined based on set hedge ratio ranges for each successive quarter. Hedged items defined for successive quarters are
hedged with foreign exchange forward contracts and foreign exchange options with a hedge ratio of 1:1. Hedging levels are adjusted on a
monthly basis including hedging instrument designation and documentation as appropriate. In case hedges exceed the hedge ratio range
for any specific quarter, the hedge portfolio for that specific quarter is adjusted accordingly.
In certain cases, mainly related to long-term construction projects, 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 the related firm commitments due to changes in foreign
exchange rates. Exposures are mainly hedged with foreign exchange forward contracts with most of the hedging instruments having a
duration of less than a year. The Group continuously manages the portfolio of hedging instruments to ensure appropriate alignment with
the portfolio of hedged items at a hedging ratio of 1:1.
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. Changes in shareholders’ equity caused by movements in foreign exchange rates are shown as currency translation
differences in the consolidated financial statements. The risk management strategy is to protect the euro counter value of the portion of
this exposure expected to materialize as foreign currency repatriation cash flows in the foreseeable future. Exposures are mainly hedged
with derivative financial instruments, such as foreign exchange forward contracts and foreign exchange options with most of the hedging
instruments having a duration of less than a year.
Hedged items are defined based on conservative expectations of repatriation cash flows based on a range of considerations. Net investment
exposures are reviewed, hedged items designated, and hedging levels adjusted at minimum on a quarterly basis with a hedge ratio of 1:1.
Additionally, hedging levels are adjusted whenever there are significant events impacting expected repatriation cash flows.
The foreign exchange risk arising from foreign currency denominated interest-bearing liabilities is primarily hedged using cross currency
swaps that are also used to manage the Group’s interest rate profile (see interest rate risk section below).
Notional amounts in currencies that represent a significant portion of the currency mix in outstanding financial instruments and other
hedged items as of December 31 are as follows:
EURm
2018
Foreign exchange derivatives used as cash flow hedges, net(1)
Foreign exchange exposure designated as hedged item for cash flow hedging, net(1)
Foreign exchange derivatives used as fair value hedges for FX risk, net(2)
Foreign exchange exposure designated as hedged item for fair value hedging
for FX risk, net(2)
Foreign exchange derivatives used as net investment hedges, net(3)
Foreign exchange exposure designated as hedged item for net investment
hedging, net(3)
Foreign exchange derivatives used as hedges for interest bearing-liabilities, net
Foreign exchange exposure from interest-bearing liabilities, net
Other foreign exchange derivatives, carried at fair value through profit and loss, net(4)
Foreign exchange exposure from items on the statement of financial position,
USD
GBP
CNY
INR
(952)
952
(314)
314
(2 486)
2 486
1 804
(1 800)
1 690
(374)
374
93
(93)
(61)
61
–
–
102
–
–
–
–
(944)
(544)
944
–
–
886
544
–
–
596
excluding interest-bearing liabilities, net
(2 446)
(63)
(978)
(299)
2017
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
(106)
(1)
(10)
(31)
(25)
–
–
–
(728)
(765)
577
–
–
–
(403)
(352)
446
–
(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. In 2018 the underlying exposures for which these hedges are entered into are included
to the table due to the adoption of IFRS 9. In 2017 the underlying exposures were not presented in the table as they are not financial instruments.
(2) Used to hedge foreign exchange risk from contractual firm commitments. In 2018 the underlying exposures for which these hedges are entered into are included in the table due to the
adoption of IFRS 9. In 2017 the underlying exposures were not presented in the table as they are not financial instruments.
(3) Used to hedge net investment exposure. In 2018 the underlying exposures for which these hedges are entered into are included in the table due to the adoption of IFRS 9. In 2017 the
underlying exposures were 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.
194
NOKIA ANNUAL REPORT ON FORM 20-F 2018
195
195
Financial statements
Notes to consolidated financial statements continued
The methodology for assessing foreign exchange risk exposures: Value-at-Risk
The Group uses the Value-at-Risk (VaR) methodology to assess exposures to foreign exchange risks. The VaR-based methodology provides
estimates of potential fair value losses in market risk-sensitive instruments as a result of adverse changes in specified market factors, at a
specified confidence level over a defined holding period. The Group calculates the foreign exchange VaR using the Monte Carlo method which
simulates random values for exchange rates in which the Group has exposures and takes the non-linear price function of certain derivative
instruments into account. The VaR is determined using volatilities and correlations of rates and prices estimated from a sample of historical
market data, at a 95% confidence level, using a one-month holding period. To put more weight on recent market conditions, an exponentially
weighted moving average is performed on the data with an appropriate decay factor. This model implies that within a one-month period, the
potential loss will not exceed the VaR estimate in 95% of possible outcomes. In the remaining 5% of possible outcomes the potential loss will
be at minimum equal to the VaR figure and, on average, substantially higher. The VaR methodology relies on a number of assumptions which
include the following: risks are measured under average market conditions, changes in market risk factors follow normal distributions, future
movements in market risk factors are in line with estimated parameters and the assessed exposures do not change during the holding
period. Thus, it is possible that, for any given month, the potential losses at a 95% confidence level are different and could be substantially
higher than the estimated VaR.
The VaR figures for the Group’s financial instruments which are sensitive to foreign exchange risks are presented in the table below. The VaR
calculation includes foreign currency denominated monetary financial instruments, such as current financial investments, loans and trade
receivables, cash, loans and trade payables; 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, fair value hedges and net investment hedges as well as the exposures designated as hedged
items for these hedge relationships.
EURm
As of December 31
Average for the year
Range for the year
Total
VaR
16
14
5-24
2018
Impact
on profit
21
18
7-27
Impact
on OCI
33
38
25-58
Impact
on CTA
6
5
0-8
Total
VaR
22
14
5-24
2017
Impact
on profit
13
26
12-64
Impact
on OCI
30
46
30-55
Impact
on CTA
–
–
0-5
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. The Group has entered into long-term borrowings mainly at fixed rates and swapped a portion of them
into floating rates, in line with a defined target interest profile. The Group has not entered into interest rate swaps where it would be paying
fixed rates. The Group aims to mitigate the adverse impacts from interest rate fluctuations by continuously managing net interest rate
exposure arising from financial assets and liabilities, by setting appropriate risk management benchmarks and risk limits.
