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Creating the technology
to connect the world
Nokia in 2019
Nokia in 2019
This is it. 5G is here.
Networks, businesses
and public services
are being transformed
and we are at
the forefront.
Rajeev Suri
President and CEO
Business overview
We create the technology
to connect the world
Letter from our President and CEO
Market trends driving our strategy
Our strategy
Innovation
Nokia Bell Labs
Sales and marketing
Business groups
Mobile Networks
Global Services
Fixed Networks
IP/Optical Networks
Nokia Software
Nokia Enterprise
Nokia Technologies
Principal industry trends affecting
operations
Board review
Board review
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
Production of infrastructure
equipment and products
Financial statements
Consolidated primary statements
Notes to consolidated financial
statements
Parent company primary statements
Notes to the parent company
primary statements
Signing of the Annual Accounts 2019
Auditor’s report
Other information
Forward-looking statements
Introduction and use of certain terms
Key ratios
Alternative performance measures
Glossary of terms
Investor information
Contact information
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01
NOKIA IN 2019
02
NOKIA IN 2019
Connecting people across
communities and industries
wherever they live and work.
NOKIA IN 2019
03
We create the technology
to connect the world
5G is changing how people live, work and
communicate. Whole industries are being
transformed. Networks are becoming faster
and more responsive. Artificial intelligence
and machine learning are allowing systems
to sense their environment and react
instantaneously. Digitalization and
automation are making Industry 4.0 a reality.
Nokia is addressing these changes around the globe.
Our end-to-end portfolio of solutions and services is unique;
our ability to partner with customers anywhere and address
their needs is clearly demonstrated; and we are absolutely
committed to quality, sustainability and integrity. Security is
built in everything we do.
We are driving the innovation for tomorrow and delivering
the technology today to make businesses more productive,
environments cleaner, workplaces safer, economies stronger,
and lives enriched. These are the expectations our customers
trust us to deliver.
A global technology leader
Net sales 2019 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 556m (+12%)
EUR 6 620m (+2%)
EUR 1 843m (-15%)
EUR 1 472m (+7%)
EUR 1 876m (0%)
EUR 6 948m (+6%)
Net sales 2019 by business(2)
Financial highlights
For the year ended December 31,
Continuing operations
Net sales
Gross profit
Gross margin
Operating profit/(loss)
Operating margin
Profit/(loss) for the year
Earnings per share, diluted
Dividend per share(1)
As of December 31
Net cash and current financial investments
2017
EURm
23 147
9 139
39.5%
16
0.1%
(1 437)
EUR
(0.26)
0.19
2019
EURm
2018
EURm
22 563
23 315
8 446
8 326
35.7% 37.4%
(59)
2.1% (0.3)%
(549)
485
EUR
(0.10)
0.10
18
EUR
0.00
0.00
2019
EURm
1 730
2018
EURm
2017
EURm
3 053
4 517
A
4
3
2
D
C
B
1
1 Networks
A Mobile Access
B Fixed Access
C IP Routing
D Optical Networks
EUR 18 209m (+5%)
EUR 11 655m (+3%)
EUR 1 881m (-5%)
EUR 2 921m (+15%)
EUR 1 752m (+9%)
EUR 2 767m (+2%)
EUR 1 487m (-1%)
2 Nokia Software
3 Nokia Technologies
4 Group Common and Other EUR 952m (-7%)
(1) No dividend is proposed by the Board of Directors related to the financial year 2019.
(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.
04
NOKIA IN 2019
We have combined global leadership in mobile and fixed network infrastructure with the software,
services and advanced technologies to serve customers around the world.
Net sales in 2019
EUR 23.3bn
Countries of operation
~120
Average number of employees in 2019
~98 000
Europe
Employees
39 700
North America
Employees
13 000
Greater China
Employees
15 700
Middle East & Africa
Employees
3 500
Latin America
Employees
4 100
Asia-Pacific
Employees
22 200
Business groups
Reportable segments
1 Mobile Networks
Higher quality and
more reliable mobile
broadband experiences
2 Global Services
Helping customers navigate
complexity to transform and
digitalize their business
3 Fixed Networks
Using intelligent access
to create networks that
are faster, better, smarter
4 IP/Optical Networks
Massively scalable networks
that underpin the digital world’s
dynamic interconnectivity
6 Nokia Enterprise
Digitalizing asset-intensive
industries with mission and
business critical needs
Intelligent software platforms
optimizing and automating
network performance
5 Nokia Software
7 Nokia Technologies
Technology designed
to bring the human family
closer together
As of January 2019 Nokia has three reportable segments.
Nokia also discloses segment-level data for Group
Common and Other.
Networks
Nokia provides net sales disclosure for the following
businesses i.e. reportable businesses: Mobile Access,
Fixed Access, IP Routing, Optical Networks
Nokia Software
Nokia Technologies
Group Common and other
For more information on our business performance:
Our strategy: See pages 10–16
Our business groups: See pages 22–39
Results of operations: See pages 46–51
Results of segments: See pages 52–58
Financial statements: See page 139–214
NOKIA IN 2019
05
Business overview Letter from our
President and CEO
2019 was the year 5G took off.
We saw the first commercial
5G rollouts, and Nokia played
a significant role helping
customers in all leading markets.
Many of our businesses
performed very well – such as
Nokia Enterprise delivering
double-digit sales growth,
IP Routing gaining significant
market share and increasing
profitability, and Nokia Software
substantially expanding its
profitability. We faced challenges
in our Mobile Access and cash
generation but know what we
need to fix, and expect to improve
over the course of 2020 and start
2021 in a much stronger position.
06
NOKIA IN 2019
Connectivity with a purpose
If Nokia creates the technology to connect the
world, then in 2019 the world got that little bit
better connected.
2019 was the year 5G was launched into the
mass market – and we were in the pilot’s seat.
We are the only company working with all the
operators who have chosen their 5G vendor
in the early adopter markets of the US,
South Korea and Japan. That gave us
firsthand experience of the enthusiastic
welcome consumers are giving 5G – in Korea,
for example, we expected around 3 million
users by the end of the year, but the final
total was closer to 5 million.
Those would be great figures at any time.
But remember that this new technology
cycle is still in its early stages – and consumer
appetite is only part of the picture. As 5G
becomes established in more markets,
its increased capacity, reliability and
responsiveness will unlock the Fourth
Industrial Revolution, profoundly changing
the way cities, businesses and governments
operate, and creating unprecedented
opportunities for economic growth, human
wellbeing and environmental sustainability.
That last point is critical. The evidence is clear:
5G can provide solutions to the pressing issue
of climate change. Over time, 5G will improve
material efficiency, resource efficiency and
energy efficiency. The gains will be particularly
striking in resource-intensive industries, such
as mining and manufacturing.
And we are starting to get a taste of the
potential of meaningful connectivity already
before 5G fully arrives. In 2019, for instance,
we helped small-scale farmers in Algeria
automate their irrigation lines, leading not
only to healthier crops but to less wasted
water and greater crop yields. We helped the
Japanese city of Sendai develop their crisis
response system by using automated drones.
And in Peru we are working with mining
companies to reduce their environmental
impact and improve employee safety.
The journey towards a better-connected,
sustainable future also presents a huge
business opportunity. According to World
Economic Forum estimates, 5G alone can
create over $13 trillion of global economic
value across every conceivable industry, as
well as over 22 million jobs, by 2035. Nokia is
well positioned to benefit from this opportunity.
I will come back to that later in this letter,
but first I want to explore our 2019 financial
performance and explain what we are doing to
improve in the areas where we have challenges.
Progress in a challenging year
Overall, we cannot be content with our
financial performance in 2019. Nokia Group
net sales were up 1 percent globally (5 percent
excluding China) excluding the impact of
changes in foreign currency exchange rates,
and our operating margin was up by about
2 percentage points versus 2018.
But, at the same time, we had areas of
remarkable strength across our business
groups. IP Routing continued its strong
momentum, gaining significant market share
and improving profitability. Nokia Software
delivered on its promise, with an operating
margin that was up sharply from 2018.
Nokia Enterprise also delivered exceedingly
well, hitting its double-digit sales growth
target and considerably outperforming the
market. And Nokia Technologies increased
its already excellent profitability.
Also, taking a regional perspective, we saw
many good areas of performance. Our sales
increased in Asia Pacific, Europe, Latin America,
and North America. Excluding the impact of
changes in foreign currency exchange rates,
sales were down by 2 percent in Middle East
and Africa but that was still a good
performance in the context of challenging
market dynamics. In Greater China the
market presents some unique challenges,
and we saw a sales decline of 16 percent
excluding the impact of changes in foreign
currency exchange rates.
As mentioned above, we were also chosen
by early adopter operators in the leading 5G
markets – from Sprint and Verizon in the US,
to Softbank in Japan, to Korea Telecom in
South Korea, amongst others; additionally,
we were selected by Orange France and O2
in the UK. This was down to some admirable
work across business groups and our
customer organization teams. In 2020 we will
work hard to maintain and increase the trust
our customers have in us.
Improving execution in our
access business
In 2019 the Nokia Group results were,
however, impacted by the difficulties across
our Mobile and Fixed Access businesses.
Fixed Access continued to face challenges
in the market transition from copper to fiber
despite some initial signs of progress towards
the end of the year. Going forward, we will
continue to have a sharp focus on costs,
and we have targeted selective expansion in
new areas, particularly fixed wireless access.
The core of our profitability issues came
from Mobile Access (a combination of our
Mobile Networks and Global Services business
groups), and in particular from high radio
product costs in the early stages of 5G. Action
is underway to overcome these challenges.
First, teams across the company are working
hard to optimize 5G product costs by
addressing every possible part of product
bills of materials, including semiconductors,
where a transition to our system-on-chip
“5G Powered by ReefShark” portfolio is critical.
Second, we want to maintain necessary scale
in mobile radio products. This requires that we
continue to convert existing 4G customers to
5G and confirm new ones. In 2019 we did well
here and ended the year with a 4G+5G market
share in the range of 27 percent excluding
China. Going forward we want to stabilize this
at approximately the same level.
NOKIA IN 2019
07
Business overview Letter from our
President and CEO continued
The third pillar is about strengthening
our software business with one Common
Software Foundation. As noted above, 2019
was another strong year for us in this space,
with leading industry analysts describing
Nokia Software as the world’s leading telco
software business. Through hard work in
recent years, Nokia has grown into the overall
market share leader across both telecom
software and services combined.
We have also made good progress against
our fourth pillar, diversifying our licensing
business with new opportunities in patents,
IoT and brand. Nokia Technologies has
done a great job in creating new licensing
opportunities in the consumer ecosystem,
and we see meaningful growth opportunities
in expanding our scope.
Operational excellence is the foundation for
our strategic priorities. In addition to the
aforementioned actions in cash, commercial
discipline and operational improvements
in services, we are continuing with various
actions across Nokia that will contribute to
our commitment to reduce costs in 2020
by EUR 500 million compared to 2018.
This will make us smarter, leaner and more
competitive going forward.
Creating long-term value
In 2019 we made good progress against
our strategic pillars and I am confident our
strategy remains the right one and enables
long-term value creation for our shareholders,
customers, partners and employees.
In the first pillar of our strategy – leading in
high-performance, end-to-end networks
with communication service providers – we
continued to progress in 5G despite the
aforementioned challenges in Mobile Access.
By the end of 2019 we reached 62 5G
commercial deals and launched 18 live
networks with our customers. We demonstrated
the power of our unique global end-to-end
portfolio with an increased number of
multi-business group deals in our sales
pipeline. Our broad portfolio also means that
even though 5G product costs negatively
impact our near-term margins, we are well
positioned to benefit from the longer 5G
investment cycle.
Our second pillar is about growing our
enterprise and webscale business and leading
the digitalization of industries with private
networks and industrial automation. In recent
years we have successfully delivered what we
promised we would: we expanded network
sales into select vertical markets and
positioned ourselves well in the industrial
automation market, which we expect will be
critical in the Fourth Industrial Revolution.
And Nokia Enterprise’s results again in 2019
show high promise for the future.
Third, in 2019 we took significant steps to
enhance commercial management and deal
discipline to drive better performance in
current contracts and improve outcomes in
new ones. We will continue to push hard for
further improvements this year and expect
to see positive impact on the profitability
of Mobile Access gradually over the year.
Finally, we further strengthened operational
improvements in services, including increases
in operational discipline and enhanced efforts
to manage for margin and cash. I was pleased
to see that in 2019 our hard work started to
take hold, and we saw improvement in our
Global Services operating margin in 2019
compared to 2018, even if we were still
below what we believe we can achieve.
In 2020 we will publish quarterly updates on
our operational progress in Mobile Access,
as well as on cash generation, which will
continue to be an additional area of focus.
Strengthening cash generation
In 2019 we put a structured program in place
to improve our cash position, including a
company-wide focus on free cash flow and
release of working capital, strengthened
relevant contractual terms with customers
and suppliers, and reinforced controls across
our supply chain and inventory management.
As a result, we were able to reduce inventories
to the lowest levels since the beginning of
2018 and ended the year with a solid net
cash position.
Going forward, we will continue to push hard
to generate cash, and even though there may
be headwinds related to the timing of Nokia
Technologies’ cash flow and cash outflows
related to restructuring in 2020, we expect
these to be mitigated in the coming years.
08
NOKIA IN 2019
Working with integrity
One area bringing us added value – as well as
a strong sense of pride – is the high level of
integrity in the way we work. We will discuss
our achievements in more detail in our People
and Planet report published in April, but I want
to mention a couple of highlights from 2019.
Looking ahead
We continue to work hard to create long-term
value for Nokia and our customers, and more
widely for industries, communities and
societies. And, as explained in this letter,
we have a clear set of drivers to deliver
on that promise.
Despite our short-term challenges in
execution in our access business, I remain
confident that we are taking the right steps
over the course of this year to deliver
progressive improvement and to position
us for a stronger 2021.
Rajeev Suri
President and CEO
In February our culture of integrity and our
positive impact on the business community
and wider ecosystems received recognition,
with Ethisphere naming Nokia one of the
World’s Most Ethical Companies for the third
year. And in 2020, we are happy to see that
recognition renewed for the fourth time.
In September we were among the
frontrunner companies announcing our
intention to recalibrate our emissions targets
in line with the scientific consensus that
the world needs to limit average rises in
temperature to 1.5°C in order to avoid
irreversible environmental damage.
In May we published our plan to close the
“unexplained pay gap” in the company – a
gap that cannot be explained by factors that
drive pay at Nokia, such as performance,
experience, job grade or location. By July
that gap was closed, and we have regular
checks in place to make sure it never returns.
NOKIA IN 2019
09
Business overview Market trends driving
our strategy
Nokia aims at enabling massive
consumer broadband and the
industrial automation revolution
with large networks at scale.
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 aligned to these megatrends, providing opportunities
for us to diversify into new growth areas.
The megatrends we have identified are:
1 Network, compute
and storage
Ever present broadband capacity coupled with
a distributed cloud for ubiquitous compute
and near infinite storage, allowing limitless
connectivity and imperceptible latency as
well as subscription-based and asset-less
business models.
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.
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.
6 Digitalization and
ecosystems
Next level of digitalization 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.
10
NOKIA IN 2019
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.
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.
Besides this, we have defined five end-to-end
solutions on the basis of Future X: 5G,
distributed cloud, network slicing, security
and industrial automation.
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, with growth mainly
driven by 5G.
However, the megatrends are increasing the
demand for large high-performance networks
in other key industries. Webscale companies
are investing in cloud technology and
network infrastructure at an increasing scale.
As other vertical market segments such as
transportation, energy, manufacturing and
logistics, and governments and cities digitize
their operations, they need high-performing,
low-latency mission-critical networks as well.
NOKIA IN 2019
11
Business overview Our strategy
Our key priorities
Our “Rebalancing for growth” strategy sets the right direction
for Nokia. We have focused it to reflect the progress so far
and to accelerate further execution.
Lead
Lead in high-performance, end-to-end networks with communication service providers
Our aspiration, strategy and position
Nokia intends to become the leading, trusted network equipment provider for end-to-end networks and the leader in customer intimacy.
Our comprehensive portfolio of access, transport and software allows us to leverage our existing global customer sales channel to generate
incremental sales opportunities across multiple network domains, and secure value throughout the network investment cycle. Over the long
term, we aim to differentiate with end-to-end solutions that allow us to offer our customers guaranteed mission-critical performance, total
cost of ownership savings, time-to-market gains and higher reliability. We expect our technology leadership to protect against the sustained
price pressure in the communication service provider (CSP) industry, where we focus our Mobile and Fixed Networks as well as our Global Services
business on optimizing profit and cash and maximizing Nokia’s end-to-end 5G value proposition. We work relentlessly to drive advantage
through strong technology, time to market and significantly lowering product costs in 5G. In addition, we leverage our differentiation in
superior 4G network performance, the most comprehensive small cell portfolio and the leading position in 5G fixed wireless access and
ultrabroadband optical fiber access solutions. We manage our IP Routing and Optical Networks businesses for growth, based on technological
differentiation and leadership as well as market momentum. We strive to expand IP Routing based on product leadership with the FP4 chipset.
Optical Networks is in a position of technological strength that will be further improved with the recently launched PSE-3 chipsets.
Our focus areas
■ We aim to differentiate with our end-to-end networks portfolio that delivers benefits for our customers in automation and orchestration,
total cost of ownership and time to market.
■ We have defined and are implementing five end-to-end solutions: 5G, distributed cloud, network slicing, security, and industrial automation.
■ We invest in the architecture and 5G system-on-chip capabilities for our mobile radio network products to improve product cost
competitiveness, essential to improving Nokia Group’s profitability and gross margins over time.
■ We invest and innovate in digital service architecture, advanced analytics, machine learning, automation and serviceability for fast and flawless
delivery of our network infrastructure services.
■ We provide industry-leading cognitive network services to improve network performance, operational efficiency and subscriber experience,
and develop service business models to open new revenue streams for CSPs.
■ We maintain our leading market share in copper and fiber access and accelerate momentum in fixed wireless access for 5G and simplify
network operations for our customers.
■ We leverage 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 broad portfolio that is differentiated by performance, flexibility, security and quality.
■ We build technology leadership in our Optical Networks portfolio leveraging our PSE-3 chipset.
■ We develop the next-generation technological disruptions in close collaboration between our business groups and Nokia Bell Labs.
Progress
■ By the end of 2019, Nokia had won 62 commercial 5G deals and launched 18 commercial 5G networks with leading operators, in particular
in North America, Korea, Japan, Australia and New Zealand, Europe and Middle-East and Africa.
■ Regarding our conversion rate from 4G to 5G based on actual radio business volume, we are at a strong 93.5%. Excluding mainland China,
where local players have a dominant market share, we have a weighted conversion rate of 103%. Therefore, excluding mainland China,
we have won more share in 5G than we had in 4G, amongst all those 4G customers who have decided on their 5G vendors.
■ We are making progress with Mobile Networks radio design-to-cost reduction, with significant annualized product cost and procurement
savings. To address 5G product cost issues and meet higher performance requirements, we have introduced a new generation of radio
chipsets that will reduce the size, weight and power consumption of our mMIMO products. We have started rolling out Nokia’s new
system-on-chip, “5G Powered by ReefShark” base station portfolio.
■ The first cloud-based (vRAN 1.0) 5G/New Radio (NR) system in North America has been launched with Nokia. This launch is the first commercial
Nokia Cloud RAN deployment.
■ In our copper business, we maintained our strong market position with a market share of around 32% and we have significantly increased our
market share in G.Fast (+13 percentage points), the technology for the next generation of copper-based broadband access. We have built
strong traction in fixed wireless access with deployments at several customers, for example, Optus in Australia, and are selected by relevant
new players, for example, Rakuten.
■ In IP Routing, our FP4 chipset is getting strong market momentum. We have won more than 140 projects with 119 customers including over
61 new projects and 34 replacements of competitors.
■ In Optical, we have our PSE-3 chipsets deployed in production networks with select customers.
12
NOKIA IN 2019
Grow
Grow the enterprise and webscale business and lead the digitalization of industries
with private networks and industrial automation
Our aspiration, strategy and position
In 2019, Nokia accelerated its engagement with the enterprise customer market. Recognizing the growth potential of our business within
this market, we created a new business group, Nokia Enterprise, effective January 1, 2019. Our Nokia Enterprise business group addresses
mission and business critical networking requirements for asset-intensive industries. We build hyperscale cloud and private networks for
our customers, and serve the following segments: webscale, transportation, energy, manufacturing and logistics, governments and cities.
The Nokia Enterprise growth strategy is based on three focus areas – scaling our enterprise networks business, further growing in the
webscale segment, and expanding into industrial automation with private networks.
Our focus areas
■ We scale up our existing business in transportation, energy, government and cities segments by augmenting our IP/MPLS, Optics, GSM-R
and other existing portfolios with private networks, providing customers with the performance and security they require as they digitize
and transform their communications infrastructure and applications. We also continue to drive the adoption of multi-cloud, Internet of
Things (IoT) and automation with strategic investments in emerging technologies such as Software Defined Networks (SDN), Software
Defined Wide-Area network (SD-WAN) applications, and data centers.
■ We continue to grow our market share in the webscale segment with IP and Optical portfolios where we are building large high
performance networks that drive hyperscale cloud connectivity.
■ We see a private wireless inflection point in the market that is driven by the need for high performance private wireless networks. Driven
by the convergence of operational technology (OT), information technology (IT) and networks, customers in these domains need a higher
level of network performance in order to automate and digitize their operations. We are implementing a strategy to enter and grow in the
manufacturing and logistics segments where the opportunity for high performance private wireless networks is significant. Our strategy
is to address these customers with our Nokia Digital Automation Cloud platform and our modular private wireless solution.
Progress
■ In 2019, we built strong market momentum in our target vertical markets with more than 120 new customers and we now have more than
1 300 enterprise customers, deploying our networks globally.
■ We have accelerated our private wireless networks (4G/LTE) business growth with more than 130 customers across the globe and
cross-industries.
■ We continue to expand our ecosystem of technology and go-to-market partners to increase our scale and coverage especially towards
the new manufacturing and logistics segments.
■ We implemented a new simplified and efficient delivery model for our enterprise projects that we believe will improve the enterprise
customer experience and further support the growth in our revenues.
■ In the initial year of execution against this strategy, we delivered sales growth of 21% in the enterprise space, excluding the third-party
integration business that we are exiting, and posted good margin quality and solid profitability.
NOKIA IN 2019
13
Business overview Our strategy continued
Strengthen
Strengthen the software business with one Common Software Foundation
Our aspiration, strategy and position
Nokia is recognized as the number 1 leader in telecoms software with a broad portfolio covering most segments of this growth market. Our
aspiration is to further strengthen this position and consistently perform at par with the global leaders in enterprise software. Our strategy
is to help our customers modernize from slow, siloed and monolithic systems that weigh them down today towards more agile, intelligent
and lightweight solutions. Our multi-network and multi-vendor solutions enable our customers to run their business fast and intelligently
based on closed-loop automation and smart cognitive technologies. Key to our differentiation is continued investment in our Common
Software Foundation and leading architecture, and a product-centric business model. We have seen strong progress in building a standalone
software business beyond the product-attached software model. We have implemented significant improvements: re-architecting many
of our products, moving to become truly cloud-native, and creating a strong, experienced software sales force. Based on this foundation,
we strengthen the business and aim for growth.
Our focus areas
■ Build: We accelerate our R&D by focusing our investment on key growth topics of 5G applications, automation, software suites, and digital
innovation platforms; building foundational innovation and leveraging it to lead with a cloud-native portfolio; and streamlining towards
more efficient and simple processes.
■ Sell: We focus our go-to-market to deliver success for our customers with a consultative selling approach, to drive new business in new
accounts, and to increase our recurring revenue.
■ Deliver: We optimize our services and delivery with investments in people and digital & cloud skills, by driving tooling and automation,
and by evolving the services we offer to meet new market needs.
■ Basis for our execution: We are a leveraging a strong partner ecosystem of system integrators, independent software vendors (ISV),
and technology players, as well as applying consistent commercial and operational discipline.
Progress
■ We have successfully integrated the mobile core portfolio into the Nokia Software business group.
■ Analysys Mason, a leading telco software consultancy firm, has ranked Nokia as the top telecom software provider by revenue.
■ We won important deals in both applications and core networks – including Bharti, China Unicom, and MTN South Africa – and started
delivering 5G capabilities to a number of customers, such as Ooredoo Qatar, Three UK, and US Cellular.
■ We closed the year with record operating margin and healthy organic growth in Nokia Software, demonstrating successful execution
of our strategy.
14
NOKIA IN 2019
Diversify
Diversify the licensing business with new opportunities in automotive, consumer electronics, IoT and brand
Our aspiration, strategy and position
We intend to consolidate our position as a leader in patent licensing. We own one of the broadest and strongest patent portfolios in the
mobile communications sector, built from the innovation of Nokia, Nokia Siemens Networks and Alcatel Lucent. At the end of 2019, our
patent portfolio included around 20 000 patent families, and we filed patents on more than 1 300 new inventions during 2019. We have
successfully generated recurring revenue streams from all major mobile device players. We continue to invest in fundamental R&D
from which we also file patents relevant to the 5G cellular standard to ensure our continuing leadership position and portfolio renewal.
Our approach is to keep our patent licensing business with mobile device players strong and to target significant cash generation.
At the same time, we diversify into new licensing domains in automotive, consumer electronics, and the Internet of Things, together with
expanding our brand licensing, and manage these domains for growth.
Our focus areas
■ We continue to invest in and 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.
■ We focus on renewing existing patent licenses on favorable terms and work to sign the remaining uncontracted mobile device players.
■ We continue to expand patent licensing into new segments, such as automotive, consumer electronics, and Internet of Things.
■ We license our unique audio/visual technologies to device creators.
■ We are expanding our brand partnerships business beyond mobile phones.
Progress
■ We continued to sign multi-year patent license agreements with smartphone companies, such as Vivo, TCL, Tinno, and Wiko.
■ We made good progress in the automotive segment, and currently more than a dozen automotive brands from companies such as BMW
Group, Volkswagen Group and Volvo Cars are licensed under Nokia patents for their connected vehicles.
■ We have expanded our licensing activities through new license agreements in the Internet of Things segment.
■ We have progressed in licensing our leading portfolio of OZO technologies to smartphone and camera manufacturers, including products
shipping from companies such as OPPO, Axon and HMD Global.
■ We announced collaborations with GE Licensing and Innventure to monetize inventions originating from Nokia Bell Labs, creating
additional revenue streams for Nokia while enabling others to build on Nokia innovations.
■ Nokia brand partnerships focused on supporting HMD Global, our exclusive brand licensee for phones and tablets, and on expanding
brand licensing to new categories. In November, India’s leading online retailer, Flipkart, announced a brand licensing agreement to create
Nokia branded smart TVs for the Indian market and launched the first 55" Nokia branded smart TV.
NOKIA IN 2019
15
Business overview Our strategy continued
Operational Excellence
Operational excellence for new levels of efficiency, productivity and industry cost leadership
Our aspiration, strategy and position
Nokia takes action to improve its productivity and efficiency to assume the industry cost leadership position.
Operational excellence remains a source of competitive advantage for us and is the foundation of our strategy. Given the challenge of our main
customers, the communication service providers, to monetize the strongly increasing traffic growth, their focus will remain on deploying and
managing their networks in the most cost-efficient way. This leads to a focus on total cost of ownership for them and sustained price pressure
for us as their supplier. To cope with this price pressure, we must continuously improve our efficiency, productivity and cost position.
Our efforts will continue with accelerated speed and focus to ensure sustainable profitability, cost efficiency and cash generation.
We are making progress in improving our performance and expect our turnaround to have firmly taken hold by the end of 2020.
Our focus areas
■ We strengthen cash management, through improved governance and reinforced cash culture.
■ We improve our commercial management and deal discipline.
■ We work closely with our suppliers to reduce the total cost of ownership of our equipment.
■ We modernize IT and simplify and digitalize our key processes to modernize our ways of working and increase productivity.
■ We invest in digitalization and automation in the service business to increase our productivity in deploying networks.
■ We strategically consolidate our site footprint to improve collaboration and efficiency of the R&D.
■ We execute our workforce strategy to ensure we have a future-fit set of capacity and capabilities.
■ We embed productivity and effectiveness culture at the heart of our company for the long term.
Progress
■ We have implemented structural changes to strengthen cash generation across Nokia, and we saw solid cash performance in the fourth
quarter with a 1.4 billion euro improvement in our net cash position, allowing us to end the year with a net cash balance of 1.73 billion euros.
■ We have a structured central program in place to drive a company-wide focus on free cash flow and release of working capital, including
project asset optimization, strengthened contractual terms with customers and suppliers, and reinforced controls across our supply chain
and management of inventory. With the work done in 2019, we were able to reduce inventories to the lowest levels since the beginning of 2018.
■ We strengthened commercial management process over the course of 2019 to drive better performance in current contracts and improve
outcomes in new ones. Deal decisions now include a sharp focus on cash and return-on-capital-employed metrics, and improved
contractual terms.
■ We realize ongoing productivity improvements across our top company processes with digitalization.
■ We further strengthen operational performance in services, as we increase operational discipline and enhance our efforts to manage for
margin and cash, with execution discipline and enforcement of standard delivery models for fast and first-time-right network deployments,
investments in digitalization and automation-driven productivity, and tighter control of inventories.
■ We have set up a separate governance for tracking operational excellence initiatives, with strategic priorities defined for all Nokia units and
close execution tracking.
■ We are implementing a refreshed investment strategy and portfolio capital allocation approach to steer R&D investment decisions.
■ We continue our site optimization strategy, reducing real estate spend while creating modern workplaces for our employees.
■ We have defined our culture strategy to drive cash and margin performance, with incentives aligned to refreshed performance
management structure.
16
NOKIA IN 2019
Innovation
Technology innovation will play a key role
in achieving a more sustainable planet
and better, healthier lives for all people.
We are driving the future of technology and
transforming the way people and things
communicate. Our leading research and
development efforts, including the
pioneering Nokia Bell Labs, are enabling
innovations that will redefine our customers’
businesses as they deliver extraordinary
experiences for individuals and enterprises.
The fourth industrial revolution will enrich
lives, economies and societies and we
are dedicated to assuring that its
unprecedented impact will be delivered
in ethical and sustainable ways.
Research & development
As one of the industry’s leading investors in
communication technology R&D, we drive
innovation across entire networks, end-to-end.
Our continuous product development in 5G,
private wireless, intelligent analytics and
automation, Internet of Things (IoT), and
next generation software-defined networks
enables our customers to address the needs
of a digitally connected world.
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,
Slovakia, the United Kingdom and the US.
The ecosystems 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.
In Belgium, China, Finland, France, Germany
and the US, we have significant Nokia Bell Labs
research activities where we are conducting
disruptive research that focuses on the next
phase of the connected world.
The finalists of the Open
Innovation Challenge 2019
with the Nokia CTO,
Marcus Weldon.
NOKIA IN 2019
17
Business overview The Future X Emulator is an
immersive digital projection
space in which visitors
experience large-scale
environments that closely
emulate the real world.
18
NOKIA IN 2019
Innovation continued
Nokia Bell Labs
■ Research leadership: Nokia Bell Labs
is researching the software, hardware
and applied sciences that will define the
societies of the future. We are helping to
usher in a new industrial revolution, where
augmented humans achieve enormous
gains in productivity while amplifying
their innate potential for creativity.
■ End-to-end leadership: Nokia Bell Labs
is building end-to-end solutions for
Nokia’s business groups, which will be
key to supporting the network and service
orchestration required of highly automated
and massively scalable networks in the
future. Bell Labs Consulting leads our
end-to-end strategy, providing independent
advice to service providers, enterprises
and industries, while our Future X Labs
showcase the countless possibilities
of end-to-end architectures.
Nokia Bell Labs is the
world-renowned industrial
research and innovation arm
of Nokia
Over its nearly 100-year history, Nokia Bell
Labs has invented many of the foundational
technologies that underpin information and
communication networks and all digital
devices and systems.
This research has resulted in nine Nobel
Prizes, four Turing Awards, three Japan Prizes
and a plethora of National Medals of Science
and Engineering, as well as three Emmys,
two Grammys and an Oscar for technical
innovations. Nokia Bell Labs continues to
conduct disruptive research focused on
solving the challenges of the new digital
era and innovating the technology that will
define the next industrial revolution.
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 key
problems through disruptive innovations
with the power to enable new economic
capabilities, societal behaviors, business
models and types of services – in other words,
we 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 focuses on three core areas
of disruption:
■ Patents & standards leadership: Nokia Bell
Labs funnels a constant stream of innovation
into Nokia’s intellectual property portfolio.
Those innovations are used not only to
create the building blocks for Nokia products,
but also as significant sources of licensing
revenue and the basis of our standards
leadership, which aims to create value
for new and existing ecosystems.
NOKIA IN 2019
19
Business overview Nokia is the only company
to provide comprehensive
5G solutions globally.
The Future X Lab is where
our customers can fully
experience an end-to-end
5G network.
2019 highlights
■ The world’s first end-to-end 5G Future X
Lab, which opened in late 2018 at Nokia
Bell Labs headquarters in Murray Hill, NJ,
attracted approximately 1 700 visitors in
2019. Building upon this success, a new
Future X Lab was opened at Nokia’s
global headquarters in September 2019.
Each Lab enables communication service
providers, enterprises and infrastructure
providers to learn and understand
the techno-economic power of a 5G
end-to-end network to better serve
their customers and unleash new value.
■ Nokia Bell Labs and Etisalat established
a new world record for optical capacity
of 1.3 Tbps (1 300 000 000 000 bits per
second) over a single fiber. The field trial
in the United Arab Emirates was the first
time the 1 terabit milestone was achieved
in a real network.
■ In March, the Association for Computing
Machinery recognized two former Bell
Labs researchers with the ACM A.M.
Turing Award, often referred to as the
“Nobel Prize of Computing”. Yann LeCun
and Yoshua Bengio worked together at
Bell Labs in the early 1990s on artificial
intelligence research, and shared –
along with Geoffrey Hinton – the 2018
Turing Award for their conceptual and
engineering breakthroughs in deep
neural networks.
■ Through Nokia Bell Labs, Nokia in 2019
extended its commitment to the highest
standards in network security by unveiling
an enhanced security program and
establishing an advanced security
testing and verification laboratory – both
designed to address the critical security
needs of 5G end-to-end networks.
■ Nokia Bell Labs continues to pioneer
many of the fundamental technology
innovations that are being adopted into
5G standards. In 2019 these innovations
enabled Nokia to declare to the European
Telecommunications Standards Institute
(ETSI) more than 2 100 patent families as
essential for the 5G standard, reflecting
its continuing leadership in cellular
technology R&D and standardization.
■ Researchers at Nokia Bell Labs were
part of a research team including the
Advanced Materials and BioEngineering
Research (AMBER) at Trinity College
Dublin that created a new, innovative
formula for battery composition that
makes batteries more powerful by
packing 2.5 times more battery life
than anything currently on the market.
This new game-changing battery design
has the potential to help power the
5G connected world of the future.
■ Artificial intelligence and machine learning
technologies were applied to create new
industry tools in 2019, including Code
Compass, which augments software
development with natural language
processing to recognize the behavioral
similarities of software libraries and
automatically recommend open source
modules to drastically accelerate
development.
■ Nokia Bell Labs in 2019 continued to
develop advanced vectoring for wireline
broadband. Dubbed Vectoring 2.5, the
latest R&D is being incorporated into
fixed network products to expand
the performance of G.fast products,
especially on ill-conditioned lines.
This will further improve the productive
lifetime of existing copper for network
service providers.
20
NOKIA IN 2019
Sales and marketing
Nokia considers its customers in two distinct
markets. Our primary addressable market
consists of communication service providers
(CSPs). Our current enterprise business
is relatively small in comparison with our
operator business, but is growing fast.
Our Customer Operations (CO) organization is
the primary interface with our CSP customers.
CO Americas is dedicated to our markets in
North America and Latin America, while the
CO EMEA & APAC organization is responsible
for our Asia Pacific, Europe, Greater China,
and Middle East and Africa markets.
The CO organization has a comprehensive
global presence and is active in approximately
120 countries. Its organizational 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.
In addition to sales, Customer Operations
is also responsible for project delivery,
ensuring strong alignment between our
customer-facing sales and delivery teams
in each account. Our “One CDM” (customer
delivery manager) model provides a strong
counterpart to our sales-focused customer
team setup, ensuring that customers have
a seamless experience when working with
Nokia. This is particularly important given
the value our customers place on Nokia’s
approach, which provides end-to-end
fully integrated solutions to a pre-defined
set of customer needs, for example,
in the area of end-to-end security,
or mission-critical systems.
Nokia also has a dedicated enterprise sales
force with global presence, focused on
selling to enterprise customers both directly
and via channel partners. Partners include
system integrators, consulting companies,
distributors and value-added resellers.
The CO organization also works very closely
with Nokia Software to ensure the right level
of customer focus and expertise in this crucial
area, and with 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.
Our sales force is dedicated
to working hand-in-hand
with our communication
service provider and
enterprise customers to
support them in addressing
the challenges they face,
as well as uncovering new
opportunities in the rapidly
changing global marketplace.
NOKIA IN 2019
21
Business overview Business groups
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.
Business overview
and organization
In Mobile Networks our goal is to be a leader
in 5G and provide the best value to our
customers as they evolve their networks.
We continue to develop our 5G portfolio
according to the latest 3GPP specifications,
we have declared more than 2 100 patent
families as essential for 5G, and are proud of
the number of industry firsts that we have
completed on the path to 5G commercialization.
In November 2019 the independent analytics
firm, IPLytics GmbH, ranked Nokia number 2
for ownership of granted patents declared as
essential for 5G. We see a strong appetite for
5G across mobile markets, and we are the only
end-to-end mobile network vendor working
with the major operators in the United States,
China, South Korea and Japan. Nokia is rolling
out technology today as our customers
launch 5G networks.
We have a large global installed base in
2G/3G/4G that is expected to provide us with
the platform for success in 5G. We have more
than 350 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 networks 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 (NR), core, software-defined
network (SDN)-controlled “Anyhaul” transport,
edge clouds, and software orchestration to
provide a complete set of network capabilities
for commercial 5G. At the Future X Lab Nokia
enables customers to experience Nokia’s
full end-to-end portfolio of 5G equipment,
software and services, allowing communication
service providers, enterprises and infrastructure
providers to learn and understand the
techno-economic power of a 5G end-to-end
network to better serve their customers
and unleash new value.
Nokia was involved in more than 100 5G
technical engagements in 2019, with the
total number of 5G commercial deals at 62
at the end of 2019. A total of 18 of those 5G
networks were live in 2019 in Asia Pacific, the
United States, Europe, Middle East and Africa.
Among them, we had live networks operating
for SK Telecom, KT, and LGU+ in South Korea
serving 5 million 5G subscriptions at the end
of 2019; and AT&T, T-Mobile, Sprint and
Verizon in the United States. At the end
of 2019, we also had two 5G deals with
enterprise customers beyond communication
service providers.
Competition
The mobile networks market is a highly
consolidated market, and our main
competitors are Huawei and Ericsson.
Additionally, there are four regional vendors,
ZTE, Samsung, Fujitsu and NEC as well as
some new, small entrants, such as Altiostar,
Mavenir, Parallel Wireless, JMA Wireless and
Airspan. The microwave transport market
segment is more fragmented. There, besides
Huawei and Ericsson, our key competitors
include, for example, Ceragon, NEC and Aviat.
2019 highlights
■ At the end of 2019, we had 62
commercial 5G deals and 18 launched
5G networks.
■ We have launched mid-band 5G/NR
networks in 2.5GHz and 3.5GHz,
high-band mmWave networks in
28GHz and 39GHz and low-band
networks in 600MHz and 850MHz.
■ We have launched networks with
20MHz, 60MHz, 80MHz and 100MHz
carriers, as well 200MHz (2*100MHz
2CCA) and 400MHz (4*100MHz 4CCA).
■ We are expanding sub 6GHz
capabilities to 40MHz, and mmWave
to 800MHz (8*100MHz).
■ Our cloud-native AirFrame product has
reached +100 commercial customers.
■ We delivered the first cloud-based
5G/NR (virtual RAN 1.0) system in the
world and it is live in Washington D.C.
■ We have more than 130 private
LTE customers and two private
NR customers.
■ The digitalization of our 5G factory in
Oulu, Finland, was recognized by the
World Economic Forum as an “Advanced
4th Industrial Revolution Lighthouse”.
22
NOKIA IN 2019
Nokia is rolling out
technology today as
our customers launch
5G networks.
NOKIA IN 2019
23
Business overview Business groups continued
Global
Services
Market overview
The Global Services business group deploys,
supports and operates communication
service providers’ (CSP) and enterprise
networks. This includes network infrastructure
services and professional services for mobile
networks and managed operations for fixed,
mobile, IP and optical domains. In addition,
new growth areas are network cognitive
services and analytics, deploying and
operating networks in public sector, energy
and transport markets and introducing
new business models for CSPs, such as
our Worldwide IoT Network Grid (WING).
Business overview
and organization
The services, solutions and multivendor
capabilities of Global Services business group
guide CSPs in their digital transformation
journey and help navigate through the
evolving technology landscape, network
complexity and data growth. We work with
CSPs to improve end user experience while
providing support in day-to-day network
planning, implementation, operations
and maintenance.
The Global Services offering allows Nokia to
differentiate in the 5G market while helping
CSPs prioritize their 5G investments and
bring 5G-based services to the market faster.
Nokia 5G digital services portfolio helps CSPs
assess the technical choices, design and
deploy end-to-end 5G networks that meet
the needs of diverse 5G use cases such
as cloud gaming, connected cars and
autonomous factory robots.
A 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 – for both legacy and cloud-based
networks. The Nokia AVA framework provides
advanced AI and analytics as well as a common
data lake to help boost network performance,
operational efficiency and customer
experience. We also help digital service
providers to seize the possibilities of Internet
of Things (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.
At the joint Nokia and AT&T
IoT Innovation Studio we can
show how IoT solutions can
solve business problems.
24
NOKIA IN 2019
Enterprise is a strategic growth area
for Global Services. We are enabling the
digitalization of asset-intensive industries
with connectivity-driven services and digital
automation solutions. Our new digital service
framework shortens sales cycles and drives
rapid, repeatable service delivery helping our
enterprise customers to minimize complexity.
We deploy private broadband networks to
accelerate the digitalization of industries,
enabling higher productivity, operational
efficiency and increased worker and asset
safety. Our global expertise in managed
services enables our enterprise customers
to reap the benefits of operational
transformation, managed security and
network operations support for their
new IP/MPLS and mission-critical private
LTE networks.
Competition
In a market segment that combines products
and services as well as managed services,
Nokia competes against traditional network
equipment providers such as Ericsson and
Huawei, while for the service-led businesses
like cognitive, IoT and enterprise services,
we see other competitors such as Cisco, HPE,
and IBM emerging.