Interest rate profile of interest-bearing assets and liabilities as of December 31:
EURm
Other financial assets(2)
Current financial investments
Cash and cash equivalents
Interest-bearing liabilities
Financial assets and liabilities before derivatives
Interest rate derivatives
Financial assets and liabilities after derivatives
2018
2017
Fixed rate
143
145
497
(3 614)
(2 829)
2 332
(497)
Floating rate(1)
68
466
5 765
(208)
6 091
(2 332)
3 759
Fixed rate
117
196
576
(3 637)
(2 748)
1 371
(1 377)
Floating rate(1)
73
715
6 793
(57)
7 524
(1 371)
6 153
(1) All cash equivalents 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.
(2) Other financial assets include interest-bearing customer and vendor financing related loan receivables as well as certain other long-term interest-bearing loan receivables that have been
presented in other non-current financial assets and other financial assets in the consolidated statement of financial position.
196
196
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
The methodology for assessing foreign exchange risk exposures: Value-at-Risk
The Group uses the Value-at-Risk (VaR) methodology to assess exposures to foreign exchange risks. The VaR-based methodology provides
estimates of potential fair value losses in market risk-sensitive instruments as a result of adverse changes in specified market factors, at a
specified confidence level over a defined holding period. The Group calculates the foreign exchange VaR using the Monte Carlo method which
simulates random values for exchange rates in which the Group has exposures and takes the non-linear price function of certain derivative
instruments into account. The VaR is determined using volatilities and correlations of rates and prices estimated from a sample of historical
market data, at a 95% confidence level, using a one-month holding period. To put more weight on recent market conditions, an exponentially
weighted moving average is performed on the data with an appropriate decay factor. This model implies that within a one-month period, the
potential loss will not exceed the VaR estimate in 95% of possible outcomes. In the remaining 5% of possible outcomes the potential loss will
be at minimum equal to the VaR figure and, on average, substantially higher. The VaR methodology relies on a number of assumptions which
include the following: risks are measured under average market conditions, changes in market risk factors follow normal distributions, future
movements in market risk factors are in line with estimated parameters and the assessed exposures do not change during the holding
period. Thus, it is possible that, for any given month, the potential losses at a 95% confidence level are different and could be substantially
higher than the estimated VaR.
The VaR figures for the Group’s financial instruments which are sensitive to foreign exchange risks are presented in the table below. The VaR
calculation includes foreign currency denominated monetary financial instruments, such as current financial investments, loans and trade
receivables, cash, loans and trade payables; 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, fair value hedges and net investment hedges as well as the exposures designated as hedged
items for these hedge relationships.
2018
Total
VaR
16
14
Impact
on profit
21
18
Impact
on OCI
33
38
Impact
on CTA
6
5
Total
VaR
22
14
2017
Impact
on profit
13
26
Impact
on OCI
30
46
Impact
on CTA
–
–
5-24
7-27
25-58
0-8
5-24
12-64
30-55
0-5
EURm
As of December 31
Average for the year
Range for the year
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. The Group has entered into long-term borrowings mainly at fixed rates and swapped a portion of them
into floating rates, in line with a defined target interest profile. The Group has not entered into interest rate swaps where it would be paying
fixed rates. The Group aims to mitigate the adverse impacts from interest rate fluctuations by continuously managing net interest rate
exposure arising from financial assets and liabilities, by setting appropriate risk management benchmarks and risk limits.
EURm
Other financial assets(2)
Current financial investments
Cash and cash equivalents
Interest-bearing liabilities
Financial assets and liabilities before derivatives
Interest rate derivatives
Financial assets and liabilities after derivatives
2018
2017
Fixed rate
Floating rate(1)
Fixed rate
Floating rate(1)
143
145
497
(3 614)
(2 829)
2 332
(497)
68
466
5 765
(208)
6 091
(2 332)
3 759
117
196
576
(3 637)
(2 748)
1 371
(1 377)
73
715
6 793
(57)
7 524
(1 371)
6 153
(1) All cash equivalents 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.
(2) Other financial assets include interest-bearing customer and vendor financing related loan receivables as well as certain other long-term interest-bearing loan receivables that have been
presented in other non-current financial assets and other financial assets in the consolidated statement of financial position.
Treasury monitors and manages interest rate exposure 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
34
(17)
2018
Impact
on profit
3
(1)
Impact
on OCI
4
(2)
Impact on
fair value
126
(67)
2017
Impact
on profit
2
(1)
Impact
on OCI
(1)
–
Effects of hedge accounting on the financial position and performance
The Group is using several types of hedge accounting programs to manage its foreign exchange and interest rate risk exposures. The effect
of these programs on the Group’s financial position and performance as of December 31 are outlined below:
EURm
Carrying amount of hedges
Notional amount of hedges
Notional amount of hedged items
Change in intrinsic value of hedging instruments since 1 January
Change in value of hedged items used to determine hedge effectiveness
Cash flow hedges
(FX forwards and
options)(1)
(13)
(1 451)
1 451
(44)
45
Net investment
hedges
(FX forwards
and options)(1)
(11)
(4 129)
4 129
(83)
83
Fair value hedges
(FX forwards)(1)
(4)
(226)
231
(13)
17
Fair value and
cash flow hedges
(IR swaps and cross
currency swaps)(1)
(46)
2 330
(2 330)
9
(7)
(1) No significant ineffectiveness has been recorded during 2018 and economic relationships have been fully effective.
The most significant foreign exchange hedging instruments under cash flow, net investment and fair value hedge accounting as of December
31 are outlined in the table below:
Cash flow hedge accounting
Currency
Instrument
Maturity breakdown of net notional amounts (EURm)(1)
Fair value
(EURm)
Weighted
average
hedged rate
Total
Within
3 months
Between 3
and 12 months
Beyond
1 year
Interest rate profile of interest-bearing assets and liabilities as of December 31:
Net investment hedge accounting
GBP
GBP
JPY
PLN
USD
USD
CNY
INR
USD
USD
FX Forwards
FX Options
FX Forwards
FX Forwards
FX Forwards
FX Options
FX Forwards
FX Forwards
FX Forwards
FX Options
0.8866
3
7
0.9064
(4) 130.0618
4.2966
1
1.1653
(19)
1.2029
2
(184)
(191)
(150)
149
(655)
(297)
(38)
(48)
(51)
46
(140)
(87)
4
7.8333
(15) 81.5362
1.1414
1.1703
(2)
1
(944)
(544)
(2 246)
(240)
(944)
(544)
(2 246)
(240)
(93)
(90)
(99)
102
(515)
(210)
–
–
–
–
Fair value hedge accounting for FX risk
USD
FX Forwards
(3)
1.1478
(314)
(378)
64
(53)
(53)
–
–
–
–
–
–
–
–
–
(1) Negative notional amounts indicate that hedges sell currency and positive notional amounts indicate that hedges buy currency.