2019 highlights
■ Global Services played a crucial role
in more than 100 5G technical
engagements in 2019 and in
62 commercial 5G agreements, along
with 532 enterprise opportunities.
■ Nokia launched industry’s first 5G
Maturity Index, produced in partnership
with Analysys Mason, which provides
operators with best practices for
planning, deploying and monetizing
5G services.
■ Nokia WING, a managed service for global
IoT deployments that provides seamless
connectivity across geographical borders
and technologies, saw continued
momentum with Hutchison 3 Indonesia,
Telecom Egypt and TIM Brazil signing up
for the service. We had 10 customers
for WING at the end of 2019. In addition,
four new off-the-shelf WING packages
were launched to help operators win new
business in vertical IoT markets.
■ Nokia and AT&T jointly launched a new
Munich-based IoT Innovation Studio to
support the growing global adoption
of current and next-generation IoT
solutions. The studio allows companies
to see first-hand how IoT solutions can
solve business problems, and acts
as a hub for the next-generation of
innovators coming from start-ups,
universities and the wider European
technology ecosystem.
■ Nokia launched Cognitive Collaboration
Hubs to help operators design 5G
networks and create AI-enabled use
cases. The Cognitive Collaboration Hubs
bring together an industry-leading mix of
data science, telco and cloud expertise
from more than 75 partners.
■ GlobalData, a data analytics company,
rated Nokia as ‘Leader’ in managed
services, a testimony to our advanced
operations capabilities.
NOKIA IN 2019
25
Business overview Business groups continued
Fixed
Networks
The second pillar, delivering a gigabit to and
into the home, is about ensuring the perfect
connectivity throughout the home. Our
Nokia Wi-Fi portfolio includes meshed Wi-Fi
solutions to provide Wi-Fi coverage in every
corner of the building. In 2019, we also added
cloud-based controllers to not only manage
and optimize Wi-Fi performance in single
home, but also across buildings. We also
introduced several new options (entry-level
beacons and high-end beacons), resulting
in 34 CSP references to date.
Finally, as networks combine different
technologies and deployment models, they
also become more complex. The third pillar of
Fixed Networks strategy looks at simplifying
and automating operations, with the cloud
and virtualization playing a key role. Our
Software-Defined Access Network (SDAN)
solution takes an open and pragmatic
approach, with concrete use cases like slicing
and a smooth evolution path for the installed
base. 2019 saw the first deployments.
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 United States components ban, although
to a fairly limited degree. Smaller players
like Calix and Adtran in North America and
Fiberhome in China have limited footprint and
have an estimated market share smaller than
10% and no comparable breadth of portfolio.
2019 highlights
■ Nokia continued to be a market leader
in fiber and copper access. 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 expanded our portfolio with
new fixed wireless access solutions,
including 4G/5G outdoor receivers and
indoor gateways. Rain and Optus have
already deployed our 5G FWA products.
■ We introduced several new Wi-Fi
options, both entry-level beacons
and high-end beacons, resulting in
34 communication service provider
references to date.
■ We deployed our Software-Defined
Access Network (SDAN) solution
commercially for the first time in 2019.
Market overview
The primary market of Fixed Networks is
the communication service providers (CSP).
Fiber-to-the-home (FTTH) is now established
as the main deployment model, but fiber-
based access technologies, such as fixed
wireless access (FWA), xDSL upgrades or cable
upgrades, continue to be a valid complement.
The key to make the universal “gigabit to the
home” business case work – and connect
more people, sooner – is to select the right
tool for the job. 5G FWA is a new “tool” in
the broadband toolkit, and sees significant
interest. We build solutions not only to
deliver a gigabit to every home, but also to
bring that gigabit experience into the home
using meshed Wi-Fi solution. Fixed Networks
has been diversifying into new segments,
including cable MSOs, non-traditional players
like infrastructure wholesalers, and enterprise.
Business overview
and organization
The Fixed Networks strategy is based on three
pillars: fiber-based access infrastructure to
bring a gigabit to every home; Wi-Fi solutions
to bring a gigabit into the home; and cloud/
virtualization solutions to automate and
simplify the network. Innovation and thought
leadership are a cornerstone of all three areas.
The first pillar of Fixed Networks strategy
is about offering the right technology mix
to deliver gigabit access to more people,
everywhere. It includes fiber, fixed wireless
access, xDSL upgrades, and cable upgrades.
Nokia is a leader in fiber access with a
number 1 position in next-generation
XGS-PON technology and remains a market
leader in copper technologies, such as VDSL
and G.fast. In 2019, we have expanded our
portfolio with new fixed wireless access
solutions, including 4G/5G outdoor receivers
and indoor gateways. For cable operators,
Nokia offers a similar toolkit consisting
of FTTH and cable upgrades, and started
to see traction across the globe.
26
NOKIA IN 2019
Our Nokia Wi-Fi portfolio
ensures perfect connectivity
in every corner of the home.
NOKIA IN 2019
27
Business overview Business groups continued
IP/Optical
Networks
Market overview
The primary market for our IP/Optical
Networks business group includes IP, optical
and network automation technologies
and related services sold to communication
service providers (CSPs). Our comprehensive
wide area networking (WAN) solutions enable
CSPs to build and operate automated, secure,
and high-performance networks at massive
scale. They use them to interconnect people
and things from any broadband access
modality to – and among – edge clouds,
central clouds, the Internet, and other services
and data centers. This market includes
technologies such as: IP routers, IP service
gateways, packet optical switches, optical line
systems, and network automation platforms.
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 transport, energy and the public sector
as well as software-defined networking for
health care, finance and retail enterprises.
We address these mission-critical markets
with the same solution sets augmented
with purpose-built variants to address
unique requirements.
Business overview
and organization
For our IP/Optical Networks business group,
we provide the high-performance 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 network
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, rapidly scale them to meet
surging demands, and add new features and
functions in future. 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, transport, energy, public sector
and large enterprise customers.
The IP/Optical Networks product portfolio
includes:
■ Comprehensive family of IP routers for
aggregation, edge, core, data center,
and Internet peering applications.
■ Comprehensive family of packet optical
switches, DWDM multiplexers, and optical
line systems for metro access and
aggregation, data center interconnection,
and core, subsea and longhaul applications.
■ Advanced cloud-optimized IP service
gateways for residential, business, mobile
and Industrial IoT services and unique
hybrid solutions enabling a converged
services future.
■ Advanced network automation platforms
that analyze, automate, manage and
control multi-vendor IP and optical networks.
■ 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.
■ 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, Huawei,
and Ciena.
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NOKIA IN 2019
Nokia’s end-to-end IP and
optical systems, based on
our FP4 and PSE silicon,
give network operators
the enhanced performance,
scale, and automation
needed to address the
more stringent demands
for reliability and security
as they move toward 5G.
■ Telefónica Spain selected our
Deepfield Cloud Intelligence analytics
solution to improve user experience
and troubleshoot content delivery
in real time. The solution will equip
Telefónica Spain with previously
unattainable visibility into application
and service traffic on its network. This
provides vital, data-driven insight and
analytics into the capacity being used
and enables automated actions to
significantly improve service assurance
and performance.
■ Bahrain’s leading digital service provider,
Batelco, selected the Nuage Networks
SD-WAN 2.0 solution to support cloud
connectivity, automation and digital
transformation services for its Bahrain
and international enterprise customers.
Batelco will complement its existing
business services by providing
customers with simplified management
of, and dynamic support for, cloud and
IoT applications.
2019 highlights
■ BT deployed Nokia’s 7750 SR-s platform,
based on our FP4 silicon, giving BT’s
network the enhanced capabilities
and automation needed to address
continuously mounting capacity
demands as it moves towards 5G.
Our exclusive agreement will allow BT’s
converged core network to grow, and
move to a programmable, insight-driven
network architecture, creating a platform
for BT’s growth to continue as demand
for its services in fiber-to-the-premises
(FTTP) and 5G expands.
■ Probabilistic Constellation Shaping
(PCS), a Nokia Bell Labs innovation
at the heart of our next generation
Photonic Service Engine (PSE) family of
super-coherent digital signal processors,
set new optical performance records
during trials by Etisalat, Telecom Italy,
Netia, and M-net. The Nokia PSE-3 is now
shipping to customers and 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.
■ Softbank selected Nokia’s Cloud Packet
Core to benefit consumers by bringing
them a 5G enhanced Mobile BroadBand
(eMBB) service. Businesses will benefit
from multiple new applications and
services for industries in the 5G era
including 5G Ultra Reliable Low Latency
Connectivity (URLLC) and enhanced
Machine Type Communication (eMTC).
NOKIA IN 2019
29
Business overview Business groups continued
Nokia Software
Market overview
Nokia Software is the leading solutions
provider in the telecoms software market.
The telecoms software market is driven by
large-scale service and network operations
automation, and by digital business
transformation in support of communication
service providers’ shift to 5G. At the same
time, 4G modernization will continue to
drive investment in less developed markets.
These market drivers are countered by
3G legacy decline and pricing pressure.
Business overview
and organization
Built on Nokia’s cloud-native Common
Software Foundation (CSF), Nokia’s
multi-vendor and multi-network software
solutions enrich and secure user experiences;
automate operations and infrastructure;
and enable new revenue streams and cost
efficiencies. Nokia’s CSF ensures our software
solutions are easy to deploy, integrate,
use, scale and service. Nokia was the first
to build a cloud-native software platform
at scale in the telecoms software market.
Nokia Software’s business has two parts,
Applications and Core. Nokia software
applications provide solutions for digital
experience, digital intelligence and digital
operations, all designed to connect service
providers’ business to their network.
In January 2019, Nokia core networks
portfolio was aligned inside Nokia Software.
Nokia’s core network solutions span 5G,
mobile broadband, and IoT; and simplify
operations and enable new services and
revenue streams.
Our strategy is to strengthen our software
business at scale by further evolving our
R&D and delivery functions and focusing
our investments in the strategic areas of 5G,
automation, portfolio integration, and digital
innovation platforms.
Investment in a cloud-native CSF and our
multi-vendor, multi-network agnostic
approach sets us apart from most large
competitors. Against smaller players,
Nokia has the advantage of global delivery
capabilities and a large installed base,
backed by a broad, end-to-end portfolio.
Nokia Software is the leading
solutions provider in the
telecoms software market.
30
NOKIA IN 2019
Competition
Nokia’s software competitors fall into two
categories: independent software vendors
(ISVs) and network equipment providers
(NEPs). The main ISV competitors are Amdocs,
Netcracker and Oracle; in addition, we see
increasing competition from niche, boutique
software players. The main NEP competitors
are Huawei and Ericsson, which sell software
as part of large infrastructure deals.
Many large telco software competitors are
struggling to generate near-term growth
until 5G deployments scale up; while the high
number of small boutique software players
adds competitive intensity to this market.
Like most telecoms-related markets, telecom
software is a buyers’ market with significant
pricing pressure. It does, however, provide
significant long-term opportunity for those
vendors that can drive technology and
operational leadership and set the pace
of transformation in the industry.
Due to the fragmentation of the market,
there remains significant growth
opportunities for those companies able
to consolidate the market through organic
growth and/or acquisitions.
Nokia’s software business is number 1 in
applications with about 9% estimated market
share, while in core networks we have 25%
estimated market share.
2019 highlights
■ We have made solid strides in scaling
our software business, including
the successful integration of the core
portfolio into the software business.
■ Analysts at Analysys Mason ranked Nokia
in October 2019 as the top telecoms
software provider by market share
across both telecoms software and
services combined.
■ Nokia announced that its Common
Software Foundation platform supports
Amazon Web Services (AWS), offering
communication service providers
additional deployment choice and faster
time to service when rolling out new 5G
or digital services.
■ Nokia and VMware announced an
expanded partnership that includes the
development of integrated solutions to
support communication service providers’
drive for operational improvements
and cost efficiency through large-scale,
multi-cloud operations.
■ Three UK and Nokia launched the
world’s first 5G-ready fully integrated
cloud core network. The new 5G-ready
core network, which sits in a virtual
environment, offers increased security,
flexibility and cost savings, allowing
Three to scale more quickly and
efficiently, and is a critical building block
for Three to deliver the UK’s fastest
5G network.
■ We announced the launch of the
NetGuard Adaptive Security Operations
solution to give communication service
providers a highly automated end-to-end
system to meet the demands of 5G
network connectivity and to address
the rising cybersecurity threat posed
by internet-connected devices.
■ We continued to demonstrate the
strength and breadth of our software
portfolio with deal-wins across
geographies and product units. These
wins included Bharti, China Unicom,
Grameenphone, M1, MTN South Africa,
Orange, Ooredoo Qatar, Rakuten,
Telefonica Brazil, U.S. Cellular, and
Vodafone Egypt.
NOKIA IN 2019
31
Business overview Business groups continued
Nokia Enterprise
Market overview
In 2019, Nokia accelerated its engagement
with the enterprise customer market.
Recognizing the growth potential of our
business within this market, we created a new
business group, Nokia Enterprise, effective
January 1, 2019. Our Enterprise business
group addresses mission and business critical
networking requirements for asset-intensive
industries. We build hyperscale cloud and
private networks for our customers, and
serve the following segments: webscale,
transportation, energy, manufacturing,
logistics, governments and cities.
Business overview
and organization
Nokia has a strong track record of helping
enterprises modernize the communications
networks they rely on to manage and
control a range of operations, incorporating
technologies from across Nokia’s Mobile and
Fixed Access, IP/Optical Networks, Software
and Global Services portfolios, coupled
with enterprise-specific products for
digital automation, analytics and Internet of
Things (IoT). High-performance networking
is at the nexus of these critical customer
requirements, addressing the demand for
ubiquitous connectivity with private network
infrastructure (with an increased importance
of wireless) that delivers seamless connectivity,
data management and analytics to drive
relevant and tangible business outcomes.
Enterprise customers seek to harness
advances in communications and Industrial
Internet of Things (IIoT) technology and
benefit from digitalization, efficient asset
management, improved processes, deeper
levels of network security, worker safety,
and new business models that will arise
from ubiquitous connectivity. Our proven
enterprise portfolio provides the foundation
for more than 1 300 mission-critical networks
deployed across industries.
Nokia’s enterprise portfolio supports our
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. Future X
for Industries provides a strategic framework
for our enterprise portfolio.
A significant and strategic accomplishment
in 2019 has been the acceleration of our
enterprise portfolio with specific advances in
private networks. By augmenting our IP/MPLS,
Optics, GSM-R and other existing portfolios
with private networks, we are providing
customers with the performance and security
they require as they digitize and transform
their communications infrastructure and
applications. We also continue to drive the
adoption of multi-cloud, IoT and automation
with strategic investments in emerging
technologies such as Software Defined
Networks (SDN), Software Defined
Wide-Area network (SD-WAN) applications,
and data centers.
32
NOKIA IN 2019
Competition
The competitive landscape for the
enterprise space is broad and includes
many specialized players focused on specific
markets. From this broad perspective, the
primary players who supply high-performance
networking and mission-critical fixed and
mobile communications technologies across
a range of market industries include Nokia,
Cisco, Juniper, Huawei and Ericsson.
Reflecting more on Nokia’s strategic focus,
the landscape can be more finely bifurcated
between traditional private networks and
private wireless. Within the private wireless
area the key players are Nokia, Ericsson,
Huawei and Commscope. From a technology
perspective, private wireless competes with,
and to some extent displaces, Wi-Fi
technology. As such, Wi-Fi providers such
as Cisco, HPE Aruba and Ruckus also appear
on our competitive landscape.
Transportation
In the transportation segment, Nokia
continues to expand market penetration of
the railway, highway, aviation and maritime
industries. We deliver mission-critical
networks and analytics that enable and
support railway signaling, airport
communications, air traffic control, digital
signage and toll collection, and on-board
broadband and infotainment.
Energy
In the energy sector, Nokia provides
the mission-critical information network
infrastructure and automation that is
foundational in the transformation to next
generation automated energy grids. We also
provide oil, gas and mining companies with
private networks that deliver new levels
of performance and security to a range of
mission-critical operations, protecting lives
and increasing productivity.
Government and Cities
Nokia addresses the public sector from
multiple principal perspectives. Nokia’s public
safety portfolio provides first responders
with real-time, broadband mission-critical
communications that help to save lives and
manage crisis situations. These solutions
support 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.
Additionally, as cities seek to deliver safer and
higher quality of life for citizens, Nokia offers
a platform-based approach to support the
connectivity, data sharing and usage control
capabilities needed for services such as
smarter parking, lighting, traffic management
and other municipal services. We continue to
partner with governments and new network
providers to bring broadband to remote,
unserved and under-served communities.
Manufacturing and Logistics
Nokia continues to diversify into the
industrial sector by enabling Industry 4.0
transformations with private networks and
digital automation solutions in the segments
of manufacturing and logistics. Our IIoT
platforms, automation platforms and private
wireless networking solutions help these
customers to increase productivity and
reduce costs through the digitalization and
automation of their operational systems.
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.
NOKIA IN 2019
33
Business overview Business groups continued
■ Our Oulu 5G “factory of the future” was
selected by the World Economic Forum
as an Advanced 4th Industrial Revolution
Lighthouse factory. A very proud
moment for us given that one of the
most modern factories in the world
is equipped by our own Nokia Digital
Automation Cloud. Our Oulu factory
increased 30% in productivity and
reduced time to market for new
products by 50%.
■ Nokia and Microsoft announced a
strategic collaboration: the first between
the two companies. The partnership
will bring together Microsoft’s cloud
solutions (Azure, Azure IoT, Azure IT and
machine learning solutions) and Nokia’s
mission-critical networking expertise
(LTE/5G-ready private wireless solutions,
IP, SD-WAN and IoT connectivity
offerings), serving service providers
and enterprises.
■ In hyperscale enterprise, we signed a
memorandum of understanding with
Marubeni to provide global IoT services
to its enterprise customers across its
five business groups, including food and
consumer products, chemical and forest
products, energy and metals, utilities
and transportation and industrial
machinery. Such services could include
fleet management, remote monitoring
of industrial machinery, asset
management and international logistics.
We will develop, test, and deliver the
next generation of IoT based on Nokia’s
Worldwide IoT Network Grid (WING).
2019 highlights
■ Acceleration of our private wireless
networks (4G/LTE) business growth
with more than 130 customers across
the globe and cross-industries.
■ In Energy, Nokia solidified its leadership
position in the private wireless market
with the digitalization and automation
of mines. This is an important use-case
to make mines safer, more productive
and sustainable. In 2019 Nokia
demonstrated these capabilities for
both underground mining vehicles
and open-pit, building private wireless
networks for Minera Las Bambas S.A.
with Telefonica in Peru and with Komatsu
in the United State for the first-ever
system of unmanned trucks in Arizona
called Autonomous Haulage Systems
(AHS), which are also enabled by
private LTE.
■ We launched a variety of innovative
smart city projects, including the City of
Sendai in Japan, where Nokia conducted
the world’s first test of private wireless
connected drones for tsunami
evacuation alerts or other disasters
to help in prevention and mitigation
efforts. The private LTE network was
provided by Nokia Digital Automation
Cloud (NDAC).
■ In transportation, we are building private
wireless networks for Port of Kokkola,
Port of Oulu and Vienna Airport.
■ We also partnered with Deutsche Messe
AG, with whom we powered the 5G arena
using mobile test devices by Qualcomm
Technologies during Hannover Messe,
the world’s largest industrial fair. Our live
5G network enabled sixteen industrial
automation use-cases with marquee
players in the manufacturing segment
from Bosch Rexroth to Zeiss, Siemens
and Weidmuller.
34
NOKIA IN 2019
Nokia Enterprise business group
addresses mission and business
critical networking requirements
for asset-intensive industries
providing high performance networks
and digital automation solutions.
NOKIA IN 2019
35
Business overview Business groups continued
Nokia Technologies
Breakdown of patent filings in 2019
by technology
4
3
2
1
1 Connectivity
2 Fixed & optical networks
3 Services, applications & multimedia
4 Emerging technologies & hardware
61%
9%
19%
11%
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.
Business overview
and organization
Nokia Technologies is focused on licensing.
■ We continue to grow our patent licensing
and monetization activities, which drive
most of Nokia Technologies’ net sales.
This includes our successful mobile
devices licensing program, which currently
has most of the major smartphone vendors
under license.
■ We also have patent licensing programs for
other markets which use our standardized
technologies, including consumer
electronics and broadcast, connected cars,
smart meters, payment terminals, asset
tracking and other Internet of Things
devices and related industries.
■ Nokia Technologies enables the
commercialization of selected fundamental
innovations from Nokia Bell Labs and
other Nokia business groups in new
areas via strategic collaboration with
other companies.
■ We continue to license our innovative OZO
spatial audio and visual technologies to
smartphone and camera manufacturers
through our Technology Licensing business.
■ Our Brand Partnerships business continues
to work with HMD Global, our exclusive
licensee for Nokia branded phones
and tablets, and is exploring further
opportunities to license the brand
in other product categories.
■ Nokia Technologies manages the
Nokia patent portfolio, working with
all other Nokia businesses, also driving
advanced audio and video research
and standardization through our
Media Technologies Research unit.
Sales and marketing
Nokia Technologies is responsible for
monetizing Nokia’s intellectual property
by making our innovations available to
the markets through licensing activities
and transactions.
Nokia Technologies continues to engage in
global sales and marketing activities supporting
the technology licensing of our innovative
audiovisual solutions such as OZO Audio.
Research and development
The applied nature of our R&D in the
Finland-based Media Technologies Research
unit in Nokia Technologies has resulted in
various relevant and valuable inventions
in areas that we believe are important for
emerging consumer experiences, such
as audio and video standardization.
36
NOKIA IN 2019
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.
NOKIA IN 2019
37
Business overview Business groups continued
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 standard
essential patents (SEPs) for the 2G, 3G, 4G and
5G standards. Our portfolio of cellular SEPs
has continued to grow in recent years and
comprises more than 2 800 patent families
declared to one or more of the standards,
including more than 2 100 for 5G, with more
to follow.
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 2019, our portfolio stands
at around 20 000 patent families, built on
combined R&D investments of more than
EUR 129 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 2019.
2019 highlights
■ During the year, Nokia signed a number
of patent licensing agreements with
smartphone companies, including Vivo,
TCL, Tinno and Wiko.
■ Nokia continued to advance its
automotive licensing program so that
currently more than a dozen automotive
brands from companies such as BMW
Group, Volkswagen Group and Volvo Cars
are licensed under Nokia patents for
their connected vehicles.
■ Nokia has expanded its licensing
activities through new license agreements
in the Internet of Things segment.
■ We have progressed in licensing our
leading portfolio of OZO technologies to
smartphone and camera manufacturers,
including products shipping from
companies such as OPPO, Axon and
HMD Global.
■ We announced collaborations with GE
Licensing and Innventure to monetize
inventions originating from Nokia Bell
Labs, creating additional revenue
streams for Nokia while enabling
others to build on Nokia innovations.
■ In November, India’s leading online
retailer, Flipkart, announced a brand
licensing agreement to create Nokia
branded smart TVs for the Indian market
and launched the first 55” Nokia branded
smart TV.
38
NOKIA IN 2019
We license our innovative
OZO technologies to
smartphone and camera
manufacturers.
NOKIA IN 2019
39
Business overview Principal industry trends
affecting operations
Business-specific trends
Networks and Nokia Software
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 communication service
providers and increasingly by customers in
other select verticals, to software solutions,
as well as services to plan, optimize,
implement, run and upgrade networks.
Our Networks reportable segment is
comprised of the following businesses: Mobile
Access, Fixed Access, IP Routing and Optical
Networks. Together with Nokia Software,
these businesses 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 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.
Industry trends
The network and IP infrastructure, software
and related services industry has witnessed
three main trends in recent years, which
have also affected our Networks and Nokia
Software segments. First, the increase in
the use of data services and the resulting
exponential growth in data traffic has led
to 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 communication service
providers. The rise in data traffic has,
however, not been directly reflected in growth
of communication service providers’ revenue.
Consequently, there is an imperative to be
efficient and cost competitive for both
communication service providers and
network infrastructure and services vendors.
Second, we are witnessing continued
consolidation among communication 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, communication service providers
are continuing their transition to all-IP
architectures, with an emphasis on fast access
to their networks through fiber, LTE and 5G
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.
Third, we see a stronger demand for large
high-performance networks in some key
areas outside the traditional communication
service provider space. 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 and Nokia Software segments.
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 strong software
business at scale. More information about our
strategy can be found in “Business Overview
– Our Strategy”.
Additionally in 2019, we witnessed some
customers reassessing their vendor selection
strategies, in light of on-going security
concerns. We have not seen any material
business or market share impact of this in
2019, but is has the potential to slightly shift
the vendor balance in certain regions and
technology domains.
Specifically in China, where pursuing market
share presents significant profitability
challenges and the region has some unique
market dynamics, we are executing against
a clear strategic goal to improve our overall
business mix in the region. Therefore, we
expect to be prudent in 5G, while targeting
more attractive opportunities with
communication service providers in other
parts of our business such as core, routing,
transport, fixed access and LTE, as well as
with enterprise and webscale customers.
Pricing and price erosion
While we experience varying levels of price
erosion across our businesses, it is particularly
evident in our Mobile Networks business
group, given the highly standardized nature of
the business. In 2019, we witnessed increased
competitive intensity in some accounts, as
certain competitors sought to take share in
the early stages of 5G. Generally, at this stage
of the cycle, strong 4G margins would be
expected to offset the 5G competitive
pressure. However, as early 5G deals often
include 4G, we experienced declines in our
4G margins in 2019.
40
NOKIA IN 2019
Products and services also have varying
profitability profiles. For instance, our
Networks and Nokia Software segments
offer a combination of hardware, software
and services. Hardware and software products
generally have higher gross margins, but
require significant R&D investment, whereas
services are typically labor-intensive, while
carrying low R&D investment, and have
relatively low gross margins compared to
the hardware and software products.
Product mix
The profitability of our Networks and
Nokia Software segments 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.
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.
This ratio shifts more towards higher-margin
software further into the cycle, as additional
capacity and features are deployed. In 2019,
we experienced relatively high 5G product
costs in Networks, as well as elevated levels
of deployment services, consistent with
being in the initial phase of 5G.
Seasonality and cyclical nature of projects
Net sales in our Networks and Nokia Software
segments are affected by seasonality in the
spending cycles of communication service
providers, with generally higher sales in the
fourth quarter, followed by generally lower
sales in the first quarter. Also, we have
recently witnessed that Networks and Nokia
Software segments generate the majority
of their respective operating profit and free
cash flow in the fourth 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
ramped up in 2019 and are expected to
continue in 2020 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 businesses.
NOKIA IN 2019
41
Business overview Principal industry trends
affecting operations continued
Continued operational efficiency
improvements
In 2018, following the completion of the
Alcatel Lucent integration and the related cost
savings program, 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.
In 2019, we made strong progress in
generating cost savings through the actions
listed above. Given the need to increase
investment in 5G in order to accelerate
product roadmaps and product cost
reductions, and in the digitalization of internal
processes to improve overall productivity, we
now expect this cost savings program to yield
EUR 500 million of net benefits, compared to
our previous expectation of EUR 700 million.
Cost of components and raw materials
There are several important factors driving
the profitability and competitiveness of
our Networks segment: 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. In 2019, margins in
our Networks segment were negatively
impacted by relatively high 5G product costs.
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.
Product Design and Serviceability
Factors such as product design and
serviceability also have an impact on our
cost structure with Networks. For example,
product design decisions, such as the use
of system-on-chip, or “SoCs” in our Mobile
Networks products, allow us to improve our
product costs as the proportion of SoCs
increases within our products. Additionally,
costs can be reduced through improved
product serviceability. In 2019, these were
contributing factors to the relatively high
5G product costs that impacted our
Networks segment.
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.
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.
42
NOKIA IN 2019
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 US 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.
For the full year 2019 compared to the
previous year, the Chinese yuan was slightly
stronger against the euro. The slightly
stronger Chinese yuan in 2019 on a
year-on-year basis had an approximately
neutral impact on our net sales, cost of sales,
operating expenses, as well as operating
profit before hedging.
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. Refer also to
“Board review – Risk factors”.
In 2019, approximately 25% of Group net
sales and total costs were denominated in
euro, and approximately 50% of Group net
sales and 45% of Group total costs were
denominated in US dollars. In 2019,
approximately 5% of Group net sales and
10% of Group total costs were denominated
in Chinese yuan.
During 2019, the US dollar appreciated
against the euro on a year-on-year basis and
this had significantly positive impact on our
net sales reported in euros. However, the
stronger US dollar also contributed to higher
costs of sales and slightly higher operating
expenses on a year-on-year basis. In total,
before hedging, the stronger US dollar on
a year-on-year basis had a slightly positive
effect on our operating profit in 2019.
The average currency mix for Group net sales and total costs:
2019
2018
Net sales
~25%
~50%
~5%
~20%
100%
Total costs
~25%
~45%
~10%
~20%
100%
Net sales
~25%
~45%
~10%
~20%
100%
Total costs
~30%
~45%
~10%
~15%
100%
Currency
EUR
USD
CNY
Other
Total
NOKIA IN 2019
43
Business overview Board review
Nokia creates the
technology to connect
the world and has
continued to convert
customers and confirm
new ones in a bid to
transform how people live,
work and communicate.
The Board of Directors of Nokia Corporation
44
NOKIA IN 2019
Nokia creates the
technology to connect
the world and has
continued to convert
customers and confirm
new ones in a bid to
transform how people live,
work and communicate.
The Board of Directors of Nokia Corporation
NOKIA IN 2019
Board review
Board review
Results of operations
Continuing operations
Discontinued operations
Results of segments
Networks
Nokia Software
Nokia Technologies
Group Common and Other
Liquidity and capital resources
Financial position
Cash flow
Financial assets and debt
Structured finance
Venture fund investments
46
47
47
52
53
53
55
57
59
61
61
61
62
62
and commitments
63
63
Treasury policy
63
Significant subsequent events
Sustainability and corporate responsibility 64
65
2019 main achievements
Protecting the environment
65
Conducting our business
with integrity
Respecting our people
Shares and share capital
Share details
Dividend
Articles of Association
Risk factors
66
70
71
71
71
71
72
45
Board review
While 2019 saw Nokia face some challenges, many of
our businesses performed well and Nokia ended the year
with a clear plan in place, expecting to improve over 2020
and to start 2021 in a stronger position.
While Nokia’s financial performance in 2019
was below expectations, driven by challenges
in Mobile Access and cash generation, Nokia
ended the year with a solid quarter and a plan
in place. It also continued to make good
progress across the four pillars of its strategy
– leading in high-performance, end-to-end
networks with communication service
providers, growing the enterprise and
webscale business and leading the
digitalization of industries, strengthening
our software business with one common
software foundation, and diversifying the
licensing business with new opportunities.
Areas of remarkable strength included Nokia
Enterprise, which boosted its position in the
industrial automation market in 2019, helping
to drive the Fourth Industrial Revolution.
Nokia’s enterprise customers have now
deployed over 1 300 industrial networks
worldwide. Nokia Enterprise ended the year
hitting its double-digit sales growth target
and outperforming the market.
Another area that saw continued momentum
included IP Routing, which gained market
share and improved profitability, as well as
Nokia Software, where the operating margin
was up sharply from 2018.
With 5G having launched into the mass market
in 2019, Nokia solidified its role as a major
player in the 5G game. Nokia is the only
company working with all the operators who
have chosen their 5G vendor in the early
adopter markets of the US, South Korea and
Japan. By the end of 2019, Nokia had secured
62 5G commercial deals and launched 18 live
networks. The strength of Nokia’s unique
end-to-end portfolio also continued to
attract customers, with an increased number
of multi-business group deals in the sales
pipeline. While 5G product costs negatively
impact Nokia’s near-term margins, the
breadth of Nokia’s portfolio ensures the
company is well-positioned to benefit
from the longer 5G investment cycle.
Nokia creates the technology to connect
the world and has continued to convert
customers and confirm new ones in a bid
to transform how people live, work and
communicate. As such it is pleasing to see
Nokia’s communication service provider
customers now supporting more than
6.4 billion subscriptions globally.
The Board held 20 meetings, excluding
committee meetings, during 2019.
The Board engaged with our shareholders
at the Annual General Meeting held in May
where shareholders holding a record amount,
nearly 50% of our outstanding shares,
exercised decision-making power and their
right to present questions to the Board and
management. During 2019, we also finalized
the audit firm rotation process with Deloitte
elected by the Annual General Meeting as
the new auditor for the financial year 2020.
In addition, during 2019, the Chair of the
Personnel Committee continued to engage
with our largest investors to discuss
executive remuneration as well as the related
governance and disclosure practices. In
December 2019, Risto Siilasmaa informed the
Board that he will step down from the Nokia
Board of Directors at the Annual General
Meeting 2020 after serving 12 years as a
Director and the last eight years as the Chair.
Following a nearly one-year succession
planning process, the Board’s Corporate
Governance & Nomination Committee
proposes the Vice Chair, Sari Baldauf,
to be the new Chair of the Nokia Board
and Kari Stadigh to be the new Vice Chair
of the Board, subject to their re-election to
the Board by the Annual General Meeting.
The Board has also had a consistent focus on
CEO succession planning as part of its core
processes. Rajeev Suri, Nokia’s current
President and CEO, indicated earlier to the
Board that he was considering stepping down
from his role at some point in the future,
provided a solid succession plan was in place.
Nokia’s Board of Directors has conducted a
structured process for CEO succession and
has been working closely with Suri to develop
internal candidates and identify external
candidates. That process culminated on
March 2, 2020, when the Board made the
decision to appoint Pekka Lundmark as the
new President and CEO of Nokia. Lundmark
is expected to start in his new role on
September 1, 2020, with Suri leaving his
current position on August 31, 2020 and
continuing to serve as an advisor to the
Board until January 1, 2021.
As announced on October 24, 2019 and
February 6, 2020, the Board resolved to
not distribute the third and fourth quarterly
instalments of the dividend for the financial
year 2018 and has proposed not to pay any
dividend for the financial year 2019 in order
to (a) guarantee Nokia’s ability to increase 5G
investments, (b) continue investing in growth
in strategic focus areas of enterprise and
software and (c) to strengthen Nokia’s cash
position. This was done in accordance with
Nokia’s dividend policy, which states that
dividend decisions are made taking into
account Nokia’s cash position and expected
cash flow generation. The Board expects to
resume dividend distributions after Nokia’s
net cash position improves to approximately
EUR 2 billion, taking into account Nokia’s
expected cash flow generation.
46
NOKIA IN 2019
Results of operations
Nokia creates the technology to connect the world. We have global leadership in mobile and fixed network infrastructure with the software,
services and advanced technologies to serve customers around the world. We are driving the transition to smart, virtual networks and
connectivity by creating one single network for all services, converging mobile and fixed broadband, IP routing and optical networks, with the
software and services to manage them.
Nokia is enabling the infrastructure for 5G and IoT, and shaping the future of technology to transform the human experience. Our comprehensive
portfolio of products, services and licensing, and vast know-how affords our customers the means and ability to optimally deliver extraordinary
customer services and experiences. We have a global presence with operations in Europe, the Middle East & Africa, Greater China, North America,
Asia-Pacific and Latin America.
The financial information included in this “Operating and financial review and prospects” section as of December 31, 2019 and 2018 and for
each of the three years ended December 31, 2019, 2018 and 2017 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, 2019 and 2018 and for each of the three years ended
December 31, 2019, 2018 and 2017 should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated
financial statements.
In 2019, we had three reportable segments for financial reporting purposes: (1) Networks, (2) Nokia Software and (3) Nokia Technologies.
We also present certain segment-level information for Group Common and Other as well as for Discontinued operations. We adopted
our current operational and reporting structure on January 1, 2019. The reporting structure was revised to better reflect our strategy,
organizational structure and the way the management evaluates operational performance and allocates resources. Previously 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.
Segment information for 2018 and 2017 presented throughout this annual report has been recast for comparability purposes according to the
new operating and reporting structure. For more information on our operational and reporting structure, refer to Note 5, Segment information
in the consolidated financial statements.
In 2019 we applied IFRS 16, Leases, for the first time. The financial information as of December 31, 2018 and for the years ended December 31,
2018 and 2017 has not been restated for the effects of IFRS 16. Refer to Note 3, New and amended standards and interpretations, in the
consolidated financial statements.
Continuing operations
For the year ended December 31, 2019 compared to the year ended December 31, 2018
The following table sets forth selective line items and the percentage of net sales for the years indicated.
2019
EURm % of net sales
2018
EURm % of net sales
Year-on-year
change %
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other operating income and expenses
Operating profit/(loss)
Share of results of associated companies and joint ventures
Financial income and expenses
Profit/(loss) before tax
Income tax expense
Profit/(loss) for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
23 315
(14 989)
8 326
(4 411)
(3 101)
(329)
485
12
(341)
156
(138)
18
14
4
100.0
(64.3)
35.7
(18.9)
(13.3)
(1.4)
2.1
0.1
(1.5)
0.7
(0.6)
0.1
0.1
–
Net sales
Net sales in 2019 were EUR 23 315 million, an increase of EUR 752
million, or 3%, compared to EUR 22 563 million in 2018. The increase
in net sales was primarily due to an increase in Networks net sales, and,
to a lesser extent, Nokia Software net sales. This was partially offset by a
decrease in Group Common and Other and Nokia Technologies net sales.
The following tables set forth distribution of net sales by geographical
area and net sales by customer type for the years indicated.
For the year ended December 31
Asia-Pacific
Europe(1)
Greater China
Latin America
Middle East & Africa
North America
Total
22 563
(14 117)
8 446
(4 620)
(3 463)
(422)
(59)
12
(313)
(360)
(189)
(549)
(554)
5
2019
EURm
4 556
6 620
1 843
1 472
1 876
6 948
23 315
100.0
(62.6)
37.4
(20.5)
(15.3)
(1.9)
(0.3)
0.1
(1.4)
(1.6)
(0.8)
(2.4)
(2.5)
–
3
6
(1)
(5)
(10)
–
–
–
9
–
(27)
–
–
(20)
2018
EURm
4 081
6 489
2 165
1 380
1 874
6 574
22 563
Year-on-year
change %
12
2
(15)
7
–
6
3
NOKIA IN 2019
47
(1) All Nokia Technologies IPR and licensing net sales are allocated to Finland.
Board review Results of operations continued
For the year ended December 31
Communication service
providers
Enterprise
Licensees
Other(1)
Total
2019
EURm
2018
EURm
Year-on-year
change %
19 558
1 409
1 487
861
23 315
18 955
1 167
1 476
965
22 563
3
21
1
(11)
3
(1) Includes net sales of Alcatel Submarine Networks and Radio Frequency Systems, both of which
are being managed as separate entities, and certain other items, such as eliminations of
inter-segment revenues and certain items related to purchase price allocation. Alcatel
Submarine Networks and Radio Frequency Systems net sales include also revenue from
communications service providers and enterprise customers.
Gross profit
Gross profit in 2019 was EUR 8 326 million, a decrease of
EUR 120 million, or 1%, compared to EUR 8 446 million in 2018.
The decrease in gross profit was primarily due to lower gross profit in
Networks, Group Common and Other and Nokia Technologies, partially
offset by lower product portfolio integration-related costs and higher
gross profit in Nokia Software. Gross margin in 2019 was 35.7%,
compared to 37.4% in 2018. In 2019, gross profit included product
portfolio integration-related costs of EUR 123 million, compared to
EUR 548 million in 2018.
Operating expenses
Our research and development expenses in 2019 were
EUR 4 411 million, a decrease of EUR 209 million, or 5%, compared
to EUR 4 620 million in 2018. Research and development expenses
represented 18.9% of our net sales in 2019 compared to 20.5% in
2018. The decrease in research and development expenses were due
to a decrease in Networks, and, to a lesser extent, Nokia Software and
Nokia Technologies research and development expenses. This was
partially offset by an increase in Group Common and Other research
and development expenses.
Our selling, general and administrative expenses in 2019 were
EUR 3 101 million, a decrease of EUR 362 million, or 10%, compared
to EUR 3 463 million in 2018. Selling, general and administrative
expenses represented 13.3% of our net sales in 2019 compared to
15.3% in 2018. The decrease in selling, general and administrative
expenses was primarily due to a decrease in Networks selling,
general and administrative expenses, lower transaction and
integration-related costs and, to a lesser extent, lower Nokia Software
and Nokia Technologies selling, general and administrative expenses.
This was partially offset by higher Group Common and Other selling,
general and administrative expenses. Selling, general and
administrative expenses included transaction and integration-related
costs of EUR 50 million, compared to EUR 207 million in 2018.
Other operating income and expenses in 2019 was a net expense
of EUR 329 million, a decrease of EUR 93 million, compared to a net
expense of EUR 422 million in 2018. The net positive fluctuation in
our other operating income and expenses was primarily due to a gain
related to a defined benefit plan amendment, as well as the absence
of charges related to fair value changes of a legacy IPR fund and lower
charges related to divestments of businesses. This was partially
offset by higher restructuring and associated charges and a net
negative fluctuation in Group Common and Other operating income
and expenses. Other operating income and expenses included
restructuring and associated charges of EUR 435 million in 2019
compared to EUR 319 million in 2018.
In 2019, we recorded a non-cash impairment charge to other
operating income and expenses of EUR 29 million, compared
to EUR 48 million in 2018.
Operating profit/loss
Our operating profit in 2019 was EUR 485 million, a change of
EUR 544 million, compared to an operating loss of EUR 59 million in 2018.
The change in operating result was primarily due to lower selling, general
and administrative expenses, research and development expenses and a
net positive fluctuation in other operating income and expenses, partially
offset by lower gross profit. Our operating margin in 2019 was 2.1%,
compared to approximately breakeven in 2018.
The following table sets forth the impact of unallocated items on
operating profit/loss:
EURm
Total segment operating profit(1)
Amortization and depreciation of acquired
intangible assets and property, plant and
equipment
Restructuring and associated charges
Gain on defined benefit plan amendment
Product portfolio strategy costs
Transaction and related costs, including
integration costs relating to the acquisition of
Alcatel Lucent
Impairment of assets, net of impairment
reversals
Operating model integration
Release of acquisition-related fair value
adjustments to deferred revenue
and inventory
Divestment of businesses
Fair value changes of legacy IPR fund
Other
Total operating profit/(loss)
2019
2018
2 003
2 180
(924)
(502)
168
(163)
(940)
(321)
–
(583)
(48)
(220)
(29)
(12)
(6)
(2)
–
–
485
(48)
–
(16)
(39)
(57)
(15)
(59)
(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.