For information on hedging instruments used for fair value and cash flow hedge accounting related to the Group’s interest-bearing liabilities,
refer to Note 23, Interest-bearing liabilities.
196
NOKIA ANNUAL REPORT ON FORM 20-F 2018
197
197
Financial statements
Notes to consolidated financial statements continued
Equity price risk
In 2018 and 2017, 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.
Business-related credit risk
The Group aims to ensure the highest possible quality in trade receivables and contract assets 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.
Upon adoption of IFRS 9, the Group applies a simplified approach to recognizing a loss allowance on trade receivables based on
measurement of lifetime expected credit losses arising from trade receivables without significant financing components. Based on
quantitative and qualitative analysis, the Group has determined that the credit risk exposure arising from its trade receivables is low risk.
Quantitative analysis focuses on historical loss rates, historic and projected sales and the corresponding trade receivables, and overdue
trade receivables including indicators of any deterioration in the recovery expectation. Qualitative analysis focuses on all relevant conditions,
including customer credit rating, country credit rating and political situation, to improve the accuracy of estimating lifetime expected credit
losses. In 2018 and 2017, the Group recognized impairment losses of less than 1% of Net sales.
Credit exposure is measured as the total of trade receivables, contract assets and loans outstanding from customers and committed credits.
Trade receivables do not include any major concentrations of credit risk by customer. The top three customers account for approximately
4.2%, 3.7% and 3.5% (4.3%, 3.8% and 2.6% in 2017) of trade receivables, contract assets and loans due from customers and other third
parties as of December 31, 2018. The top three credit exposures by country account for approximately 16.2%, 11.0% and 7.9% (17.4%,
13.4% and 5.3% in 2017) of the Group’s trade receivables, contract assets and loans due from customers and other third parties as of
December 31, 2018. The 16.2% credit exposure relates to trade receivables in China (17.4% in 2017).
The Group has provided loss allowances on trade receivables, contract assets 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 loss allowances that represent an estimate
of expected losses at the end of the reporting period. All trade receivables, contract assets and loans due from customers are considered
on an individual basis to determine the loss allowances. The total of trade receivables, contract assets and loans due from customers is
EUR 7 112 million (EUR 7 232 million in 2017) as of December 31, 2018.
198
198
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Notes to consolidated financial statements continued
In 2018 and 2017, 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.
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.
Equity price risk
Other market risk
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.
Business-related credit risk
The Group aims to ensure the highest possible quality in trade receivables and contract assets 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.
Upon adoption of IFRS 9, the Group applies a simplified approach to recognizing a loss allowance on trade receivables based on
measurement of lifetime expected credit losses arising from trade receivables without significant financing components. Based on
quantitative and qualitative analysis, the Group has determined that the credit risk exposure arising from its trade receivables is low risk.
Quantitative analysis focuses on historical loss rates, historic and projected sales and the corresponding trade receivables, and overdue
trade receivables including indicators of any deterioration in the recovery expectation. Qualitative analysis focuses on all relevant conditions,
including customer credit rating, country credit rating and political situation, to improve the accuracy of estimating lifetime expected credit
losses. In 2018 and 2017, the Group recognized impairment losses of less than 1% of Net sales.
Credit exposure is measured as the total of trade receivables, contract assets and loans outstanding from customers and committed credits.
Trade receivables do not include any major concentrations of credit risk by customer. The top three customers account for approximately
4.2%, 3.7% and 3.5% (4.3%, 3.8% and 2.6% in 2017) of trade receivables, contract assets and loans due from customers and other third
parties as of December 31, 2018. The top three credit exposures by country account for approximately 16.2%, 11.0% and 7.9% (17.4%,
13.4% and 5.3% in 2017) of the Group’s trade receivables, contract assets and loans due from customers and other third parties as of
December 31, 2018. The 16.2% credit exposure relates to trade receivables in China (17.4% in 2017).
The Group has provided loss allowances on trade receivables, contract assets 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 loss allowances that represent an estimate
of expected losses at the end of the reporting period. All trade receivables, contract assets and loans due from customers are considered
on an individual basis to determine the loss allowances. The total of trade receivables, contract assets and loans due from customers is
EUR 7 112 million (EUR 7 232 million in 2017) as of December 31, 2018.
The aging of trade receivables, contract assets and customer finance loans is as follows:
EURm
As of December 31, 2018
Trade receivables
Contract assets(1)
Customer finance loans
Total
As of December 31, 2017
Trade receivables
Customer finance loans
Total
Current
4 224
1 875
186
6 285
6 179
158
6 337
Past due
1-30 days
Past due
31-180 days
Past due
More than 180 days
243
–
–
243
158
2
160
300
–
–
300
277
–
277
284
–
–
284
458
–
458
(1) The Group adopted IFRS 15 on January 1, 2018, by applying the modified retrospective method, hence no comparatives for December 31, 2017.
Movements in loss allowances, all of which relate to trade receivables, for the years ended December 31:
EURm
As of January 1
Charged to income statement
Deductions(1)
As of December 31
(1) Deductions include utilization and releases of allowances.
2018
192
86
(83)
195
2017
168
61
(37)
192
Total
5 051
1 875
186
7 112
7 072
160
7 232
2016
62
126
(20)
168
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 undrawn
Outstanding customer finance loans
Total
2018
313
186
499
2017
495
160
655
For customer and vendor finance related loans, the credit loss estimate is typically based on a 12 month expected credit loss for outstanding
loans and estimated additional draw-downs during this period. The loss allowance is calculated on a quarterly basis based on a review of
collectability and available collateral, derecognized from other comprehensive income and recognized in other financial expenses in the
consolidated income statement.
The changes in loss allowance for customer and vendor finance related loan receivables is presented below:
EURm
As of December 31, 2017
Adoption of IFRS 9(1)
As of January 1, 2018
(Decrease)/increase during the year
As of December 31, 2018
(1) Initial adjustment following the adoption of IFRS 9 as a result of applying the expected credit loss model.