48
NOKIA IN 2019
Financial income and expenses
Financial income and expenses was a net expense of EUR 341 million in
2019, an increase of EUR 28 million, or 9%, compared to a net expense
of EUR 313 million in 2018. The net negative fluctuation in financial
income and expenses was primarily due to an impairment charge
related to loans extended to a certain emerging market customer,
a recognition of interest expenses on lease liabilities within financial
expenses, following the adoption of IFRS 16, Leases, in 2019, as well
as an increase in the costs related to the sale of receivables in 2019
compared to 2018. We sell trade receivables to various financial
institutions without recourse in the normal course of business, in
order to manage our credit risk and working capital cycle. The negative
fluctuation was partially offset by income due to a change in the fair
value of the financial liability related to Nokia Shanghai Bell, which
positively impacted other financial income.
Profit/loss before tax
Our profit before tax in 2019 was EUR 156 million, an increase
of EUR 516 million compared to a loss of EUR 360 million in 2018.
Income tax
Income taxes was a net expense of EUR 138 million in 2019, a decrease
of EUR 51 million compared to a net expense of EUR 189 million in
2018. The change in net income taxes was primarily attributable to the
deferred tax expense recorded in 2018 resulting from the write-off of
certain deferred tax assets, primarily related to foreign withholding tax
credits in Finland. This was partially offset by higher income taxes due
to increased profitability and our regional profit mix in 2019 compared
to 2018.
Profit/loss attributable to equity holders of the parent and earnings
per share
The profit attributable to equity holders of the parent in 2019 was
EUR 14 million, an increase of EUR 568 million, compared to a loss of
EUR 554 million in 2018. The change in profit attributable to equity
holders of the parent was primarily due to the improvement in
operating profit, and, to a lesser extent, lower income tax expenses.
This was partially offset by a net negative fluctuation in financial
income and expenses.
Our EPS from continuing operations in 2019 was EUR 0.00 (basic) and
EUR 0.00 (diluted) compared to negative EUR 0.10 (basic) and negative
EUR 0.10 (diluted) in 2018.
Cost savings program
In 2018, following the completion of the Alcatel Lucent integration
and the related cost savings program, 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. This cost savings program is expected to yield
EUR 500 million of net benefits. Through the end of 2019, we made
strong progress towards our 2020 target, realizing approximately
EUR 200 million of savings. The remainder is expected in 2020.
In 2019, we recognized restructuring and associated charges of
approximately EUR 450 million related to the current and past cost
savings programs. In 2019, we had restructuring and associated
cash outflows of approximately EUR 450 million related to the cost
savings program.
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 operating 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
Attributable to:
Equity holders of the parent
Non-controlling interests
NOKIA IN 2019
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)
(554)
5
100.0
(62.6)
37.4
(20.5)
(15.3)
(1.9)
(0.3)
0.1
(1.4)
(1.6)
(0.8)
(2.4)
(2.5)
–
23 147
(14 008)
9 139
(4 916)
(3 615)
(592)
16
11
(537)
(510)
(927)
(1 437)
(1 473)
36
100.0
(60.5)
39.5
(21.2)
(15.6)
(2.6)
0.1
–
(2.3)
(2.2)
(4.0)
(6.2)
(6.4)
0.2
(3)
1
(8)
(6)
(4)
–
–
9
(42)
(29)
(80)
(62)
(62)
(86)
49
Board review Results of operations continued
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 net
sales was primarily due to a decrease in Networks net sales, and, to a
lesser extent a decrease in Nokia Technologies, Group Common and
Other and Nokia Software net sales.
The following tables set forth distribution of net sales by geographical
area and net sales by customer type 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.
For the year ended December 31
Communication service
providers
Enterprise
Licensees
Other(1)
Total
2018
EURm
2017
EURm
Year-on-year
change %
18 955
1 167
1 476
965
22 563
19 378
1 135
1 606
1 028
23 147
(2)
3
(8)
(6)
(3)
(1) Includes net sales of Alcatel Submarine Networks and Radio Frequency Systems, both of
which are being managed as separate entities, and certain other items, such as eliminations
of inter-segment revenues and certain items related to purchase price allocation.
Alcatel Submarine Networks and Radio Frequency Systems net sales include also revenue
from communications service providers and enterprise customers.
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 Networks, Nokia Technologies and Nokia Software, as well as higher
product portfolio integration-related costs, partially offset by lower
working capital-related purchase price allocation adjustments. Gross
margin 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.
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 Technologies, Nokia Software and Networks
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 Networks and 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.
Other operating 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 operating 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 operating
income and expenses. These were partially offset by a net negative
fluctuation in Networks other operating income and expenses,
charges related to fair value changes of a legacy IPR fund and charges
related to the divestment of businesses. Other operating 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
operating 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.
50
NOKIA IN 2019
Operating loss/profit
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 operating income and expenses and lower selling,
general and administrative expenses. Our operating margin in both
2018 and 2017 was approximately breakeven.
The following table sets forth the impact of unallocated items on
operating profit/loss:
EURm
Total segment operating profit(1)
Amortization and depreciation of acquired
intangible assets and property, plant and
equipment
Restructuring and associated charges
Product portfolio strategy costs
Transaction and related costs, including
integration costs relating to the acquisition
of Alcatel Lucent
Impairment of assets, net of impairment
reversals
Release of acquisition-related fair value
adjustments to deferred revenue
and inventory
Divestment of businesses
Fair value changes of legacy IPR fund
Other
Total operating (loss)/profit
2018
2017
2 180
2 587
(940)
(321)
(583)
(1 033)
(579)
(536)
(220)
(206)
(48)
(173)
(16)
(39)
(57)
(15)
(59)
(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, Financial Instruments, 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, Revenue from Contracts with Customers.
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 related 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 12, Income taxes, of our consolidated financial
statements included in this annual report.
NOKIA IN 2019
51
Board review Results of operations continued
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 554 million, a decrease of EUR 919 million, compared to a loss of
EUR 1 473 million in 2017. The change in loss 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 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.
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
Group sold substantially all of its Devices & Services business to
Microsoft in a transaction that was completed on April 25, 2014.
The timing and amount of financial effects are largely dependent upon
external factors such as final outcomes of uncertain tax positions
Refer to Note 6, Discontinued operations, of our consolidated
financial statements included in this annual report.
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. Upon completion of the Alcatel Lucent integration cost
savings program as of the end of 2018, we announced a new cost
savings program, where we intend to target substantial savings while
continuing to make further investments to drive future growth and
higher returns. The new program is expected to be completed at the
end of 2020.
For the year ended December 31, 2019 compared to the
year ended December 31, 2018
Discontinued operations loss for the year was EUR 7 million in 2019
compared to a profit of EUR 214 million in 2018. In 2019, the loss
for the year included an addition of EUR 7 million to and a deduction
of EUR 1 million from gain on the sale related to D&S business and
HERE business, respectively, due to tax indemnification. 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.
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.
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 in
2018 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.
52
NOKIA IN 2019
Results of segments
Networks
For the year ended December 31, 2019 compared to the year ended December 31, 2018
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 operating income and expenses
Operating profit
2019
EURm % of net sales
2018
EURm % of net sales
Year-on-year
change %
18 209
(12 632)
5 577
(2 943)
(1 929)
(40)
665
100.0
(69.4)
30.6
(16.2)
(10.6)
(0.2)
3.7
17 404
(11 369)
6 035
(3 091)
(2 140)
(31)
773
100.0
(65.3)
34.7
(17.8)
(12.3)
(0.2)
4.4
5
11
(8)
(5)
(10)
–
(14)
(1) In 2019, net sales include Mobile Access net sales of EUR 11 655 million, Fixed Access net sales of EUR 1 881 million, IP Routing net sales of EUR 2 921 million and Optical Networks net sales of
EUR 1 752 million. In 2018, net sales include Mobile Access net sales of EUR 11 273 million, Fixed Access net sales of EUR 1 980 million, IP Routing net sales of EUR 2 545 million and Optical Networks
net sales of EUR 1 606 million.
Operating expenses
Networks research and development expenses were EUR 2 943 million
in 2019, a decrease of EUR 148 million, or 5%, compared to
EUR 3 091 million in 2018. The decrease in Networks research and
development expenses was primarily due to Mobile Access. The lower
research and development expenses in Mobile Access was primarily
due to continued progress related to Nokia’s cost savings program,
partially offset by higher 5G investments. In 2019, Networks research
and development expenses also benefitted from lower incentive
accruals, compared to 2018.
Networks selling, general and administrative expenses were
EUR 1 929 million in 2019, a decrease of EUR 211 million, or 10%,
compared to EUR 2 140 million in 2018. The decrease in Networks
selling, general and administrative expenses was primarily due to
Mobile Access. The decrease in Mobile Access selling, general and
administrative expenses was primarily due to progress related to
Nokia’s cost savings program. In 2019, Networks selling, general
and administrative expenses also benefitted from lower incentive
accruals, compared to 2018.
Networks other operating income and expenses was an expense
of EUR 40 million in 2019, a change of EUR 9 million compared
to an expense of EUR 31 million in 2018.
Operating profit
Networks operating profit was EUR 665 million in 2019, a decrease
of EUR 108 million, or 14%, compared to EUR 773 million in 2018.
Networks operating margin in 2019 was 3.7% compared to 4.4% in
2018. The decrease in operating margin was primarily attributable to
the decrease in Mobile Access and to a lesser extent, Fixed Access,
partially offset by higher IP Routing and Optical Networks
operating margin.
Net sales
Networks net sales in 2019 were EUR 18 209 million, an increase of
EUR 805 million, or 5%, compared to EUR 17 404 million in 2018.
The increase in Networks net sales was primarily due to Mobile Access,
IP Routing and, to a lesser extent, Optical Networks, partially offset by
Fixed Access. Mobile Access net sales were EUR 11 655 million in 2019,
an increase of EUR 382 million, or 3%, compared to EUR 11 273 million
in 2018. IP Routing net sales were EUR 2 921 million in 2019, an
increase of EUR 376 million, or 15%, compared to EUR 2 545 million
in 2018. Optical Networks net sales were EUR 1 752 million in 2019,
an increase of EUR 146 million, or 9%, compared to EUR 1 606 million
in 2018. Fixed Access net sales were EUR 1 881 million in 2019,
a decrease of EUR 99 million, or 5%, compared to EUR 1 980 million
in 2018.
The increase in Mobile Access net sales was primarily due to 5G radio
technologies and network deployment services, partially offset by
decreases in legacy radio technologies.
The increase in IP Routing net sales was primarily driven by our
market-leading portfolio, as well as improved supply chain execution.
The increase in Optical Networks net sales was primarily related to our
market-leading portfolio.
The decrease in Fixed Access net sales was primarily due to broadband
access, digital home and services.
Gross profit
Networks gross profit in 2019 was EUR 5 577 million, a decrease
of EUR 458 million, or 8%, compared to EUR 6 035 million in 2018.
Networks gross margin in 2019 was 30.6%, compared to 34.7% in
2018. The decrease in Networks gross profit was primarily due to
Mobile Access and, to a lesser extent, Fixed Access, partially offset by
IP Routing and Optical Networks. The decrease in Mobile Access gross
profit was primarily due to lower gross margin, partially offset by
higher net sales. The lower gross margin in Mobile Access was primarily
due to relatively high 5G product costs, as well as elevated levels of
deployment services, consistent with being in the initial phase of 5G.
The decrease in Fixed Access gross profit was primarily due to lower
gross margin and lower net sales. The increase in IP Routing gross
profit was primarily due to higher net sales and higher gross margin.
The increase in Optical Networks gross profit was primarily due to
higher net sales and higher gross margin. In 2019, Networks gross
profit also benefitted from lower incentive accruals, compared
to 2018.
NOKIA IN 2019
53
Board review Results of segments continued
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 operating income and expenses
Operating profit
2018
EURm % of net sales
2017
EURm % of net sales
Year-on-year
change %
17 404
(11 369)
6 035
(3 091)
(2 140)
(31)
773
100.0
(65.3)
34.7
(17.8)
(12.3)
(0.2)
4.4
17 725
(11 194)
6 531
(3 163)
(2 162)
91
1 297
100.0
(63.2)
36.8
(17.8)
(12.2)
0.5
7.3
(2)
2
(8)
(2)
(1)
–
(40)
(1) In 2018, net sales include Mobile Access net sales of EUR 11 273 million, Fixed Access net sales of EUR 1 980 million, IP Routing net sales of EUR 2 545 million and Optical Networks net sales of
EUR 1 606 million. In 2017, net sales include Mobile Access net sales of EUR 11 457 million, Fixed Access net sales of EUR 2 075 million, IP Routing net sales of EUR 2 694 million and Optical Networks
net sales of EUR 1 499 million.
Net sales
Networks net sales in 2018 were EUR 17 404 million, a decrease of
EUR 321 million, or 2%, compared to EUR 17 725 million in 2017.
The decrease in Networks net sales was due to Mobile Access,
IP Routing and Fixed Access, partially offset by Optical Networks.
Mobile Access net sales were EUR 11 273 million in 2018, a decrease
of EUR 184 million, or 2%, compared to EUR 11 457 million in 2017.
IP Routing net sales were EUR 2 545 million in 2018, a decrease of
EUR 149 million, or 6%, compared to EUR 2 694 million in 2017.
Fixed Access net sales were EUR 1 980 million in 2018, a decrease
of EUR 95 million, or 5%, compared to EUR 2 075 million in 2017.
Optical Networks net sales were EUR 1 606 million in 2018, an increase
of EUR 107 million, or 7%, compared to EUR 1 499 million in 2017.
The decrease in Mobile Access net sales was primarily due to radio
networks and network implementation, partially offset by small cells,
microwave and managed services.
The decrease in IP Routing net sales was primarily driven by
component shortages in our supply chain, which showed signs
of improvement in the latter part of 2018.
The decrease in Fixed Access net sales was primarily due to broadband
access, services and digital home.
The increase in Optical Networks net sales was primarily related to
our strong product portfolio, as well as progress with targeted large
enterprise vertical and webscale customers.
Gross profit
Networks gross profit in 2018 was EUR 6 035 million, a decrease
of EUR 496 million, or 8%, compared to EUR 6 531 million in 2017.
Networks gross margin in 2018 was 34.7%, compared to 36.8% in
2017. The decrease in Networks gross profit was primarily due to
Mobile Access and, to a lesser extent, IP Routing, partially offset by
Optical Networks. The decrease in Mobile Access gross profit was
primarily due to lower gross margin and lower net sales. The decrease
in IP Routing gross profit was primarily due to lower net sales and
lower gross margin. The increase in Optical Networks gross profit was
primarily due to higher net sales, partially offset by lower gross margin.
Operating expenses
Networks research and development expenses were EUR 3 091 million
in 2018, a decrease of EUR 72 million, or 2%, compared to
EUR 3 163 million in 2017. The decrease in Networks research and
development expenses was primarily due to Mobile Access and IP
Routing, partially offset by Optical Networks. The lower research and
development expenses in Mobile Access was primarily due to lower
personnel expenses, reflecting progress related to our cost savings
program, as well as lower incentive accruals. The lower research and
development expenses in IP Routing was primarily due to net positive
foreign exchange fluctuations, as well as lower incentive accruals.
The higher research and development expenses in Optical Networks
was primarily due to higher investments to drive future growth and
higher returns.
Networks selling, general and administrative expenses were
EUR 2 140 million in 2018, a decrease of EUR 22 million, or 1%,
compared to EUR 2 162 million in 2017. The decrease in Networks
selling, general and administrative expenses was primarily due to
Mobile Access, partially offset by Optical Networks. The decrease
in Mobile Access 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. Mobile
Access selling, general and administrative expenses also benefitted
from lower incentive accruals in 2018. The higher selling, general
and administrative expenses in Optical Networks was primarily due
to higher investments to drive future growth and higher returns.
Networks other operating income and expenses was an expense of
EUR 31 million in 2018, a change of EUR 122 million compared to
an income of EUR 91 million in 2017. The net negative fluctuation in
other operating income and expenses was primarily related to foreign
exchange hedging and higher doubtful account allowances.
Operating profit
Networks operating profit was EUR 773 million in 2018, a decrease
of EUR 524 million, or 40%, compared to EUR 1 297 million in 2017.
Networks operating margin in 2018 was 4.4% compared to 7.3% in
2017. The decrease in operating margin was primarily attributable
to the decrease in Mobile Access and to a lesser extent, IP Routing
operating margin, partially offset by higher Fixed Access
operating margin.
54
NOKIA IN 2019
Nokia Software
For the year ended December 31, 2019 compared to the year ended December 31, 2018
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 operating income and expenses
Operating profit
Net sales
Nokia Software net sales in 2019 were EUR 2 767 million, an increase
of EUR 54 million, or 2%, compared to EUR 2 713 million in 2018. The
increase in Nokia Software net sales was primarily due to applications,
and, to a lesser extent, core networks. In applications, growth was
driven by digital intelligence, self-organizing networks and services.
Gross profit
Nokia Software gross profit in 2019 was EUR 1 453 million, an increase
of EUR 86 million, or 6%, compared to EUR 1 367 million in 2018.
Nokia Software gross margin in 2019 was 52.5%, compared to 50.4%
in 2018. The increase in Nokia Software gross profit was primarily due
to higher net sales in applications, higher gross margin and higher
net sales in core networks, as well as lower incentive accruals in 2019,
compared to 2018.
2019
EURm % of net sales
2018
EURm % of net sales
Year-on-year
change %
2 767
(1 314)
1 453
(458)
(395)
(11)
589
100.0
(47.5)
52.5
(16.6)
(14.3)
(0.4)
21.3
2 713
(1 346)
1 367
(485)
(429)
(3)
450
100.0
(49.6)
50.4
(17.9)
(15.8)
(0.1)
16.6
2
(2)
6
(6)
(8)
–
31
Operating expenses
Nokia Software research and development expenses were
EUR 458 million in 2019, a decrease of EUR 27 million, or 6%,
compared to EUR 485 million in 2018. The decrease in Nokia Software
research and development expenses was primarily due to an increase
in R&D productivity achieved through our investments in a Common
Software Foundation and the further optimization of resources,
as well as lower incentive accruals in 2019, compared to 2018.
Nokia Software selling, general and administrative expenses were
EUR 395 million in 2019, a decrease of EUR 34 million, or 8%,
compared to EUR 429 million in 2018. The decrease in Nokia Software
selling, general and administrative expenses was primarily due to
the integration and streamlining of core networks into our existing
specialized software salesforce, as well as lower incentive accruals
in 2019, compared to 2018.
Nokia Software other operating income and expenses was an expense
of EUR 11 million in 2019, a change of EUR 8 million compared to an
expense of EUR 3 million in 2018.
Operating profit
Nokia Software operating profit was EUR 589 million in 2019, an
increase of EUR 139 million, or 31%, compared to EUR 450 million in
2018. Nokia Software operating margin in 2019 was 21.3% compared
to 16.6% in 2018. The increase in Nokia Software operating margin in
2019 was primarily due to higher gross profit, as well as lower research
and development and selling, general and administrative expenses.
NOKIA IN 2019
55
Board review Results of segments continued
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 operating income and expenses
Operating profit
Net sales
Nokia Software net sales in 2018 were EUR 2 713 million, a decrease
of EUR 85 million, or 3%, compared to EUR 2 798 million in 2017.
The decrease in Nokia Software net sales was primarily due to core
networks. This was partially offset by applications, which witnessed
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 Software gross profit in 2018 was EUR 1 367 million, a decrease
of EUR 35 million, or 2%, compared to EUR 1 402 million in 2017.
Nokia Software gross margin in 2018 was 50.4%, compared to 50.1%
in 2017. The decrease in Nokia Software gross profit was primarily due
to lower net sales and lower gross margin in core networks, partially
offset by higher gross margin and higher net sales in applications.
2018
EURm % of net sales
2017
EURm % of net sales
Year-on-year
change %
2 713
(1 346)
1 367
(485)
(429)
(3)
450
100.0
(49.6)
50.4
(17.9)
(15.8)
(0.1)
16.6
2 798
(1 396)
1 402
(567)
(425)
4
414
100.0
(49.9)
50.1
(20.3)
(15.2)
0.1
14.8
(3)
(4)
(2)
(14)
1
–
9
Operating expenses
Nokia Software research and development expenses were
EUR 485 million in 2018, a decrease of EUR 82 million, or 14%,
compared to EUR 567 million in 2017. The decrease in Nokia Software
research and development expenses was primarily due to improved
productivity, particularly in applications, following the ongoing
implementation of the Common Software Foundation.
Nokia Software selling, general and administrative expenses were
EUR 429 million in 2018, an increase of EUR 4 million, or 1%, compared
to EUR 425 million in 2017.
Nokia Software other operating income and expenses was an expense
of EUR 3 million in 2018, a change of EUR 7 million compared to an
income of EUR 4 million in 2017.
Operating profit
Nokia Software operating profit was EUR 450 million in 2018, an
increase of EUR 36 million, or 9%, compared to EUR 414 million in
2017. Nokia Software operating margin in 2018 was 16.6% compared
to 14.8% in 2017. The increase in Nokia Software operating margin in
2018 was primarily due to lower research and development expenses,
partially offset by lower gross profit.
56
NOKIA IN 2019
Nokia Technologies
For the year ended December 31, 2019 compared to the year ended December 31, 2018
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 operating income and expenses
Operating profit
Net sales
Nokia Technologies net sales in 2019 were EUR 1 487 million, a
decrease of EUR 14 million, or 1%, compared to EUR 1 501 million in
2018. In 2019, the EUR 1 487 million of net sales related entirely to
patent and brand licensing. 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. The decrease in Nokia
Technologies net sales was primarily due to the sale of our digital
health business in 2018, partially offset by higher one-time catch-up
net sales related to a new license agreement and the sale of
certain patents.
Gross profit
Nokia Technologies gross profit in 2019 was EUR 1 459 million, a
decrease of EUR 20 million, or 1%, compared to EUR 1 479 million in
2018. The lower gross profit in Nokia Technologies was primarily due
to lower net sales and lower gross margin. The lower gross margin
reflects costs associated with a one-time sale of patent assets,
partially offset by the absence of costs related to digital health,
following the sale of our digital health business in 2018.
2019
EURm % of net sales
2018
EURm % of net sales
Year-on-year
change %
1 487
(28)
1 459
(111)
(101)
(8)
1 239
100.0
(1.9)
98.1
(7.5)
(6.8)
(0.5)
83.3
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)
27
(1)
(23)
(20)
–
3
Operating expenses
Nokia Technologies research and development expenses in 2019 were
EUR 111 million, a decrease of EUR 34 million, or 23%, compared to
EUR 145 million in 2018. The decrease in Nokia Technologies research
and development expenses was primarily due to 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 2019 were EUR 101 million, a decrease of EUR 26 million, or 20%,
compared to EUR 127 million in 2018. The decrease in Nokia
Technologies selling, general and administrative expenses was
primarily due to the absence of costs related to digital health,
following the sale of our digital health business in 2018, lower
licensing-related litigation costs and lower business support costs.
Nokia Technologies other operating income and expenses in 2019 was
a net expense of EUR 8 million, a change of EUR 4 million compared to
a net expense of EUR 4 million in 2018.
Operating profit
Nokia Technologies operating profit in 2019 was EUR 1 239 million,
an increase of EUR 36 million, or 3%, compared to an operating profit
of EUR 1 203 million in 2018. The increase in Nokia Technologies
operating profit was primarily due to lower research and development
and selling, general and administrative and expenses, partially offset
by lower gross profit. Nokia Technologies operating margin in 2019
was 83.3% compared to 80.1% in 2018.
NOKIA IN 2019
57
Board review Results of segments continued
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 operating income and expenses
Operating profit
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.
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.
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
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 operating income and expenses 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.
58
NOKIA IN 2019
Group Common and Other
For the year ended December 31, 2019 compared to the year ended December 31, 2018
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
2019
EURm % of net sales
2018
EURm % of net sales
Year-on-year
change %
952
(918)
34
(312)
(269)
57
(490)
100.0
(96.4)
3.6
(32.8)
(28.3)
6.0
(51.5)
1 025
(871)
154
(293)
(200)
93
(246)
100.0
(85.0)
15.0
(28.6)
(19.5)
9.1
(24.0)
(7)
5
(78)
6
35
–
99
Net sales
Group Common and Other net sales in 2019 were EUR 952 million,
a decrease of EUR 73 million, or 7%, compared to EUR 1 025 million
in 2018. The decrease in Group Common and Other net sales
was primarily due to Radio Frequency Systems, partially offset
by Alcatel Submarine Networks.
Gross profit
Group Common and Other gross profit in 2019 was EUR 34 million,
a decrease of EUR 120 million, or 78%, compared to EUR 154 million
in 2018. The lower gross profit was primarily due to Radio Frequency
Systems, Alcatel Submarine Networks, as well as investments to drive
digitalization of internal processes. Group Common and Other gross
margin in 2019 was 3.6% compared to 15.0% in 2018.
Operating expenses
Group Common and Other research and development expenses in
2019 were EUR 312 million, an increase of EUR 19 million, or 6%,
compared to EUR 293 million in 2018. The increase in Group Common
and Other research and development expenses was primarily due to
investments to drive digitalization of internal processes, partially
offset by lower incentive accruals in 2019, compared to 2018.
Group Common and Other selling, general and administrative
expenses in 2019 were EUR 269 million, an increase of EUR 69 million,
or 35%, compared to EUR 200 million in 2018. The increase in Group
Common and Other selling, general and administrative expenses
was primarily due to investments to drive digitalization of internal
processes, partially offset by lower incentive accruals in 2019,
compared to 2018.
Group Common and Other other operating income and expense in
2019 was a net income of EUR 57 million, a change of EUR 36 million
compared to a net income of EUR 93 million in 2018. The net negative
fluctuation in other operating income and expenses was primarily
due to lower gains in venture fund investments.
Operating loss
Group Common and Other operating loss in 2019 was EUR 490 million,
an increase of EUR 244 million, compared to an operating loss of
EUR 246 million in 2018. The change in Group Common and Other
operating loss was primarily attributable to lower gross profit, higher
selling, general and administrative expenses, a negative fluctuation
in other operating income and expense, and higher research and
development expenses.
NOKIA IN 2019
59
Board review Results of segments continued
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.
2018
EURm % of net sales
2017
EURm % of net sales
Year-on-year
change %
1 025
(871)
154
(293)
(200)
93
(246)
100.0
(85.0)
15.0
(28.6)
(19.5)
9.1
(24.0)
1 114
(956)
158
(260)
(219)
73
(248)
100.0
(85.8)
14.2
(23.3)
(19.7)
6.6
(22.3)
(8)
(9)
(3)
13
(9)
–
(1)
Group Common and Other other operating income and expense in
2018 was a net income of EUR 93 million, a change of EUR 20 million
compared to a net income of EUR 73 million in 2017. The net positive
fluctuation in other operating 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 246 million,
a decrease of EUR 2 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 operating income and expense, and lower selling, general
and administrative expenses, partly offset by higher research and
development expenses.
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other operating income and expenses
Operating profit
Net sales
Group Common and Other net sales in 2018 were EUR 1 025 million,
a decrease of EUR 89 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 154 million,
a decrease of EUR 4 million, or 3%, 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 15.0% compared
to 14.2% in 2017.
Operating expenses
Group Common and Other research and development expenses in
2018 were EUR 293 million, an increase of EUR 33 million, or 13%,
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 200 million, a decrease of EUR 19 million,
or 9%, 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.
60
NOKIA IN 2019
Liquidity and capital resources
Financial position
As of December 31, 2019, our total cash and current financial
investments (defined as cash and cash equivalents and current
financial investments) equaled EUR 6 007 million, a decrease of
EUR 866 million, compared to EUR 6 873 million as of December 31,
2018. The decrease was primarily attributable to capital expenditure
of EUR 690 million and payment of dividends of EUR 570 million. As of
December 31, 2017, our total cash and current financial investments
equaled EUR 8 280 million.
As of December 31, 2019, 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 1 730 million, a decrease of EUR 1 323 million, compared to
EUR 3 053 million as of December 31, 2018. The decrease was mainly
attributable to drivers affecting our total cash and current financial
investments as described above. As of December 31, 2017, our net
cash and current financial investments equaled EUR 4 517 million.
As of December 31, 2019, our cash and cash equivalents equaled
EUR 5 910 million, a decrease of EUR 351 million compared to
EUR 6 261 million as of December 31, 2018. As of December 31,
2017, our cash and cash equivalents equaled EUR 7 369 million.
Cash flow
2019
Our cash inflow from operating activities in 2019 was EUR 390 million,
an increase of EUR 30 million compared to a cash inflow of EUR 360
million in 2018. The increase was primarily attributable to net profit,
adjusted for non-cash items, of EUR 2 638 million, an increase of
EUR 880 million compared to EUR 1 758 million in 2018, partially
offset by EUR 1 788 million cash tied-up to net working capital in 2019
compared to EUR 943 million cash tied-up in 2018. The primary
driver for the increase in net working capital tied-up was related to
a decrease in liabilities of EUR 2 232 million compared to a decrease
of EUR 645 million in 2018, and a decrease in inventories of
EUR 285 million compared to an increase of EUR 544 million in 2018.
The decrease in liabilities was primarily attributable to a decrease
in trade payables, restructuring and associated cash outflows, a
decrease in liabilities related to employee benefits and a decrease
in deferred revenue. The decrease in inventories was attributable to
improved inventory management. The decrease in receivables was
EUR 159 million compared to a decrease of EUR 246 million in 2018.
In 2019, cash flow from operating activities included paid taxes
of EUR 516 million, an increase of EUR 152 million compared to
EUR 364 million in 2018; interest received of EUR 57 million, a
decrease of EUR 11 million compared to EUR 68 million in 2018;
and interest paid of EUR 1 million, a decrease of EUR 158 million
compared to EUR 159 million in 2018.
The cash outflow from investing activities equaled EUR 167 million
in 2019, a decrease of EUR 148 million compared to EUR 315 million
cash outflow in 2018. Cash outflow from investing activities was
primarily driven by cash outflow due to the capital expenditure of
EUR 690 million partially offset by net cash inflow of EUR 518 million
resulting from proceeds from maturities and sale of current financial
investments of EUR 991 million and purchase of current financial
investments of EUR 473 million.
Major items of capital expenditure in 2019 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 2019, our cash outflow from financing activities was EUR 479 million
a decrease of EUR 490 million in comparison to EUR 969 million cash
outflow in 2018. The decrease in cash outflow was primarily driven
by paid dividends of EUR 570 million compared to EUR 1 081 million
in 2018, partially offset by net cash from long-term borrowings of
273 million and by payments of lease liabilities of EUR 221 million.
In 2019, following the adoption of IFRS 16, Leases, the cash outflows
related to the majority of the Group’s lease contracts are presented
within financing activities as opposed to operating activities in 2018.
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.
NOKIA IN 2019
61
Board review Liquidity and
capital resources continued
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.
Financial assets and debt
As of December 31, 2019, our net cash and current financial
investments equaled EUR 1 730 million consisting of EUR 6 007 million
in total cash and current financial investments, and EUR 4 277 million
of long-term and short-term interest-bearing liabilities.
We hold our total 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 1 500 million undrawn
revolving credit facility available for liquidity purposes.
As of December 31, 2019, our interest-bearing liabilities consisted
of EUR 500 million notes due 2021, USD 500 million notes due 2022,
EUR 750 million notes due 2024, a EUR 250 million R&D loan from
Nordic Investment Bank with final maturity in 2025, EUR 750 million
notes due 2026, USD 500 million notes due 2027, USD 74 million
notes due 2028, USD 206 million notes due 2029, USD 500 million
notes due 2039 and EUR 332 million of other liabilities. The notes
maturing in 2021, 2022, 2024, 2026, 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
for further information regarding our interest-bearing liabilities.
The EUR 500 million R&D loan facility agreement with the European
Investment Bank signed in August 2018 was not disbursed as of
December 31, 2019 and will have an average maturity of approximately
five years after disbursement. The availability period of the loan facility
ends in February 2020.
In 2019, we repaid EUR 231 million senior notes and USD 581 million
senior notes at maturity dates in February and May, respectively.
In March 2019, we issued EUR 750 million senior notes due in 2026
under our EUR 5 billion Euro Medium-Term Note Programme.
In May 2019, we drew a EUR 250 million amortizing R&D loan from
Nordic Investment Bank. The loan facility agreement was signed in
December 2018 and the loan is repayable in three equal annual
installments in 2023, 2024 and 2025.
In June 2019, we refinanced our undrawn EUR 1 579 million revolving
credit facility maturing in June 2020 with a new facility in size of
EUR 1 500 million maturing in June 2024. The new facility has two
one-year extension options, its pricing is linked to two of Nokia’s key
sustainability targets in addition to credit ratings, it has no financial
covenants and the facility remains undrawn as of December 31, 2019.
We consider that with EUR 6 007 million of total cash and current
financial investments and our undrawn credit facilities, 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 2020. We further consider that with our current credit ratings
of BB+ by Standard & Poor’s, Ba2 by Moody’s and BBB- by Fitch, we
have access to the capital markets should any funding needs arise
in 2020.
We aim to re-establish investment grade credit ratings.
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.
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, 2019, our total customer financing, outstanding
and committed, equaled EUR 579 million, an increase of EUR 80 million
as compared to EUR 499 million in 2018. As of December 31, 2017,
our total customer financing, outstanding and committed, equaled
EUR 655 million. Customer financing primarily consisted of financing
commitments to network operators. We expect our customer
financing commitments to be financed mainly from cash and current
financial investments and through cash flow from operations.
Refer to Note 36, Financial risk management, of our consolidated
financial statements included in this annual report for further
information relating to our committed and outstanding
customer financing.
As of December 31, 2019, guarantees of our performance consisted
of bank guarantees given on behalf of Nokia to its customers for
EUR 1 721 million (EUR 1 570 million as of December 31, 2018). In
addition, Nokia issued corporate guarantees directly to our customers
with primary obligation for EUR 969 million (EUR 1 041 million as of
December 31, 2018). 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.
Refer to Note 30, Commitments and contingencies, of our
consolidated financial statements included in this annual report for
further information regarding commitments and contingencies.
62
NOKIA IN 2019
Significant
subsequent events
Financing transactions
On February 24, 2020, the Group drew a loan of EUR 500 million from
European Investment Bank (EIB). The loan facility agreement was
signed in August 2018 and the loan will mature in February 2025.
Change of President and Chief Executive Officer
On March 2, 2020 Nokia’s Board of Directors appointed Pekka Lundmark
as President and Chief Executive Officer of Nokia and he is expected
to start in his new role on September 1, 2020. Rajeev Suri will leave his
current position as President and Chief Executive Officer on August
31, 2020 and continue to serve as an advisor to the Nokia Board until
January 1, 2021.
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 NGP Capital, a global venture capital firm
backing companies that are creating the connected world through
sensors, 5G mobile, hybrid cloud and intelligent technology.
As of December 31, 2019, our unlisted venture fund investments
equaled EUR 740 million, compared to EUR 682 million as of December
31, 2018. Refer to Note 24, Fair value of financial instruments, of
our consolidated financial statements included in this annual report
for further information regarding fair value of our unlisted venture
fund investments.
As of December 31, 2019, our venture fund commitments equaled
EUR 244 million, compared to EUR 314 million as of December 31,
2018. As a limited partner in venture funds, we are committed to
capital contributions and entitled to cash distributions according
to the respective partnership agreements and underlying fund
activities. Refer to Note 30, Commitments and contingencies, of
our consolidated financial statements included in this annual report
for further information regarding commitments and contingencies.
Treasury policy
Treasury activities are governed by the Nokia Treasury Policy approved
by the President and CEO and supplemented by operating procedures
approved by the CFO, covering specific areas such as foreign exchange
risk, interest rate risk, credit 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.
NOKIA IN 2019
63
Board review Sustainability and
corporate responsibility
We create the technology to connect
the world in a responsible way.
We believe the positive impact of the
technology we create and deliver far
outweighs the potential negative impacts.
Communications technologies provide access
to better healthcare, education and greater
economic opportunity, enable more efficient
industrial, agricultural and resource use,
and contribute to a more equitable,
secure society, and a cleaner, safer planet.
Our products and solutions are designed to
drive social, environmental, and economic
progress. We continue to develop processes,
policies and programs that align with globally
recognized ethical and responsible business
practices and frameworks. We recognize
and aim to mitigate the potential risks and
negative impacts associated with our business
whether related to technology, supply chain,
climate or people, while also driving the
opportunities within and beyond our business
in order to contribute to achieving the UN
Sustainable Development Goals (SDGs).
In short, we believe our technology provides
our greatest positive contribution to the
SDGs. 5G, IoT, cloud and AI will provide the
fabric for smart cities that are more efficient,
safer, cleaner and more secure as well as
better management of natural resources
through digitalized utilities, building towards
a purpose-driven economic model. We also
understand the importance of providing
technological innovation in an ethical and
responsible manner.
Climate change and the depletion of natural
resources are perhaps the most pressing
social and business risks of our time. The
potential effects of climate change could
affect our customers, our own operations,
supply chain and the world economy,
potentially causing rising energy prices,
greater regulation, and materials and natural
resource scarcity affecting production.
Other potential risks to our business and
reputation are unethical behavior by our
customers, suppliers or own employees,
potential human rights abuse through misuse
of the technology we provide, and lack of
proper respect for human rights, fair labor
conditions, the environment and communities
in our operations and supply chains.
We have a systematic and structured
approach to risk management across our
business operations and processes. Our Code
of Conduct defines our way of working and
we have clear policies, processes and KPIs for
each identified sustainability risk. These are
discussed further in the relevant topics below.
We have a strong and proven sustainability
governance model in place from the Board
of Directors to action owners. Review and
feedback are provided as needed by the
Board of Directors and Group Leadership
Team. The Chief Marketing Officer is
responsible for sustainability in the Group
Leadership Team. Actions and programs all
have a named responsible owner, while
sustainability issues and activities are
orchestrated by a dedicated corporate
team and specific areas of expertise have
their own nominated owners.
6.4 bn
The networks we have delivered to our
customers serve 6.4 billion subscriptions
globally as we work towards our goal
of connecting the next billion
46%The networks we modernized brought
on average energy savings of 46% for
our customers
64
NOKIA IN 2019
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).
CDP is a leading global organization that runs
the global disclosure system for investors,
companies, cities, states and regions to
manage their environmental impacts.
We have in place a robust environmental
management system and environmental
policy, supported by documented processes
and procedures globally to ensure
implementation. 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 in 2019 the coverage of employees within
the scope of that certification was 85%.
Circular economy and waste reduction are
also key in our work and we offer refurbishment,
reuse and recycling of older equipment as an
integral component of the product lifecycle
management. In 2019, we sent around
4 000 metric tons of old telecommunications
equipment for materials recovery and
we refurbished or reused approximately
56 300 units.
2019 main achievements
Our key sustainability priorities remained:
to improve people’s lives with technology,
to protect the environment, to conduct
our business with integrity, and to respect
our people.
In 2019, we focused on climate, ethics, human
rights as well as gender and equality issues.
We supported initiatives and activities around
diversity and inclusion, energy efficiency,
modern slavery, mitigating technology misuse,
supply chain responsibility and transparency,
health & safety, and employee engagement.
We had 28 short and long term targets.
Our key targets include helping our customers
to connect the next billion subscribers by
2022, compared to approximately 5.5 billion
at the end of 2016. The target is measured
by number of subscriptions in Nokia radio
customers’ networks. In 2019 our customers’
radio networks served around 6.4 billion
subscriptions worldwide, an increase of
0.3 billion on the previous year. In energy
efficiency, the networks we modernized in
2019 brought on average energy savings
of 46% for our customers. Other targets are
set for specific material sustainability topics
and can be found as part of our 2019 People
and Planet reporting.
Protecting the environment
Climate change remains a key risk to society
while we believe key mitigation activities
could also provide a business opportunity for
more environmentally friendly technologies.
We recognize that we provide products
and services globally which may affect the
environment as manufacturing, distributing,
and operating these products require energy
and other resources. However, we believe that
the opportunities our technology provides to
our customers, industry and society, and the
measures we have taken in our operations
can positively contribute to the fight against
climate change.
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. In September 2019 we
joined 86 other companies and announced
our commitment to reset our science-based
emission reduction targets in line with the
goal to limit average rises in temperatures
to 1.5°C. We committed to recalibrate our
existing long-term science-based targets
which seek to reduce emissions from sold
products in use by 75% and to reduce
operational emissions by 41% by 2030, as
compared to the 2014 baseline. In 2019, we
delivered zero emission products to around
150 customers globally, helping them reduce
their emissions. Modernization of legacy
networks drives improved energy efficiency.
The customer base station sites we
modernized in 2019 used on average 46%
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.
NOKIA IN 2019
65
Board review Sustainability and
corporate responsibility continued
Conducting our business
with integrity
Our long-standing reputation for acting
with integrity is our most important asset.
We remain committed to a culture of high
integrity, where each and every employee is
responsible and accountable for our ethical
values. The need for greater transparency and
increased integrity are growing as is increased
regulation. Our compliance program and
processes remain agile in challenging times,
where privacy, data security and trade
compliance grow ever more complicated.
Corruption, unethical behavior, and a lack
of respect for human rights and fair labor
conditions are major obstacles to
development in many countries. We believe
these issues cannot be neglected. Around the
globe, we aim to uphold high standards of
ethics and human rights in our own activities
as well as throughout our value chain.
Our Code of Conduct is applied across
our operations to protect our reputation,
mitigate risks, and enable greater personal
integrity from top management to individual
employees. This is further supplemented with
a Code of Ethics applicable to our President
and Chief Executive Officer, Chief Financial
Officer, Deputy Chief Financial Officer and
Corporate Controller. 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 with whom we work.
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, Health, Safety & Labor Conditions,
Controllership, Fair Employment Practices,
Human Rights, and Environment. In addition,
operational guidance is provided on
third-party screening and corporate
hospitality. Finally, our Commercial
Third-Party Code of Conduct applies to
the third parties with which we work and
clearly states our expectations from them
on ethical conduct.
In 2019 we also continued our employee
engagement on ethical practices. Our Ethical
Business Training was again mandatory for
all employees. In 2019, the training was
completed by 96.7% of our employees,
surpassing the target of 95%.
Anti-corruption and bribery
Our Code of Conduct sets forth our position
that we will not tolerate corrupt behavior by
our employees or suppliers. It also provides
guidance on anti-corruption and bribery
issues. The Anti-Corruption Policy provides
further internal guidance and support for
ethical behavior. 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 areas of risk for public
and private corruption. 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
corruption risks. Our Compliance Controls
Framework (CCF) reviews are comprehensive
bottom-up audits that include internal
gap analysis workshops and localized risk
mitigation plans. In 2019 we carried out
23 CCF reviews with relevant senior leaders.
We carry out risk-based due diligence
and monitoring 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. In addition, we screen
our end-customers to assess possible legal,
compliance and reputational risks associated
with them (including, but not limited to
sanctions and money laundering risks).
We provide a range of trainings and resources
that include comprehensive online courses,
targeted micro-learnings, compliance job
aids, and face-to-face training. In 2019,
anti-corruption training was delivered to
business groups, to relevant stakeholders,
to regional groups, including country
engagement sessions, and to service
companies, with over 8 900 individuals
receiving face-to-face training in the 231 live
training sessions held across the globe.
We also celebrated Nokia Integrity Day on
September 17, 2019, conducting face-to-face
events at more than 130 sites around the
world with around 10,000 employees
enthusiastically participating in our numerous
events that are aimed at creating awareness.
Oversight and grievance mechanisms
In 2019, leadership involvement and oversight
of ethics and compliance were provided by
the Board and the Audit Committee, which
covered ethics and compliance topics in its
meetings in 2019. 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 2019, our Ethics & Compliance office
received 994 concerns, of which 289 were
investigated by our Business Integrity group
as alleged violations of our Code of Conduct.
We also implemented corrective actions
including 32 dismissals and 30 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 strengthen our speak-up culture.
The vast network of 225+ Local Ombuds
Leaders actively promotes the program and
provides confidential and neutral resources
for employees who have compliance
questions and concerns. In 2019, 65 of Ethics
Helpline cases were reported through our
ombuds channels.
66
NOKIA IN 2019
Data privacy and security
We have established a comprehensive
company-wide privacy program 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. We aim
to mitigate privacy risk in relation to the data
we collect, process, and store. We observe the
concept of data minimization, meaning we
endeavor only to collect personal data that is
necessary for the purposes for which they are
collected and to retain such data for no longer
than is necessary. We implement appropriate
controls to ensure that only persons with a
clear and justifiable need to know can access
personal data. We have formal processes and
procedures in place to manage and mitigate
any related risk to data subjects in the event
of a personal data breach. These processes
also include mechanisms to communicate in
a timely fashion with supervisory authorities,
should that be required. A program of
privacy awareness and training ensures
we continuously and effectively address
areas of highest privacy impact.
Security is a key concern in 5G, IoT and
other new technologies. We aim to
develop products and services that meet or
surpass the applicable security standards.
Nevertheless, we and our products may
be subject to cybersecurity breaches,
including those resulting from hacking,
viruses, malicious software, unauthorized
modifications, or other 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.
We have developed and implemented
processes and tools for use in product
development, referred to as Design for
Security or DfSec, which underlies all product
development. We maintain internal IT security
and cybersecurity operations, including
monitoring our internal network resources.
We have also implemented policies, processes
and tools to enhance the security of our
products and services, including managing
the security risks in third parties.
Human rights – Freedom of expression
and privacy
We are committed to the principles of the
Universal Declaration of Human Rights
and the United Nations Global Compact,
and we encourage our suppliers and business
partners to share these values. We endorsed
the United Nations Guiding Principles on
Business and Human Rights in 2011. Our
Code of Conduct together with our Human
Rights Policy sets out our approach to human
rights. Our human rights processes cover the
whole value chain, from supplier management
to product end usage and we have set clear
targets for all areas separately. 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, human rights risks appear
in our global supply chain. Our supply chain
risks and activities are further discussed in
the Responsible Sourcing section below and
in a separate modern slavery statement.
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.
NOKIA IN 2019
67
Board review Sustainability and
corporate responsibility continued
In 2019, we completed an internal
product-related Human Rights Impact
Assessment performed by an external human
rights expert. This assessment underlined the
overall efficacy of our human rights approach
and also identified areas for further
improvement. We are a member of the Global
Network Initiative (GNI), 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.
A condition of membership for companies
is agreement to adhere to the GNI Principles
and allowing GNI to conduct an independent
assessment of the member company’s
progress towards implementing the GNI
Principles. In October 2019 we completed our
first ever GNI assessment by the independent
assessor Foley Hoag LLP. We are honored
to report that the GNI Board found Nokia
has made good faith efforts over time to
implement the GNI Principles on freedom
of expression and privacy.
Responsible sourcing
We encourage our suppliers to adhere to our
Code of Conduct and also provide them with
our Supplier Requirements. Our Supplier
Requirements are included in supplier contract
appendices detailing our requirements related
to suppliers. The requirements cover such
topics as environment, security, privacy, risk
management, human rights management and
health. We also run assessments and audits of
our suppliers, and provide training to ensure
they meet our ethical requirements and
continuously improve on their performance.
In 2019, we implemented 332 supply chain
audits (364 in 2018), including 45 onsite
audits on corporate responsibility topics,
46 onsite audits against our supplier
requirements and 241 supplier assessments
conducted using the EcoVadis scorecards.
We also ran training workshops for suppliers
operating in high-risk countries, including
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 255 suppliers.
We continued our work with the Joint Audit
Cooperation (JAC), a group of our major
customers who collaborate to drive
improvement and transparency in supply
chain management.
Our health and safety (H&S) management
system is the basis for our overall program
and an integral part of how we manage health
and safety. We are certified with the
internationally recognized OHSAS 18001
standard by third party, Bureau Veritas.
The certification covers activities within
all networks business groups, customer
operations and supporting corporate
functions. Health and safety issues remain
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, drive or work with electricity.
Consequently, we have set stringent key
performance indicators related to the supplier
Health and Safety Maturity Assessment
Process. By the end of 2019, 97% of suppliers
delivering high-risk activity had been assessed
using our H&S Maturity Assessment Process
and 99% of the assessed suppliers met H&S
compliant supplier status. In 2019, we also
carried out impact assessments on 99% of all
high-risk projects. 100% of those projects
were found to meet our minimum
non-negotiable requirements.
The potential risks associated with the mining
and 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 updated Responsible Minerals Policy
which can be found online. Tin, tantalum,
tungsten, gold and cobalt are in scope of
our due diligence.
In 2019, 96% of our suppliers have achieved
full visibility to the smelters in our supply
chain. 82% of smelters identified as part
of our supply chain have been validated as
conflict-free or are active in the validation
process. Our latest Conflict Minerals Report
was also updated during the year.
We continued our CDP Supply Chain Program,
creating environmental improvement
programs and improving our upstream
indirect emissions that occur in the chain.
In 2019, 404 of our key suppliers responded
to the CDPs request to disclose their climate
performance information and 234 also
provided emission reduction targets.
We also had 237 suppliers responding
on the water aspect via the CDP program.
68
NOKIA IN 2019
We encourage our suppliers
to adhere to our Code
of Conduct. Supplier
requirements to assure
responsible sourcing cover
such topics as environment,
security, privacy, risk
management, human rights
management and health.
NOKIA IN 2019
69
Board review Sustainability and
corporate responsibility continued
Respecting our people
The market for skilled employees in our
business is extremely competitive. Our
workforce has fluctuated over recent years
as we have introduced changes in our strategy
to respond to our business targets and our
activities. These changes may in the future
cause disruption and fatigue amongst
employees. It is imperative that we work to
create and sustain a corporate culture that
is motivational, inclusive, and encourages
creativity and continuous learning to
meet challenges.
In 2019, the average number of employees
was 98 322 (103 083 in 2018 and 101 731
in 2017). The table below shows the
average number of employees in 2019,
by geographical location:
Region
Finland
Other European countries
Middle East & Africa
China
Asia-Pacific
North America
Latin America
Total
Average number
of employees
5 992
33 710
3 538
15 707
22 230
13 013
4 132
98 322
In 2019, we again measured the favorability
of employee perceptions about company and
culture with an anonymous employee survey.
The survey result was 78.2% favorable towards
the company, down by 1.3% percentage points
from 2018, as measured by the average of the
two target questions about overall direction.
The target question “Overall, as a company,
Nokia is heading in the right direction” was
76.7% favorable, down by 3.2 percentage
points from 2018 and the other target
question “Overall, Nokia’s culture is heading
in the right direction” was 79.6% favorable,
up by 0.6 percentage points from 2018.
We are committed to employee development
and career growth. In 2019, we delivered our
corporate leadership programs which target
new line managers to executives; 74 deliveries
with over 2 000 participants from NokiaEDU
(line managers to senior leaders) and 22
deliveries for high potential and executive
trainings and our women leader program.
Additionally, over 8 000 employees have
studied leadership related online solutions and
videos. Furthermore, we have facilitated over
a hundred 360° feedbacks and over 70 teams
have used the team insights model. We have
over 300 internal coaches who are made
available to all employees. We also focused
on ensuring that our employees were fit for
the future with knowledge and skill sets in
business-critical areas. NokiaEDU partnered
with business group leaders to determine
learning priorities and enabled employees to
track their personal learning commitments
through the Learning Index. In May 2019,
NokiaEDU’s Skills for the Future employee
event attracted over 20 000 participants.
Inclusion and diversity were 2019 business
priorities. We believe that by acting inclusively,
we can leverage the differences to achieve
better business results and growth. To make
sure that people at Nokia embrace the full
talent pool in the company we focused
on education. We launched a mandatory
introductory training for all employees this
year, a gamified solution for teams to discuss
and better understand what exclusion and
inclusion look like in everyday situations, and
a workshop for leaders to understand how
bias can adversely impact their decision. As a
manifest of our commitment to diversity, a pay
equity analysis we conducted with Mercer, a
consulting firm, found a small but statistically
significant unexplained pay gap in the
company. A special budget was authorized,
and the gap was closed for 2019. We plan to
hold annual pay equity reviews to ensure that
the gaps that we close, stay closed. In 2019,
1 512 managers were trained on inclusive
leadership best practices. In 2019, 15% of
Nokia’s leadership positions were held by
women. In total, women accounted for 22%
of our workforce.
Labor conditions
Our Code of Conduct is the basis for labor
conditions, enhanced 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, or where possible
exceed, the requirements of labor laws and
regulations wherever we have operations. We
work hard to ensure decent working conditions
and fair employment, taking into account both
international and local laws and guidelines.
The health and safety of our own employees
is also a key priority. Our Personal Support
Service (Nokia’s EAP) provides employees
with the opportunity to join learning events
throughout the year on a broad range of
health and wellbeing related topics, as well as
providing professional, confidential support.
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NOKIA IN 2019
Shares and
share capital
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 reserve 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/about-us/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.
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, 2019, the total number
of Nokia shares was 5 640 536 159 and our
share capital equaled EUR 245 896 461.96.
As of December 31, 2019, Nokia and its
subsidiary companies owned a total of
34 954 869 Nokia shares, representing
approximately 0.6% 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.
In 2019, under the authorization held by the
Board of Directors, we issued 23 000 new
shares following the holders of stock options
issued in 2013 exercising their option rights.
In addition, we issued 4 568 000 new shares
without consideration to Nokia to be
transferred to fulfil our obligation under
the Nokia Equity Programs.
In 2019, under the authorization held by
the Board of Directors, we issued a total
of 12 396 097 treasury shares to our
employees, including certain members of
the Group Leadership Team, as settlement
under Nokia’s equity-based incentive plans
as well as Alcatel Lucent’s employee equity
compensation arrangement. 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, 2019.
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 2019 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 for
further information regarding Nokia shares.
Dividend
Beginning with the distribution for 2018,
Nokia has and plans to pay any dividends in
quarterly instalments. For the financial year
2018 Nokia distributed a total dividend of
EUR 0.10 per share in two quarterly
instalments. On October 24, 2019, our Board
of Directors resolved to not distribute the
third and fourth quarterly instalments of the
dividend for the financial year 2018, in order
to: a) guarantee Nokia’s ability to increase 5G
investments, b) continue investing in growth
in strategic focus areas of enterprise and
software and c) strengthen Nokia’s cash
position. The Board expects to resume
dividend distributions after Nokia’s net cash
position improves to approximately EUR 2
billion. The Board of Directors has proposed
to the 2020 Annual General Meeting that no
dividend will be paid for the financial year
2019 and the Board will not seek an
authorization to pay out dividends.
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.
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 reserve 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 reserve for invested
NOKIA IN 2019
(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.
71
Board review Risk factors
Set forth below is a description
of risk factors that could affect
our business.
Shareholders and potential investors should
carefully review the following risk factors, in
addition to other information contained in
this annual report. The risk factors described
below should not be construed as exhaustive.
There may be additional risks that are
unknown to us and other risks currently
believed to be immaterial that could turn
out to be material.
These risks, either individually or collectively,
could adversely affect our business, sales,
profitability, results of operations, financial
condition, competitiveness, costs, expenses,
liquidity, market share, brand, reputation and
share price. Unless otherwise indicated or
the context otherwise requires, references
in these risk factors to “Nokia”, the “Nokia
Group”, “Group”, “we”, “us” and “our” mean
Nokia’s consolidated operating segments.
Certain risks or events may be more prevalent
with respect to Nokia or a certain business
group, business or part of the Group.
This annual report also contains forward-looking
statements that involve risks and uncertainties
presented in “Other Information—
Forward-looking statements”.
Risks related to our strategy and its execution
■ We may be unable to successfully implement
our strategic plans, sustain or improve the
operational and financial performance of
our business groups, correctly identify or
successfully pursue business opportunities
or otherwise grow our business.
■ We may be unable to 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.
Risks related to the general economic and
financial market conditions and the
industries and markets in which we operate
■ We may be materially and adversely
affected by general economic and financial
market conditions and other developments
in the economies where we operate.
Also events such as natural or man-made
disasters, geopolitical disruptions, civil
unrest or health crises (such as novel
coronavirus) may impact the markets,
our customers and their business, and our
manufacturing, service creation, delivery,
logistics or supply chain and business
in general.
■ 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
and vertical customers, consumers
and businesses, deployments and
roll-out timing.
■ We may be adversely affected by
developments with respect to customer
financing or extended payment terms
that we provide our customers.
■ 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.
Risks impacting our competitiveness
■ 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. We also may fail to
adapt to changing business models.
■ We may encounter difficulties and
challenges in the development of
5G technology and the roll-out and
commercialization of 5G services.
■ Our efforts aimed at managing and
improving our competitiveness, financial
or operational performance may not lead
to targeted results, benefits, cost savings
or improvements.
Risks associated with Intellectual Property
Rights, technology and brand licensing
■ 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.
To enforce our patents against unlawful
infringement, we may engage in legal
actions, the outcomes of which are uncertain.
■ 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.
72
NOKIA IN 2019
■ 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.
Risks stemming from geopolitical, legal,
regulatory and compliance environment
■ We conduct our business globally, being
subject to direct and indirect regulation
and exposed to geopolitical and regulatory
risks, such as unfavorable or unpredictable
treatment in relation to trade sanctions,
tariffs, tax matters, export controls,
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 us. Our governance,
internal controls and compliance processes
could fail to prevent regulatory penalties at
corporate level, in operating subsidiaries
and joint ventures.
■ 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.
■ We are subject to litigation proceedings,
which may be disruptive and expensive.
In addition, 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.
Risks related to management and 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.
■ 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.
■ Performance failures of our partners,
as well as failures to agree to partnering
arrangements with third parties could
adversely affect us.
■ We are exposed to risks related to
information security. Our business model
relies on solutions for distribution of
services and software or data storage,
which entail inherent risks relating not
only to applicable regulatory regimes, but
also to cybersecurity breaches and other
unauthorized access to network data or
other potential security risks that may
adversely affect our business and/or
compromise personal data.
■ We engage in the installation and maintenance
of undersea telecommunications cable
networks. During this activity, we may
cause damage to existing undersea
infrastructure, for which we may ultimately
be held responsible.
■ We may be unable to retain, motivate,
develop and recruit appropriately skilled
employees or may fail in workforce balancing.
■ We are involved in joint ventures and are
exposed to risks inherent to companies
under joint management.
Taxes-related uncertainties and other
financial risks, risks associated with
our Shares
■ We have operations in many countries
with different tax laws and rules, which may
result in complex tax issues and disputes.
■ Our actual or anticipated performance,
among other factors, could reduce our
ability to utilize our deferred tax assets.
■ We may not have access to sources of
funding on favorable terms, or at all.
■ We may not be able to re-establish
investment grade rating or maintain
our credit ratings.
■ 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 are exposed to pension and
post-employment cost related risks
and we may be unsuccessful in our ability
to avoid or control costs resulting from
a need for increased funding.
■ The carrying amount of our goodwill may
not be recoverable.
■ The amount of dividend and/or repayment
of capital distributed to shareholders
for each financial period is uncertain.
■ Shareholders may be required to
provide detailed information to obtain
advantageous withholding tax treatment
for dividends.
Board of Directors, Nokia Corporation
5 March 2020
NOKIA IN 2019
73
Board review Corporate
governance
We are a value-led
and ethical company,
which is reflected in
our strong corporate
governance.
Rajeev Suri
President and CEO
74
NOKIA IN 2019
Corporate governance
Corporate governance statement
Introduction
Regulatory framework
Main corporate governance
bodies of Nokia
General meeting of shareholders
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
of the internal audit function
Related party transactions
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 2019
Remuneration Report
Remuneration governance
Nokia Group Leadership Team
remuneration
Review of our incentive plans
Nokia Equity Program
78
78
80
80
80
81
88
93
93
93
94
94
95
95
96
97
97
97
99
99
102
104
106
108
109
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NOKIA IN 2019
76
NOKIA IN 2019
In 2019, we continued to
deliver on Nokia’s commitment
to strong corporate governance
and related practices.
NOKIA IN 2019
77
Corporate governance Corporate governance statement
This corporate governance
statement is prepared in
accordance with Chapter 7,
Section 7 of the Finnish Securities
Markets Act (2012/746, as
amended) and the Finnish
Corporate Governance Code
2020 (the “Finnish Corporate
Governance Code”).
Introduction
In 2019, 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 Committees’ 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. We also finalized the audit firm
rotation process. Nokia had an obligation to
organize an audit firm selection procedure
in accordance with the EU Audit Regulation
concerning the audit for the financial year
2020 (mandatory auditor rotation). The
practical requirements for arranging the
selection procedure under the EU Audit
Regulation and the obligation to include at
least two candidates in the recommendation
January
March
April
May
July
September/October
December
Board
CGN
Committee
Personnel
Committee
Audit
Committee
Technology
Committee
– China strategy update
– Compliance
– Leadership
– Succession planning
– Board evaluation
– China strategy and market
deep-dive
– Board proposals and convening
of the AGM
– Board composition and
– AGM proposals
remuneration
– Board evaluation results
– Corporate Governance Statement
– Annual review of Corporate
Governance Guidelines and
Corporate Governance and
Nomination Committee Charter
– CEO compensation
– Incentive targets and objectives
– Nokia Equity Program
– Leadership succession planning
– Q4 and full year 2018 financials
– Tax update
– Compliance, internal audit and
internal controls updates
– Review of auditor services
– Litigation update
– Cybersecurity
– Review of strategic technology
initiatives
– Updates on major innovation
and technology trends
– Review of annual reports
– Auditor report
– AGM proposals
– Q1 financials
– Compliance, internal audit and
internal controls updates
– Annual audit plan
– Review of auditor services
– Area and business unit
updates and strategies
– China strategy
– Enterprise strategy
– Transformation update
– Sustainability review
– IT-update
– Privacy and cybersecurity
– Annual strategy meeting
– Talent development and
– Annual Plan for 2020 and
Long-Range Plan
leadership succession planning
– Enterprise Risk Management
– CSP market industry analysis
– Appointment of the Chairs
and Board Committees
– Proposal for the organization of
the Board and its Committees
– Future composition of the Board
– Treasury and liquidity
– Transformation update
– China risk
– Board remuneration
– Board composition
– Board composition
– Board evaluation update
– Board evaluation planning
– AGM update
– Corporate governance update
– GLT compensation
– Say on Pay
– Talent development
– Workforce demographics and
diversity updates
– Compensation market
– Q2 financials
– Risk review
– Investor feedback
– Corporate culture survey
– 2020 incentive program
– Compensation benchmarking
framework
– Remuneration statement
and report for 2019
– Review of auditor services
– Review of auditor services
– Compliance, internal audit and
– Compliance, internal audit and
– 20-F and annual report update
– Q3 financials
– Financial update
– Pension update
internal controls updates
internal controls updates
– IT and cybersecurity
– Audit firm rotation
– Future strategic vision
– Future portfolio evolution
– Review of strategic technology
initiatives
– Updates on major innovation
and technology trends
78
NOKIA IN 2019
of the Audit Committee caused the Board
of Directors to re-evaluate the timing of
the auditor election. Consequently, the
shareholders elected new auditor for the
financial year 2020 already in the 2019 Annual
General Meeting. The Board intends in
forthcoming Annual General Meetings to
continue to make a proposal for the election
of the auditor in the same sequence, whereby
each Annual General Meeting would elect the
auditor for the financial year commencing
next after the election. In addition, during
2019, the Chair of the Personnel Committee
continued to engage with our largest
investors to discuss executive remuneration
as well as the related governance and
disclosure practices. In December 2019,
Risto Siilasmaa informed the Board that he will
step down from the Nokia Board of Directors
at the Annual General Meeting 2020 after
serving 12 years as a Director and the last
eight years as the Chair. Following a nearly
one-year succession planning process, the
Board’s Corporate Governance & Nomination
Committee proposes the Vice Chair,
Sari Baldauf, to be the new Chair of the Nokia
Board and Kari Stadigh to be the new vice
Chair of the Board, subject to their re-election
to the Board by the Annual General Meeting.
January
March
April
May
July
September/October
December
Board
– China strategy update
– China strategy and market
– Compliance
– Leadership
– Succession planning
– Board evaluation
– Board proposals and convening
deep-dive
of the AGM
– Board composition and
– AGM proposals
CGN
Committee
Personnel
Committee
Audit
Committee
Technology
Committee
remuneration
– Board evaluation results
– Corporate Governance Statement
– Annual review of Corporate
Governance Guidelines and
Corporate Governance and
Nomination Committee Charter
– CEO compensation
– Incentive targets and objectives
– Nokia Equity Program
– Leadership succession planning
– Tax update
– Compliance, internal audit and
internal controls updates
– Review of auditor services
– Litigation update
– Cybersecurity
– Review of strategic technology
initiatives
– Updates on major innovation
and technology trends
– Q4 and full year 2018 financials
– Review of annual reports
– Q1 financials
– Auditor report
– AGM proposals
– Compliance, internal audit and
internal controls updates
– Annual audit plan
– Review of auditor services
– Area and business unit
updates and strategies
– China strategy
– Enterprise strategy
– CSP market industry analysis
– Appointment of the Chairs
and Board Committees
– Proposal for the organization of
the Board and its Committees
– Future composition of the Board
– Transformation update
– Sustainability review
– IT-update
– Privacy and cybersecurity
– Annual strategy meeting
– Talent development and
leadership succession planning
– Annual Plan for 2020 and
Long-Range Plan
– Enterprise Risk Management
– Treasury and liquidity
– Transformation update
– China risk
– Board remuneration
– Board composition
– Board evaluation planning
– Corporate governance update
– Board composition
– Board evaluation update
– AGM update
– GLT compensation
– Say on Pay
– Talent development
– Workforce demographics and
diversity updates
– Compensation market
– Q2 financials
– Review of auditor services
– Compliance, internal audit and
– Risk review
– Investor feedback
– Compensation benchmarking
– Corporate culture survey
– 2020 incentive program
framework
– Remuneration statement
and report for 2019
– Q3 financials
– Review of auditor services
– Compliance, internal audit and
– Financial update
– Pension update
– 20-F and annual report update
internal controls updates
internal controls updates
– IT and cybersecurity
– Audit firm rotation
– Future strategic vision
– Future portfolio evolution
– Review of strategic technology
initiatives
– Updates on major innovation
and technology trends
NOKIA IN 2019
79
Corporate governance Corporate governance statement continued
Corporate governance framework
General Meeting of Shareholders
External
Audit
Board of Directors
Audit Committee
Corporate Governance and
Nomination Committee
Personnel 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 2019, 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. 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 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
US 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 as a foreign private issuer.
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
US 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 each committee’s 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
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NOKIA IN 2019
election and fees of the external auditor.
Starting from the 2020 Annual General
Meeting the remuneration policy shall be
presented to the general meeting at least
every four years and the remuneration report
annually from 2021. Resolutions regarding
the policy and report are advisory.
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. We have met
our aim to have representation of at least
40% of both genders on our Board.
Currently there are six 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 2019
Risto
Siilasmaa
Male
1966
Finnish
2008
11
Sari
Baldauf
Female
1955
Bruce
Brown
Male
1958
Finnish American
2012
7
2018
1
Elizabeth
Edward
Jeanette
Nelson
Kozel
Horan
Female
Male
Female
1955
1960
1955
British American American
2012
2017
2017
7
2
2
Olivier
Piou
Male
1958
French
2016
3
Søren
Skou
Male
1964
Danish
2019
–
Carla Smits-
Nusteling
Female
1966
Dutch
2016
3
Kari
Stadigh
Male
1955
Finnish
2011
8
Experience and skills of the Board members
General management and business operations
Finance and accounting
Chief executive officer
Communications Service Provider market
Chief financial officer
Enterprise business
Chief technology officer
Technology
NOKIA IN 2019
81
Corporate governance Corporate governance statement continued
Members of the Board of Directors
The Annual General Meeting held on May 21,
2019 elected ten members Sari Baldauf,
Bruce Brown, Jeanette Horan, Edward Kozel,
Elizabeth Nelson, Olivier Piou, Risto Siilasmaa,
Søren Skou, Carla Smits-Nusteling and Kari
Stadigh to the Board for a term ending at the
close of the next Annual General Meeting.
Following the meeting, the Board also
re-elected Risto Siilasmaa to continue
to serve as the Chair. Sari Baldauf was
elected as the new 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 from Nokia and significant
shareholders under the Finnish corporate
governance rules and the rules of the NYSE,
as applicable.
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 2019, 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 and the 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.
Vice Chair Sari Baldauf
b. 1955
Vice Chair of the Nokia Board. Board member
since 2018. Vice Chair since 2019. 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 Supervisory Board of
Daimler Trucks AG. Member of the Board of
Directors and Chair of the Audit Committee
of Aalto University. Chair of the Board
of Directors of Vexve Armatury Oy.
Senior Advisor of DevCo Partners Oy. Member
of the Board of Directors of Demos Helsinki.
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.
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 2016–2019.
Member of the Board of Directors of Agency
for Science, Technology & Research (A*STAR)
in Singapore 2011–2018.
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
Cybereason 2017–2018. Member of the
Board of Directors of West Corporation
2016–2017 and Microvision 2006–2017.
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NOKIA IN 2019
Chair Risto Siilasmaa
Vice Chair Sari Baldauf
Bruce Brown
Jeanette Horan
Edward Kozel
Elizabeth Nelson
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 Telekom
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.
Member of the Advisory Board at Telia Ventures.
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 Director and Chair of the
Audit Committee of Upwork Inc.
Independent Lead Director and Chair of the
Audit Committee of Zendesk Inc 2013–2019.
Member of the Board of Directors of Pandora
Media 2013–2017.
NOKIA IN 2019
83
Corporate governance Corporate governance statement continued
Olivier Piou
Søren Skou
Carla Smits-Nusteling
Kari Stadigh
Olivier Piou
b. 1958
Nokia Board member since 2016. Member
of the Audit 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
TechnipFMC, Valeo S.A. and the PESH
foundation.
Member of the Board of Directors of Gemalto
N.V. 2006–2019 and Alcatel Lucent SA
2008–2016.
Søren Skou
b. 1964
CEO of A.P. Møller Mærsk A/S. Nokia Board
member since 2019. Member of the
Personnel Committee.
MBA (honours), IMD, Switzerland, Business
Administration, Copenhagen Business School,
Denmark. Maersk International Shipping
Education (M.I.S.E.).
Maersk Line Copenhagen CEO 2012–2016.
Maersk Tankers Copenhagen CEO 2001–2011.
Maersk Tankers Copenhagen Head of Crude
and Product 1999–2001. Maersk Line
Copenhagen Head of Department
1997–1998. Maersk Line Beijing Operations
Manager 1994–1996. Maersk Line
Copenhagen and New Jersey, Charterer
and other roles 1983–1994.
Member of International Council of
Containership Operators (ICCO).
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.
Chair of the Board of Directors of TELE2 AB.
Lay Judge in the Enterprise Court of the
Amsterdam Court of Appeal since 2015.
Kari Stadigh
b. 1955
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.
Group CEO and President of Sampo plc
2009–2019. Deputy CEO of Sampo plc
2001–2009. President of Sampo Life
Insurance Company Limited 1999–2000.
President of Nova Life Insurance Company Ltd
1996–1998. President and COO of Jaakko
Pöyry Group 1991–1996.
Member of the Board of Directors of Metso
Corporation and Waypoint Capital Group
Holdings SA.
Chairman of the Board of Directors of
Mandatum Life Insurance Company Limited
2001–2019. 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.
84
NOKIA IN 2019
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.
On March 2, 2020 Nokia’s Board of Directors
appointed Pekka Lundmark as President
and Chief Executive Officer of Nokia and
he is expected to start in his new role on
September 1, 2020. Suri will leave his current
position on August 31, 2020 and continue to
serve as an advisor to the Nokia Board until
January 1, 2021.
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 2019, the Board’s
evaluation processes consisted 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 20 meetings excluding committee meetings during 2019, of which approximately 50% 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
Corporate Governance and Nomination Committee
Personnel Committee
Technology Committee
Number of
meetings
in person
10
9
5
4
3
Number of
meetings
in writing
10
1
–
1
–
Attendance in
all meetings %
98
96
100
96
100
NOKIA IN 2019
85
Corporate governance Corporate governance statement continued
Directors’ attendance at Board and Committee meetings in 2019 is set forth in the table below:
Risto Siilasmaa (Board Chair)
Sari Baldauf (Board Vice Chair)
Bruce Brown
Jeanette Horan
Louis Hughes (until May 21, 2019)
Edward Kozel
Elizabeth Nelson
Olivier Piou
Søren Skou (from May 21, 2019)
Carla Smits-Nusteling
Kari Stadigh
Board
meetings
%
100
100
100
100
83
100
100
100
79
100
100
Audit
Committee
meetings
%
100
67
100
100
90
100
Corporate
Governance
and Nomination
Committee
meetings
%
100
100
100
100
10 1000
Personnel
Committee
meetings
%
100
100
100
75
100
Technology
Committee
meetings
%
100
100
100
100
100
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 2019 all members
of the Board were non-executive and
determined to be independent from Nokia
and significant shareholders under the Finnish
corporate governance standards and the rules
of the NYSE.
All the directors, excluding Louis Hughes, who
served on the Board for the term until the
close of the Annual General Meeting in 2019
attended Nokia’s Annual General Meeting held
on May 21, 2019.
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 21, 2019, the Audit
Committee has consisted of the following five
members of the Board: Carla Smits-Nusteling
(Chair), Jeanette Horan, Edward Kozel,
Olivier Piou 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 IN 2019
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 2019,
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 21, 2019 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 IN 2019
87
Corporate governance Corporate governance statement continued
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.
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 21,
2019 the Personnel Committee has consisted
of the following five members of the Board:
Bruce Brown (Chair), Sari Baldauf, Elizabeth
Nelson, Søren Skou 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 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 21, 2019 the
Technology Committee has consisted of the
following five members of the Board: Edward
Kozel (Chair), Bruce Brown, Jeanette Horan,
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.
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.
88
NOKIA IN 2019
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.
Kathrin Buvac
b. 1980
President of Nokia Enterprise.
Group Leadership Team member
since 2016. Joined Nokia Siemens
Networks in 2007.
German Diplom in Computer
Science from the University
of Cooperative Education,
Germany. Bachelor’s Degree in
Business Administration from
Open University London, the
United Kingdom.
Chief Strategy Officer, Nokia
2016–2019. 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
Pekka Lundmark
Nassib Abou-Khalil
Basil Alwan
Kathrin Buvac
Biographical details of current
and appointed members of the
Nokia Group Leadership Team
Rajeev Suri
b. 1967
President and Chief Executive
Officer of Nokia Corporation,
Chair of the Group Leadership
Team, until August 31, 2020.
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.
Pekka Lundmark
b. 1963
Appointed President and Chief
Executive Officer of Nokia
Corporation. Expected to start
in his role on September 1, 2020.
Master of Science, Department
of Technical Physics, Helsinki
University of Technology, Finland.
NOKIA IN 2019
President and CEO of Fortum
Corporation (until August 31, 2020).
President and CEO of Konecranes
Plc 2005–2015 and Group
Executive Vice President
2004–2005. President and
CEO of Hackmann Oyj Abp
2002–2004. Managing Partner of
Startupfactory Oy 2000–2002.
Various executive positions at
Nokia 1990–2000.
Chairman of the Board of
Confederation of Finnish Industries.
Member of the Board of East Office
of Finnish Industries, Climate
Leadership Council and Finnish
Athletics Federation. Chairman of
the Board of Fortum Foundation.
Nassib Abou-Khalil
b. 1972
Chief Legal Officer. Group
Leadership Team member since
2019. Joined Nokia in 2014.
Bachelor of Arts (Political
Sciences), Civil Law (LL.L.),
Common Law (LL.B.) and Master
of Law (LL.M), University of
Ottawa, Canada.
General Counsel, Customer
Operations, Nokia 2016–2019.
Head of Legal & compliance,
MEA, Nokia 2014–2015. Head
of Public Policy, MEA & General
Counsel, MEA, Yahoo! 2010–2014.
Regional Counsel, Middle East,
Africa and India, GE Oil & Gas
2007–2010. Regulatory Counsel,
Etisalat 2006–2007. Various legal
counsel roles, TMF Netherlands
2002–2006. Legal articling –
Fasken Martineau 1999–2001.
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
89
Corporate governance Corporate governance statement continued
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.
Bhaskar Gorti
b. 1966
President of Nokia Software
and Chief Digital Officer. Group
Leadership Team member since
2016. Joined Nokia in 2016.
Master’s degree in Electrical
Engineering from Virginia
Polytechnic Institute and State
University, Blacksburg, the United
States. Bachelor’s degree in
Technology and Electrical
Engineering from National
Institute of Technology,
Warangal, India.
Previously President of IP
Platforms, Alcatel Lucent
2015–2016. Senior Vice
President and General Manager,
Communications Global Business
Unit, Oracle 2006–2015. Senior
Vice President, Portal Software
2002–2006.
Telemanagement Forum –
Industry Standard Body
Board Member.
Ricky Corker
Barry French
Sanjay Goel
Bhaskar Gorti
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.
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.
Member of the Board of Directors
of HMD Global.
Sanjay Goel
b. 1967
President of Global Services and
President of Nokia Operations.
Group Leadership Team member
since 2018. Joined Nokia
Networks in 2001.
Bachelor’s Degree in
Engineering in Electronics and
Telecommunications from
Manipal Institute of Technology,
Karnataka, India.
Senior Vice President, Global
Services Sales, Global Services
2015–2018. 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
90
NOKIA IN 2019
Federico Guillén
Jenni Lukander
Sandra Motley
Kristian Pullola
Sri Reddy
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 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. Bachelor
of Science and Master of
Science degrees 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.
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.
Sri Reddy
b. 1964
Co-president of IP/Optical
Networks. Group Leadership
Team member since 2018.
Joined Nokia in 2016.
Master of Business Administration
(Finance), Santa Clara University,
the United States. Masters of
Science (Electrical Engineering),
Oregon State University, the
United States. Bachelor of
Science (Electrical Engineering),
Jawaharlal Nehru Technological
University, India.
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.
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.
Jenni Lukander
b. 1974
President of Nokia Technologies.
Group Leadership Team member
since 2019. Joined Nokia in 2007.
Master of Law, University of
Helsinki, Finland.
Senior Vice President, head
of Patent Business, Nokia
2018–2019. Vice President, head
of Patent Licensing, Nokia 2018.
Vice President, head of Litigation
and Competition Law, Nokia
2016–2018. Director, head of
Regulatory and Competition Law,
Nokia 2015–2016. Director, head
of Competition Law, Nokia 2011–
2015. Senior Legal Counsel, Nokia
2007–2011. Lawyer, Roschier Ltd.
1999–2007.
NOKIA IN 2019
91
Corporate governance Corporate governance statement continued
Gabriela Styf Sjöman
Tommi Uitto
Marcus Weldon
Stephanie Werner
2006–2009. Member of
Technical Staff, Bell Labs, Lucent
Technologies 1997–2006.
Network Partner to Keen Venture
Partners. Advisor to Mundi
Ventures.
Stephanie Werner
b. 1972
Chief Human Resources Officer.
Group Leadership Team as of
2020. Joined Nokia in 1998.
Diploma in Applied business
languages (Chinese) and
International business studies,
University of Applied Sciences,
Bremen, Germany.
Vice President, Global Center
of Expertise, Germany, Nokia,
2018–2019. Vice President,
Business HR Head for Nokia
Corporate Functions, Germany,
Nokia, 2016–2018. Managing
Director, International
Management GmbH, Germany,
Nokia, 2013–2017. Head of
Business Human Resources
for Chief Finance Officer/
Organization, Germany, Nokia,
2012–2015. Head of NSN
Business Talent, Leadership &
Organization Development,
Germany, Nokia Siemens
Networks, 2011–2012. Head of
Business Human Resources of
Nokia Radio Access, Germany,
Nokia 2007–2011. Head of HR
Emerging Markets, Romania,
Nokia, 2007. Senior HR Manager,
Strategic Projects, USA, Nokia,
2004–2006. HR Manager Global
Platforms, Germany, Nokia,
2001–2004. HR Country Manager
Philippines, Philippines, Nokia,
1999–2001. HR Manager Nokia
Networks for Switzerland, Nokia,
1998–1999.
Gabriela Styf Sjöman
b. 1969
Chief Strategy Officer. Group
Leadership Team member since
2019. Joined Nokia in 2019.
Master of Business
Administration, University of
Durham Business School, the
United Kingdom. Degree in
Electrical Power Engineering,
Thorildsplan College, Sweden.
Degree in Basic Commercial Law
and Social Political Studies,
University of Uppsala, Sweden.
Vice President, Head of Group
Network Systems and Delivery,
Telia Company, Sweden 2019.
Vice President, Head of Group
Networks and Deputy Head of
Global Services and Operations
(COO), Telia Company, Sweden
2017–2019. Vice President,
Engineering & TIM Labs, Telecom
Italia, Italy 2015–2017. Vice
President, Product Line IP
Network Management, Ericsson,
USA 2011–2014. Vice President,
Product Development Unit Mobile
Core, Ericsson, Germany
2007–2011. General Manager,
Service Layer & Systems
Integration, Ericsson, China
2004–2007. Director, Product
Marketing, Teligent AB, Sweden,
2004. Managing Director, Athena
Solutions/Ansi Consult, Sweden
2002–2004. Manager, Sales &
Marketing, Melody Solutions,
Sweden 2000–2002. Strategic
Product Manager, Ericsson,
Sweden 2000. Product Manager,
Ericsson, Hong Kong 1995–1998.
Field Support Engineer, Project
Manager, Product Manager,
Ericsson, USA, Spain,
Netherlands 1989–1995.
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/Orange
Nokia Networks, 2002–2005.
Operations Director, Northeast
Europe, Central & Eastern Europe
and Middle East, Nokia Networks,
1999–2002.
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, the United States.
Bachelor of Science (Computer
Science and Chemistry) joint
degree, King’s College, London,
the 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
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NOKIA IN 2019
During 2019 and thereafter, the following new appointments were
made to the Group Leadership Team:
■ Ricky Corker was appointed President of Customer Operations,
Americas and member of the Group Leadership Team as of
January 1, 2019;
■ Tommi Uitto, President of Mobile Networks, was appointed to the
Group Leadership Team as of January 31, 2019;
■ Sandra Motley, President of Fixed Networks, was appointed to the
Group Leadership Team as of January 31, 2019;
■ Nassib Abou-Khalil was appointed Chief Legal Officer and member
of the Group Leadership Team as of August 1, 2019;
■ Jenni Lukander was appointed President of Nokia Technologies
and member of the Group Leadership Team as of August 1, 2019;
■ Gabriela Styf Sjöman was appointed Chief Strategy Officer and
member of the Group Leadership Team as of December 1, 2019;
■ Stephanie Werner was appointed Chief Human Resources Officer
and member of the Group Leadership Team as of January 1, 2020;
and
■ Pekka Lundmark was appointed President and CEO on March 2,
2020. He is expected to start in his role on September 1, 2020.
During 2019 and thereafter, the following members of the Group
Leadership Team resigned:
■ Maria Varsellona, President of Nokia Technologies and Chief Legal
Officer, stepped down from the Group Leadership Team as of
July 31, 2019;
■ Joerg Erlemeier, Chief Operating Officer, stepped down from the
Group Leadership Team as of December 31, 2019;
■ Hans-Jürgen Bill, Chief Human Resources Officer, stepped down
from the Group Leadership Team as of December 31, 2019; and
■ Rajeev Suri, President and CEO and the Chair of the Group
Leadership Team, will step down from the Group Leadership Team
as of August 31, 2020.
Furthermore, during 2019 and thereafter, the following changes took
place within the Group Leadership Team:
■ Kathrin Buvac, Chief Strategy Officer (until 30 November 2019) and
member of the Group Leadership Team was appointed President
of Nokia Enterprise as of January 1, 2019;
■ 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;
■ Sanjay Goel, President of Global Services and member of the Group
Leadership Team was in addition to this appointed President of
Operations as of January 1, 2020; and
■ Bhaskar Gorti, President of Nokia Software and member of the
Group Leadership Team was in addition to his role as President
of Software appointed Chief Digital Officer as of January 1, 2020.
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
(COBIT) framework 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.
NOKIA IN 2019
93
Corporate governance Corporate governance statement continued
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: (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 2019, 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 site level, customer level, business
project 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.
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 2019, the internal audit plan was completed and all results of these
reviews were reported to the management and to the Audit Committee.
Related party transactions
We determine and monitor related parties in accordance with the
International Accounting Standards (IAS 24) and other applicable
regulations. We maintain information of our related parties as well as
monitor and assess related party transactions. As a main principle all
transactions are conducted at arm’s-length and are considered to be
part of ordinary course of business. In an exceptional case where these
principles would be deviated from, the company would set up a separate
process to determine related parties and seek relevant approvals in
accordance with internal guidelines and applicable regulations.
94
NOKIA IN 2019
Main procedures relating to insider administration
Our insider administration is organized according to the applicable
European Union and Finnish laws and regulations. In addition, the
Board of Directors has approved Nokia Insider Policy which sets out
Nokia-wide rules and practices to ensure full compliance with
applicable rules and that inside information is recognized and treated
in an appropriate manner and with the highest integrity. The policy is
applicable to all Nokia employees.
Persons discharging managerial responsibilities
Nokia has identified members of the Board of Directors and the Group
Leadership Team as persons discharging managerial responsibilities
who, along with persons closely associated with them, are required to
notify Nokia and the Finnish Financial Supervisory Authority of their
transactions with Nokia’s financial instruments. Nokia publishes the
transaction notifications.
In addition, under the Nokia Insider Policy, persons discharging
managerial responsibilities are obligated to clear with the Deputy
Chief Legal Officer, Corporate, 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 Deputy
Chief Legal Officer, Corporate. 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, 2019 when they held a total
of 2 496 107 shares and ADSs in Nokia, which represented approximately 0.04% of our total shares and voting rights excluding shares held by
Nokia Group.