Loss allowance
–
9
9
(2)
7
198
NOKIA ANNUAL REPORT ON FORM 20-F 2018
199
199
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. The Group did not have any financial investments that were
past due but not impaired at December 31. Due to the high credit quality of the Group’s financial investments the expected credit loss for
these investments is deemed insignificant.
Breakdown of outstanding fixed income and money-market investments, cash equivalents and cash by sector and credit rating grades ranked
as per Moody’s rating categories as of December 31:
EURm
2018
Banks
Other
Total
2017
Banks
Governments
Other
Total
Rating(1)
Aaa
Aa1-Aa3
A1-A3
Baa1-Baa3
Ba1-Ba3
B1-B3
Caa1-Caa3
Non-rated
A1-A3
Aaa
Aa1-Aa3
A1-A3
Baa1-Baa3
Ba1-Ba3
Non-rated
A1-A3
Aa1-Aa3
A1-A3
Cash
Due within
3 months
Due between 3
and 12 months
Due between
1 and 3 years
Due between
3 and 5 years
Due beyond
5 years
Total(2)(3)(4)
–
1 210
1 609
58
57
25
12
172
–
3 143
–
1 224
1 628
483
25
126
11
–
–
3 497
317
209
1 851
228
–
18
–
10
245
2 878
607
398
1 808
455
35
38
1
24
10
3 376
–
3
452
47
–
–
–
3
–
505
–
74
247
232
–
–
2
10
53
618
–
20
120
–
–
–
–
–
–
140
–
69
240
125
2
–
–
39
78
553
–
–
207
–
–
–
–
–
–
207
–
–
191
–
–
–
–
–
–
191
–
–
–
–
–
–
–
–
–
–
–
–
45
–
–
–
–
–
–
45
317
1 442
4 239
333
57
43
12
185
245
6 873
607
1 765
4 159
1 295
62
164
14
73
141
8 280
(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 bank deposits, structured deposits, investments in liquidity funds and investments in fixed income instruments. Liquidity funds that
invested mainly in bank securities are included under Banks and other liquidity funds are included under Other. Additionally, in 2017, liquidity funds that invested solely in government
securities are included under Governments.
(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 472 million (EUR 701 million
in 2017) of instruments that have a call period of less than 3 months.
(4) The Group has assessed credit quality of restricted financial assets of EUR 158 million (EUR 142 million in 2017) and has concluded that expected credit losses are not significant. These assets
have been excluded from the table.
200
200
NOKIA ANNUAL REPORT ON FORM 20-F 2018
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. The Group did not have any financial investments that were
past due but not impaired at December 31. Due to the high credit quality of the Group’s financial investments the expected credit loss for
these investments is deemed insignificant.
Breakdown of outstanding fixed income and money-market investments, cash equivalents and cash by sector and credit rating grades ranked
as per Moody’s rating categories as of December 31:
Cash
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)
EURm
2018
Banks
Other
Total
2017
Banks
Governments
Other
Total
Rating(1)
Aaa
Aa1-Aa3
A1-A3
Baa1-Baa3
Ba1-Ba3
B1-B3
Caa1-Caa3
Non-rated
A1-A3
Aaa
Aa1-Aa3
A1-A3
Baa1-Baa3
Ba1-Ba3
Non-rated
A1-A3
Aa1-Aa3
A1-A3
–
1 210
1 609
58
57
25
12
172
–
3 143
–
1 224
1 628
483
25
126
11
–
–
317
209
1 851
228
–
18
–
10
245
2 878
607
398
1 808
455
35
38
1
24
10
505
140
207
452
47
–
3
–
–
–
3
–
–
74
247
232
–
–
2
10
53
618
–
20
120
–
–
–
–
–
–
–
69
240
125
2
–
–
39
78
553
207
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
317
1 442
4 239
333
57
43
12
185
245
6 873
607
1 765
4 159
1 295
62
164
14
73
141
8 280
3 497
3 376
191
45
(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 bank deposits, structured deposits, investments in liquidity funds and investments in fixed income instruments. Liquidity funds that
invested mainly in bank securities are included under Banks and other liquidity funds are included under Other. Additionally, in 2017, liquidity funds that invested solely in government
(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 472 million (EUR 701 million
(4) The Group has assessed credit quality of restricted financial assets of EUR 158 million (EUR 142 million in 2017) and has concluded that expected credit losses are not significant. These assets
securities are included under Governments.
in 2017) of instruments that have a call period of less than 3 months.
have been excluded from the table.
Financial assets and liabilities subject to offsetting under enforceable master netting agreements and similar arrangements as of
December 31:
EURm
2018
Derivative assets
Derivative liabilities
Total
2017
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
Financial
instruments
assets/(liabilities)
Cash collateral
received/
(pledged)
Net amount
Related amounts not set off in the
statement of financial position
131
(178)
(47)
197
(268)
(71)
–
–
–
–
–
–
131
(178)
(47)
197
(268)
(71)
104
(103)
1
135
(145)
(10)
15
(72)
(57)
38
(100)
(62)
12
(3)
9
24
(23)
1
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 readily available
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.
The Group aims to ensure flexibility in funding by maintaining committed and uncommitted credit lines. As of December 31, 2018 committed
revolving credit facilities totaled EUR 1 579 million (EUR 1 579 million in 2017).
191
45
Issuer:
Nokia Corporation
Program:
Euro Medium-Term Note Program, totaling EUR 5 000 million
Significant current long-term funding programs as of December 31, 2018:
Issuer:
Nokia Corporation
Program:
Local commercial paper program in Finland, totaling EUR 750 million
Issued
1 250
Issued
–
200
NOKIA ANNUAL REPORT ON FORM 20-F 2018
201
201
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. Contingent financial assets and liabilities are presented according to their remaining contractual
maturity. The line-by-line analysis does not directly reconcile with the consolidated statement of financial position.