Name
Risto Siilasmaa (Board Chair)
Sari Baldauf (Board Vice Chair)
Bruce Brown
Jeanette Horan
Edward Kozel
Elizabeth Nelson
Olivier Piou
Søren Skou
Carla Smits-Nusteling
Kari Stadigh
ADSs(1)
144 835
20 525
88 239
Shares(1)
1 386 629
114 697
41 331
44 669
295 575
14 063
57 755
287 789
(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.
NOKIA IN 2019
95
Corporate governance Corporate governance statement continued
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, 2019 when they held a total of 5 520 978 shares and ADSs in Nokia, which represented approximately 0.10%
of our total shares and voting rights excluding shares held by Nokia Group.
Name
Rajeev Suri
Nassib Abou-Khalil
Basil Alwan
Hans-Jürgen Bill
Kathrin Buvac
Rick Corker
Joerg Erlemeier
Barry French
Sanjay Goel
Bhaskar Gorti
Federico Guillén
Jenni Lukander
Sandra Motley
Kristian Pullola
Sri Reddy
Gabriela Styf Sjӧman
Tommi Uitto
Marcus Weldon
Position in 2019
President and CEO
Chief Legal Officer
Co-president of IP/Optical Networks
Chief Human Resources Officer
President of Nokia Enterprise
President of Customer Operations, Americas
Chief Operating Officer
Chief Marketing Officer
President of Global Services
President of Nokia Software
President of Customer Operations Officer, EMEA & APAC
President of Nokia Technologies
President of Fixed Networks
Chief Financial Officer
Co-president of IP/Optical Networks
Chief Strategy Officer
President of Mobile Networks
Chief Technology Officer and President of Bell Labs
Shares(1)
ADSs(1)
2 798 146
32 863
206 333
261 742
147 570
175 597
136 833
302 789
175 963
269 698
194 767
7 609
15 298
347 029
171 150
4 000
27 364
65 227
81 000
100 000
(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 financial years in the three-year period ended December 31, 2019.
The auditor is elected annually by our shareholders at the Annual General Meeting for the financial 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
2019
22.7
1.2
1.9
–
25.8
2018
24.9
2.1
1.8
0.2
29.0
(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.
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NOKIA IN 2019
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 2019. 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 that are applicable to us.
Highlights
■ 2019 Compensation for the President and CEO declined by 16% to
EUR EUR 3 897 625, driven by below target payout from the 2016
long term incentive award and a below target 2019 short term
incentive award (39% of target), reflecting the below target
performance of the business. We remain very positive about
the outlook for the business given the expected growth in our
5G business.
■ For the 2019 Performance Share plan, the performance period
was increased to three years, reflecting input from shareholders.
■ Shareholders will be asked to adopt Nokia’s remuneration policy
as part of a “Say on Pay” vote in the 2020 AGM. The policy has
remained relatively stable after the changes made in 2018. We
reached out to our largest shareholders once again in 2019, and
they acknowledged the changes made in 2018, and were supportive
of some minor technical amendments to facilitate operational
flexibility in the plan for the next four years. The remuneration policy
to be presented to shareholders is available on our website.
■ Importantly, we now have no unexplained gender pay gap in Nokia
meaning that women and men are paid fairly and in line with the
market and their skills and experience. There was a small historic
difference in the pay of women and men in Nokia and in 2019
we took active measures and eliminated this gap. We continue
to monitor this position.
■ We remain confident in our business and program to deliver the
returns our shareholders expect, and our compensation programs
will: work to incentivize the management to deliver the desired
strategy and results; reward management for results; ensure the
interest of shareholders and employees are aligned; and ensure
retention of key employees.
Word from the Chair of the Personnel Committee
of the Board
Dear Fellow Shareholder,
2019 was a year of mixed fortunes seeing 5G really take off and good
performance from some of our business groups. It also presented
challenges to us at an operational level for Nokia with profits and cash
flow below target. This was illustrated by the impact on our share price.
Given the cash challenges in the business and the need for incremental
R&D investment to support 5G, the Board decided to pause dividends
in order to a) guarantee Nokia’s ability to increase 5G investments,
b) continue investing in growth in strategic focus areas of enterprise
and software and c) strengthen Nokia’s cash position. The Board
expects to resume dividend distributions after Nokia’s net cash
position improves to approximately EUR 2 billion.
The below target performance is reflected in the results of the
compensation programs with a 2019 short term incentive award
for the CEO at 39% of target. We remain very positive about the
outlook for the business given the expected growth in our 5G
business, and the encouraging progress in our strategic areas of
Nokia Enterprise, Nokia Software, IP Routing, and the continued
success of Nokia Technologies.
Shareholders will be asked to adopt Nokia’s remuneration policy as
part of a “Say on Pay” vote in the 2020 AGM. The 2019 remuneration
policy has remained relatively stable after the changes made in 2018.
We reached out to our largest shareholders once again in 2019, and
they acknowledged the changes made in 2018, and were supportive of
some minor technical amendments to facilitate operational flexibility
in the plan for the next four years. Our updated 2020 policy will be
available on our website prior to the AGM.
Business context
■ Below target performance was driven by market pressure in China,
slower than expected 5G growth, and some product development
challenges in 5G. Success in IP Routing, Nokia Enterprise, Nokia
Software, and Nokia Technologies was insufficient to offset the
challenges in Mobile Access.
Strategy and compensation
At the core of Nokia’s philosophy lie two principles:
■ pay for performance; and aligning the interests of employees with
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 earnings growth
based on improved operating performance, and to deliver cash
growth to resume the dividend for our shareholders, as well as fund
investments in the future growth of the business. To support this, the
metrics in our short-term incentive plans focus on cash flow, profit and
revenue, and our long-term incentive plans focus on value creation for
shareholders (measured by absolute total shareholder return).
The committee considered whether and how our incentive structures
incentivize environmental sustainability and governance (ESG)
priorities. Our view is that these key priorities are supported by a focus
on the share price element of the long term incentives which forms a
significant element of the overall compensation for our senior leaders.
The interaction of ESG initiatives with the way we operate our business
is complex and as no single ESG metric on its own defines our business,
the view of the Board is that this is best managed by Nokia’s senior
leaders in consultation with key stakeholders. To better understand
the breadth and depth of Nokia’s ESG Program, please see Nokia’s
People & Planet report.
NOKIA IN 2019
97
Corporate governance Compensation continued
Shareholder outreach
During 2019 we met with some of our shareholders to hear their views
on our compensation policies, programs and associated disclosures.
We have taken these views into account in both the measures for
the 2020 incentive plans and also in the policy that will be presented
to shareholders at the Annual General Meeting.
Remuneration Policy
Whilst results in 2019 have been disappointing, our current policy has
ensured that management compensation is aligned with company
performance. The proposed 2020 Remuneration Policy will be very
similar to the current policy and will be presented to the Annual
General Meeting. I hope that you will give it your full support.
Short and long-term incentives in 2020
Our 2020 incentive plans follow this structure:
Delivering sustainable value – Long-term incentive
Absolute Total Shareholder Return 100%
Focus on increase in share price and restoration of the dividend
Delivering the next year’s step in the strategic plan –
Short-term incentive
Revenue 20% Operating profit 40%
Free cash flow 40%
Deliver annual
plan revenues
Deliver annual plan
profitability
Deliver planned annual
free cash flow
The 2020 long-term incentive is based on performance over the life of
the three-year plan vesting in 2023. The metric will be absolute total
shareholder return. By using this metric, we will incentivize executives
to deliver the desired business results and support the restoration
of the dividend.
The 2018 long-term incentive will payout at 56.82% of target award,
based on the achievement against the revenue and earnings per share
targets during the performance period of financial years 2017 and
2018. The shares will vest on January 1, 2021. The 2018 plan was
the last of the two year performance period programs.
These changes to our incentives for 2020 mean that short-term plans
are more focused now on profit and cash flow and long-term incentives
are focused on growing share price and restoring the dividend.
It is of little comfort that our incentive plans had a reduced pay out this
year given the performance of the company, but it is reassuring to
know that there is alignment between the interests of our executives,
employees and shareholders. Our focus remains on improving
the Company’s performance and delivering the returns that our
Shareholders expect. 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 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 Say on Pay becoming a reality.
Bruce Brown, Chair of the Personnel Committee
2019 compensation structure
Changes were made during 2019 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.
Three year performance period
Having changed the performance measures in 2018 to market share,
earnings per share and free cash flow it was decided that the
measurement period for the plan should be extended to three years
for the 2019 awards which will be based on the performance of
financial years 2019 to 2021.
Change in CEO pay
For 2019 the total target compensation for the CEO was increased
by 2% which represents his first increase since January 2016. As part
of the exercise we also changed the mix of the compensation to re-set
the leverage which had risen above 85%. It should be noted that
although his opportunity increased, the direct linkage of some
80% of his compensation to company results meant that his actual
compensation decreased.
2019 remuneration outcomes
Overall the compensation received by the President and CEO declined
to EUR 3 897 625 down by over 16% from 2018, directly related to
company performance.
■ A lower short-term incentive of EUR 637 163, or 39% of target
incentive reflecting the challenging year.
■ A lower long-term incentive of EUR 1 841 843 being 46.25% of the
target number of units vesting based on performance for financial
years 2016 and 2017.
The President and CEO also received the final tranche of a special
long-term incentive award granted in 2016 to incentivize the delivery
of synergies from the Alcatel Lucent acquisition. This award is payable
in Nokia shares so whilst the number of shares has not changed,
the value of the award has reduced in line with the fall in Nokia’s
share price.
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.
Mr Suri currently owns 2 951 551 Nokia shares. Of these, he has
purchased over 1 million shares since 2016 over and above those
received under Nokia incentive plans. Together with his performance
linked compensation, this personal shareholding means that Mr Suri
is strongly aligned to the interests of shareholders.
Looking forward to 2020
Changes in 2018 and 2019 to our compensation structure,
together with refocusing the metrics for 2020, have now aligned the
compensation for the President and CEO against the right peer group,
the strategic needs of the business, and investor expectations.
Changes to incentives for 2020 are clearly focused on driving cash
and profitable business results, and we believe that rewarding delivery
of the measures in our incentive plans will deliver the desired longer
term outcomes for Nokia. While our markets remain challenging,
focusing on operating discipline and driving growth in areas such
as Nokia Enterprise, Nokia Software and IP Routing, will bear fruit
as we address the challenges in the 5G space.
98
NOKIA IN 2019
Pay overview of the President and CEO
Element
Base salary
Short-term
incentives(1)
Year ended 31 December 2020,
subject to and in accordance with the separately published
Remuneration Policy to be presented to the Annual General Meeting 2020.
EUR 1 300 000
Target award: 125% of base salary
Minimum 0% of base salary
Maximum 281.25% of base salary
Measures:
■ 100% Nokia scorecard
– 20% revenue
– 40% operating profit
– 40% free cash flow
Achievement against measures is multiplied by the
business results multiplier (operating profit), the overriding
affordability measure.
Long-term
incentives
(Performance
Shares)(1)
Target award: 200% of base salary (EUR 2 600 000)
Minimum payout 0% of base salary
Maximum payout 400% of base salary(2)
Metrics: Absolute Total Shareholder Return
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 (excluding restructuring)
■ 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)
Minimum payout 0% of base salary
Maximum payout of 400% of base salary(2)
Metrics:
■ Market share
■ Earnings per share
■ Free cash flow
Pension
Benefits & mobility Mobility related benefits, life and critical illness insurance
Contribution to the mandatory TyEL pension plan in Finland. Contribution to the mandatory TyEL pension plan in Finland.
Total Target
Remuneration
Share ownership
requirement
and private medical insurance.
EUR 7 541 000
Target: 3 times base salary
Target (amount): EUR 3 900 000
Mobility related benefits, life and critical illness insurance
and private medical insurance.
EUR 7 541 000
Target: 3 times base salary
Target (amount): EUR 3 900 000
(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.
(2) The maximum payout from the long-term incentive plan is 200% of the units awarded. At a target award of 200% of base salary this could result in a maximum payout of 400% of base salary ignoring
share price movement.
Remuneration Policy 2019
In this section, we describe our Remuneration Policy for the President and CEO and the Board of Directors in effect in 2019.
As we approach our first Say on Pay at the Annual General Meeting in 2020, we publish on our website as part of the Annual General Meeting
documents the new 2020 remuneration policy, applicable to the President and CEO and the Board of Directors which has only minor modifications
to the policy in place in 2019. As with current practice, the Board remuneration will be resolved annually by shareholders.
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.
NOKIA IN 2019
99
Corporate governance Compensation continued
The President and CEO
The table below summarizes the main components of the compensation for the President and CEO in 2019.
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.
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
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.
Short-term
incentives
To incentivize and
reward performance
against delivery of the
annual business plan.
Long-term
incentives
To reward for delivery of
sustainable long-term
performance, align the
President and CEO’s
interests with those
of shareholders and
aid retention.
Benefits &
perquisites
To attract, retain and
protect the President
and CEO.
Relocation
& mobility
Retirement
plans
To support 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.
■ 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).
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 and analyst forecasts ensuring that they are
considered both demanding and motivational.
Long-term incentives are subject to the clawback
policy (see below).
To attract, retain and protect the President and CEO.
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.
Minimum 0% of base salary.
Target 125% of base salary.
Maximum 281.25% of base salary.
Minimum 0% of base salary.
Target award level is 200% of base salary.
Maximum 400% of base salary.
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.
100
NOKIA IN 2019
Illustration of the earning opportunity for the President and CEO
The illustration below shows the pay components of the President
and CEO at minimum, target and maximum payout.
Earning opportunity of the President and CEO (EURm)
12.00
10.00
8.00
6.00
4.00
2.00
0.00
Min
Target
Max
Base salary
Short-term incentive
Long-term incentive
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.
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.
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.
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 Board remuneration for the current term of the
Board is set out in the table below.
Fees
Fees consist of annual fees and meeting fees.
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 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.
Incentives
Pensions
Share
ownership
requirement
Other
NOKIA IN 2019
101
Corporate governance Compensation continued
Remuneration for the term that began at the Annual General Meeting
held on May 21, 2019 and ends at the close of the Annual General
Meeting in 2020 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.
Remuneration Report
The Remuneration Report prepared in accordance with regulations
applicable to Nokia for the financial year 2019 provides information
on the remuneration of the President and CEO and the Board of
Directors between January 1, 2019 and December 31, 2019.
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 2019 and 2018. The long-term incentive payments reflect
actual payments in the respective years attributable to the vesting of
the 2016 plan in 2019 (comparative figure show the payment of 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
2019
1 300 000
637 163
1 841 843
118 619
3 897 625
2018
1 050 000
873 862
2 597 426
129 721
4 651 009
(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 48 049 (2018:
EUR 45 890); travel assistance equaling EUR 16 813 (2018: EUR 35 454); Tax services equaling
EUR 16 826 (2018: EUR 12 230) and other benefits including mobile phone, driver and
supplemental medical and disability insurance equaling EUR 36 931 (2018: EUR 36 147).
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 2019, payments to the Finnish state pension system
equaled EUR 353 846 (EUR 312 607 in 2018).
Short-term incentive
The 2019 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 2019, the short-term
incentive of the President and CEO equaled EUR 637 163 or 39%
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
27%
27%
27%
Target
EURm
22 748
2 423
1 028
Achievement
100.56%
34.92%
25.00%
Long-term incentive
In 2019, the President and CEO’s 2016 performance share award
vested at 46.25% of the target award valued at EUR 1 618 530.
This was based on performance of financial years 2016 and 2017.
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 vested in three equal tranches,
the last of which was in 2019 and worth EUR 223 313.
102
NOKIA IN 2019
In 2019, the President and CEO was awarded the following equity awards under the Nokia equity program:
Performance share awards
Awarded as regular performance share award(1)
Units awarded
Grant date fair value (EUR)
Grant date
Vesting date
650 699
2 627 002
3 July 2019
1 January 2022
(1) The 2019 performance share plan has a three-year performance period based on financial targets. 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, 2019
Vested shares under the 2017 performance share plan delivered on February 13, 2020(2)
Unvested shares under outstanding Nokia equity plans(3)
Total
Units
2 798 146
153 405
1 689 492
4 641 043
Value(1) (EUR)
9 233 882
506 237
5 575 323
15 315 442
(1) The values are based on the closing price of a Nokia share of EUR 3.30 on Nasdaq Helsinki on December 30, 2019.
(2) The value of the shares at delivery was based on fair market value of a Nokia share of EUR 3.99 on Nasdaq Helsinki on February 13, 2020 giving a total value delivered of EUR 612 086. 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, 2019 including the payout factor of the 2018 performance share plan and excluding the 2017 performance share
plan that vested on January 1, 2020.
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 after termination.
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 after termination.
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
after termination.
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 after termination.
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.
NOKIA IN 2019
103
Corporate governance Compensation continued
Board of Directors
In 2019, the aggregate amount of compensation paid to the members
of the Board for their services on the Board and its committees
equaled EUR 2 219 000.
The Annual General Meeting held on May 21, 2019 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: Sari Baldauf, Bruce Brown, Jeanette Horan,
Edward Kozel, Elizabeth Nelson, Olivier Piou, Risto Siilasmaa, Carla
Smits-Nusteling and Kari Stadigh. Søren Skou 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 2019—Board of Directors” above.
The following table outlines the total annual compensation paid in
2019 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 2019 since those fees
for the ongoing term will be paid in 2020. 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
Sari Baldauf, Vice Chair
Bruce Brown
Jeanette Horan
Louis R. Hughes
Edward Kozel
Elizabeth Nelson
Olivier Piou
Søren Skou
Carla Smits-Nusteling
Kari Stadigh
Total
Annual fee
(EUR)
440 000
185 000
190 000
175 000
–
195 000
175 000
175 000
160 000
190 000
160 000
Meeting fees
(EUR)
–
12 000
27 000
22 000
22 000
20 000
25 000
14 000
–
20 000
12 000
Total remuneration paid
(EUR)
440 000
197 000
217 000
197 000
22 000
215 000
200 000
189 000
160 000
210 000
172 000
2 219 000
Number of shares
Approximately 40%
of the annual fee
38 675
16 261
16 700
15 382
–
17 140
15 382
15 382
14 063
16 700
14 063
179 748
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 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.
Remuneration of the Board is annually presented to shareholders
for approval at the Annual General Meeting. The Board submits its
proposal to the Annual General Meeting on the recommendation of
the Board’s Corporate Governance and Nomination Committee, which
actively considers and evaluates the appropriate level and structure
of directors’ remuneration. Shareholders also 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. The Personnel
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. This enables the
Personnel Committee to be mindful of employee pay and conditions
across the broader employee population. The Committee has the
power, in its sole discretion, to retain compensation consultants
to assist the Personnel Committee in evaluating director and
executive compensation.
The Personnel Committee Chair regularly engages with shareholders
on pay and broader matters to hear their views on our compensation
policies, programs and associated disclosures and reflect on their
feedback. For example, we had increased the performance period
to three years in response to shareholders’ feedback.
The Remuneration Policy of the President and CEO and the Board will
be presented to the shareholders’ at the 2020 AGM and is expected
to remain in force for four years.
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NOKIA IN 2019
Work of the Personnel Committee
The Personnel Committee convened four times during 2019 with
a general theme for each meeting. In addition to meetings in person,
the Committee held one meeting in writing.
D E C
JAN
N O V
F
E
B
1
2
M
A
R
R
P
A
M AY
T
C
O
S
E
P
4
3
A
U
G
JUL
J U N
1 Approvals & reporting
2 Philosophy & structure
3 Long-term direction & market review
4 Planning
January:
■ Review of the President and
September:
■ Risk review
■ Review of Alcatel Lucent 2015
performance share plan
■ Investor outreach update
■ Study on metrics used in
long-term incentive programs
in the technology sector and
wider corporate environment
December:
■ Review of:
– Culture
– Framework for the
short-term incentive
program for 2020;
– Framework for the
long-term incentive
program for 2020; and
– The Remuneration
Statement and Report
for 2019
CEO compensation
■ 2018 achievement review
and short-term incentive plan
payment approvals including
review of the performance
of the President and CEO
■ Budget approval for the 2019
Nokia equity program and
performance review for the
2017 performance share plan
■ Review of the Group
Leadership Team succession
planning
July:
■ Review of:
– Compensation of the Group
Leadership Team
– The EU Shareholder Rights
Directive II
– Talent overview
– Workforce demographics
■ Update on market and legal
environment and market
practices
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.
NOKIA IN 2019
105
Corporate governance
Compensation continued
Nokia Group Leadership Team remuneration
At the end of 2019, the Group Leadership Team consisted of 18 persons split between Finland, other European countries and the United States.
Name
Rajeev Suri(1)
Nassib Abou-Khalil
Basil Alwan
Hans-Jürgen Bill
Kathrin Buvac(2)
Rick Corker
Joerg Erlemeier
Barry French
Sanjay Goel(3)
Bhaskar Gorti(4)
Federico Guillén
Jenni Lukander
Sandra Motley
Kristian Pullola
Sri Reddy
Gabriela Styf Sjӧman
Tommi Uitto
Marcus Weldon
Position in 2019
President and CEO
Chief Legal Officer
Co-president of IP/Optical Networks
Chief Human Resources Officer
President of Nokia Enterprise
President of Customer Operations, Americas
Chief Operating Officer
Chief Marketing Officer
President of Global Services
President of Nokia Software
President of Customer Operations Officer, EMEA & APAC
President of Nokia Technologies
President of Fixed Networks
Chief Financial Officer
Co-president of IP/Optical Networks
Chief Strategy Officer
President of Mobile Networks
Chief Technology Officer and President of Bell Labs
Appointment date
May 1, 2014
August 1, 2019
January 8, 2016
January 8, 2016
January 8, 2016
January 1, 2019
December 11, 2017
January 8, 2016
April 1, 2018
January 8, 2016
January 8, 2016
August 1, 2019
January 31, 2019
January 1, 2017
May 15, 2018
December 1, 2019
January 31, 2019
April 1, 2017
(1) Rajeev Suri will leave his current position on August 31, 2020. Nokia’s Board of Directors has appointed Pekka Lundmark as President and Chief Executive Officer of Nokia and he is expected to start in
his new role on September 1, 2020.
(2) Kathrin Buvac was appointed President of Nokia Enterprise as of January 1, 2019 and continued in her other role as Chief Strategy Officer until November 30, 2019.
(3) Sanjay Goel, President of Global Services and member of the Group Leadership Team was in addition to this role appointed President of Operations as of January 1, 2020.
(4) Bhaskar Gorti, President of Nokia Software and member of the Group Leadership Team was in addition to this appointed Chief Digital Officer as of January 1, 2020.
The following persons stepped down from the Group Leadership Team during 2019.
Name
Maria Varsellona
Joerg Erlemeier
Hans-Jürgen Bill(1)
Position in 2019
Chief Legal Officer and President of Nokia Technologies
Chief Operating Officer
Chief Human Resources Officer
Appointment date
January 8, 2016
December 11, 2017
January 8, 2016
Leaving date
July 31, 2019
December 31, 2019
December 31, 2019
(1) Hans-Jürgen Bill was a member of the Group Leadership Team until December 31, 2019. Stephanie Werner was appointed Chief Human Resources Officer and a member of the Group Leadership Team
as of January 1, 2020.
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.
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NOKIA IN 2019
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 2019 there were no change of control
agreements in place for the Group Leadership Team members.
Remuneration of the Group Leadership Team in 2019
Remuneration of the Group Leadership Team (excluding the President and CEO) in 2019 and 2018, in the aggregate, was as follows:
Salary, short-term incentives and other compensation(2)
Long-term incentives(3)
Total
2019
EURm(1)
21.7
4.4
26.1
2018
EURm(1)
20.5
3.6
24.1
(1) The values represent each member’s time on the Group Leadership Team.
(2) Short-term incentives represent amounts earned in respect of 2019 performance. Other compensation includes mobility related payments, local benefits and pension costs.
(3) The amounts represent the value of equity awards that vested in 2019.
The members of the Group Leadership Team (excluding the President and CEO) were awarded the following equity awards under the Nokia equity
program in 2019:
Award
Units awarded(1)
Grant date fair value
(EUR)
Performance shares(2)
Restricted shares(3)
1 993 548
93 300
7 931 654
438 930
Grant date
July 3, 2019, October 2, 2019
and December 11, 2019
April 24, 2019
Vesting date
January 1, 2022
July 1, 2020, 2021 and 2022
(1) Includes units awarded to persons who were Group Leadership Team members during 2019.
(2) The 2019 performance share plan has a three-year performance period based on financial targets. 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) Nokia and some senior executives of the Company entered into agreements based on which the vesting of Restricted Shares granted to them is subject to fulfilment of predetermined performance
conditions related to 5G development.
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, 2019:
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 performance
shares at grant
7 877 129
0.14%
Shares receivable
through performance
shares at maximum(4)
15 754 258
0.28%
Shares receivable
through restricted
shares
761 462
0.01%
8.63%
8.63%
23.25%
(1) Includes the 18 members of the Group Leadership Team in office as of December 31, 2019.
(2) The percentages are calculated in relation to the outstanding number of shares and total voting rights of Nokia as of December 31, 2019, 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.
(4) At maximum performance, under the performance share plans outstanding as of December 31, 2019, the payout would be 200% and the table reflects this potential maximum payout. The restriction
period for the performance share plan 2017 and the performance period for the performance share plan 2018 ended on December 31, 2019 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 2017 plan took place in February 2020 and the
settlement for the performance share 2018 plan is expected to take place in the beginning of 2021 after the restriction period ends.
NOKIA IN 2019
107
Corporate governance Compensation continued
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 2019 represent the challenging business
environment in which Nokia has been operating with median payout
at 37.49% 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 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 vested 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).
The 2018 performance share plan will vest on January 1, 2021 with
56.82% of the target award vesting based on the achievement against
the market share, earnings per share and free cash flow targets during
the performance period (financial years 2018 and 2019).
Pay for performance
Core to our compensation philosophy is a desire to pay for performance.
Each year we review overall total shareholder return compared to
long-term incentive payouts mapping the performance of the plans
against the total shareholder return curve.
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%
46.25%
28.90%
56.82%
Nil
Nil
2011
2012
2013
2014
2015
2016
2017
2018 2019*
Long-term incentive plan, as of 31 December
Achieved
Overachieved
Nokia total shareholder return (“TSR”)
* Performance period not yet completed.
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 2019 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.
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
This remains an appropriate comparator group and is expected to
remain the same in 2020.
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NOKIA IN 2019
Nokia Equity Program
The outstanding Nokia equity programs include the following equity instruments
Eligible employees
Purpose
Vesting schedule
Performance period
Shareholder rights
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
Three-year plan period based on
financial target(s). Prior to 2019
two-year performance period
based on financial targets and
one-year restriction period.
Three years
Until the Nokia shares are delivered,
the participants will not have any
shareholder rights, such as voting
or dividend rights associated with
the performance shares.
Restricted shares
Grade-based eligibility
Limited use for recruitment
and retention
Vesting equally in three tranches on
the 1st, 2nd and 3rd anniversary
of grant. From 2020 in very
exceptional cases all tranches
may vest in a total of 18 months.
Conditions may be applied before
grant of the award
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
(“Share in Success”)
Employees in participating countries
Encourage share ownership within the
Nokia employee population, increasing
engagement and sense of ownership
in the company
Matching shares vest at the end of the
12 month savings period
n/a
Participants have immediate
shareholder rights over all purchased
shares. Until the matching Nokia
shares are delivered, the participants
will not have any shareholder rights,
such as voting or dividend rights
associated with the matching shares.
NOKIA IN 2019
109
Corporate governance General facts
on Nokia
For over 150 years
we have been creating
the technology
to connect the world.
Rajeev Suri
President and CEO
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NOKIA IN 2019
General facts on Nokia
Our history
Memorandum and Articles
of Association
Selected financial data
Shares
Shareholders
Production of infrastructure
equipment and products
112
113
115
116
118
120
NOKIA IN 2019
111
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.
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 acquisitions of Alcatel Lucent,
Gainspeed, Deepfield, and Comptel, we can deliver today an 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.
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 digitalization
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.
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NOKIA IN 2019
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
financial 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 IN 2019
113
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.
Monitoring of Foreign Corporate Acquisitions
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, except where at least
one tenth of shares or other controlling right in such resident are
held by a party not resident in the European Economic Area or EFTA.
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Selected financial data
The selected financial data set forth below as of and for each of the years in the three-year period ended December 31, 2019 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, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017 are included in this annual report.
In 2019 the Group applied IFRS 16, Leases, for the first time. As the new standard was 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.
For the year ended December 31
From the consolidated income statement
Net sales
Change %
Operating profit/(loss)
% of net sales
Financial income and expenses
Profit/(loss) before tax
Income tax expense
Profit/(loss) for the year
Profit/(loss) attributable to equity holders of the parent
Profit/(loss) attributable to non-controlling interests
Earnings per share attributable to equity holders of the parent
Basic, EUR
Diluted, EUR
From the consolidated statement of financial position
Non-current assets(1)
Total cash and current financial investments(2)
Other current assets
Assets held for sale
Total assets
Capital and reserves attributable to equity holders of the parent
Non-controlling interests
Interest-bearing liabilities(3)(4)
Non-interest bearing liabilities(1)(4)(5)
Total equity and liabilities
Other information
Research and development expenses
% of net sales
Purchases of property, plant and equipment, and intangible assets
% of net sales
Personnel expenses
Average number of employees
Key financial indicators
Dividend per share, EUR(6)
Total dividends(6)
Return on capital employed, %
Return on shareholders’ equity, %
Equity ratio, %
Net debt to equity (gearing), %
Net cash and current financial investments(4) (7)
Free cash flow
2019
2018
2017
(in EURm, except for average number of employees)
23 315
3.3%
485
2.1%
(341)
156
(138)
18
14
4
0.00
0.00
22 320
6 007
10 801
–
39 128
15 325
76
4 277
19 450
39 128
(4 411)
(18.9)%
(690)
(3.0)%
(7 191)
98 322
0.00
–
0.3%
0.1%
39.4%
(11.2)%
1 730
(297)
22 563
(2.5)%
(59)
(0.3)%
(313)
(360)
(189)
(549)
(554)
5
(0.10)
(0.10)
21 246
6 873
11 393
5
39 517
15 289
82
3 820
20 326
39 517
(4 620)
(20.5)%
(672)
(3.0)%
(7 835)
103 083
0.10
560
neg.
neg.
38.9%
(19.9)%
3 053
(199)
23 147
(2.1)%
16
0.1%
(537)
(510)
(927)
(1 437)
(1 473)
36
(0.26)
(0.26)
21 160
8 280
11 561
23
41 024
16 138
80
3 763
21 043
41 024
(4 916)
(21.2)%
(601)
(2.6)%
(7 845)
101 731
0.19
1 063
neg.
neg.
39.5%
(27.9)%
4 517
1 380
(1) In 2019, non-current assets and non-interest-bearing liabilities reflect the impact of adoption of IFRS 16, Leases. Refer to Note 3, New and amended standards and interpretations, and Note 16,
Leases, in the consolidated financial statements included in this annual report.
(2) 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.
(3) Includes long-term and short-term interest-bearing liabilities.
(4) Lease liabilities recognized in accordance with IAS 17, Leases, for the years ended December 31, 2018 and 2017 have been reclassified from long-term interest-bearing liabilities to other non-current
liabilities to ensure comparability with the presentation of interest-bearing liabilities and lease liabilities following the adoption of IFRS 16, Leases, on January 1, 2019. Consequently, net cash and
current financial investments for the years ended December 31, 2018 and 2017 has been revised to exclude lease liabilities. Despite the changes in the presentation of comparatives, IFRS 16 has not
been adopted retrospectively.
(5) Includes other non-current and current liabilities than long-term and short-term interest-bearing liabilities in the consolidated statement of financial position.
(6) No dividend is proposed by the Board of Directors related to the financial year 2019. Amounts presented related to the financial years 2018 and 2017 represent the actual amounts paid.
(7) Net cash and current financial investments equal total cash and current financial investments less long-term and short-term interest-bearing liabilities.
NOKIA IN 2019
115
General facts on Nokia
General facts on Nokia continued
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, 2019, the share capital of Nokia Corporation equaled EUR 245 896 461.96 and the total number of shares issued was
5 640 536 159. As of December 31, 2019, the total number of shares included 34 954 869 shares owned by Group companies representing
approximately 0.6% 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
Basic, (000s)(1)
Diluted, (000s)(1)
Number of registered shareholders(2)
2019
246
5 640 536
34 955
5 605 581
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
5 599 912
5 626 375
248 526
5 588 020
5 588 020
243 409
5 651 814
5 651 814
247 717
5 732 371
5 741 117
237 700
3 670 934
3 949 312
209 509
(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.
116
NOKIA IN 2019
Key ratios
For the year ended December 31, Continuing operations
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)
Payout ratio, basic
Dividend yield, %(1)
As of December 31
Shareholders’ equity per share, EUR(3)
Market capitalization, EURm(1)(3)
2019
0.00
0.00
–
0.00
–
–
–
2018
(0.10)
(0.10)
neg.
0.10
560
neg.
1.99
2017
(0.26)
(0.26)
neg.
0.19
1 063
neg.
4.88
2016
(0.13)
(0.13)
neg.
0.17
963
neg.
3.70
2015
0.32
0.31
20.63
0.26
1 501
0.81
3.94
2019
2.73
18 476
2018
2.73
28 134
2017
2.89
21 704
2016
3.51
26 257
2015
2.67
25 999
(1) Based on Nokia closing share price at year-end on Nasdaq Helsinki
(2) No dividend is proposed by the Board of Directors related to the financial year 2019. Amounts presented related to the financial years 2018, 2017, 2016 and 2015 represent the actual amounts paid.
(3) Excludes shares owned by Group companies.
Share turnover
For the year ended December 31
Number of shares traded during the year (000s)(1)
Average number of shares (000s)
Share turnover %
2019
11 003 630
5 599 912
196
2018
8 960 687
5 588 020
160
2017
8 839 680
5 651 814
156
2016
9 604 722
5 732 371
168
2015
8 490 823
3 670 934
231
(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
2019 Full year High/Low
2019 Full year Average (Volume-weighted)
Year-end value December 31, 2019
Year-end value December 31, 2018
Change from December 31, 2018 to December 31, 2019
Nasdaq Helsinki
New York Stock Exchange
Euronext Paris
High
Low
Value
High
Low
Value
High
Low
Value
EUR
USD
EUR
5.74
3.02
6.65
3.33
5.76
3.02
4.45
3.30
5.03
-34.5%
5.08
3.71
5.82
-36.3%
4.31
3.31
5.06
-34.7%
NOKIA IN 2019
117
General facts on Nokia
General facts on Nokia continued
Stock option exercises 2017–2019
Year
2017
2018
2019
Stock option category
Nokia Stock Option Plan 2011 2Q
Nokia Stock Option Plan 2011 3Q
Nokia Stock Option Plan 2011 4Q
Nokia Stock Option Plan 2012 1Q
Nokia Stock Option Plan 2012 2Q
Nokia Stock Option Plan 2012 3Q
Nokia Stock Option Plan 2012 4Q
Nokia Stock Option Plan 2013 1Q
Nokia Stock Option Plan 2013 2Q
Nokia Stock Option Plan 2013 3Q
Nokia Stock Option Plan 2013 4Q
Total
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
Nokia Stock Option Plan 2013 1Q
Nokia Stock Option Plan 2013 2Q
Nokia Stock Option Plan 2013 3Q
Nokia Stock Option Plan 2013 4Q
Total
Subscription price
EUR
5.66
3.40
4.48
3.48
2.08
1.82
1.76
2.58
2.35
2.72
5.41
3.48
2.08
1.82
1.76
2.58
2.35
2.72
5.41
2.58
2.35
2.72
5.41
Number of new
shares 000s
0
0
5
0
61
148
9
0
193
0
0
416
0
128
170
0
0
127
0
0
425
0
23
0
0
23
Date of
payment
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2018
2018
2018
2018
2018
2018
2018
2018
2019
2019
2019
2019
Net proceeds
EURm
0.00
0.00
0.02
0.00
0.13
0.27
0.02
0.00
0.45
0.00
0.00
0.89
0.00
0.27
0.31
0.00
0.00
0.30
0.00
0.00
0.87
0.00
0.05
0.00
0.00
0.05
New share capital
EURm
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Shareholders
As of December 31, 2019, shareholders registered in Finland represented approximately 22% and shareholders registered in the name of a
nominee represented approximately 78% of the total number of shares of Nokia Corporation. The number of directly registered shareholders
was 248 526 as of December 31, 2019. Each account operator (12) is included in this figure as only one registered shareholder.
Largest shareholders registered in Finland as of December 31, 2019(1)
Shareholder
Solidium Oy
Keskinäinen Eläkevakuutusyhtiö Ilmarinen
Keskinäinen Työeläkevakuutusyhtiö Varma
Valtion Eläkerahasto
Keskinäinen Työeläkevakuutusyhtiö Elo
Schweizerische Nationalbank
KEVA
Oy Lival Ab
Svenska Litteratursällskapet i Finland r.f.
OP-Suomi-Sijoitusrahasto
Total number
of shares 000s
217 000
76 030
49 502
34 000
32 165
29 891
18 397
16 903
15 678
14 088
% of all shares
3.85
1.35
0.88
0.60
0.57
0.53
0.33
0.30
0.28
0.25
% of all voting rights
3.85
1.35
0.88
0.60
0.57
0.53
0.33
0.30
0.28
0.25
(1) Excluding nominee registered shares and shares owned by Nokia Corporation. Nokia Corporation owned 23 496 208 shares as of December 31, 2019.
118
NOKIA IN 2019
Breakdown of share ownership as of December 31, 2019(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
53 487
118 872
67 080
8 534
440
38
45
30
248 526
% of
shareholders
21.52
47.83
26.99
3.43
0.18
0.02
0.02
0.01
100.00
Total number
of shares
2 943 371
53 620 740
209 391 855
209 645 058
87 560 587
27 031 992
103 422 948
4 946 919 608
5 640 536 159
% of
all shares
0.05
0.95
3.71
3.72
1.55
0.48
1.83
87.70
100.00
(1) The breakdown covers only shareholders registered in Finland, and each account operator (12) 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
As of December 31, 2019, a total of 728 458 602 ADSs (equivalent
to the same number of shares or approximately 12.91% of the total
shares) were outstanding and held of record by 119 424 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, 2019 was 398 227.
Based on information known to us as of February 5, 2020, as of
December 31, 2019 Blackrock, Inc. beneficially owned 311 907 753
Nokia shares, which at that time corresponded to approximately 5.5%
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.
% of shares
77.92
22.08
100.00
% of shares
2.30
8.25
2.41
1.29
7.83
22.08
Shares and stock options owned by the members of the Board and
the Nokia Group Leadership Team
As of December 31, 2019, the members of our Board and the Group
Leadership team held a total of 8 017 085 shares and ADSs in Nokia,
which represented approximately 0.14% of our 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.
NOKIA IN 2019
119
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 Nokia’s hardware, software and original equipment manufacturer products.
This includes supply planning, manufacturing, distribution, procurement, logistics and supply.
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.
On December 31, 2019, 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.
The table below shows the productive capacity per location of significant manufacturing facilities for our infrastructure equipment on
December 31, 2019.
Country
Australia
Brazil
China
Finland
France
France
Germany
India
UK
USA
Location and products(1)
Kilsyth: radio frequency systems
Embu: radio frequency systems
Suzhou: radio frequency systems
Oulu: base stations
Calais: submarine cables
Trignac: radio frequency systems
Hannover: radio frequency systems
Chennai: base stations, radio controllers and transmission systems
Greenwich: submarine cables
Meriden: radio frequency systems
Productive
capacity,
Net (m2)(2)
5 400
8 100
16 600
13 800
63 000
7 300
23 500
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.
120
NOKIA IN 2019
Financial statements
Contents
Consolidated financial statements
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. Discontinued operations
7. Revenue recognition
8. Expenses by nature
9. Personnel expenses
10. Other operating income
and expenses
11. Financial income and expenses
12. Income taxes
13. Earnings per share
14. Intangible assets
15. Property, plant and equipment
16. Leases
17. Impairment
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 payments
27. Pensions and other
post-employment benefits
28. Accrued expenses, deferred
revenue and other liabilities
29. Provisions
30. Commitments and contingencies
31. Notes to the consolidated statement
178
179
181
Parent company financial statements
195
Parent Company income statement 195
Parent statement of financial position 196
Parent company statement
of cash flows
Notes to the parent company
financial statements
1. Accounting principles
2. Personnel expenses
3. Auditor’s fees
4. Other operating income
and expenses
5. Financial income and expenses
6. Group contributions
7. Income taxes
8. Tangible assets
9. Investments
10. Prepaid expenses and
accrued income
11. Shareholders’ equity
12. Distributable earnings
13. Fair value and other reserves
14. Fair value of financial instruments
15. Derivative financial instruments
16. Provisions
17. Interest-bearing liabilities
18. Accrued expenses and
other liabilities
19. Commitments and contingencies
20. Loans granted to the management
of the company
198
199
199
202
202
202
203
203
203
204
205
205
206
206
206
207
209
210
210
211
211
211
21. Notes to the statement
211
of cash flows
22. Principal Group companies
212
23. The shares of the Parent Company 212
212
24. Financial risk management
212
25. Subsequent events
213
Signing of the Annual Accounts 2019
214
Auditor’s report
122
122
123
124
125
126
128
128
128
140
142
144
147
147
148
149
149
150
150
153
154
155
156
157
158
159
159
160
161
162
164
166
167
169
of cash flows
181
182
32. Principal Group companies
33. Significant partly-owned subsidiaries 183
34. Investments in associated companies
and joint ventures
35. Related party transactions
36. Financial risk management
37. Subsequent events
183
184
186
194
NOKIA IN 2019
121
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 operating income
Other operating expenses
Operating profit/(loss)
Share of results of associated companies and joint ventures
Financial income and expenses
Profit/(loss) before tax
Income tax expense
Profit/(loss) for the year from Continuing operations
Profit/(loss) for the year from Continuing operations attributable to:
Equity holders of the parent
Non-controlling interests
Profit/(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
Notes
5, 7
8
8
8
10
8, 10
34
11
12
(Loss)/profit for the year from Discontinued operations
6
Profit/(loss) for the year attributable to:
Equity holders of the parent
Non-controlling interests
Profit/(loss) for the year
Earnings per share attributable to equity holders of the parent
Basic earnings per share
Continuing operations
Discontinued operations
Profit/loss for the year
Diluted earnings per share
Continuing operations
Discontinued operations
Profit/loss for the year
Average number of shares
Basic
Continuing operations
Discontinued operations
Profit/loss for the year
Diluted
Continuing operations
Discontinued operations
Profit/loss for the year
The notes are an integral part of these consolidated financial statements.
2019
EURm
23 315
(14 989)
8 326
(4 411)
(3 101)
424
(753)
485
12
(341)
156
(138)
18
14
4
18
(7)
–
(7)
7
4
11
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)
13
EUR
EUR
EUR
0.00
0.00
0.00
0.00
0.00
0.00
(0.10)
0.04
(0.06)
(0.10)
0.04
(0.06)
(0.26)
0.00
(0.26)
(0.26)
0.00
(0.26)
13
000s shares
000s shares
000s shares
5 599 912
5 599 912
5 599 912
5 588 020
5 588 020
5 588 020
5 651 814
5 651 814
5 651 814
5 626 375
5 599 912
5 626 375
5 588 020
5 612 477
5 588 020
5 651 814
5 651 814
5 651 814
122
NOKIA IN 2019
140
Consolidated statement of comprehensive income
For the year ended December 31
Profit/(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
22
2019
EURm
11
414
(95)
260
(58)
(2)
8
–
–
11
538
549
545
4
549
552
(7)
545
4
–
4
2018
EURm
(335)
2017
EURm
(1 458)
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)
NOKIA IN 2019
123
141
Financial statements
Consolidated statement of financial position
As of December 31
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Investments in associated companies and joint ventures
Non-current financial investments
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 current financial assets
Current financial investments
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
Total capital and reserves attributable to equity holders of the parent
Non-controlling interests
Total equity
Non-current liabilities
Long-term interest-bearing liabilities
Long-term lease liabilities
Deferred tax liabilities
Defined benefit pension and post-employment liabilities
Contract liabilities
Deferred revenue and other long-term liabilities
Provisions
Total non-current liabilities
Current liabilities
Short-term interest-bearing liabilities
Short-term lease 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
The notes are an integral part of these consolidated financial statements.
Notes
2019
EURm
2018
EURm
14, 17
15, 17
16, 17
17, 34
24
12
17, 24, 36
27
19
18
24, 36
7, 36
19
12
24, 25, 36
24, 36
24, 36
20
21
21
23, 24, 36
16
12
27
7
24, 28
29
23, 24, 36
16
24, 25, 36
12
24, 36
7
28
29
7 956
1 856
912
165
740
5 124
445
4 830
292
22 320
2 936
5 025
1 489
908
279
164
97
5 910
16 808
–
39 128
246
427
(352)
(372)
1 382
15 607
(1 613)
15 325
76
15 401
3 985
771
390
4 343
915
712
556
11 672
292
259
803
187
3 786
2 752
3 323
653
12 055
23 727
39 128
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
2 826
2
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
124
NOKIA IN 2019
142
Consolidated statement of cash flows
For the year ended December 31
Cash flow from operating activities
Profit/(loss) for the year
Adjustments, total
Change in net working capital(1)
Decrease/(increase) in receivables
Decrease/(increase) in inventories
(Decrease)/increase in non-interest bearing liabilities
Cash from operations
Interest received
Interest paid
Income taxes paid, net
Net cash from 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
Proceeds from maturities and sale of current financial investments
Purchase of non-current financial investments
Proceeds from sale of non-current financial investments
Payment of other long-term loans receivable
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
Proceeds from long-term borrowings
Repayment of long-term borrowings
Proceeds from/(repayment of) short-term borrowings
Payment of principal portion of lease liabilities
Dividends paid
Net cash used in financing activities
Translation differences
Net decrease in cash and cash equivalents
Cash and cash equivalents as of January 1
Cash and cash equivalents as of December 31
(1) Net working capital includes both short-term and long-term items.
Notes
31
2019
EURm
2018
EURm
2017
EURm
11
2 627
(335)
2 093
(1 458)
3 676
16, 23
23
23
23
16
159
285
(2 232)
850
57
(1)
(516)
390
(690)
39
–
19
(473)
991
(180)
144
(21)
4
(167)
–
–
(1)
1 039
(766)
40
(221)
(570)
(479)
(95)
(351)
6 261
5 910
246
(544)
(645)
815
68
(159)
(364)
360
(672)
88
(31)
(18)
(2 104)
2 397
(145)
170
(1)
1
(315)
1
–
1
139
(29)
2
(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
(2)
(7)
10
1
(785)
(38)
2 129
(2 041)
(38)
(7)
(970)
(1 749)
(200)
(128)
7 497
7 369
The consolidated statement of cash flows combines cash flows from both the Continuing and the Discontinued operations.
The amounts in the consolidated statement of cash flows cannot be directly traced from the consolidated statement of financial
position without additional information on the acquisitions and disposals of subsidiaries and the net foreign exchange differences arising
on consolidation.
The notes are an integral part of these consolidated financial statements.
NOKIA IN 2019
125
143
Financial statements
Consolidated statement of changes
in shareholders’ equity
EURm
As of January 1, 2017
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 payments
Excess tax benefit on share-based
payments
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
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/(decrease), net
Loss for the year
Total comprehensive loss for the year
Share-based payments
Excess tax benefit on share-based
payments
Settlement of performance and
restricted shares
Cancellation of treasury shares
Stock options exercised
Dividends(1)
Acquisition of non-controlling interests
Other movements
Total other equity movements
As of December 31, 2018
Number
of shares
outstanding
000s
Share
capital
Share
issue
premium
Notes
Treasury
shares
Translation
differences
Fair value
and other
reserves
Reserve for
invested
unrestricted
equity
(Accumulated
deficit) /
Retained
earnings
Attributable
to equity
holders of
the parent
Non-
controlling
interests
Total
equity
5 720 503
246
439
(881)
483
488
15 731
3 588
20 094
881 20 975
21
21
21
21
21
–
–
92
(7)
(79)
20
20
20
12 199
(153 601)
416
(1 768)
352
662
28
(86)
2
–
(1 416)
606
–
(1 494)
(1 494)
170
(769)
(116)
1
662
(1 768)
352
28
(86)
2
(1 494)
(2 304)
92
(7)
(25)
(769)
1
(963)
–
12
–
7
662
(50) (1 818)
352
28
(86)
2
36 (1 458)
(14) (2 318)
92
(7)
(25)
(769)
1
(970)
17
(776)
(9)
7
(7)
17
(788)
(9)
(963)
12
4
2
8
(599)
–
1
1
5 579 517
246
447 (1 480)
(932)
–
(115)
(947)
(1 652)
(787) (2 439)
15 616
1 094
(252)
1 147
198
16 138
(54)
80 16 218
(54)
5 579 517
246
447 (1 480)
(932)
842
15 616
1 345
16 084
80 16 164
21
21
21
21
21
402
(61)
293
3
(43)
(38)
6
–
341
221
–
–
–
68
6
20
20
20
13 221
424
(85)
72
1 000
(11)
1
5 593 162
–
246
(11) 1 072
(408)
436
(1)
(592)
–
1 063
(10)
15 606
(1)
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
126
NOKIA IN 2019
144
EURm
As of December 31, 2018
Adoption of IFRS 16
As of January 1, 2019
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/(decrease), net
Profit for the year
Total comprehensive income for
the year
Share-based payments
Excess tax benefit on share-based
payments
Settlement of performance and
restricted shares
Stock options exercised
Dividends(1)
Other movements
Total other equity movements
As of December 31, 2019
Number
of shares
outstanding
000s
Share
capital
Share
issue
premium
Notes
Treasury
shares
Translation
differences
Fair value
and other
reserves
Reserve for
invested
unrestricted
equity
(Accumulated
deficit) /
Retained
earnings
Attributable
to equity
holders of
the parent
Non-
controlling
interests
Total
equity
5 593 162
246
436
(408)
(592)
1 063
15 606
(1 062)
4
15 289
4
82 15 371
4
5 593 162
246
436
(408)
(592)
1 063
15 606
(1 058)
15 293
82 15 375
21
21
21
21
21
260
(40)
319
(6)
(1)
6
1
–
220
319
–
–
–
81
(7)
20
20
12 396
23
(83)
56
1
–
(9)
56
–
–
1
319
260
(46)
(1)
6
–
7
545
81
(7)
(26)
–
(560)
(1)
(513)
319
260
(46)
(1)
6
–
11
549
81
(7)
(26)
–
(570)
(1)
4
4
(10)
(10)
(523)
(1)
7
6
(560)
(1)
(561)
5 605 581
246
427
(352)
(372)
1 382
15 607
(1 613)
15 325
76 15 401
(1) In 2019, the Group settled a dividend of EUR 0.10 (EUR 0.19 in 2018 and EUR 0.17 in 2017) per share. No dividend is proposed by the Board of Directors related to the financial year 2019.
The notes are an integral part of these consolidated financial statements.
NOKIA IN 2019
127
145
Financial statements
Notes to the consolidated financial statements
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 5, 2020 the Board of Directors authorized the financial
statements for 2019 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.
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.
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 of
associates and joint ventures is presented as part of the Group’s
other comprehensive income.
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 within ‘share of results of associated companies
and joint ventures’ in the consolidated income statement.
128
NOKIA IN 2019
146
Non-current assets (or disposal groups) held for sale 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
The Group accounts for a contract with a customer when the
contract has been approved in writing which is generally when 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. 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.
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 based on the most likely amount. Items causing
variability include 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 promised goods or services in the contract might include sale
of goods, license of intellectual property and grant of options
to purchase additional goods or services that may provide the
customer with a material right. The Group conducts an assessment
at contract inception to determine which promised goods and
services in a customer contract are distinct and accordingly
identified as performance obligations. The Group considers
that goods and services are distinct 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 is generally allocated proportionately to all performance
obligations in the contract unless the Group has observable
evidence that the entire discount relates to only one or more,
but not all, performance obligations in a 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.
NOKIA IN 2019
129
147
Financial statements Notes to the consolidated financial statements continued
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 Group presents 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.
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,
performance does not create an asset with an alternative use
and the Group recognizes revenue over time using the output
method, which faithfully depicts the manner in which the asset is
transferred to the customer as well as the Group’s enforceable
rights to payment for the work completed to date. 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, the Group
performs services that are subject to customer acceptance where
revenue is recognized when the customer acceptance is received.
Sale of intellectual property licenses
The Group provides its customers with licenses to intellectual
property (IP) owned by the Group by granting software licenses
and 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 that each software release is distinct and the license
is granted for software as it exists at the point of transfer of
control to the customer.
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 continuous
research and development (R&D) efforts that 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.
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.
130
NOKIA IN 2019
148
For defined benefit plans, including pension and post-employment
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. These benefits
are recorded as termination benefits as a component of the
restructuring provision. 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 benefits,
the difference between the value of the higher benefit for
involuntary termination and the lower benefit for voluntary
termination is treated as a termination benefit and 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
contractual or legal obligation determined by local law and
accounted for as a defined benefit arrangement as described
in the pensions section above.
Share-based payments
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.
Deferred tax assets and liabilities are determined using the balance
sheet 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 taxable temporary differences, and 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.
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Financial statements Notes to the consolidated financial statements continued
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.
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 of current and deferred
tax assets and liabilities recorded, where it is considered probable,
i.e. more likely than not, that certain tax positions may not be fully
sustained upon review by tax authorities. The amounts recorded
are based on the most likely amount or the expected value,
depending on which method the Group expects to better predict
the resolution of the uncertainty, as of each reporting date.
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 operating income and
expenses in the consolidated income statement.
Foreign Group companies
On consolidation, the assets and liabilities of foreign operations
whose functional currency is other than euro are translated into
euro at the exchange rates prevailing at the end of the reporting
period. The income and expenses of these foreign operations
are translated into euro at the average exchange rates for the
reporting period. The exchange differences arising from translation
for consolidation are recognized as translation differences in the
consolidated statement of comprehensive income. On disposal
of a foreign operation the cumulative amount of translation
differences relating to that disposal is reclassified to profit or loss.
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.
The useful life of the Group’s intangible assets, other than
goodwill, is finite. Following initial recognition, finite 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 to best reflect 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 1–5 years
3–10 years
Other machinery and equipment
20–33 years
3–20 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 other operating income or expenses.
Leases
On January 1, 2019, the Group adopted IFRS 16, Leases (IFRS 16).
IFRS 16 provides a single lessee accounting model, requiring
lessees to recognize right-of-use assets and lease liabilities for all
leases with a lease term exceeding 12 months in the consolidated
statement of financial position. The right-of-use asset represents
the lessee’s right to use the underlying leased asset while the lease
liability represents the lessee’s obligation to make lease payments.
The Group assesses at contract inception whether a contract is,
or contains, a lease. That is, the Group assesses whether the
contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration. At the
commencement date of the lease, the Group recognizes a right-
of-use asset and a lease liability for all leases with a lease term
exceeding 12 months. The commencement date is the date when
the lessor makes the underlying leased asset available for use by
the Group.
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The Group applies a practical expedient available under IFRS 16
whereby the Group does not recognize any leases, where the lease
term is 12 months or less at the lease commencement date (short-
term leases), in its consolidated statement of financial position.
Instead, the Group recognizes the lease payments associated with
short-term leases as an operating expense on a straight-line basis
over the lease term. In addition, as a practical expedient, the Group
does not separate certain non-lease components from lease
components but instead accounts for each lease component
and associated specified non-lease component as a single lease
component. Non-lease components such as payments for
maintenance and services made in conjunction with the leased
asset are included in the lease liability whenever these payments
are fixed and defined in the lease contract. Other payments for
non-lease components which are variable based on consumption,
as an example property taxes, insurance payments and variable
property service costs, are recognized as an expense when incurred.
The majority of the Group’s leased assets relate to commercial
and industrial properties such as R&D facilities, production facilities
and office buildings. The Group also leases vehicles provided as
employee benefits and service vehicles.
Right-of-use assets are measured at cost less accumulated
depreciation and impairment losses, and adjusted for any
remeasurements of the lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognized, initial
direct costs incurred, and lease payments made at or before
the commencement date less any lease incentives received.
Right-of-use assets are depreciated on a straight-line basis over
the lease term as follows:
Buildings
Other
3–10 years
3–5 years
The Group applies the requirements of IAS 36, Impairment of
Assets, to assess its right-of-use assets for impairment. Refer to
“Impairment of goodwill, other intangible assets, property, plant
and equipment and right-of-use assets” section below.
Lease liabilities are measured at the present value of lease
payments to be made over the lease term. The Group determines
the lease term as the non-cancellable term of the lease, together
with any periods covered by an option to extend the lease if it is
reasonably certain to be exercised, as well as any periods covered
by an option to terminate the lease if it is reasonably certain not
to be exercised. The lease payments include fixed lease payments
and certain fixed non-lease components less any lease incentives
receivable, variable lease payments that depend on an index or a
rate, and appropriate termination fees whenever the lease term
has been determined based on the expectation that the Group
will exercise its option to terminate. The Group does not generally
enter into lease contracts with variable lease payments linked
to future performance or use of an underlying asset.
After the commencement date, the amount of lease liabilities is
measured on an amortized cost basis using the effective interest
method where the lease liabilities increase related to the accretion
of interest and decrease for lease payments made. In addition, the
carrying amounts for the right-of-use asset and lease liability are
remeasured if there is a modification, a change in the lease term
or a change in the future lease payments resulting from a change
in an index or rate used to determine such lease payments.
The interest component of the lease payments is recognized
as interest expense within financial income and expenses.
The Group uses its incremental borrowing rate to calculate the
present value of lease payments as the interest rate implicit in
the lease is not readily determinable. The Group estimates its
incremental borrowing rate quarterly based on the rate of interest
that the Group would pay to borrow over the lease term with a
similar security to obtain an asset of a similar value to the leased
asset in a similar economic environment. The Group measures all
leases at amortized cost based on the appropriate discount rate
available in the quarter when lease commencement occurred.
Where a lease contract modification or reassessment of the
lease liability resulting from a change in the lease term occurs,
the Group remeasures the present value of the lease liability based
on the appropriate discount rate available in the quarter when the
reassessment or modification occurs.
The Group acts primarily as a lessee in its leasing transactions.
However, the Group will enter into contracts to sublease vacant
leasehold or freehold properties for sublease terms up to 10 years
to offset or mitigate the unavoidable costs associated with those
properties. In these cases, the Group classifies each sublease
as a finance lease whenever the sublease contract transfers
substantially all the risks and rewards incidental to ownership to
the subtenant. All other subleases are classified as operating leases.
Included within other financial assets in its consolidated statement
of financial position, the Group recognizes a net investment asset
for all finance subleases based on the present value of future
sublease payments at the sublease commencement date. After
the commencement date, the net investment asset is measured
on an amortized cost basis using the effective interest method
where the net investment asset increases related to the accretion
of interest income and decreases for sublease payments received.
Sublease payments received from operating subleases is
recognized as other operating income on a straight-line basis
over the lease term.
Impairment of goodwill, other intangible assets, property,
plant and equipment and right-of-use assets
The Group assesses the recoverability of the carrying value of
goodwill, other intangible assets, property, plant and equipment and
right-of-use assets 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
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.
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Financial statements Notes to the consolidated financial statements continued
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
operating 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 cost of inventory. 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 financial 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 that are debt
instruments 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 Group has
classified its financial assets that are equity instruments to
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 a 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 and unlisted venture funds. These equity
and debt investments are classified as fair value through profit
and loss and 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 operating income and expenses in
the consolidated income statement. Weighted average method
is used to determine the cost basis of the investments disposed.
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 primarily related to employee benefits as well as 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.
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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, and recorded in other financial expenses in the
consolidated income statement reducing fair value loss recorded
in other comprehensive income. 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 Group sells trade receivables to various financial
institutions without recourse in the normal course of business,
in order to manage credit risk and working capital cycle, and
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. The Group applies a
simplified approach to recognizing a loss allowance on trade
receivables and contract assets based on measurement of lifetime
expected credit losses arising from trade receivables and contract
assets 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 and contract assets 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.
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,
recorded in other financial expenses in the consolidated income
statement reducing fair value gains and losses recorded in other
comprehensive income.
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.
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Financial statements Notes to the consolidated financial statements continued
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 as well as the conditional
obligation related to Nokia Shanghai Bell 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 financial liability related
to the conditional obligation is measured based on the expected
future cash settlement with any changes recorded in financial
income and expenses 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 of financial assets excluding trade receivables
and contract assets
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 as well as specific local circumstances as
applicable, 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,
specific local circumstances as applicable 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.
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.
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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 forecast exposures such as anticipated
foreign currency denominated sales and purchases, the gains
and losses are recognized in other operating 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 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
notional 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 spread 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 operating 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 operating 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.
NOKIA IN 2019
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155
Financial statements Notes to the consolidated financial statements continued
As cash flow hedges primarily 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 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 operating
income and expenses in the consolidated income statement.
Cash flow hedges: hedging of future interest cash flows
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 with the risk related to the risk free portion of interest cash
flows being hedged under fair value hedge accounting and the
company specific credit spread portion being hedged under cash
flow hedge accounting. 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.
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 and hence the Group
expects that there will be no significant ineffectiveness. 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 a hedge relationship no longer meets
the criteria for hedge accounting, hedge accounting ceases, cost
of hedging recorded in cost of hedging reserve is immediately
expensed and any fair value adjustments made to the carrying
amount of the hedged item while the hedge was effective are
recognized in financial income and expenses in the consolidated
income statement based on the effective interest method.
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.
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 with
no significant ineffectiveness expected.
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
on disposal.
138
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Provisions
Provisions are recognized when the Group has a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the
obligation and a reliable estimate of the amount can be made.
When the Group expects a provision to be reimbursed, the
reimbursement is recognized as an asset only when the
reimbursement is virtually certain. The Group assesses the
adequacy of its existing provisions and adjusts the amounts as
necessary based on actual experience and changes in facts and
circumstances as of each reporting date.
Restructuring provisions
The Group provides for the estimated cost to restructure when
a detailed formal plan of restructuring has been completed,
approved by management, and announced. Restructuring costs
consist primarily of personnel restructuring charges. The other
main components are costs associated with exiting real estate
locations, and costs of terminating certain other contracts directly
linked to the restructuring.
Warranty provisions
The Group provides for the estimated liability to repair or
replace products under standard warranty at the time revenue
is recognized. The provision is an estimate based on historical
experience of the level of repairs and replacements.
Litigation provisions
The Group provides for the estimated future settlements related
to litigation based on the probable outcome of potential claims.
Environmental provisions
The Group provides for estimated costs of environmental
remediation relating to soil, groundwater, surface water and
sediment contamination when the Group becomes obliged,
legally or constructively, to rectify the environmental damage,
or to perform restorative work.
Project loss provisions
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 reserves
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.
NOKIA IN 2019
139
157
Financial statements
Notes to the consolidated financial statements continued
3. New and amended standards
and interpretations
On January 1, 2019, the Group adopted IFRS 16, Leases (IFRS 16).
The nature of the new standard, impact of adoption on the Group’s
consolidated financial statements and changes to the Group’s
accounting policies resulting from the adoption are described
in detail below.
The Group adjusted its right-of-use assets by the amount of
onerous lease contract provisions recognized in the consolidated
statement of financial position as of December 31, 2018 in
accordance with IAS 37, Provisions, Contingent Liabilities and
Contingent Assets;
The Group excluded initial direct costs related to the execution
of lease contracts from the measurement of the right-of-use
assets; and
Other amendments and interpretations that became effective on
January 1, 2019, did not have a material impact on the Group’s
consolidated financial statements. The new and revised standards,
amendments and interpretations to existing standards issued
by the IASB that are not yet effective are not expected to have a
material impact on the consolidated financial statements of the
Group when adopted.
IFRS 16 Leases
IFRS 16, Leases, 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 all leases with a lease term exceeding 12 months in
the consolidated statement of financial position.
The Group adopted 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 was not restated. Key judgments and estimates used
under IFRS 16 primarily relate to the evaluation of lease terms
and the use of discount rates, refer to Note 4, Use of estimates
and critical accounting judgments.
IFRS 16 permits entities to elect a number of practical expedients
to simplify the initial adoption of IFRS 16. Upon the adoption of
IFRS 16 on January 1, 2019:
The Group applied IFRS 16 to contracts that were previously
identified as leases applying IAS 17, Leases (IAS 17), and IFRIC 4,
Determining whether an Arrangement contains a Lease;
The Group applied hindsight to estimate the lease term for all
lease contracts existing on the effective date of January 1, 2019.
IFRS 16 opening balance sheet impact
Upon adoption, all lease liabilities were recorded with an
equal amount recorded for the related right-of-use assets.
The right-of-use assets were then adjusted for onerous lease
contract provisions and accrued lease payments recognized in the
statement of financial position immediately before adoption and
for sublease net investment assets recognized upon adoption.
Lease liabilities recognized upon the adoption of IFRS 16 were
previously classified as operating leases in accordance with the
previous accounting standard IAS 17. Under the requirements
of IAS 17, the Group did not have any significant finance lease
arrangements in the statement of financial position prior to
adoption of IFRS 16.
Upon the adoption of IFRS 16, the Group identified temporary
differences between right-of-use assets, lease liabilities and their
tax bases. The deferred tax assets and liabilities are recorded,
subject to IAS 12, Income taxes, recognition and offsetting criteria.
The following table shows the adjustments recognized for each
applicable line item in the consolidated statement of financial
position. Financial statement line items unaffected by the adoption
of IFRS 16 are excluded such that the subtotals and totals cannot
be calculated from the numbers provided.
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158
Consolidated statement of financial position (extract):
EURm
ASSETS
Right-of-use assets
Other non-current financial assets
Non-current assets
Other current financial assets
Current assets
Total assets
SHAREHOLDERS’ EQUITY AND LIABILITIES
Accumulated deficit
Total equity
Long-term lease liabilities
Deferred tax liabilities
Provisions
Non-current liabilities
Short-term lease liabilities
Accrued expenses, deferred revenue and other liabilities
Provisions
Current liabilities
Total shareholders’ equity and liabilities
December 31, 2018
Adjustment upon
adoption of IFRS 16
January 1, 2019
–
373
21 246
243
18 266
39 517
(1 062)
15 371
–
350
572
10 042
–
3 940
855
14 104
39 517
975
15
990
16
16
1 006
4
4
800
1
(17)
784
266
(28)
(20)
218
1 006
975
388
22 236
259
18 282
40 523
(1 058)
15 375
800
351
555
10 826
266
3 912
835
14 322
40 523
In 2019, operating profit was higher primarily due to the recognition of the interest component on lease payments of EUR 28 million
as interest expense within financial income and expenses and cash flow from operating activities was higher as the principal portion
of lease payments, EUR 221 million, was recorded within cash flow from financing activities.
Reconciliation of IAS 17 non-cancellable operating lease commitments to IFRS 16 lease liability
In accordance with the requirements of the previous accounting standard, IAS 17, the Group disclosed non-cancellable operating lease
commitments within Note 30, Commitments and contingencies, of the consolidated financial statements for the year ended December
2018. As of January 1, 2019, the Group recognized lease liabilities in accordance with IFRS 16 for leases which had previously been
classified as operating leases under the requirements of IAS 17. The lease liabilities recorded upon adoption of IFRS 16 were measured at
the present value of lease payments, using a discount rate based on the Group’s estimated incremental borrowing rate. As of January 1,
2019, the weighted average discount rate was 2.6%.
IAS 17 operating lease commitment disclosed as of December 31, 2018
Effect of discounting
Discounted IAS 17 operating lease commitment as at January 1, 2019
Add
Lease extension options reasonably certain to be exercised
Non-lease components included in the lease liability
Less
Leases where commencement date is after January 1, 2019
Lease commitments related to short-term leases
Other
IFRS 16 lease liability recognized as of January 1, 2019
EURm
1 099
(83)
1 016
266
41
(238)
(21)
2
1 066
NOKIA IN 2019
141
159
Financial statements
Notes to the consolidated financial statements continued
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 adjustments
to the carrying amounts of assets and liabilities.
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.
Revenue recognition
Accounting for 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
The Group enters into complex customer arrangements, some
of which are non-committed framework agreements that contain
complex discounting structures as well as customer pricing that
varies depending on the different needs of each customer. The
appropriate identification and allocation of discounts and other
forms of variable consideration as well as determination of the
standalone selling price of each performance obligation are critical
judgments that have a direct impact on the timing and amount of
revenue recognized. The determination of standalone selling prices
of existing performance obligations and of unexercised customer
options to purchase additional goods or services will also impact
the Group’s determination whether a non-committed part of
the contract contains material rights that must be accounted for
within the context of the contract. Identified material rights are
accounted for as a performance obligation within the contract and
the Group will allocate part of the transaction price to it with the
relative standalone selling price method.
Identifying distinct performance obligations and determining
when the performance obligation is satisfied
The Group regularly enters into agreements with customers
comprising multiple performance obligations, that include a
variety of products, services and software that the Group offers.
The identification of distinct performance obligations within
these types of arrangements is considered a critical judgment
as inappropriate identification of performance obligations could
lead to the recognition of revenue in an incorrect period or for
an inaccurate amount.
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, as of December 31, 2019 defined benefit obligations
amount to EUR 24 663 million (EUR 23 955 million in 2018) and
the fair value of plan assets amounts to EUR 26 180 million
(EUR 24 479 million in 2018). 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 20 426 million as of December 31, 2019
(EUR 20 465 million in 2018) 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 12, Income taxes.
The utilization of deferred tax assets is dependent on future
taxable profit in excess of the profit arising from the reversal
of existing taxable temporary differences. The recognition of
deferred tax assets is based on the assessment of whether it is
probable 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.
142
NOKIA IN 2019
160
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 probable, i.e. 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 the United
States, 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 12, Income taxes.
Leases
Key judgments and estimates used in the application of IFRS 16
primarily relate to the evaluation of lease terms and the use of
discount rates.
Many of the Group’s more significant leasehold properties include
options to extend the lease term or to terminate the lease prior
to the expiration of the lease. These options provide the Group
with the financial flexibility needed to align its global portfolio
of commercial and industrial real estate properties to meet the
changing occupancy needs of its various businesses. This financial
flexibility is reflected in the measurement of the right-of-use
assets and lease liabilities that the Group records for its leasehold
properties to the extent that management concludes that any
lease extension options are not reasonably certain to be exercised.
In its assessment whether lease extension and termination
options are reasonably certain to be exercised, management
applies judgment considering all relevant factors that create an
economic incentive for the Group to exercise either the option.
The Group determines that extension of the lease term beyond
the non-cancellable lease term is reasonably certain when the
leased property is significantly customized or specialized for the
Group’s specific use, the Group has made significant leasehold
improvements that it seeks to recover over the lease term,
or lease payments in the optional renewal or break period are
significantly lower than the expected future market rent levels.
After the commencement date of the lease, the Group reassesses
the lease term only if there is a significant event or change in
circumstances that is within its control and affects its ability to
exercise or not to exercise the option. As of December 31, 2019,
the Group has potential (undiscounted) future lease payments
of EUR 560 million relating to extension options not expected to
be exercised and EUR 79 million relating to termination options
expected to be exercised which are not included in the lease
liability. Total lease liabilities recognized in the statement
of financial position is EUR 1 030 million (discounted) as of
December 31, 2019.
The Group estimates its incremental borrowing rate to measure
lease liabilities at the present value of lease payments as the
interest rate implicit in the lease is not readily determinable. The
estimation of the Group’s incremental borrowing rate requires
judgment to ensure that it adequately reflects the rates that the
Group would pay to finance the acquisition of an asset similar to
the leased asset, considering the nature, value and geographical
location of the underlying asset, length of the lease term and
frequency of lease payments. The estimation of the incremental
borrowing rate impacts the amount of lease liabilities and right-of-
use asset recognized in the statement of financial position as well
as portion of interest expense and depreciation recognized in the
income statement over the lease term.
Refer to Note 16, Leases, for further details on leases.
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 5 527 million as of December 31, 2019 (EUR 5 452 million in
2018). Refer to Note 14, Intangible assets and Note 17, Impairment.
Loss allowances on trade receivables and contract assets
Loss allowances are recognized for estimated losses resulting
from customers’ inability to meet payment obligations. 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 on trade receivables and
contract assets are EUR 147 million as of December 31, 2019
(EUR 195 million in 2018), representing 2% of trade receivables
and contract assets combined (3% in 2018). 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 505 million as of December 31,
2019 (EUR 521 million in 2018), representing 15% of inventory
(14% in 2018). Refer to Note 18, Inventories.
NOKIA IN 2019
143
161
Financial statements Notes to the consolidated financial statements continued
Fair value of financial instruments
Fair values for level 3 financial instruments are determined with
valuation techniques using material inputs that are not observable
from transactions on active market requiring estimation and
judgment both in selecting an appropriate valuation technique
as well as in defining appropriate underlying assumptions.
5. Segment information
The Group has three reportable segments for financial reporting
purposes: (1) Networks, (2) Nokia Software and (3) Nokia
Technologies. Segment-level information for Group Common
and Other is also presented.
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 level 3 financial
assets is EUR 746 million (EUR 688 million in 2018), representing
9% of total financial assets measured at fair value on a recurring
basis (8% in 2018).
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 financial liability related to
the conditional obligation is measured based on the expected
future cash settlement mainly dependent on certain financial
performance metrics of Nokia Shanghai Bell. The total level 3
financial liabilities amount to EUR 659 million as of December 31,
2019 (EUR 707 million in 2018), representing 79% of total financial
liabilities (78% in 2018) measured at fair value a on recurring basis.
Refer to Note 24, Fair value of financial instruments.
Provisions
The Group recognizes a provision when it has a present legal or
constructive obligation as a result of past event, 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,
management judgment is required in determining whether it is
probable that an outflow of economic benefits will be required
to settle the obligation.
Estimation is required in determining the value of the obligation.
The amount recognized as a provision is based on the best
estimate of unavoidable costs required to settle the obligation
at the end of the reporting period. When estimating the value,
management may be required to consider a range of possible
outcomes and their associated probabilities, risks and
uncertainties surrounding the events and circumstances as well
as making assumptions of the timing of payment. Changes in
estimates of timing or amounts of costs required to settle the
obligation may become necessary as time passes and/or more
accurate information becomes available. Based on these estimates
and assumptions, provisions amount to EUR 1 209 million as of
December 31, 2019 (EUR 1 427 million in 2018). Refer to Note 29,
Provisions.
Legal contingencies
The Group is regularly subject to various legal proceedings and
investigations covering a wide range of matters. Management
judgment is required in assessing the probability of different
outcomes and a provision is recognized when an unfavorable
outcome is deemed probable and the related obligation can be
reasonably estimated. Refer to Note 29, Provisions.
Networks reportable segment consists of four aggregated
operating segments: (1) Mobile Networks, (2) Global Services,
(3) Fixed Networks and (4) IP/Optical Networks. 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.
In addition, the Group provides net sales disclosure for the
following businesses within Networks reportable segment:
(i) Mobile Access (comprises Mobile Networks and Global Services
operating segments), (ii) Fixed Access (comprises Fixed Networks
operating segment), (iii) IP Routing (comprises part of IP/Optical
Networks operating segment) and (iv) Optical Networks (comprises
part of IP/Optical Networks operating segment).
The Group adopted its current operational and reporting structure
on January 1, 2019. The reporting structure was revised to better
reflect the Group’s strategy, organizational structure and the way
the management evaluates operational performance and allocates
resources. Previously the Group 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.
Furthermore, Ultra Broadband Networks was comprised of two
aggregated operating segments: Mobile Networks and Fixed
Networks, and IP Networks and Applications was comprised of two
aggregated operating segments: IP/Optical Networks and Nokia
Software. The most significant changes to the operational and
reporting structure are the following: Nokia Software operating
segment was moved from within IP Networks and Applications
reportable segment into a separate reportable segment and
activities related to the Cloud Core software portfolio were
reclassified from the Mobile Networks and Global Services
operating segments to the Nokia Software reportable segment.
Additionally, the Mobile Networks, Global Services, Fixed Networks
and IP/Optical Networks operating segments were aggregated into
one reportable segment called Networks. Segment information
for 2018 and 2017 has been recasted for comparability purposes
according to the new operating and reporting structure.
The President and CEO is the chief operating decision maker
and monitors the operating results of operating and reportable
segments for the purpose of assessing performance and making
decisions about resource allocation. 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).
144
NOKIA IN 2019
162
(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.
Segment descriptions
Networks
Networks comprises Mobile Networks, Global Services,
Fixed Networks and IP/Optical Networks operating segments.
The Mobile Networks operating segment focuses on mobile radio
including macro radio, small cells and cloud native radio solutions
for communications service providers and enterprises.
Global Services operating segment provides a wide range of
professional services with multi-vendor capabilities, covering
network planning and optimization, network implementation,
systems integration as well as company-wide managed services.
The Fixed Networks operating segment provides copper and fiber
access products, solutions and services. The portfolio allows for
a customized combination of technologies that brings fiber to
the most economical point for the customer.
The IP/Optical Networks operating segment provides IP routing
and optical transport systems, each with their own software
and services to build high capacity network infrastructure for
the internet and global connectivity.
Nokia Software
The Nokia Software operating segment offers the cloud core
software portfolio in addition to software applications 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 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, Networks, Nokia Software 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
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.
Segment information
EURm
Continuing operations
2019
Net sales to external customers
Net sales to other segments
Depreciation and amortization
Operating profit/(loss)
Share of results of associated companies
and joint ventures
2018
Net sales to external customers
Net sales to other segments
Depreciation and amortization
Operating profit/(loss)
Share of results of associated companies
and joint ventures
2017
Net sales to external customers
Net sales to other segments
Depreciation and amortization
Operating profit/(loss)
Share of results of associated companies
and joint ventures
Networks(1)
Nokia
Software
Nokia
Technologies
Group Common
and Other Eliminations
Segment
total
Unallocated
items(2)
Total
18 207
2
(566)
665
2 767
–
(85)
589
1 473
14
(31)
1 239
897
55
(54)
(490)
–
(71)
–
–
23 344
–
(736)
2 003
(29) 23 315
–
(1 660)
485
–
(924)
(1 518)
12
–
–
–
–
12
–
12
17 403
1
(383)
773
2 713
–
(65)
450
1 486
15
(21)
1 203
978
47
(46)
(246)
–
(63)
–
–
22 580
–
(515)
2 180
(17) 22 563
–
(1 455)
(59)
–
(940)
(2 239)
12
–
–
–
–
12
–
12
17 725
–
(446)
1 297
2 798
–
(52)
414
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)
21
–
(10)
–
–
11
–
11
(1) Includes Mobile Access net sales of EUR 11 655 million (EUR 11 273 million in 2018 and EUR 11 457 million in 2017), Fixed Access net sales of EUR 1 881 million (EUR 1 980 million in 2018 and
EUR 2 075 million in 2017), IP Routing net sales of EUR 2 921 million (EUR 2 545 million in 2018 and EUR 2 694 million in 2017) and Optical Networks net sales of EUR 1 752 million (EUR 1 606
million in 2018 and EUR 1 499 million in 2017).
(2) 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.
NOKIA IN 2019
145
163
Financial statements
Notes to the consolidated financial statements continued
Reconciliation of total segment operating profit to total operating profit/(loss)
EURm
2019
2018
2017
Total segment operating profit
Amortization and depreciation of acquired intangible assets and property, plant and equipment
Restructuring and associated charges
Gain on defined benefit plan amendment
Product portfolio strategy costs
Transaction and related costs, including integration costs relating to the acquisition
of Alcatel Lucent
Impairment of assets, net of impairment reversals
Operating model integration
Release of acquisition-related fair value adjustments to deferred revenue and inventory
Divestment of businesses
Fair value changes of legacy IPR fund
Other
Total operating profit/(loss)
2 003
(924)
(502)
168
(163)
(48)
(29)
(12)
(6)
(2)
–
–
485
2 180
(940)
(321)
–
(583)
(220)
(48)
–
(16)
(39)
(57)
(15)
(59)
2 587
(1 033)
(579)
–
(536)
(206)
(173)
–
(55)
–
–
11
16
Information by geographies
Net sales to external customers and non-current assets by country
EURm
Finland(3)
United States
China
India
France
Other
Total
Net sales(1)
Non-current assets(2)
2019
1 552
6 609
1 506
1 348
1 229
11 071
2018
1 556
6 204
1 754
1 629
1 179
10 241
23 315
22 563
2017
1 698
5 991
2 082
1 455
1 295
10 626
23 147
2019
1 477
5 505
400
178
1 997
1 167
2018
1 462
5 818
350
122
1 938
905
10 724
10 595
(1) Net sales to external customers by country are based on the location of customer.
(2) In 2019, consists of goodwill and other intangible assets, property, plant and equipment and right-of-use assets. In 2018, consisted 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.
146
NOKIA IN 2019
164
6. 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 Group sold substantially all of its Devices & Services business
to Microsoft in a transaction that was completed on April 25, 2014. The timing and amount of financial effects are largely dependent
upon external factors such as final outcomes of uncertain tax positions.
Results of Discontinued operations
EURm
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling, general and administrative expenses
Other operating income and expenses
Operating (loss)/profit
Financial income and expenses
(Loss)/profit before tax
Income tax (expense)/benefit
(Loss)/profit for the year, ordinary activities(1)
Gain on the sale, net of tax(2)
(Loss)/profit for the year
2019
–
–
–
–
(6)
(1)
(7)
(5)
(12)
(1)
(13)
6
(7)
2018
–
–
–
–
(9)
17
8
81
89
125
214
–
214
2017
–
–
–
–
(7)
(15)
(22)
6
(16)
(10)
(26)
5
(21)
(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 2019, an addition of EUR 7 million to and a deduction of EUR 1 million from gain on the sale were recognized related to D&S business and HERE business, respectively, due to tax indemnification.
In 2017, an additional gain on the sale of EUR 5 million was recognized related to HERE business due to 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
2019
(7)
9
2
2018
(33)
10
(23)
2017
(14)
(16)
(30)
7. Revenue recognition
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. The Group’s primary customer base consists of companies that operate on
a country specific or a regional basis. Although the Group’s technology cycle is similar around the world, different countries and regions
are inherently in a different stage of that cycle, often influenced by macroeconomic conditions specific to those countries and regions.
Each reportable segment, as described in Note 5, Segment Information, consists of customers that operate in all geographic areas.
No reportable segment has a specific revenue concentration in any geographic area other than Nokia Technologies, which is included
within Europe.
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.
2019
4 556
6 620
1 843
1 472
1 876
6 948
2018
4 081
6 489
2 165
1 380
1 874
6 574
2017
4 228
6 833
2 516
1 279
1 907
6 384
23 315
22 563
23 147
NOKIA IN 2019
147
165
Financial statements
Notes to the consolidated financial statements continued
Contract assets and contract liabilities
Contract asset balances decrease upon reclassification to trade receivables when the Group’s right to payment becomes unconditional.
Contract liability balances decrease when the Group satisfies the related performance obligations and revenue is recognized. 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 recognized EUR 1.9 billion (EUR 1.7 billion in 2018) of revenue that was included in the current contract liability
balance at the beginning of the period.
Order backlog
As of December 31, 2019, the aggregate amount of the transaction price allocated to partially or wholly unsatisfied performance
obligations arising from fixed contractual commitments amounted to EUR 18.8 billion (EUR 21.1 billion in 2018). Management has
estimated that these unsatisfied performance obligations will be recognized as revenue as follows:
Within 1 year
2-3 years
More than 3 years
Total
2019
69%
27%
4%
100%
2018
59%
34%
7%
100%
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.
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, Revenue from
Contracts with Customers, 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, 2019, the balance of deferred revenue related to the License Agreement of EUR 670 million (EUR 825 million in
2018), recognized in deferred revenue in the consolidated statement of financial position, is expected to be recognized as revenue
through 2024.
8. Expenses by nature
EURm
Continuing operations
Cost of material
Personnel expenses
Depreciation and amortization
IT Services
Research and development subcontracting
Rental expenses(1)
Impairment charges
Other
Total operating expenses
2019
2018
2017
8 148
7 191
1 660
362
207
90
38
5 558
7 544
7 835
1 455
491
240
338
55
4 954
7 776
7 845
1 591
526
226
339
210
4 981
23 254
22 912
23 494
(1) Upon adoption of IFRS 16, Leases, on January 1, 2019, for all leases with a lease term exceeding 12 months, the Group records depreciation expense and interest expense on all right-of-use
assets and lease liabilities, respectively. The Group records lease payments for leases with a lease term of 12 months or less and other payments for certain non-lease components as an
operating expense. Refer to Note 3, New and amended standards and interpretations and Note 16, Leases.
Operating expenses include government grant income and R&D tax credits of EUR 83 million (EUR 124 million in 2018 and EUR 140 million
in 2017) that have been recognized in the consolidated income statement as a deduction against research and development expenses.
148
NOKIA IN 2019
166
9. Personnel expenses
EURm
Continuing operations
Salaries and wages(1)
Share-based payment expense(2)
Pension and other post-employment benefit expense, net(3)
Social security costs
Total
2019
2018
2017
5 953
77
242
919
7 191
6 356
62
465
952
7 835
6 456
99
445
845
7 845
(1) Includes termination benefits.
(2) Presented net of related social costs, refer to Note 26, Share Based Payment. Includes EUR 77 million for equity-settled awards (EUR 62 million in 2018 and EUR 97 million in 2017).