EURm
2018
Non-current financial assets
Other non-current financial assets(1)
Current financial assets
Current financial investments
Other current financial assets excluding derivatives(2)
Cash and cash equivalents(3)
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
Trade receivables
Non-current financial liabilities
Long-term interest-bearing liabilities
Current financial liabilities
Short-term interest-bearing liabilities
Other financial liabilities excluding derivatives
Cash flows related to derivative financial liabilities
gross settled:
Derivative contracts – receipts
Derivative contracts – payments
Trade payables
Contingent financial assets and liabilities
Loan commitments given undrawn(4)
Loan commitments obtained undrawn(5)
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
146
23
–
48
25
50
612
97
6 271
231
35
5 796
381
62
125
–
–
142
–
–
208
22
3
(6)
8
8
–
–
–
9
11 428
(11 093)
4 851
9 506
(9 463)
3 998
1 017
(1 008)
774
151
(124)
79
46
(17)
–
708
(481)
–
(3 918)
(1 024)
(731)
12 251
(12 236)
( 4 773)
(313)
2 323
(28)
(72)
(730)
(604)
(2 484)
(470)
–
(554)
(731)
9 863
(9 944)
(4 645)
1 335
(1 347)
(104)
–
–
68
(20)
(23)
(14)
249
(30)
(3)
(153)
2 077
–
–
–
–
482
(459)
–
(77)
–
503
(466)
(1)
(39)
–
(1) Other non-current financial assets include long-term customer and vendor financing related loan receivables as well as certain other long-term loan receivables that have been presented
in other non-current financial assets in the consolidated statement of financial position.
(2) Other current financial assets excluding derivatives include short-term customer and vendor financing related loan receivables that have been presented in other financial assets in the
consolidated statement of financial position.
(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 472 million of instruments
that have a call period of less than 3 months.
(4) Loan commitments given undrawn have been included in the earliest period in which they could be drawn or called.
(5) Loan commitments obtained undrawn have been included based on the period in which they expire. These amounts include related commitment fees.
202
202
NOKIA ANNUAL REPORT ON FORM 20-F 2018
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. Contingent financial assets and liabilities are presented according to their remaining contractual
maturity. The line-by-line analysis does not directly reconcile with the consolidated statement of financial position.
Total
Due within
Due between
3 months
3 and 12 months
Due between
1 and 3 years
Due between
3 and 5 years
Due beyond
5 years
EURm
2018
Non-current financial assets
Other non-current financial assets(1)
Current financial assets
Current financial investments
Other current financial assets excluding derivatives(2)
Cash and cash equivalents(3)
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
Trade receivables
Non-current financial liabilities
Long-term interest-bearing liabilities
Current financial liabilities
Short-term interest-bearing liabilities
Other financial liabilities excluding derivatives
Cash flows related to derivative financial liabilities
gross settled:
Derivative contracts – receipts
Derivative contracts – payments
Trade payables
Contingent financial assets and liabilities
Loan commitments given undrawn(4)
Loan commitments obtained undrawn(5)
146
23
–
48
25
50
612
97
6 271
231
35
5 796
381
62
125
–
–
–
–
142
208
22
3
(6)
8
8
–
–
–
9
11 428
(11 093)
4 851
9 506
(9 463)
3 998
1 017
(1 008)
774
151
(124)
79
46
(17)
–
708
(481)
–
(3 918)
(1 024)
(731)
12 251
(12 236)
( 4 773)
(313)
2 323
(28)
(72)
(730)
(604)
(2 484)
(470)
–
(554)
(731)
–
–
–
–
9 863
(9 944)
(4 645)
1 335
(1 347)
(104)
(14)
249
(30)
(3)
(153)
2 077
482
(459)
–
(77)
–
503
(466)
(1)
(39)
–
–
–
68
(20)
(23)
(1) Other non-current financial assets include long-term customer and vendor financing related loan receivables as well as certain other long-term loan receivables that have been presented
in other non-current financial assets in the consolidated statement of financial position.
(2) Other current financial assets excluding derivatives include short-term customer and vendor financing related loan receivables that have been presented in other financial assets in the
(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 472 million of instruments
consolidated statement of financial position.
that have a call period of less than 3 months.
(4) Loan commitments given undrawn have been included in the earliest period in which they could be drawn or called.
(5) Loan commitments obtained undrawn have been included based on the period in which they expire. These amounts include related commitment fees.
EURm
2017
Non-current financial assets
Long-term loan receivables
Current financial assets
Short-term loan receivables
Current financial investments and cash equivalents(1)
Bank and cash
Cash flows related to derivative financial assets
gross settled:
Derivative contracts – receipts
Derivative contracts – payments
Trade receivables(2)
Non-current financial liabilities
Long-term interest-bearing liabilities
Other long-term liabilities
Current financial liabilities
Short-term interest-bearing liabilities
Cash flows related to derivative financial liabilities gross
settled:
Derivative contracts – receipts
Derivative contracts – payments
Trade payables
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
112
21
–
77
4
92
4 797
3 497
6
3 381
3 497
86
621
–
11 484
(11 330)
5 633
10 249
(10 108)
4 297
1 235
(1 222)
1 208
–
558
–
–
–
107
–
192
–
–
–
21
10
–
45
–
–
–
–
(4 657)
(754)
(44)
–
(95)
–
(938)
(748)
(1 098)
–
(2 482)
(6)
(313)
(215)
(98)
–
–
–
10 278
(10 245)
(3 996)
8 265
(8 366)
(3 731)
(495)
1 566
(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 contractually due beyond 3 months included EUR 701 million of instruments
that have a call period of less than 3 months in 2017.
(2) Trade receivables maturity analysis did 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.
37. Subsequent events
Non-adjusting events after the reporting period
Changes in organizational structure
The Group announced organizational changes to accelerate its strategy execution on October 25, November 22 and December 31, 2018.
Starting January 1, 2019, the Group revised its financial reporting structure to better reflect its strategy, organizational structure and the
way it evaluates operational performance and allocates resources. As of the first quarter 2019, the Group will have three reportable segments:
(i) Networks, (ii) Nokia Software and (iii) Nokia Technologies. In addition, the Group will disclose segment-level data for Group Common and
Other. For each reportable segment, the Group will provide detailed financial disclosure, including net sales and operating profit.
In addition, the Group will provide net sales disclosure for the following businesses: (i) Mobile Access, (ii) Fixed Access, (iii) IP Routing and (iv)
Optical Networks, which together comprise the new Networks reportable segment. The Group will also provide separate net sales disclosure
for its different customer types: (i) Communication Service Providers, (ii) Enterprises and (iii) Licensees. Net sales by region will be provided
at the Group level.