(3) Includes net gain on pension plan amendments, curtailments and settlements of EUR 131 million, refer to Note 27, Pensions and Other Post-Employment Benefits
The average number of employees is 98 322 (103 083 in 2018 and 101 731 in 2017).
10. Other operating income and expenses
EURm
Continuing operations
Other operating income
Pension curtailment and plan amendment income
Gains from unlisted venture funds(1)
Change in the loss allowance and impairment losses on trade receivables, net
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
Other
Total
Other operating expenses
Restructuring, cost reduction and associated charges
Foreign exchange loss on hedging forecasted sales and purchases, net
Pension curtailment and plan amendment expenses
Changes in provisions
Impairment charges
Losses and expenses related to unlisted venture funds(1)
Retirements and loss on sale of property, plant and equipment
Change in the loss allowance and impairment losses on trade receivables, net
Expenses related to sale of receivables transactions(2)
Other
Total
2019
2018
2017
187
87
28
18
8
–
–
–
96
424
(391)
(88)
(56)
(47)
(38)
(36)
(27)
–
–
(70)
(753)
23
162
–
21
8
–
–
–
76
290
(266)
(27)
(79)
(13)
(55)
(118)
(52)
(45)
–
(57)
(712)
38
51
–
19
2
93
25
18
117
363
(568)
–
(41)
–
(210)
(6)
(23)
(24)
(37)
(46)
(955)
(1) All venture fund related gains and losses are presented in other operating income and expenses as a result of the adoption of IFRS 9, Financial Instruments, in 2018. In 2017, gains and losses
for certain venture funds were presented in financial income and expenses.
(2) Interest income and expenses related to the financing components of contracts with customers are recognized within financial income and expenses from 2018 onwards.
NOKIA IN 2019
149
167
Financial statements
Notes to the consolidated financial statements continued
11. Financial income and expenses
EURm
Continuing operations
Interest income on financial investments not measured at fair value through
profit and loss
Interest income on financing components of other contracts
Interest expense on interest-bearing liabilities(1)
Interest expense on financing components of other contracts(2)
Interest expense on lease liabilities(3)
Net interest expense on defined benefit plans
Net realized losses on investments at fair value through other
comprehensive income(4)
Net fair value losses on investments at fair value through profit and loss
Net fair value (losses)/gains on hedged items under fair value hedge accounting
for interest risk
Net fair value gains/(losses) on hedging instruments under fair value hedge
accounting for interest risk
Net foreign exchange losses
Other financial income(5)
Other financial expenses(6)
Total
2019
2018
2017
31
42
(99)
(172)
(28)
(9)
–
(2)
(133)
141
(106)
92
(98)
(341)
39
37
(105)
(162)
–
(15)
–
(1)
(7)
9
(100)
9
(17)
(313)
35
–
(391)
(81)
–
(37)
(33)
–
42
(23)
(157)
172
(64)
(537)
(1) In 2017, 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.
(2) In 2019, includes an interest expense of EUR 94 million (EUR 66 million in 2018) related to the sale of receivables. In 2017, includes an interest expense of EUR 69 million related to a change
in uncertain tax positions.
(3) Interest expense on lease liabilities is presented in financial income and expenses as a result of the adoption of IFRS 16, Leases, in the beginning of 2019.
(4) In 2017, includes a one-time charge of EUR 32 million related to the sale of certain financial assets.
(5) In 2019, includes 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.
Venture fund related gains and losses are presented in other operating income and expenses as a result of the adoption of IFRS 9, Financial Instruments, in 2018. In 2017, includes
distributions of EUR 80 million from venture funds held as non-current available-for-sale investments and 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.
(6) In 2019, includes an impairment of EUR 64 million related to a loan extended to certain emerging market customer recognized upon contract exit. Venture fund related gains and losses are
presented in other operating income and expenses as a result of the adoption of IFRS 9, Financial Instruments, in 2018. In 2017, includes impairments of EUR 34 million related to venture
funds held as non-current available-for-sale investments. Refer to Note 17, Impairment.
12. Income taxes
Components of the income tax expense
EURm
Continuing operations
Current tax
Deferred tax
Total
2019
2018
2017
(367)
229
(138)
(530)
341
(189)
(261)
(666)
(927)
150
NOKIA IN 2019
168
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 (expense)/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
2019
(31)
53
30
(31)
(13)
(38)
(99)
29
(6)
(30)
(2)
–
(138)
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)
(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.
(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.
(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 154 million liability (EUR 177 million in 2018) relating to uncertain tax positions with
inherently uncertain timing of cash outflows.
Prior period income tax returns for certain Group companies are under examination by local tax authorities. The Group has on-going tax
investigations in various jurisdictions, including the United States, 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.
Deferred tax assets and liabilities
EURm
Tax losses carried forward and unused tax credits
Undistributed earnings
Intangible assets and property, plant and equipment
Right-of-use assets(1)
Defined benefit pension assets
Other non-current assets
Inventories
Other current assets
Lease liabilities(1)
Defined benefit pension and other post-employment 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
Deferred
tax assets
1 301
–
3 257
2
55
62
216
164
220
1 006
32
213
182
99
6 809
(1 685)
5 124
2019
Deferred
tax liabilities Net balance
–
(83)
(279)
(221)
(1 150)
(53)
(24)
(32)
–
(29)
–
(51)
(126)
(27)
(2 075)
1 685
(390)
4 734
–
4 734
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
–
(80)
(299)
–
(1 028)
(21)
(16)
(16)
–
–
(10)
(47)
(84)
(7)
(1 608)
1 258
(350)
(1) The Group adopted IFRS 16, Leases, on January 1, 2019, refer to Note 3, New and amended standards and interpretations and Note 16, Leases.
NOKIA IN 2019
169
Net balance
4 561
–
4 561
151
Financial statements
Notes to the consolidated financial statements continued
Movements in the net deferred tax balance during the year:
EURm
As of January 1
Adoption of new IFRS standards(1)
Recognized in income statement, Continuing Operations
Recognized in income statement, Discontinued Operations
Recognized in other comprehensive income
Recognized in equity
Acquisitions through business combinations and disposals
Translation differences
As of December 31
2019
4 561
(1)
229
–
(84)
(7)
–
36
4 734
2018
4 169
19
341
29
(57)
6
–
54
4 561
2017
5 298
–
(666)
2
(150)
(7)
(29)
(279)
4 169
(1)
In 2019, adoption of IFRS 16, Leases. In 2018, adoption of IFRS 9, Financial Instruments, and IFRS 15, Revenue from Contracts with Customers.
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
2019
1 716
18 609
101
20 426
2018
1 600
18 757
108
20 465
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 2.8 billion
(EUR 2.5 billion in 2018) and the United States of EUR 1.1 billion (EUR 1.2 billion in 2018).
The Group continually evaluates the probability assessment in respect of the utilization of deferred tax assets. As it relates to Finland,
the Group has considered the following favorable and unfavorable factors in this assessment:
The recent years’ cumulative profitability in Finland, excluding certain integration costs in Finland related to the acquisition of
Alcatel Lucent in 2016, which are considered as non-recurring in nature;
The historical and expected future positive impact on Finnish taxable income from Nokia Technologies;
The risks and investments related to 5G roll-out; and
The relevant attributes underlying the deferred tax assets are generally not subject to expire.
Based on its assessment, the Group has concluded that it is probable that it will be able to utilize the tax losses, tax credits and
deductible temporary differences in Finland. The Group will continue to monitor the above factors, including in particular its actual profit
record, in upcoming periods.
As it relates to the United States, the Group has an established pattern of sufficient tax profitability to conclude that it is probable that
the Group will utilize the deferred tax assets.
152
NOKIA IN 2019
170
Expiry of tax losses carried forward and unused tax credits:
EURm
Tax losses carried forward
Within 10 years
Thereafter
No expiry
Total
Tax credits
Within 10 years
Thereafter
No expiry
Total
Recognized
2019
Unrecognized
Total
Recognized
2018
Unrecognized
Total
2 181
–
1 728
3 909
251
237
13
501
1 609
6
16 994
3 790
6
18 722
18 609
22 518
88
2
11
101
339
239
24
602
2 195
353
1 497
4 045
249
204
11
464
1 698
58
17 001
3 893
411
18 498
18 757
22 802
92
5
11
108
341
209
22
572
The Group has undistributed earnings of EUR 1 104 million (EUR 709 million in 2018) for which a deferred tax liability has not been
recognized as these earnings will not be distributed in the foreseeable future.
13. Earnings per share
Basic and diluted
Profit or loss attributable to equity holders of the parent
Continuing operations
Discontinued operations
Profit/(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
Total effect of dilutive shares
Adjusted weighted average number of shares
2019
EURm
2018
EURm
2017
EURm
14
(7)
7
000s shares
(554)
214
(340)
000s shares
(1 473)
(21)
(1 494)
000s shares
5 599 912
5 588 020
5 651 814
2 390
24 072
1
26 463
26 463
3 656
20 577
224
24 457
24 457
–
–
–
–
–
5 626 375
5 612 477
5 651 814
Earnings per share attributable to equity holders of the parent
EUR
EUR
EUR
Basic earnings per share
Continuing operations
Discontinued operations
Profit/(loss) for the year
Diluted earnings per share
Continuing operations
Discontinued operations
Profit/(loss) for the year
0.00
0.00
0.00
0.00
0.00
0.00
(0.10)
0.04
(0.06)
(0.10)
0.04
(0.06)
(0.26)
0.00
(0.26)
(0.26)
0.00
(0.26)
NOKIA IN 2019
153
171
Financial statements
Notes to the consolidated financial statements continued
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 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. Potential ordinary shares are treated as dilutive only for the periods with reported profit.
In 2019, the dilutive impact of 2 million restricted shares (4 million in 2018 and 5 million in 2017) was included in the calculation of diluted
earnings per share for the periods with reported profit but excluded from the calculation for the periods with reported loss as they are
determined to be anti-dilutive.
In 2019, the dilutive impact of 24 million performance shares (21 million in 2018 and 14 million in 2017) was included in the calculation
of diluted earnings per share for the periods with reported profit but excluded from the calculation for the periods with reported loss
as they are determined to be anti-dilutive.
In 2019, the dilutive impact of stock options equivalent to fewer than 1 million (fewer than 1 million shares in 2018 and 2017) was
included in the calculation of diluted earnings per share for the periods with reported profit but excluded from the calculation for the
periods with reported loss as they are determined to be anti-dilutive.
14. Intangible assets
EURm
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
Acquisition cost as of January 1, 2019
Translation differences
Additions
Disposals and retirements
Acquisition cost as of December 31, 2019
Accumulated amortization and impairme
Translation differences
Impairment charges
Disposals and retirements
Amortization
nt charges as of January 1, 2019
Accumulated amortization and impairment charges as of December 31, 2019
Net book value as of January 1, 2019
Net book value as of December 31, 2019
Goodwill
6 297
172
–
32
(141)
6 360
(1 049)
–
–
141
–
(908)
5 248
5 452
6 360
75
–
–
6 435
(908)
–
–
–
–
(908)
5 452
5 527
Other
8 997
175
277
–
(25)
9 424
(5 026)
(80)
(16)
15
(964)
(6 071)
3 971
3 353
9 424
82
52
(92)
9 466
(6 071)
(41)
(12)
71
(984)
(7 037)
3 353
2 429
Total
15 294
347
277
32
(166)
15 784
(6 075)
(80)
(16)
156
(964)
(6 979)
9 219
8 805
15 784
157
52
(92)
15 901
(6 979)
(41)
(12)
71
(984)
(7 945)
8 805
7 956
(1)
Includes goodwill with acquisition cost and accumulated impairment of EUR 141 million related to the Digital Health business disposal in 2018.
154
NOKIA IN 2019
172
Net book value of other intangible assets by type of asset:
EURm
Customer relationships
Technologies
Tradenames and trademarks
Other
Total
2019
1 788
41
145
455
2 429
As of December 31 2019, the weighted average for the remaining amortization periods is approximately six years for customer
relationships, two years for developed technology, three years for tradenames and trademarks and four years for other.
15. Property, plant and equipment
EURm
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
Acquisition cost as of January 1, 2019
Translation differences
Additions
Reclassifications
Disposals and retirements
Acquisition cost as of December 31, 2019
Accumulated depreciation as of January 1, 2019
Translation differences
Impairment charges
Disposals and retirements
Depreciation
Accumulated depreciation as of December 31, 2019
Net book value as of January 1, 2019
Net book value as of December 31, 2019
Buildings and
constructions
1 065
8
65
31
(25)
Machinery and
equipment
2 649
6
366
49
(237)
1 144
(271)
(5)
(33)
15
(92)
(386)
794
758
1 144
15
63
27
(55)
1 194
(386)
(8)
–
33
(90)
(451)
758
743
2 833
(1 768)
(5)
(7)
194
(397)
(1 983)
881
850
2 833
22
339
62
(267)
2 989
(1 983)
(16)
(4)
257
(359)
(2 105)
850
884
Other
106
2
–
–
(3)
105
(14)
–
–
2
(2)
(14)
92
91
105
2
–
1
(6)
102
(14)
–
–
–
(2)
(16)
91
86
Assets under
construction
86
–
88
(80)
(3)
91
–
–
–
–
–
–
86
91
91
–
143
(90)
(1)
143
–
–
–
–
–
–
91
143
2018
2 063
582
191
517
3 353
Total
3 906
16
519
–
(268)
4 173
(2 053)
(10)
(40)
211
(491)
(2 383)
1 853
1 790
4 173
39
545
–
(329)
4 428
(2 383)
(24)
(4)
290
(451)
(2 572)
1 790
1 856
In 2014, the tax authorities in India placed a lien which prohibit
Chennai to Microsoft as part of the sale of D&S business. As of December 31, 2019, the lien prohibiting the Group from transferring the
facility to third parties is still in place.
ed the Group from transferring the mobile devices-related facility in
NOKIA IN 2019
155
173
Financial statements
Notes to the consolidated financial statements continued
16. Leases
Right-of-use assets
Right-of-use assets represent the Group’s right to use the underlying leased assets.
EURm
Acquisition cost as of January 1, 2019
Net additions
Acquisition cost as of December 31, 2019
Accumulated depreciation as of January 1, 2019
Impairment charges
Depreciation
Accumulated depreciation as of December 31, 2019
Net book value as of January 1, 2019
Net book value as of December 31, 2019
Amounts recognized in the income statement
EURm
Depreciation expense on right-of-use assets
Expenses relating to short-term leases
Interest expense on lease liabilities
Income from subleasing leasehold and freehold properties(1)
Gains arising from sale and leaseback transactions
Total recognized in the income statement
Buildings
898
150
1 048
–
(32)
(177)
(209)
898
839
Other
77
44
121
–
–
(48)
(48)
77
73
(1) Sublease income comprises rent income from operating subleases and financial income on the net investment in the lease rela
ted to finance subleases.
Amounts recognized in the statement of cash flows
EURm
Payment of principal portion of lease liabilities
Interest portion of lease liabilities
Total cash outflow for leases
Changes in lease liabilities reported in financing activities
EURm
As of January 1, 2019
Cash flows
Non-cash changes:
Net additions
Other
As of December 31, 2019
The maturity analysis for lease liabilities is presented in Note 36, Financial risk management.
Total
975
194
1 169
–
(32)
(225)
(257)
975
912
2019
(225)
(26)
(28)
9
9
(261)
2019
(221)
(28)
(249)
2019
1 066
(221)
194
(9)
1 030
156
NOKIA IN 2019
174
17. Impairment
Goodwill
The Group has allocated goodwill to the operating segments corresponding to groups of cash generating units (CGUs) that are expected
to benefit from goodwill 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(1)
Fixed Networks
Global Services(1)
IP/Optical Networks
Nokia Software(1)
2019
794
876
1 043
1 954
982
2018
963
836
1 306
1 871
434
(1) On January 1, 2019, the Group reallocated goodwill of EUR 205 million from Mobile Networks and EUR 310 million from Global Services operating segments to Nokia Software operating
segment following the reclassification of the activities related to the Cloud Core software portfolio. Refer to Note 5, Segment information.
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
2019
2018(1)
2019
2018(1)
Terminal growth rate
Post-tax discount rate
1.1
1.1
0.9
1.4
1.5
1.1
1.1
1.0
1.3
1.6
8.4
7.6
8.0
8.2
7.6
9.2
7.9
8.6
9.1
8.7
(1) Key assumptions for 2018 reflect the operational and reporting structure in place in 2018. For information on organizational changes in 2019, refer to Note 5, Segment Information.
NOKIA IN 2019
157
175
Financial statements
Notes to the consolidated financial statements continued
Impairment charges by asset category
EURm
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use assets(1)
Investments in associated companies and joint ventures
Financial assets
Total
2019
–
12
4
20
2
64
102
2018
–
16
39
–
–
–
55
2017
141
33
25
–
–
45
244
(1) The Group adopted IFRS 16, Leases, on January 1, 2019. Refer to Note 3, New and amended standards and interpretations and Note 16, Leases. In 2019, EUR 20 million impairment charge is
presented net of onerous lease contract provision releases.
In 2019, upon contract exit the Group recognized an impairment charge of EUR 64 million related to loans extended to a certain emerging
market customer.
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 carrying amount of goodwill of the Digital Health CGU to zero.
The Group disposed its Digital Health business in 2018.
In 2017, the Group recognized an impairment charge of EUR 45 million 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 operating expenses and financial income and expenses. As a result of the adoption of IFRS 9, Financial Instruments,
on January 1, 2018, venture fund investments are classified as fair value through profit and loss and the related gains and losses are
presented in other operating income and expenses.
Other impairments recorded by the Group in 2019, 2018 and 2017 are immaterial.
18. Inventories
EURm
Raw materials, supplies and other
Work in progress
Finished goods
Total
2019
568
1 281
1 087
2 936
2018
462
1 398
1 308
3 168
The cost of inventories recognized as an expense during the year and included in the cost of sales is EUR 8 181 million (EUR 7 569 million
in 2018 and EUR 7 803 million in 2017).
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.
2019
521
83
(99)
505
2018
432
153
(64)
521
2017
456
100
(124)
432
158
NOKIA IN 2019
176
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
Other
Total
20. Shares of the Parent Company
2019
156
58
78
292
2019
543
33
20
312
908
2018
155
56
97
308
2018
514
67
35
408
1 024
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, 2019, the share capital of Nokia Corporation is EUR 245 896 461.96 and the total number of shares issued is 5 640 536
159. As of December 31, 2019, the total number of shares includes 34 954 869 shares owned by Group companies representing 0.6%
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 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 that would have been effective until November 30, 2019 was terminated by a resolution of
Annual General Meeting on May 21, 2019.
At the Annual General Meeting held on May 21, 2019, 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 21, 2020.
In 2019, under the authorization held by the Board of Directors, the Parent Company issued 23 000 new shares following the holders
of stock options issued in 2013 exercising their option rights.
In 2019, under the authorization held by the Board of Directors, the Parent Company issued 4 568 000 new shares without consideration
to the Parent Company to fulfil the company’s obligation under the Nokia Equity Programs.
NOKIA IN 2019
159
177
Financial statements
Notes to the consolidated financial statements continued
In 2019, under the authorization held by the Board of Directors, the Parent Company issued 12 396 097 treasury shares to employees,
including certain members of the Group Leadership Team, as settlement under Parent Company equity-based incentive plans and the
employee share purchase plan as well as an Alcatel Lucent employee equity compensation arrangement. The shares were issued without
consideration and in accordance with the rules of the plans and arrangement.
As of December 31, 2019, 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 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 that would have been effective until November 30, 2019 was terminated by a resolution of the Annual
General Meeting on May 21, 2019.
At the Annual General Meeting held on May 21, 2019, 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. Shares may be
repurchased to be cancelled, held to be reissued, transferred further or for other purposes resolved by the Board. The Board shall
resolve on all other matters related to the repurchase of Nokia shares. The authorization is effective until November 21, 2020.
21. Translation differences, fair value and other reserves
Fair value and other reserves
EURm
As of January 1, 2017
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
Foreign exchange translation differences
Net investment hedging losses
Remeasurements of defined benefit plans
Net fair value losses
Transfer to income statement
Other increase
As of December 31, 2019
Translation
differences
Pension
remeasurements
483
(1 830)
352
–
–
12
1
50
(932)
–
(932)
444
(66)
–
–
(37)
(1)
(592)
259
(40)
–
–
1
–
(372)
173
–
–
662
–
–
3
–
838
–
838
–
–
293
–
–
6
1 137
–
–
319
–
–
1
1 457
Hedging
reserve
10
–
–
–
103
(75)
(1)
–
37
–
37
–
–
–
(28)
(30)
–
(21)
–
–
–
(17)
32
–
(6)
Cost of hedging
reserve
–
–
–
–
–
–
–
–
–
(10)
(10)
–
3
–
(8)
23
–
8
–
(6)
–
(34)
18
–
(14)
Fair value
reserve(1)
305
–
–
–
18
(104)
–
–
219
(242)
(23)
–
–
–
(116)
78
–
(61)
–
–
–
(101)
107
–
(55)
(1)
In 2017, fair value reserve includes changes in the fair value of available-for-sale investments.
Translation differences consist of foreign exchange differences arising from translation of foreign operations 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.
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.
160
NOKIA IN 2019
178
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.
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.
Fair value reserve includes the changes in fair value of financial instruments that are managed in a portfolio with a business model of
holding financial instruments to collect contractual cash flows including principal and interest as well as selling financial instruments.
The fair values of these instruments are reduced by amounts of loss allowances.
For more information on the accounting for items recognized in translation differences, fair value and other reserves, refer to Note 2,
Significant accounting policies.
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)
259
1
260
(58)
–
(58)
2019
Gross
Tax
Net
Gross
2018
Tax
Net
Gross
2017
Tax
Net
414
(95)
319
414
(95)
319
388
388
(90)
(90)
298
298
723
723
(58)
(58)
665
665
–
–
–
259
1
260
443
(42)
401
1
–
444
(42)
(1 831)
12
(1 819)
1
402
1
–
1
(1 830)
12
(1 818)
12
–
12
(46)
–
(79)
6
16
(1)
(63)
5
440
–
(88)
–
(46)
(73)
15
(58)
440
(88)
(64)
62
13
(12)
(51)
50
(44)
(9)
8
2
(36)
(7)
129
(94)
(26)
19
(2)
1
(1)
(53)
10
(43)
35
(7)
Net fair value losses
Transfer to income statement on impairment
Transfer to income statement on disposal
(126)
40
94
25
(8)
(19)
(101)
32
75
(144)
33
66
28
(8)
(13)
(116)
25
53
8
(2)
6
(45)
7
(38)
–
–
–
–
–
–
–
–
Net change during the year
Available-for-sale investments(1)
Net fair value gains
Transfer to income statement on impairment
Transfer to income statement on disposal
Net change during the year
Other increase/(decrease), net
Total
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
622
(84)
538
619
–
–
–
–
–
(57)
–
–
–
–
1
562
19
14
(121)
(88)
(1)
(710)
(1)
(1)
4
2
–
(150)
18
13
(117)
(86)
(1)
(860)
(1) Related to the adoption of IFRS 9, Financial Instruments, in 2018, 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, Financial Instruments.
NOKIA IN 2019
161
179
352
–
352
103
(75)
28
–
–
–
–
Financial statements
Notes to the consolidated financial statements continued
23. Interest-bearing liabilities
Issuer/borrower
Instrument
Currency
Nominal (million)
Final maturity
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia of America
Corporation
Nokia of America
Corporation
Nokia Corporation
Nokia Corporation and
various subsidiaries
Total
6.75% Senior Notes(1)
5.375% Senior Notes(2)
1.00% Senior Notes
3.375% Senior Notes
2.00% Senior Notes
NIB R&D loan(3)
2.00% Senior Notes(4)
4.375% Senior Notes
EUR
USD
EUR
USD
EUR
EUR
EUR
USD
231 February 2019
May 2019
581
March 2021
500
June 2022
500
March 2024
750
May 2025
250
March 2026
750
June 2027
500
6.50% Senior Notes
USD
74 January 2028
6.45% Senior Notes
6.625% Senior Notes
USD
USD
206 March 2029
May 2039
500
Other liabilities
Carrying amount EURm(5)
2019
–
–
499
445
766
250
765
452
66
185
517
2018
232
507
499
423
750
–
–
415
65
182
455
332
4 277
292
3 820
In February 2019, the Group repaid its EUR 231 million 6.75% Senior Notes.
In May 2019, the Group repaid its USD 581 million 5.375% Senior Notes.
In May 2019, the Group drew an amortizing loan from Nordic Investment Bank (NIB). The loan is repayable in three equal installments in 2023, 2024 and 2025.
In March 2019, the Group issued EUR 750 million 2.00% Senior Notes due 2026 under its EUR 5 billion Euro Medium-Term Note Programme.
(1)
(2)
(3)
(4)
(5) Carrying amount includes EUR 138 million (EUR 11 million in 2018) of fair value adjustments related to discontinued fair value hedge accounting relationships that are amortized over the life
of the respective Senior Notes.
The Group’s significant credit facilities and funding programs as of December 31:
Committed / Uncommited
Committed
Committed
Uncommitted
Uncommitted
Total
Financing arrangement
Revolving Credit Facility(1)
EIB R&D Loan Facility(2)
Finnish Commercial Paper Programme
Euro Medium-Term Note Programme(3)
Currency
EUR
EUR
EUR
EUR
Nominal (million)
1 500
500
750
5 000
Utilized
2019
–
–
–
2 000
2 000
2018
–
–
–
1 250
1 250
In June 2019, the Group refinanced its EUR 1 579 million revolving credit facility maturing in 2020 with EUR 1 500 million five-year revolving credit facility with two one-year extension options.
(1)
(2) The loan facility of EUR 500 million with the European Investment Bank (EIB) was signed in August 2018 and will have an average maturity of approximately five years after disbursement.
The facility has not been disbursed as of December 31, 2019, and the availability period ends in February 2020.
(3) All euro-denominated bonds are issued under Euro Medium-Term Note Programme.
All borrowings and credit facilities presented in the tables above are senior unsecured and have no financial covenants.
162
NOKIA IN 2019
180
The Group uses the following interest rate swaps and cross currency swaps under fair value and cash flow hedge accounting to manage
interest rate and foreign exchange risks related to the Group’s interest-bearing liabilities as of December 31:
Entity
Instrument(1)
Currency
Notional (million)
Maturity
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Total
Cross currency swaps
USD
Cross currency swaps(2) USD
EUR
Cross currency swaps(2) USD
Cross currency swaps(2) USD
Interest rate swaps(3)
581
May 2019
500
–
500
400
June 2022
March 2024
June 2027
May 2039
Fair values EURm
2019
–
(11)
–
(18)
(20)
(49)
2018
(29)
(16)
7
(22)
20
(40)
(1) All cross currency swaps and interest rate swaps are fixed-to-floating swaps.
(2)
In 2019, the Group unwound EUR/USD cross currency swaps and re-entered into equivalent swaps with different pricing levels to retain both foreign exchange and interest rate risk positions
otherwise unchanged. Hedge accounting was discontinued and new hedge relationships were defined for the new EUR/USD cross currency swaps.
In 2019, the Group fixed the interest rate of EUR 750 million 2.00% Senior Notes due March 2024 by unwinding fixed-to-floating interest rate swaps.
(3)
Changes in interest-bearing liabilities and associated derivatives related to financing activities (for changes in lease liabilities, refer to
Note 16, Leases):
As of January 1, 2018
Cash flows
Non-cash changes:
Changes in foreign exchange rates
Changes in fair value
Reclassification between long-term and short-term
Other
As of December 31, 2018
Cash flows
Non-cash changes:
Changes in foreign exchange rates
Changes in fair value
Reclassification between long-term and short-term
Other
(2)
As of December 31, 2019
Long-term interest-
bearing liabilities
3 457
28
Short-term interest-
bearing liabilities
309
2
Derivatives held to
hedge long-term
borrowings(1)
135
92
89
(4)
(739)
(5)
2 826
253
43
131
738
(6)
3 985
(1)
–
739
(55)
994
40
1
–
(738)
(5)
292
(138)
(32)
–
–
57
20
(25)
(142)
–
140
50
Total
3 901
122
(50)
(36)
–
(60)
3 877
313
19
(11)
–
129
4 327
(1) Includes derivatives designated in fair value and cash flow
hedge accounting relationships as well as derivatives not designated in hedge accounting relationship but hedging identifiable
long-term borrowing exposure.
(2) Includes EUR 138 million cash inflow from unwind settlements of certain interest rate derivatives held to hedge long-term borrowings that is included in interest paid in the consolidated
statement of cash flows.
NOKIA IN 2019
163
181
Financial statements
Notes to the consolidated financial statements continued
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
2019
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
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
Amortized cost
Fair value through profit or loss
Level 3
Level 2
Level 1
Fair value through other comprehensive income
Level 3
Level 1
Level 2
Carrying amounts
Fair value(1)
Total
Total
–
165
–
–
–
171
740
6
46
–
42
4 090
4 343
3 985
–
292
81
–
–
–
–
51
– 1 820
– 2 123
–
–
–
–
–
10
–
–
–
–
746
–
20
–
–
3 786
–
–
164
–
639
–
8 063
–
174
659
–
–
–
–
–
–
–
–
–
–
–
–
–
–
103
37
5 025
4
–
5 169
–
–
–
–
–
–
–
–
740
445
740
430
–
164
– 5 025
–
97
– 5 910
– 12 381
– 3 985
–
–
30
292
164
5 025
97
5 910
12 366
4 056
30
292
–
803
– 3 786
803
3 786
– 8 896
8 967
Amortized cost
Fair value through profit or loss
Level 3
Level 2
Level 1
Fair value through other comprehensive income
Level 1
Level 2
Level 3
Total
Total
Carrying amounts
Fair value(1)
–
188
20
–
106
4 531
4 845
2 826
–
994
–
4 773
8 593
8
–
–
–
–
–
8
–
–
–
–
–
–
–
94
682
6
131
–
52
1 730
2 007
–
–
–
198
–
198
–
–
–
–
688
–
14
–
693
–
707
–
–
–
–
–
–
–
–
–
–
–
–
–
–
85
92
4 856
454
–
5 487
–
–
–
–
–
–
–
–
–
–
–
–
690
373
243
4 856
612
6 261
– 13 035
2 826
–
14
–
994
–
–
–
891
4 773
–
9 498
690
357
243
4 856
612
6 261
13 019
2 818
14
997
891
4 773
9 493
(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, including current part, 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.
Lease liabilities are not included in the fair value of financial instruments.
164
NOKIA IN 2019
182
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.
The level 3 financial assets category includes a large number of investments in unlisted equities and unlisted venture funds, including
investments managed by NGP Capital 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 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
Net gains in income statement
Additions
Deductions
Other movements
As of December 31, 2019
Level 3 Financial
Assets
552
122
Level 3 Financial
Liabilities
(672)
–
674
49
119
(150)
(4)
688
49
90
(79)
(2)
746
(672)
(34)
–
8
(9)
(707)
35
–
1
12
(659)
(1) Non-current available-for-sale investments for which the fair value was estimated to equal cost less impairment under IAS 3
9, 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, Financial Instruments.
The gains and losses from venture fund and similar investments categorized in level 3 are included in other operating income and
expenses. The gains and losses from other level 3 financial assets and liabilities are recorded in financial income and expenses. A net gain
of EUR 73 million (net loss of EUR 96 million in 2018) related to level 3 financial instruments held at December 31, 2019, was included in
the profit and loss during 2019.
NOKIA IN 2019
165
183
Financial statements
Notes to the consolidated financial statements continued
25. Derivative financial instruments
EURm
2019
Hedges on net investment in foreign subsidiaries
Foreign exchange
forward contracts
Cash flow hedges
Foreign exchange
Currency options bought
forward contracts
forward contracts
Fair value hedges
Foreign exchange
Firm commitments
Cash flow and fair value hedges(3)
Cross currency swaps
Derivatives not designated in hedge accounting relationships carried at fair
value through profit and loss
forward contracts
Foreign exchange
Currency options bought
Other derivatives
Total
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 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
Assets
Liabilities
Fair value(1)
Notional(2)
Fair value(1)
Notional(2)
36
3 807
(2)
517
7
1
7
6
–
17
7
–
81
11
1
5
9
–
7
2
14
22
59
1
–
660
343
697
606
(18)
–
(7)
(2)
749
–
549
255
–
(49)
1 246
3 491
654
–
10 258
(72)
–
(7)
(157)
8 070
–
84
11 470
2 559
240
(23)
–
4 075
–
621
522
–
600
218
466
260
(26)
–
–
–
(6)
(1)
818
44
15
–
548
234
(69)
1 512
6 230
103
–
(43)
–
(10)
5 329
–
104
131
11 819
(178)
12 679
(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 swaps have been designated partly as fair value hedges and partly as cash flow hedges.
166
NOKIA IN 2019
184
26. Share-based payments
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 and other conditions determined in the relevant plan
rules. In 2019, the share-based payment expense, including social security costs, for all equity-based incentive grants in the consolidated
income statement amounts to EUR 77 million (EUR 62 million in 2018 and EUR 99 million in 2017).
Active share-based payment plans by instrument
As of January 1, 2017
Granted
Forfeited
Vested(2)
As of December 31, 2017
Granted
Forfeited
Vested(2)
As of December 31, 2018
Granted
Forfeited
(2)
Vested
As of December 31, 2019(3)
Performance shares
Restricted shares
Number of
performance shares
outstanding at target
Weighted average
grant date fair value
EUR(1)
Number of
restricted
shares outstanding
Weighted average
grant date fair value
EUR(1)
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
31 979 747
(4 964 055)
(18 933 700)
91 225 523
5.08
4.39
4.02
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
2 060 342
(451 540)
(1 915 675)
3 275 175
4.90
4.47
4.18
(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 25 706 652 performance shares for the Performance Share Plan 2017 and 388 914 Restricted Shares that vested on January 1, 2020.
Performance shares
In 2019, the Group administered four global performance share plans, the Performance Share Plans of 2016, 2017, 2018 and 2019.
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 applicable performance periods. 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 2019 includes a minimum payout guarantee for performance shares granted to non-executive participants,
such that 25% of the performance shares granted will settle, regardless of the satisfaction of the applicable performance criteria.
Performance shares granted to executive participants under the Performance Share Plan 2019 do not include a minimum payout
guarantee.
Global performance share plans as of December 31, 2019:
Plan
2016
2017
2018
2019
Performance shares
outstanding at target
–
25 706 652
33 932 724
31 586 147
Confirmed payout
(% of target)
46
29
57
–
Performance
period(1)
2016-2017
2017-2018
2018-2019
2019-2021
Restriction
period(2)
2018
2019
2020
N/A
Settlement
year
2019
2020
2021
2022
(1) The 2019 Performance Share plan has a three-year performance period with no subsequent restriction period.
(2) The restriction period will be no less than one year from the end of the performance period.
NOKIA IN 2019
167
185
Financial statements
Notes to the consolidated financial statements continued
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. Under the 2019 performance share
plan the performance criteria are: earnings per share (diluted), free cash flow and revenue relative to market (market share). 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 2019, the Group administered four global restricted share plans: the Restricted Share Plans 2016, 2017, 2018 and 2019. 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 2019, 4 524 101 matching shares were
issued as a settlement to the participants of the Employee Share Purchase Plan 2018 (3 980 286 matching shares issued under the
2017 Plan in 2018 and 2 920 204 matching shares issued under the 2016 Plan in 2017).
Legacy equity compensation programs
Stock options
In 2019, the Group administered one global stock option plan, the Stock Option Plan 2011. The last stock options under this Plan were
granted in 2013. The final subscription period ended on December 27, 2019. Each stock option entitled the holder to subscribe for one
new Nokia share. The stock options were non-transferable and could be exercised for shares only. Shares were eligible for dividends for
the financial year in which the share subscription took place. Other shareholder rights commenced on the date on which the subscribed
shares were entered in the Trade Register. The stock option grants were generally forfeited if the employment relationship with the
Group was terminated.
Reconciliation of stock options outstanding and exercisable:
Shares under option
As of January 1, 2017
Exercised
Forfeited
Expired
As of December 31, 2017
Exercised
As of December 31, 2018
Exercised
As of December 31, 2019
Number
of shares
1 601 021
(415 750)
(215 000)
(522 771)
447 500
(424 500)
23 000
(23 000)
–
Weighted
average
exercise price
EUR
3.34
2.13
2.71
5.65
2.07
2.06
2.35
2.35
–
Weighted
average share
price
EUR
Number of
options
exercisable
1 197 771
Weighted
average
exercise price
EUR
3.56
4.93
5.07
5.34
447 500
2.07
23 000
2.35
–
–
Alcatel Lucent liquidity agreement
In accordance with the Memorandum of Understanding dated April 15, 2015 between Nokia and Alcatel Lucent, as amended, Nokia has
entered into liquidity agreement with beneficiaries of Alcatel Lucent 2015 performance share plan (Plan). In 2019 to fulfill Nokia’s
obligations under the aforementioned agreement, 1 314 468 Nokia shares were issued to the Plan participants.
168
NOKIA IN 2019
186
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’s defined benefit plans comprise significant pension programs and schemes as well as material other post-employment
benefit plans providing post-employment 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 31 million (EUR 234 million in 2018 and
EUR 214 million in 2017).
The Group also 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 220 million (EUR 246 million in 2018
and EUR 231 million in 2017).
Defined benefit plans
The total net defined benefit asset is EUR 487 million (EUR 103 million net defined benefit liability in 2018) consisting of net pension and
other post-employment benefit liabilities of EUR 4 343 million (EUR 4 327 million in 2018) and net pension and other post-employment
benefit assets of EUR 4 830 million (EUR 4 224 million in 2018).
The Group’s most significant defined benefit pension plans are in the United States, Germany, and the United Kingdom. Together they
account for 92% (92% in 2018) of the Group’s total defined benefit obligation and 91% (91% in 2018) 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
Defined
benefit
obligation
(18 657)
(2 808)
(1 147)
(2 051)
(24 663)
2019
Fair value
of plan assets
20 906
1 232
1 612
2 430
2018
Effects of
asset ceiling
(975)
–
–
(55)
Net defined
benefit
balance
1 274
(1 576)
465
324
Defined
benefit
obligation
(18 346)
(2 650)
(1 122)
(1 837)
Fair value
of plan assets
19 616
1 145
1 459
2 259
Effects of
asset ceiling
(573)
–
–
(54)
Net defined
benefit
balance
697
(1 505)
337
368
26 180
(1 030)
487
(23 955)
24 479
(627)
(103)
NOKIA IN 2019
169
187
Financial statements
Notes to the consolidated financial statements continued
United States
The Group has significant defined benefit pension plans and a significant post-employment welfare benefit plan (Opeb) providing post-
employment 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. Salaried, non-union-represented, employees are covered by a cash-balance program.
All other legacy programs, including legacy service-based programs, were frozen by December 31, 2009. For active union-represented
employees and for former employees who, when actively employed, were represented by a union, the Group maintains two defined
benefit pension plans, both of which are traditional service-based programs. The larger of the two, which represents 96% of the
obligation, is a closed plan. The post-employment plans provide welfare benefits 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 provides post-employment healthcare benefits and life-insurance coverage for employees formerly represented by these
two unions. That agreement was renewed in 2019 and the contract expires on December 31, 2024.
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-employment benefits
Health (non-union represented)
Health (formerly union
represented)
Group life (non-union
represented)
Group life (formerly union
represented)
Other
Total
2019
2018
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
(13 186)
15 686
–
2 500
(12 860)
14 617
–
1 757
(2 795)
(351)
4 757
–
(975)
–
987
(351)
(16 332)
20 443
(975)
3 136
(2 766)
(336)
(15 962)
4 602
–
19 219
(573)
–
1 263
(336)
(573)
2 684
(49)
–
(731)
257
(1 038)
139
(507)
–
(2 325)
68
–
464
–
–
–
–
–
–
(49)
(66)
–
(474)
(972)
184
(899)
(885)
149
(439)
–
(460)
(1)
(1 861)
(2 384)
64
–
397
–
–
–
–
–
–
(66)
(788)
(736)
(396)
(1)
(1 987)
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 manages 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.
170
NOKIA IN 2019
188
United Kingdom
In 2019, the legacy Nokia plan was merged and members’ benefits were transferred to the legacy Alcatel Lucent plan. The new combined
plan was renamed to “Nokia Retirement Plan for former NSN & ALU employees”. It consists of both 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 April 30, 2018. 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. The Trust manages all investments for the combined pension plan.
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
Settlements
Total
Remeasurements:
Gain/(loss) from change in
demographic assumptions
(Loss)/gain from change in
financial assumptions
Experience gain/(loss)
Total
Translation differences
Contributions from plan participants
Benefits paid
Other
Total
United States
pension
(15 962)
(66)
(553)
(46)
–
(665)
2019
United States
Opeb
(2 384)
–
(79)
167
–
88
Other
pension
(5 609)
(87)
(121)
19
149
(40)
Total
(23 955)
(153)
(753)
140
149
(617)
United States
pension
(17 096)
(70)
(540)
(44)
–
(654)
2018
United States
Opeb
(2 518)
–
(79)
–
–
(79)
Other
pension
(5 883)
(93)
(106)
(8)
(1)
(208)
Total
(25 497)
(163)
(725)
(52)
(1)
(941)
759
49
5
813
36
23
21
80
(1 677)
37
(881)
(335)
–
1 511
–
1 176
(231)
39
(143)
(53)
(105)
284
(12)
114
(483)
(5)
(483)
(92)
(25)
242
1
126
(2 391)
71
(1 507)
(480)
(130)
2 037
(11)
1 416
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
As of December 31
(16 332)
(2 325)
(6 006)
(24 663)
(15 962)
(2 384)
(5 609)
(23 955)
Present value of obligations includes EUR 17 782 million (EUR 17 593 million in 2018) of wholly funded obligations, EUR 5 660 million (EUR
5 162 million in 2018) of partly funded obligations and EUR 1 221 million (EUR 1 200 million in 2018) of unfunded obligations.
NOKIA IN 2019
171
189
Financial statements
Notes to the consolidated financial statements continued
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
2019
United States
pension
19 219
674
United States
Opeb
397
11
Other
pension
4 863
108
Total
24 479
793
United States
pension
19 967
635
2018
United States
Opeb
532
15
Other
pension
5 036
95
Total
25 535
745
(18)
–
656
1 834
1 834
386
27
–
(1 511)
(169)
1
(1 266)
–
–
11
43
43
9
(7)
(158)
(57)
(25)
(158)
610
414
414
111
2 291
2 291
506
14
105
(284)
169
–
13
57
25
(139)
–
(1)
53
98
130
(1 934)
–
–
(1 200)
(17)
–
618
(775)
(775)
868
26
–
(1 475)
(13)
3
(591)
–
–
15
(1)
(3)
91
(18)
(3)
724
(25)
(25)
19
(187)
(187)
(21)
(987)
(987)
866
6
115
(278)
13
–
(125)
65
23
(145)
–
1
(77)
97
138
(1 898)
–
4
(793)
20 443
464
5 273
26 180
19 219
397
4 863
24 479
(1) Section 420 Transfer. Refer to ‘Future Cash Flow’ section below.