Financing transactions
On February 4, 2019, the Group repaid EUR 231 million 6.75% Senior Notes in cash at the maturity.
On February 14, 2019, the availability period of EUR 250 million loan facility with the Nordic Investment Bank (NIB) was extended until
August 2019.
On March 11, 2019, the Group issued a tranche of senior unsecured notes in an aggregate principal amount of EUR 750 million. The notes
will mature on March 11, 2026, and have a 2.00% fixed coupon.
202
NOKIA ANNUAL REPORT ON FORM 20-F 2018
203
203
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 (the
Company) as of December 31, 2018 and 2017, 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, 2018,
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, 2018, 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, 2018 and 2017, and the results
of its operations and its cash flows for each of the three years in the
period ended December 31, 2018 in conformity with International
Financial Reporting Standards as issued by the International
Accounting Standards Board and International Financial Reporting
Standards 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, 2018, based
on criteria established in Internal Control - Integrated Framework
(2013) issued by the COSO.
Change in Accounting Principles
As discussed in Note 3 to the consolidated financial statements,
the Company changed the manner in which it accounts for revenue
from contracts with customers and the manner in which it accounts
for financial instruments in 2018.
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, 2018. 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 21, 2019
We have served as the Company’s auditor since 1987.
204
204
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Other information
Contents
Exhibits
Key ratios
Glossary of terms
Investor information
Contact information
Signatures
206
207
208
212
213
214
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 (the
Company) as of December 31, 2018 and 2017, 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, 2018,
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, 2018, based on criteria established in Internal Control
Integrated Framework (2013) issued by the Committee of
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.
Sponsoring Organizations of the Treadway Commission (COSO).
Definition and limitations of internal control over
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, 2018 and 2017, and the results
of its operations and its cash flows for each of the three years in the
period ended December 31, 2018 in conformity with International
Financial Reporting Standards as issued by the International
Accounting Standards Board and International Financial Reporting
Standards 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, 2018, based
on criteria established in Internal Control - Integrated Framework
(2013) issued by the COSO.
Change in Accounting Principles
As discussed in Note 3 to the consolidated financial statements,
the Company changed the manner in which it accounts for revenue
from contracts with customers and the manner in which it accounts
for financial instruments in 2018.
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, 2018. 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.
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 21, 2019
We have served as the Company’s auditor since 1987.
204
NOKIA ANNUAL REPORT ON FORM 20-F 2018
205
Financial statements
Exhibits
Key ratios
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 14, 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.
11
Code of Ethics
12.1
12.2
Certification of Rajeev Suri, President and Chief Executive Officer of Nokia Corporation, Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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)
Earnings per share (basic)
Profit attributable to equity holders of the parent
Weighted average number of shares in issue
Earnings per share (diluted)
Profit attributable to equity holders of the parent adjusted for the effect of dilution
Adjusted weighted average number of shares
P/E ratio
Closing share price as of December 31
Earnings per share (basic) for Continuing operations
Earnings per share (basic) for Continuing operations
Payout ratio
Dividend per share
Dividend yield %
Dividend per share
Closing share price as of December 31
Shareholders’ equity per share
Market capitalization
Share turnover %
Number of shares traded during the year
Average number of shares during the year
Total cash and current financial investments
Cash and cash equivalents and current financial investments
Net cash and current financial investments
Total cash and current financial investments – interest-bearing liabilities
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
(Number of shares as of December 31 – number of treasury shares as of December 31) x closing share price as of December 31
206
NOKIA ANNUAL REPORT ON FORM 20-F 2018
207
Exhibits
Key ratios
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 14, 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.
11
Code of Ethics
Sarbanes-Oxley Act of 2002.
Sarbanes-Oxley Act of 2002.
12.1
Certification of Rajeev Suri, President and Chief Executive Officer of Nokia Corporation, Pursuant to Section 302 of the
12.2
Certification of Kristian Pullola, Group Chief Financial Officer of Nokia Corporation, pursuant to Section 302 of the
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)
Earnings per share (basic)
Profit attributable to equity holders of the parent
Weighted average number of shares in issue
Earnings per share (diluted)
Profit attributable to equity holders of the parent adjusted for the effect of dilution
Adjusted weighted average number of 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
Total cash and current financial investments
Cash and cash equivalents and current financial investments
Net cash and current financial investments
Total cash and current financial investments – interest-bearing liabilities
NOKIA ANNUAL REPORT ON FORM 20-F 2018
207
207
Financial statements
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.
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.
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.
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.
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.
Access network: A telecommunications network between a local
exchange and the subscriber station.
CloudBand: Our Cloud management and orchestration solutions
enabling a unified Cloud engine and platform for NFV.
Airframe: Our 5G-ready, end-to-end data center solution that
combines the benefits of Cloud computing technologies with the
requirements of the core and radio telecommunications world.
It is available in Rackmount and Open Compute Project (OCP) form
factors. This enables the solution to be very scalable: from small
distributed latency-optimized data centers, all the way to massive
centralized hyper scale data center deployment.
AirScale Radio Access: A 5G-ready complete radio access generation
that helps operators address the increasing demands of today and
tomorrow. The solution comprises: Nokia AirScale Base Station with
multiband RF elements and system modules; Nokia AirScale Active
Antennas; Cloud RAN with Nokia AirScale Cloud Base Station Server
and the Cloud-based AirScale RNC for 3G; Nokia AirScale Wi-Fi;
common software; and services which use intelligent analytics
and extreme automation to maximize the performance of
hybrid networks.
Alcatel Lucent SA or Alcatel Lucent: Alcatel Lucent, a subsidiary
of Nokia Corporation.
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.
Continuing operations: Refers to the Continuing operations
following the acquisition of Alcatel Lucent, the sale of HERE business
in 2015 and the sale of D&S business in 2014. Our Continuing
operations in 2018 included two businesses: our Networks business
and Nokia Technologies.
Converged Core: A business unit of our Mobile Networks business
group providing solutions for the core network of the future.
Convergence: The coming together of two or more disparate
disciplines or technologies. Convergence types are, for example,
IP convergence, fixed-mobile convergence and device convergence.
Core network: A combination of exchanges and the basic
transmission equipment that together form the basis for
network services.
CSPs: 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).
Digital: A signaling technique in which a signal is encoded into digits
for transmission.
208
NOKIA ANNUAL REPORT ON FORM 20-F 2018
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
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
close variants.
certain receivers.
4G (Fourth Generation Mobile Communications): The fourth
generation of mobile communications standards based on LTE,
Churn: Churn rate is a measure of the number of customers or
subscribers who leave their service provider, e.g. a mobile operator,
offering IP data connections only and providing true broadband
during a given time period.
internet access for mobile devices. Refer also to LTE.
5G (Fifth Generation Mobile Communications): The next major
phase of mobile telecommunications standards. 5G will be the
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,
set of technical components and systems needed to handle new
applications and services) that can be rapidly provisioned and
requirements and overcome the limits of current systems.
released with minimal management effort.
Access network: A telecommunications network between a local
CloudBand: Our Cloud management and orchestration solutions
exchange and the subscriber station.
enabling a unified Cloud engine and platform for NFV.
Airframe: Our 5G-ready, end-to-end data center solution that
Continuing operations: Refers to the Continuing operations
combines the benefits of Cloud computing technologies with the
following the acquisition of Alcatel Lucent, the sale of HERE business
requirements of the core and radio telecommunications world.
in 2015 and the sale of D&S business in 2014. Our Continuing
It is available in Rackmount and Open Compute Project (OCP) form
operations in 2018 included two businesses: our Networks business
factors. This enables the solution to be very scalable: from small
and Nokia Technologies.
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.
Converged Core: A business unit of our Mobile Networks business
group providing solutions for the core network of the future.
Convergence: The coming together of two or more disparate
disciplines or technologies. Convergence types are, for example,
IP convergence, fixed-mobile convergence and device convergence.
Core network: A combination of exchanges and the basic
transmission equipment that together form the basis for
network services.
CSPs: Communications service providers.
Alcatel Lucent SA or Alcatel Lucent: Alcatel Lucent, a subsidiary
of Nokia Corporation.
Customer Experience Management: Software suite used to manage
and improve the customer experience, based on customer, device
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
operation (Ops).
rate of 9.6 Kbps.
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
Digital: A signaling technique in which a signal is encoded into digits
for transmission.
Discontinued operations: Mainly refers to the divestment of
our HERE business to an automotive consortium and the sale of
substantially all of our Devices & Services business to Microsoft.
Ecosystem: An industry term to describe the increasingly large
communities of mutually beneficial partnerships that participants
such as hardware manufacturers, software providers, developers,
publishers, entertainment providers, advertisers and ecommerce
specialists form in order to bring their offerings to market. At the
heart of the major ecosystems in the mobile devices and related
services industry is the operating system and the development
platform upon which services are built.
Engine: Hardware and software that perform essential core
functions for telecommunication or application tasks.
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.
Future X: A network architecture – a massively distributed, cognitive,
continuously adaptive, learning and optimizing network connecting
humans, senses, things, systems, infrastructure, processes.
G.fast: A fixed broadband technology able to deliver up to 1Gbps
over very short distances (for example, for in-building use, also
called “Fiber-to-the-Building”). Launched in 2014, G.fast uses
more frequencies and G.fast Vectoring techniques to achieve
higher speeds.
Global Delivery Center: A remote service delivery center with a pool
of services experts, automated tools and standardized processes to
ensure that services across the entire network life cycle are delivered
to operators globally.
Global Services: 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.
Internet of Things (IoT): All things such as cars, the clothes we wear,
household appliances and machines in factories connected to the
Internet and able to automatically learn and organize themselves.
Industrial design: Design process applied for products that will
be manufactured at mass scale.
Internet Protocol: A network layer protocol that offers a
connectionless internet work service and forms part of the
TCP/IP protocol.
IP (Intellectual Property): Intellectual property results from
original creative thought, covering items such as patents, copyright
material and trademarks, as well as business models and plans.
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.
NOKIA ANNUAL REPORT ON FORM 20-F 2018
209
209
Financial statements
Glossary of terms continued
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.
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 2018.
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 Enterprise: Recognizing the growth potential of our business
within the enterprise customer segment, we created a new business
group, Nokia Enterprise, effective January 1, 2019. Our Enterprise
business group addresses the mission- and business-critical
networking requirements of asset-intensive industries such as
transportation, energy, manufacturing and logistics – as well as
governments and smart cities.
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.
Nokia Technologies: Our business focused on advanced technology
development and licensing.
NSN (Nokia Solutions and Networks): The former name of our
Networks business. From 2007, NSN was known as Nokia Siemens
Networks until we acquired Siemens’ 50% stake in the joint venture
in 2013.
Nuage Networks: A wholly owned subsidiary of Alcatel Lucent,
delivers a SDN solution to eliminate key data center network
constraints that hinder Cloud services adoption.
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.
Packet: Part of a message transmitted over a packet switched
network.
Picocell: A small cellular base station typically covering a small area
typically up to 200 meters wide. Typically used to extend coverage
to indoor areas or to add network capacity in areas with very dense
phone usage, such as train stations.
Platform: Software platform is a term used to refer to an operating
system or programming environment, or a combination of the two.
PON (Passive Optical Networking): A fiber access architecture in
which unpowered Fiber Optic Splitters are used to enable a single
optical fiber to serve multiple end-points without having to provide
individual fibers between the hub and customer.
Programmable World: A world where connectivity will expand
massively, linking people as well as billions of physical objects – from
cars, home appliances and smartphones, to wearables, industrial
equipment and health monitors. What distinguishes the
Programmable World from the Internet of Things is the intelligence
that is added to data to allow people to interpret and use it, rather
than just capture it.
RAN (Radio Access Network): A mobile telecommunications system
consisting of radio base stations and transmission equipment.
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.
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.
210
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Glossary of terms continued
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.
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,
Mobile broadband: Refers to high-speed wireless internet
connections and services designed to be used from arbitrary
the user interface.
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.
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.
Networks business: Comprised the Mobile Networks, Fixed
Platform: Software platform is a term used to refer to an operating
Networks, Global Services, Nokia Software, and IP/Optical Networks
system or programming environment, or a combination of the two.
business groups in 2018.
NFV (Network Functions Virtualization): Principle of separating
network functions from the hardware they run on by using virtual
optical fiber to serve multiple end-points without having to provide
hardware abstraction.
individual fibers between the hub and customer.
PON (Passive Optical Networking): A fiber access architecture in
which unpowered Fiber Optic Splitters are used to enable a single
Nokia Bell Labs: Our research arm discovering and developing the
Programmable World: A world where connectivity will expand
technological shifts needed for the next phase of human existence
massively, linking people as well as billions of physical objects – from
as well as exploring and solving complex problems to radically
cars, home appliances and smartphones, to wearables, industrial
redefine networks.
Nokia Enterprise: Recognizing the growth potential of our business
within the enterprise customer segment, we created a new business
group, Nokia Enterprise, effective January 1, 2019. Our Enterprise
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.
business group addresses the mission- and business-critical
RAN (Radio Access Network): A mobile telecommunications system
networking requirements of asset-intensive industries such as
consisting of radio base stations and transmission equipment.
transportation, energy, manufacturing and logistics – as well as
governments and smart cities.
Nokia Networks: Our former business focused on mobile network
infrastructure software, hardware and services.
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
Nokia Software: Our business group offering carrier-grade software
and the underlying hardware to be abstracted.
applications and platforms to provide operations and business
support systems, build, deliver, and optimize services, enable their
monetization, and to improve customer experience.
Nokia Technologies: Our business focused on advanced technology
development and licensing.
NSN (Nokia Solutions and Networks): The former name of our
Networks business. From 2007, NSN was known as Nokia Siemens
non-discriminatory (FRAND) terms.
Networks until we acquired Siemens’ 50% stake in the joint venture
in 2013.
Nuage Networks: A wholly owned subsidiary of Alcatel Lucent,
delivers a SDN solution to eliminate key data center network
constraints that hinder Cloud services adoption.
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
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.
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.
Webscale companies: 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.
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.
Technology licensing: Generally refers to an agreement or
arrangement where under certain terms a company provides
another company with its technology and possibly know-how,
whether protected by intellectual property or not, for use in
products or services offered by the other company.
Telco Cloud: Applying Cloud computing, SDN and NFV principles
in telecommunications environment, e.g. separating application
software from underlying hardware with automated, programmable
interfaces while still retaining telecommunications requirements
such as high availability and low latency.
Transmission: The action of conveying signals from one point to one
or more other points.
TXLEs (Technical extra-large enterprises): Technically sophisticated
companies, such as banks, that invest heavily in their own network
infrastructures to gain a key competitive advantage.
VDSL2 (Very High Bit Rate Digital Subscriber Line 2): A fixed
broadband technology, the successor of ADSL. Launched in 2007,
it typically delivers a 30Mbps broadband service from a street
cabinet (also called a “Fiber-to-the-Node” deployment) over existing
telephone lines.
VDSL2 Vectoring: A fixed broadband technology launched in 2011,
able to deliver up to 100Mbps over a VDSL2 line by applying noise
cancellation techniques to remove cross-talk between neighboring
VDSL2 lines.
Virtual Reality (VR): The simulation of a three-dimensional image
or environment that can be interacted with in a seemingly real
or physical way by a person using special electronic equipment,
such as a helmet with a screen inside or gloves fitted with sensors.
VoLTE (Voice over LTE): Required to offer voice services on an all-IP
LTE network and generally provided using IP Multimedia Subsystem.
Vplus: A fixed broadband technology, between VDSL2 Vectoring and
G.fast in terms of bandwidth and distances, typically used in FTTN
(ode) deployments. Launched in 2015, it delivers up to 300Mbps
and has been standardized as VDSL2 35b.
211
NOKIA ANNUAL REPORT ON FORM 20-F 2018
211
Financial statements
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.
SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC (http://www.sec.gov).
Investor Relations contacts
investor.relations@nokia.com
Annual General Meeting
May 21, 2019
Date:
Place:
Helsinki, Finland
Dividend
The Board proposes to the Annual General Meeting a dividend of EUR 0.20 per share for the year 2018.
Financial reporting
Our interim reports in 2019 are planned to be published on April 25, 2019, July 25, 2019 and October 24, 2019. The full-year 2019 results
are planned to be published in January 2020.
Information published in 2018
All our global press releases and statements published in 2018 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 internet site at
http://www.sec.gov.
212
NOKIA ANNUAL REPORT ON FORM 20-F 2018
Investor information
Contact information
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
SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file
Nokia Head Office
Karaportti 3
FI-02610 Espoo, Finland
FINLAND
Tel. +358 (0) 10 44 88 000
Fax +358 (0) 10 44 81 002
Information on the internet
www.nokia.com
Statement and Remuneration Statement.
electronically with the SEC (http://www.sec.gov).
Investor Relations contacts
investor.relations@nokia.com
Annual General Meeting
Date:
May 21, 2019
Place:
Helsinki, Finland
Dividend
Financial reporting
are planned to be published in January 2020.
Information published in 2018
The Board proposes to the Annual General Meeting a dividend of EUR 0.20 per share for the year 2018.
Our interim reports in 2019 are planned to be published on April 25, 2019, July 25, 2019 and October 24, 2019. The full-year 2019 results
All our global press releases and statements published in 2018 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
http://www.sec.gov.
The documents referred to in this annual report on Form 20-F can be read at the Securities and Exchange Commission’s internet site at
NOKIA ANNUAL REPORT ON FORM 20-F 2018
213
213
Financial statements
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/ KRIS LEMMENS
Kris Lemmens
Deputy Chief Financial Officer
By:
Name:
Title:
/S/ ESA NIINIMÄKI
Esa Niinimäki
Vice President, Corporate Legal
March 21, 2019
214
NOKIA ANNUAL REPORT ON FORM 20-F 2018
This report is printed on material derived from sustainable sources, and printed using vegetable based inks.
Both the manufacturing paper mill and printer are registered to the Environmental Management System ISO
14001 and are Forest Stewardship Council® (FSC®) chain-of-custody certified. CPI Colour is also a Carbon
Neutral Printing Company and reduces its CO2 omissions to net zero in accordance with The CarbonNeutral
Protocol. This carbon offsetting supports the Uchindile Mapanda reforestation programme in Tanzania,
an environmental project to establish commercial forests at two locations in Africa.
This report is recyclable and bio-degradable. If you have finished with this document and no longer wish
to retain it, please pass it on to other interested readers or dispose of it in your recycled paper waste.
Thank you.
Copyright © 2019 Nokia Corporation. All rights reserved.
Nokia is a registered trademark of Nokia Corporation.
www.nokia.com