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
Settlements
Total
Remeasurements:
Return on plan assets, excluding
United States
pension
3 257
(66)
103
(46)
–
(9)
2019
United States
Opeb
(1 987)
–
(68)
167
–
99
2018
Other
pension
(746)
(87)
(20)
19
(9)
(97)
Total
524
(153)
15
140
(9)
(7)
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)
amounts included in interest income
1 834
43
414
2 291
(775)
(25)
(187)
(987)
Gain/(loss) from change in
demographic assumptions
(Loss)/gain 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
759
49
5
813
36
23
21
80
(1 677)
37
953
51
27
–
(169)
1
(90)
4 111
(231)
39
(100)
(44)
14
–
169
(12)
127
(483)
(2 391)
71
784
26
98
103
–
(11)
216
(5)
(69)
19
57
103
–
–
179
938
56
255
151
26
–
(13)
3
167
155
(10)
143
(86)
6
–
13
(13)
(80)
205
33
72
(6)
65
90
–
(3)
146
1 298
79
470
59
97
90
–
(13)
233
(1 861)
(733)
1 517
3 257
(1 987)
(746)
524
(1) Section 420 Transfer. Refer to ‘Future Cash Flow’ section below.
172
NOKIA IN 2019
190
The movements in the impact of the asset ceiling limitation for the years ended December 31:
EURm
As of January 1
Interest expense
Remeasurements:
Change in asset ceiling, excluding amounts
included in interest expense
Translation differences
As of December 31
Net balances as of December 31:
United States
pension
(573)
(24)
(370)
(8)
(975)
2019
United States
Opeb
–
–
–
–
–
2018
United States
pension
United States
Opeb
Other
pension
Total
Other
pension
(54)
–
Total
(627)
(24)
(453)
(16)
–
–
–
–
–
(46)
(1)
(499)
(17)
(6)
(1)
(82)
(29)
(54)
(627)
–
(1)
(370)
(9)
(76)
(28)
(55)
(1 030)
(573)
EURm
As of December 31
United States
pension
3 136
2019
United States
Opeb
Other
pension
Total
United States
pension
2018
United States
Opeb
Other
pension
Total
(1 861)
(788)
487
2 684
(1 987)
(800)
(103)
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 a refund or as a reduction in future contributions. The most significant limitation of asset
recognition for the Group is from the overfunded US formerly union represented pension plan. All other countries where asset ceiling
limits apply are not considered material. Movements in asset ceiling limitation are recognized directly in the consolidated statement of
comprehensive income, excluding amounts included in interest expense. The Group recognized an asset ceiling limitation in the amount
of EUR 1 030 million (EUR 627 million in 2018).
Recognized in the income statement
Recognized in the consolidated income statement for the years ended December 31:
EURm
Current service cost(1)
Past service cost(2)
Interest expense(3)
Settlements(2)
Other
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
(Loss)/gain from change in financial assumptions
Experience gain
Change in asset ceiling, excluding amounts included in interest expense
Total
Of which relates to:
United States pensions
United States Opeb
Other pensions
NOKIA IN 2019
191
2019
153
(140)
9
9
–
31
33
(99)
97
2019
2 291
813
(2 391)
71
(370)
414
583
(100)
(69)
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)
173
Financial statements
Notes to the consolidated financial statements continued
Actuarial assumptions and sensitivity analysis
Actuarial assumptions
Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in each
country.
The discount rates and mortality tables used for the significant plans:
United States
Germany
United Kingdom
Total weighted average for all countries
(1)
(1)
Tables are adjusted with 1.5% long-term rate of improvement.
2019
2018
Discount rate %
2.8
0.8
1.9
2.5
3.9
1.6
2.7
3.5
2019
Mortality table
Pri–2012 w/MP–2019
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-employment healthcare and other
Post-employment 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-employment dental benefits)
Terminal growth rate
Year that the rate reaches the terminal growth value
2019
2.5
1.9
0.3
1.9
10 yrs
2018
3.5
1.9
0.4
2.1
11 yrs
2019
2018
2.8
2.6
2.9
2.06
6.1
6.2
4.4
2028
3.9
3.7
4.0
2.05
6.3
6.4
4.9
2028
174
NOKIA IN 2019
192
Sensitivity analysis
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
2 282
(134)
(542)
(580)
(30)
(811)
Decrease in assumption(1)
EURm
(2 776)
111
420
475
28
756
(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 funded status 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
2019
2018
Quoted
963
19 294
–
–
758
131
Unquoted
–
113
841
1 435
75
2 570
Total
963
19 407
841
1 435
833
2 701
%
4
74
3
6
3
10
Quoted
1 735
17 195
–
–
515
114
Unquoted
23
203
901
1 332
40
2 421
Total
1 758
17 398
901
1 332
555
2 535
%
7
71
4
5
2
11
21 146
5 034
26 180
100
19 559
4 920
24 479
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. Fixed
income securities represent investments in government and corporate bonds, as well as investments in bond funds, which have quoted
market prices in an active market. Fixed income 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 estaste 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. Private equity and other, includes commodities as well as alternative investments, including derivative financial instruments.
NOKIA IN 2019
175
193
Financial statements
Notes to the consolidated financial statements continued
United States plan assets
United States plan asset target and actual allocation range of the pension and Opeb trust by asset category as of December 31, 2019:
%
Equity securities
Fixed income securities
Real estate
Short-term investments
Private equity and other
Total
Pension target
allocation range
0 – 6
77 – 87
4 – 8
–
6 – 13
Percentage of
plan assets
1
83
5
–
11
Opeb
target allocation
42
14
–
44
–
Percentage of post-
employment plan assets
42
14
–
44
–
100
100
100
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 17/83 between equity, including alternative investments for this
purpose, and fixed income securities.
United States pension plan assets included EUR 0.1 million of Nokia ordinary shares and EUR 0.5 million of Nokia bonds as of
December 31, 2019 (EUR 0.2 million of Nokia ordinary shares and EUR 0.5 million of Nokia bonds in 2018).
Significant events in 2019
Plan amendments
US post-employment medical and dental benefit agreement renewal
In the US, the Group has an existing agreement with two unions, the Communications Workers of America (CWA) and International
Brotherhood of Electrical Workers (IBEW) – to provide post-employment medical and dental benefits and group life insurance coverage
for formerly represented retirees. That agreement originally ran until December 31, 2019. On September 10, 2019, the Group entered
into a new agreement with the CWA and IBEW that extends these benefits for another five years, until December 31, 2024. The new
agreement continues a reduction, of EUR 36 million per year, in the amount of the Group’s financial commitment with respect to these
benefits. As the liability is calculated based upon the Group’s original commitment before the reduction, this reduced subsidy under the
new agreement resulted in an overall reduction of EUR 168 million in the existing obligation, which was recognized as a gain due to plan
amendment offsetting past service costs in the consolidated income statement.
US Mortality Table update
On October 23, 2019, the US Society of Actuaries (SoA) published new base mortality tables applicable to private pension plans
(the Pri-2012 mortality tables) in the US. On the same day, the SoA published a new mortality improvement scale (MP-2019). As a result
of publication of the new base mortality tables and mortality improvement scale, the Group adopted Pri-2012 (“white collar” for
management participants and “blue collar” for occupational participants) and MP-2019 for the valuation of obligations at December 31,
2019. This resulted in a decrease in the pension liability in the US and an actuarial gain of EUR 775 million, which was recognized as
pension remeasurement in the consolidated statement of comprehensive income.
UK Trust Merger and related Pension Increase Exchange (PIE) exercise and pension buy-out
During 2019 a PIE was offered to Lucent pensioners to settle a portion of their future pension liabilities and benefits. The liability of ‘new’
Lucent pensioners whose benefit was not insured earlier was transferred out of the trust, together with the previously insured Lucent
pensioners, through a pension buy-out arrangement, to an insurer. The net impact of these activities resulted in a EUR 140 million
reduction in the defined benefit obligation as at December 31, 2019 and an accounting charge of EUR 4 million in the consolidated
income statement, recognized as past service/settlement costs.
176
NOKIA IN 2019
194
Future cash flows
Contributions
Group contributions to the pension and other post-employment benefit plans are made to facilitate future benefit payments to plan
participants. The funding policy is to meet minimum funding requirements as set forth in the employee benefit and tax laws, as well
as any such additional amounts as the Group may determine appropriate. Contributions are made to benefit plans for the sole benefit
of plan participants. Employer contributions expected to be paid in 2020 total EUR 92 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. For the non-represented, represented
and formerly represented pension plans, the Group does not foresee any future funding requirement for regulatory funding purposes,
given the plans’ asset allocation and the level of assets compared to liabilities.
Post-employment healthcare benefits for both non-represented and formerly union represented retirees’ are capped for those who
retired on or before March 1, 1990. The benefit obligation associated with this group of retirees is approximately 73% of the total
United States retiree healthcare obligation as of December 31, 2019. The US government’s Medicare program is the primary payer
for those aged 65 and older, comprising almost all of uncapped retirees.
Section 420 transfers
Section 420 of the U.S. 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 entire 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. For retirees participating in the non-represented pension plan, the Group
expects, from time to time, to be able to fund some portion of the current retiree group life insurance obligation with Section 420
transfers from the non-represented pension plan’s pension surplus, as funding levels permit.
Section 420 is currently set to expire on December 31, 2025.
Group Contributions
The following table summarizes expected contributions to the Group pension and Opeb plans for 2020 and for the US pension and
post-employment plans until 2029. 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 2019, nor does it expect to make any contributions in 2020. Actual contributions may differ from
expected contributions due to various factors, including performance of plan assets, interest rates, and legislative changes.
EURm
2020
2021
2022
2023
2024
2025-2029
US Pension
US Opeb
Supplemental plans
26
26
25
25
24
110
Non-represented
8
8
7
7
6
23
Other benefit plans
3
3
3
53
56
285
Medicare subsidy
for formerly
union represented(1)
(13)
(12)
(11)
(11)
(10)
(41)
Other
Countries
Total for
Group
55
79
(1) Medicare Subsidy is recorded within other movements in the reconciliation of the present value of the defined benefit obligation.
NOKIA IN 2019
177
195
Financial statements
Notes to the consolidated financial statements continued
Benefit payments
The following table summarizes expected benefit payments from the pension plans and other post-employment benefit plans until 2029.
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 13 million.
EURm
2020
2021
2022
2023
2024
2025-2029
Direct benefit payments
US Pension
US Opeb
Other countries
Total
Management
1 222
1 066
1 019
976
932
4 040
Occupational
290
257
243
230
217
891
Supplemental plans
26
26
25
25
24
110
Formerly union
represented
132
125
110
92
79
442
Non-union
represented
61
61
62
62
62
308
263
269
265
304
275
1 444
1 994
1 804
1 724
1 689
1 589
7 235
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 the Group. Direct benefit payments expected to be paid in 2020 total EUR 102 million.
28. Accrued expenses, deferred revenue and other liabilities
Non-current
EURm
Deferred revenue(1)
Salaries, wages and social charges
Other
Total
Current
EURm
Deferred revenue(1)
Salaries, wages and social charges
VAT and other indirect taxes
Discount accruals(2)
Accrued expenses related to customer projects
Other
Total
2019
615
45
52
712
2019
155
1 236
359
385
496
692
3 323
2018
770
54
28
852
2018
155
1 426
387
604
617
751
3 940
(1) Non-current deferred revenue EUR 615 million (EUR 770 million in 2018) and current deferred revenue EUR 155 million (EUR 155 million in 2018) relates to an IP licensing contract which was
determined to be a completed contract as defined in the transition guidance of IFRS 15, Revenue from Contracts with Customers.
(2) 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.
178
NOKIA IN 2019
196
29. Provisions
EURm
As of January 1, 2018
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
Translation differences
Reclassification(3)
Charged to income statement:
Additional provisions
Changes in estimates
Total charged to income statement
Utilized during year
As of December 31, 2019
(2)
Restructuring
722
2
(18)
Warranty
210
–
–
Litigation Environmental
107
4
(1)
130
(11)
9
Project
losses
76
1
–
Divestment-
related
76
(5)
–
Material
liability
66
2
(1)
289
(51)
238
(451)
493
1
(43)
442
(57)
385
(459)
377
171
(75)
96
(111)
195
–
–
122
(46)
76
(104)
167
32
(9)
23
(42)
109
(1)
(1)
18
(11)
7
(39)
75
11
(3)
8
(10)
108
2
–
32
(8)
24
(7)
–
(10)
(10)
(12)
55
–
–
–
–
–
(5)
127
50
–
(5)
(5)
–
66
1
–
–
(16)
(16)
–
51
81
(51)
30
(25)
72
1
–
79
(38)
41
(33)
81
Other
501
3
11
86
(206)
(120)
(66)
329
–
(9)
76
(58)
18
(57)
Total
1 888
(4)
–
670
(410)
260
(717)
1 427
4
(53)
769
(234)
535
(704)
281
1 209
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.
(1)
(2) The utilization of restructuring provision includes items transferred to accrued expenses, of which EUR 78 million remained in accrued expenses as of December 31, 2019 (EUR 55 million in 2018).
(3) The reclassification in restructuring provisions is based on adoption of IFRS 16, Leases. Refer to Note 3, New and amended standards and interpretations for further details.
As of December 31, 2019, the restructuring provision amounted to EUR 377 million including personnel and other restructuring related
costs, such as real estate exit costs. The provision consists of EUR 343 million global provision related to the announcements on
April 6, 2016 and October 25, 2018 and EUR 34 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. The timing of the project loss provision utilization is typically uncertain.
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.
NOKIA IN 2019
179
197
Financial statements
Notes to the consolidated financial statements continued
Legal matters
A number of Group companies are and will likely continue to be subject to various legal proceedings and investigations that arise from
time to time, including proceedings regarding intellectual property, product liability, sales and marketing practices, commercial disputes,
employment and wrongful discharge, antitrust, securities, health and safety, environmental, tax, international trade, 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.
Securities Class Action
A litigation was filed on April 19, 2019 against the Group and certain executives in the United States relating to allegations of the Group
making false and misleading statements and omissions concerning its progress of integration of Alcatel-Lucent S.A, including compliance
practises identified during the integration process and disclosed in the company’s annual report on Form 20-F on March 21, 2019.
The complaint was subsequently amended to include allegations of the Group making false and misleading statements and omissions
concerning the Group’s readiness for the transition to fifth generation wireless technology.
Intellectual property rights litigation
Daimler litigations
In March 2019, the Group commenced patent infringement proceedings against Daimler in Germany. The Group has asserted 10
Nokia patents relevant to the 3G and 4G cellular standards in three German regional courts against Daimler’s connected cars.
Continental US litigation
In May 2019, Continental Automotive Systems filed a lawsuit in the USA against the Group and three other defendants relating to an
alleged breach of FRAND obligations and a refusal to license component suppliers.
Lenovo
In September and October 2019, the Group commenced patent infringement proceedings against Lenovo in Germany, India and the
United States. Across these actions, there are 19 Nokia patents in suit, covering video coding technologies used in Lenovo’s laptop,
PC and tablet products.
180
NOKIA IN 2019
198
30. Commitments and contingencies
Contractual obligations
Payments due for contractual obligations as of December 31, 2019 by due date:
EURm
Purchase obligations(1)
Within 1 year
1 to 3 years
4 to 5 years
More than 5 years
2 681
176
46
11
Total
2 914
(1) Includes inventory purchase obligations, service agreements and outsourcing arrangements.
Additionally, the Group has committed lease contracts that have not yet commenced as of December 31, 2019. The future lease
payments for these non-cancellable lease contracts are EUR 34 million within five years and EUR 126 million thereafter.
Guarantees and other contingent commitments
EURm
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)
2019
2018
1 721
54
5
303
10
244
1 570
505
25
313
20
314
(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 969 million (EUR 1 041 million in 2018). 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 NGP Capital 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 payments
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
(Gain)/loss on the sale of businesses
Other operating income and expenses
2019
2018
2017
1 660
81
102
397
(65)
(12)
283
140
(4)
45
1 455
68
55
238
(60)
(12)
232
64
24
29
1 591
92
244
522
(121)
(11)
402
937
(5)
25
Total
2 627
2 093
3 676
(1) Includes Continuing and 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 2019, 2018 and 2017.
NOKIA IN 2019
181
199
Financial statements
Notes to the consolidated financial statements continued
32. Principal Group companies
The Group’s significant subsidiaries as of December 31, 2019:
Company name
Nokia Solutions and Networks Oy
Nokia of America Corporation
Nokia Shanghai Bell Co., Ltd(1)
Nokia Technologies Oy
Nokia Solutions and Networks India Private Limited
Nokia Solutions and Networks B.V.
Nokia Solutions and Networks Japan G.K.
Alcatel-Lucent International SA
Nokia Solutions and Networks Branch Operations Oy
Alcatel Submarine Networks SAS
Nokia Solutions and Networks do Brasil Telecomunicações Ltda.
Alcatel-Lucent Participations SA
Nokia Solutions and Networks Korea Ltd.
Nokia Spain, S.A.
Nokia UK Limited
Nokia Canada Inc.
Nokia Solutions and Networks Italia S.p.A.
Nokia Solutions and Networks GmbH & Co. KG
Nokia Solutions and Networks Australia Pty Ltd
PT Nokia Solutions and Networks Indonesia
Alcatel Lucent SAS
Nokia Solutions and Networks Taiwan Co., Ltd.
Country of incorporation
Finland
United States
China
Finland
India
Netherlands
Japan
France
Finland
France
Brazil
France
South Korea
Spain
United Kingdom
Canada
Italy
Germany
Australia
Indonesia
France
Taiwan
Parent
holding
%
100.0
–
–
100.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Group ownership
interest
%
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
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 Group 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.
182
NOKIA IN 2019
200
33. Significant partly-owned subsidiaries
The Group holds an ownership interest of 50% plus one share in Nokia Shanghai Bell’s parent company, Nokia Shanghai Bell Co., Ltd.,
with China Huaxin Post & Telecommunication Economy Development Center (China Huaxin) holding the remaining ownership interests.
In 2017, the Group entered into a contractual arrangement providing 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. To reflect this, the Group derecognized the non-controlling interest balance related to Nokia
Shanghai Bell and recognized a financial liability based on the estimated future cash settlement.
The financial liability is measured based on the expected future cash settlement to acquire the non-controlling interest in Nokia Shanghai
Bell. The Group recognized an interest expense of EUR 19 million in 2019 (EUR 39 million in 2018) to reflect the recognition of the
present value discount on the financial liability up to the commencement of the put option exercise period in July 2019. 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 64 million gain (EUR 6 million in 2018) in financial income and expenses. As of December 31, 2019, the expected
future cash settlement amounted to EUR 639 million (EUR 693 million in 2018).
Financial information for the Nokia Shanghai Bell Group(1):
EURm
Summarized income statement
Net sales(2)
Operating (loss)/profit
(Loss)/profit for the year
(Loss)/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(3)
Summarized statement of cash flows
Net cash from/(used in) operating activities
Net cash used in investing activities
Net cash from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
2019
2018
2 013
(26)
(47)
(47)
–
651
(192)
459
2 669
(1 637)
1 032
1 491
–
125
(87)
38
76
2 518
54
25
25
–
600
(127)
473
3 340
(2 209)
1 131
1 604
–
(103)
(92)
(63)
(258)
(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 100 million (EUR 268 million in 2018) net sales to other Group entities.
(3) Based on the contractual arrangement with China Huaxin, the Group does not recognize any non-controlling interest in Nokia Shanghai Bell.
(4) Includes a total of EUR 819 million (EUR 738 million in 2018) 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.
34. Investments in associated companies and joint ventures
EURm
Net carrying amount as of January 1
Translation differences
Additions
Impairments
Share of results
Dividends
Net carrying amount as of December 31
Shareholdings in associated companies and joint ventures comprise investments in unlisted companies.
NOKIA IN 2019
201
2019
145
3
13
(2)
12
(6)
165
2018
128
4
2
–
12
(1)
145
183
Financial statements
Notes to the consolidated financial statements continued
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 2018) 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.
In 2019, the Group granted a convertible loan of EUR 60 million to HMD. The loan is provided for a maximum three-year term and bears
an interest at the rate of 6% per annum. The loan agreement contains both mandatory equity conversion clauses triggered by potential
HMD executed transactions, as well as a call option, held by the Group, to convert the loan into shares under certain circumstances.
If converted to shares, the equity investment will be accounted for as an investment in associated companies using the equity-method.
The loan is included in the other non-current financial assets in the consolidated statement of financial position.
Transactions with associated companies, joint ventures and other entities where the Group has significant influence
EURm
Share of results
Dividend income
Share of shareholders’ equity
Sales
Purchases
Trade Receivables
Trade Payables
2019
12
6
165
153
(193)
22
(38)
2018
12
1
145
167
(159)
58
(32)
2017
11
1
128
117
(252)
41
(19)
The Group has a financing commitment of EUR 10 million (EUR 20 million in 2018) to 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
2019
1 300 000
637 163
2 265 547
353 846
4 556 556
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
(1) Represents the expense for all outstanding equity grants recorded during the year.
Total remuneration awarded to the Group Leadership Team for their time as members of the Group Leadership Team:
EURm
Short-term benefits
Post-employment benefits(1)
Share-based payments
Termination benefits(2)
Total
2019
24
1
8
–
33
2018
23
1
6
5
35
2017
22
1
7
4
34
(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.
184
NOKIA IN 2019
202
Board of Directors’ compensation
The annual remuneration paid to the members of the Board of Directors, as decided by the Annual General Meetings in the
respective years:
Risto Siilasmaa, Chair
Sari Baldauf, Vice Chair(3)
Bruce Brown(4)
Jeanette Horan(5)
Louis R. Hughes(6)
Edward Kozel(7)
Jean C. Monty
Elizabeth Nelson(8)
Olivier Piou(9)
Søren Skou(10)
Carla Smits-Nusteling(11)
Kari Stadigh(12)
Total
2019
2018
2017
Gross annual
fee(1)
EUR
440 000
197 000
217 000
197 000
22 000
215 000
–
200 000
189 000
160 000
210 000
172 000
Shares
received(2)
number
38 675
16 261
16 700
15 382
–
17 140
–
15 382
15 382
14 063
16 700
14 063
Gross annual
fee(1)
EUR
440 000
160 000
214 000
195 000
199 000
217 000
14 000
192 000
196 000
–
206 000
170 000
Shares
received(2)
number
34 749
12 636
15 005
13 820
13 820
15 400
–
13 820
14 610
–
15 005
12 636
Gross annual
fee(1)
EUR
440 000
–
209 000
175 000
194 000
175 000
174 000
207 000
199 000
–
195 000
170 000
Shares
received(2)
number
30 497
–
13 169
12 129
12 129
12 129
11 090
13 169
12 823
–
12 129
11 090
2 219 000
2 203 000
2 138 000
(1) The meeting fees for the term that ended at the close of the Annual General meeting in 2019 were paid in cash in 2019 and are included in the table. The meeting fees for the current term
as resolved by the Annual General Meeting in 2019 will be paid in cash in 2020 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 12 000.
(4) 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 27 000.
(5) Consists of EUR 160 000 for services as a member of the Board and EUR 15 000 for services as member of the Audit Committee and meeting fees of EUR 22 000.
(6) Served as a member of the Board until the Annual General Meeting 2019. No annual fee was paid to him during financial year 2019, but he received the annual fee for the term until the
Annual General Meeting 2019 in the financial year 2018 including meeting fees of EUR 22 000.
(7) 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 member of the Audit
Committee and meeting fees of EUR 20 000.
(8) 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 25 000.
(9) 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 14 000.
(10) Consists of EUR 160 000 for services as a member of the Board.
(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 20 000.
(12) Consists of EUR 160 000 for services as a member of the Board and meeting fees of EUR 12 000.
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 2019, 2018 or 2017.
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.
Rajeev Suri will leave his current position as President and CEO on August 31, 2020. Nokia’s Board of Directors has appointed
Pekka Lundmark as President and CEO of Nokia and he is expected to start in his new role on September 1, 2020.
NOKIA IN 2019
185
203
Financial statements
Notes to the consolidated financial statements continued
36. Financial risk management
General risk management principles
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,
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 and interest rate 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 (refer to interest rate risk section below).
186
NOKIA IN 2019
204
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:
EURm
USD
GBP
CNY
INR
2019
Foreign exchange exposure designated as hedged item for cash flow hedging, net(1)
Foreign exchange exposure designated as hedged item for fair value hedging for FX risk, net(2)
Foreign exchange exposure designated as hedged item for net investment hedging, net(3)
Foreign exchange exposure from interest-bearing liabilities, net(4)
Foreign exchange exposure from items on the statement of financial position, excluding
interest-bearing liabilities, net
Other foreign exchange derivatives, carried at fair value through profit and loss, net(5)
2018
Foreign exchange exposure designated as hedged item for cash flow hedging, net(1)
Foreign exchange exposure designated as hedged item for fair value hedging for FX risk, net(2)
Foreign exchange exposure designated as hedged item for net investment hedging, net(3)
Foreign exchange exposure from interest-bearing liabilities, net(4)
Foreign exchange exposure from items on the statement of financial position, excluding
628
423
2 547
(1 314)
379
(70)
93
–
–
–
981
–
–
–
346
–
(2 855)
2 607
(81)
86
(868)
711
(294)
346
952
314
2 486
(1 800)
374
(93)
61
–
–
–
944
–
–
–
544
–
interest-bearing liabilities, net
Other foreign exchange derivatives, carried at fair value through profit and loss, net(5)
(2 446)
1 690
(63)
102
(978)
886
(299)
596
(1) Includes foreign exchange exposure from forecasted cash flows related to sales and purchases. In some currencies, especially the US dollar, the Group has substantial foreign exchange
exposures in both estimated cash inflows and outflows. These underlying exposures have been hedged.
(2) Includes foreign exchange exposure from contractual firm commitments. These underlying exposures have been substantially hedged.
(3) Includes net investment exposures in foreign operations. These underlying exposures have been hedged.
(4) Includes interest-bearing liabilities that have been hedged with cross currency swaps and foreign exchange forwards. Refer to Note 23, Interest-bearing liabilities.
(5) Items on the statement of financial position are hedged by a portion of foreign exchange derivatives not designated in a hedge relationship and carried at fair value through profit and loss.
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 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.
The VaR figures for the Group’s financial instruments which are sensitive to foreign exchange risks are presented in the Total VaR column
and the simulated impact to financial statements presented in profit, other comprehensive income (OCI) and cumulative translation
adjustment (CTA) columns in the table below.
2019
2018
EURm
As of December 31
Average for the year
Range for the year
Total VaR
8
11
7-25
Simulated impact on financial statements
CTA
–
1
0-4
OCI
18
22
13-31
Profit
10
10
4-17
Simulated impact on financial statements
Total VaR
16
14
5-24
Profit
21
18
7-27
OCI
33
38
25-58
CTA
6
5
0-8
NOKIA IN 2019
187
205
Financial statements
Notes to the consolidated financial statements continued
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 items under interest rate risk management including the Group’s net cash and current financial investments as well
as related derivatives as of December 31:
EURm
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
2019
Fixed rate
4
80
(3 872)
(3 788)
1 197
(2 591)
Floating rate(1)
93
5 830
(405)
5 518
(1 197)
4 321
2018
Fixed rate
145
497
(3 612)
(2 970)
2 332
Floating rate(1)
466
5 765
(208)
6 023
(2 332)
(638)
3 691
(1) All cash equivalents and derivative transaction related collaterals with initial maturity of three months or less are considered floating rate for the purposes of interest rate risk management.
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. Sensitivities to credit spreads
are not reflected in the numbers.
The Group’s sensitivity to interest rate exposure in the investment and debt portfolios is presented in the fair value column in the table
below with simulated impact to financial statements presented in profit and OCI columns.
EURm
Interest rates – increase by 100 basis points
Interest rates – decrease by 50 basis points
Impact on
fair value
112
(58)
2019
Impact
on profit
1
(1)
Impact
on OCI
2
(1)
Impact on
fair value
34
(17)
2018
Impact
on profit
3
(1)
Impact
on OCI
4
(2)
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,
refer to Note 2, Significant accounting policies. The effect of these programs on the Group’s financial position and performance as
of December 31:
EURm
2019
Carrying amount of hedging instruments
Notional amount of hedging instruments
Notional amount of hedged items
Change in intrinsic value of hedging instruments since 1 January
Change in value of hedged items us
ed to determine hedge effectiveness
2018
Carrying amount of hedging instruments
Notional amount of hedging instruments
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)
Net investment
hedges (FX
forwards and
options)(1)
Fair value
hedges (FX
forwards)(1)
Fair value and
cash flow
hedges (IR
swaps and cross
currency
swaps)(1),(2)
(10)
(1 029)
1 043
(31)
32
(13)
(1 451)
1 451
(44)
45
34
(4 106)
4 106
(51)
51
(11)
(4 129)
4 129
(83)
83
1
(348)
351
(4)
3
(4)
(226)
231
(13)
17
(51)
1 246
(1 246)
132
(133)
(46)
2 330
(2 330)
9
(7)
(1) No significant ineffectiveness has been recorded during the periods presented and economic relationships have been fully effective
(2) In 2019 change in fair value of hedging instruments in the income statement includes an additional EUR 9 million positive impact from cost of hedging of discontinued hedge relationships,
refer to Note 11, Financial income and expenses and Note 23, Interest-bearing liabilities.
188
NOKIA IN 2019
206
The most significant foreign exchange hedging instruments under cash flow, net investment and fair value hedge accounting as of
December 31:
2019
Cash flow hedge accounting
Currency
Instrument
Fair value
(EURm)
Maturity breakdown of net notional amounts (EURm)(1)
Between
3 and 12
months
Within
3 months
Total
Weighted average
hedged rate
GBP
GBP
JPY
KRW
KRW
PLN
USD
USD
CNY
INR
USD
FX Forwards
FX Options
FX Forwards
FX Forwards
FX Options
FX Forwards
FX Forwards
FX Options
FX Forwards
FX Forwards
FX Forwards
(8)
0.8780
1
0.9058
122.1697
(2)
(1) 1 310.0412
1 336.2500
0
4.2926
2
1.1171
0
1.1489
0
(207)
(172)
(167)
(129)
(46)
139
(280)
(125)
(53)
(40)
(44)
(15)
(31)
45
0
(67)
0
6
28
7.8003
78.4807
1.1076
(981)
(346)
(2 547)
(981)
(346)
(2 547)
(126)
(99)
(123)
(114)
(15)
94
(280)
(58)
–
–
–
Net investment hedge accounting
Beyond
1 year
(28)
(33)
–
–
–
–
–
–
–
–
–
Fair value hedge accounting for FX risk
USD
FX Forwards
0
1.1082
(423)
(171)
(270)
18
2018
Cash flow hedge accounting
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
3
7
(4)
1
(19)
2
4
(15)
(2)
1
0.8866
0.9064
130.0618
4.2966
1.1653
1.2029
(184)
(191)
(150)
149
(655)
(297)
(38)
(48)
(51)
46
(140)
(87)
7.8333
81.5362
1.1414
1.1703
(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 the impact of hedge accounting on equity, refer to Note 21, Fair value and other reserves. 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. For information on derivative instruments, refer to Note 25, Derivative financial instruments.
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.
NOKIA IN 2019
189
207
Financial statements
Notes to the consolidated financial statements continued
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.
The Group applies a simplified approach to recognizing a loss allowance on trade receivables and contract assets 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 2019 and 2018, 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 4.6%, 4.3% and 3.8% (4.2%, 3.7% and 3.5% in 2018) of trade receivables, contract assets and loans due from customers
and other third parties as of December 31, 2019. The top three credit exposures by country account for approximately 12.4%, 11.4%
and 9.7% (16.2%, 11.0% and 7.9% in 2018) of the Group’s trade receivables, contract assets and loans due from customers and other
third parties as of December 31, 2019. The 12.4% credit exposure relates to trade receivables in China (16.2% in 2018).
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 6 936 million (EUR 7 112 million in 2018) as of December 31, 2019.
The aging of trade receivables, contract assets and customer finance loans is as of December 31:
EURm
As of December 31, 2019
Trade receivables
Contract assets
Customer financing related loan receivables
Total
As of December 31, 2018
Trade receivables
Contract assets
Customer financing related loan receivables
Total
Current
Past due
1-30 days
Past due
31-180 days
Past due
More than 180 days
4 364
1 489
224
6 077
4 224
1 875
186
6 285
156
–
–
156
243
–
–
243
306
–
17
323
300
–
–
300
345
–
35
380
284
–
–
284
Total
5 171
1 489
276
6 936
5 051
1 875
186
7 112
190
NOKIA IN 2019
208
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
The Group’s exposure to credit risk related to customer and vendor financing as of December 31:
EURm
Loan commitments given undrawn
Outstanding customer financing related loan receivables
Total
2019
195
41
(89)
147
2018
192
86
(83)
195
2019
303
276
579
2017
168
61
(37)
192
2018
313
186
499
For customer and vendor financing related loan receivables, 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.
Loss allowance for customer and vendor financing related loan receivables was EUR 76 million in 2019 (EUR 7 million in 2018). The
movement of EUR 69 million in loss allowance balance is mainly due to an impairment related to a certain emerging market customer,
refer to Note 17, Impairment.
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.
NOKIA IN 2019
191
209
Financial statements
Notes to the consolidated financial statements continued
Outstanding current financial investments, cash equivalents and cash classified by credit rating grades ranked in line with Standard &
Poor’s rating categories as of December 31:
EURm
2019
Total
2018
Total
Rating(1)(2)
AAA
AA+ - AA-
A+ - A-
BBB+ - BBB-
BB+ - BB-
B+ - B-
Non-rated
AAA
AA+ - AA-
A+ - A-
BBB+ - BBB-
BB+ - BB-
B+ - B-
Non-rated
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
–
663
2 007
445
8
22
100
3 245
–
762
1 718
373
6
24
260
3 143
800
143
1 377
360
–
–
3
2 683
317
176
1 930
427
–
18
10
2 878
–
–
20
13
–
–
1
34
–
3
310
189
–
–
3
505
–
–
20
–
–
–
–
20
–
–
140
–
–
–
–
140
–
–
25
–
–
–
–
25
–
–
207
–
–
–
–
207
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total(3)(4)
800
806
3 449
818
8
22
104
6 007
317
941
4 305
989
6
42
273
6 873
(1) Bank Parent Company ratings are used here for bank groups. Actual bank subsidiary ratings may differ from the Bank Parent Company rating.
(2) Credit rating grades for 2018 previously ranked in line with Moody’s rating categories have been adjusted according to the Standard & Poor’s rating categories.
(3) Current financial investments and cash equivalents include bank deposits, structured deposits, investments in money market funds and investments in fixed income instruments.
(4) Instruments that include a call feature have been presented at their final maturities. Instruments that are contractually due beyond 3 months include EUR 77 million (EUR 472 million in 2018)
of instruments that have a call period of less than 3 months.
The Group has restricted bank deposits primarily related to employee benefits of EUR 126 million (EUR 158 million in 2018) that are
presented in other non-current financial assets. The Group has assessed the counterparty credit risk for these financial assets and
concluded that expected credit losses are not significant.
Financial assets and liabilities subject to offsetting under enforceable master netting agreements and similar arrangements as of
December 31:
EURm
2019
Derivative assets
Derivative liabilities
Total
2018
Derivative assets
Derivative liabilities
Total
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
Gross amounts of
financial assets/
(liabilities)
Related amounts not set off in the
statement of financial position
Financial
instruments
Cash collateral
assets/(liabilities)
received/(pledged) Net amount
81
(157)
(76)
131
(178)
(47)
–
–
–
–
–
–
81
(157)
(76)
131
(178)
(47)
76
(83)
(7)
104
(103)
1
–
(37)
(37)
15
(72)
(57)
5
(37)
(32)
12
(3)
9
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.
192
NOKIA IN 2019
210
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 primarily in highly liquid
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. Refer to Note 23, Interest-bearing liabilities.
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 as well as contingent financial assets and liabilities, such as loan commitments. The line-by-
line analysis does not directly reconcile with the consolidated statement of financial position.
EURm
2019
Non-current financial assets
Other non-current financial assets
(1)
Current financial assets
Other current financial asse
Current financial investments
Cash and cash equivalents
Cash flows related to derivative
Derivative contracts – receipts
Derivative contracts – payments
(3)
ts excluding derivatives(2)
financial assets gross settled:
Trade receivables
Non-current financial liabilities
Long-term interest-bearing liabilities
Long-term lease liabilities(4)
Current financial liabilities
Short-term interest-bearing liabilities
Short-term lease liabilities
Other financial liabilities excluding derivatives
Cash flows related to derivative financial liabilities gross settled:
(5)
(4)
Derivative contracts – receipts
Derivative contracts – payments
Trade payables
Contingent financial assets and liabilities
Loan commitments given undrawn
Loan commitments obtained undrawn
Leases committed but not yet commenced(4)
(6)
(7)
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
252
–
3
115
53
97
5 913
21
95
5 835
32
2
33
9 660
(9 639)
5 019
7 582
(7 548)
3 873
1 993
(2 005)
1 088
–
–
20
85
(86)
58
54
–
–
25
–
–
–
80
–
–
–
–
–
–
(4 990)
(841)
(43)
–
(75)
–
(1 209)
(375)
(1 113)
(251)
(2 550)
(215)
(294)
(276)
(646)
(212)
(81)
(638)
11 725
(11 517)
(3 786)
9 003
(9 078)
(3 653)
(303)
1 971
(160)
(32)
499
–
(82)
(195)
(8)
828
(808)
(111)
(77)
(4)
–
–
–
–
616
(569)
(21)
(194)
(11)
(11)
–
–
–
86
(43)
(1)
–
(11)
(23)
–
–
–
1 192
(1 019)
–
–
1 498
(126)
(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. Convertible instruments are presented at their final contractual maturities.
(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. Instruments that are contractually due beyond 3 months include EUR 77 million of instruments that have
a call period of less than 3 months.
(4) As a result of adoption of IFRS 16, Leases, in the beginning of 2019, lease liabilities and leases committed but not yet commenced are presented in the liquidity risk table in 2019.
(5) Other financial liabilities include a conditional obligation to China Huaxin presented in the earliest period as the exercise period is open.
(6) Loan commitments given undrawn have been included in the earliest period in which they could be drawn or called.
(7) Loan commitments obtained undrawn have been included based on the period in which they expire. These amounts include related commitment fees.
NOKIA IN 2019
193
211
Financial statements
Notes to the consolidated financial statements continued
EURm
2018
Non-current financial assets
Other non-current financial assets(1)
Current financial assets
Other current financial assets excluding derivatives(2)
Current financial investments
Cash and cash equivalents(3)
Cash flows related to derivative financial assets net settled:
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
97
612
6 271
35
231
5 796
62
381
125
–
–
142
–
–
208
–
–
–
9
Derivative contracts – receipts
22
3
(6)
8
8
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(4)
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(5)
Loan commitments obtained undrawn(6)
11 428
(11 093)
4 851
9 506
(9 463)
3 998
1 017
(1 008)
774
151
(124)
79
46
(17)
–
708
(481)
–
(3 916)
(28)
(72)
(730)
(604)
(2 482)
(1 024)
(731)
(470)
–
(554)
(731)
12 251
(12 236)
(4 773)
9 863
(9 944)
(4 645)
1 335
(1 347)
(104)
–
–
68
(20)
(23)
(313)
2 323
(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. 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) Other financial liabilities include a conditional obligation to China Huaxin based on the beginning of the exercise period.
(5) Loan commitments given undrawn have been included in the earliest period in which they could be drawn or called.
(6) 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
Financing transactions
On February 24, 2020, the Group drew a loan of EUR 500 million from European Investment Bank (EIB). The loan facility agreement was
signed in August 2018 and the loan will mature in February 2025.
Change of President and Chief Executive Officer
On March 2, 2020 Nokia’s Board of Directors appointed Pekka Lundmark as President and Chief Executive Officer of Nokia and he is
expected to start in his new role on September 1, 2020. Rajeev Suri will leave his current position as President and Chief Executive Officer
on August 31, 2020 and continue to serve as an advisor to the Nokia Board until January 1, 2021.
194
NOKIA IN 2019
212
Parent Company income statement
For the year ended December 31
Net sales(1)
Cost of sales
Gross profit
Selling, general and administrative expenses
Other operating income
Other operating expenses
Operating profit
Financial income and expenses
Interest and other financial income
Interest and other financial expenses
Total financial income and expenses
Profit before appropriations and tax
Appropriations
Group contributions
(Loss)/profit before tax
Income tax
(Loss)/profit for the year
Notes
4
4
5
5
6
7
2019
EURm
246
(11)
235
(46)
12
(34)
167
391
(260)
131
298
(390)
(92)
17
(75)
2018
EURm
689
(7)
682
(50)
6
(10)
628
348
(241)
107
735
(332)
403
(243)
160
(1) Nokia Technologies segment net sales. In 2018, net sales included certain licence revenue that in 2019 is recognized in another Finnish legal entity within Nokia Group due to certain
internal reorganizations.
The notes are an integral part of these financial statements.
195
NOKIA IN 2019
195
Financial statements
Parent Company statement
of financial position
As of December 31
ASSETS
Non-current assets
Intangible assets
Intangible rights
Total intangible assets
Tangible assets
Land and water areas
Buildings
Machinery and equipment
Other tangible assets
Assets under construction
Total tangible assets
Investments
Investments in subsidiaries
Investments in associated companies
Non-current financial investments
Total investments
Other non-current assets
Non-current loan receivables from Group companies
Non-current loan receivables from other companies
Other non-current receivables
Deferred tax assets
Total other non-current assets
Total non-current assets
Current assets
Accounts receivable from Group companies
Accounts receivable from other companies
Current loan receivables from Group companies
Group contribution receivables from Group companies
Other financial assets from Group companies
Other financial assets from other companies
Prepaid expenses and accrued income from Group companies
Prepaid expenses and accrued income from other companies
Current financial investments
Total current assets
Cash and cash equivalents
Total assets
The notes are an integral part of these financial statements.
Notes
2019
EURm
2018
EURm
2
2
8
71
1
11
14
105
18 633
1
1
18 635
2 915
7
43
43
3 008
21 750
336
7
8 427
–
53
80
83
665
43
9 694
2 908
2
2
7
85
2
12
1
107
18 590
1
22
18 613
3 275
7
63
24
3 369
22 091
223
11
5 678
443
64
117
93
663
489
7 781
3 204
34 352
33 076
8
8
8
8
8
9
9
9, 14
14
14
14
14, 15
14, 15
10
10
14
14
196
196
NOKIA IN 2019
As of December 31
SHAREHOLDERS’ EQUITY AND LIABILITIES
Capital and reserves
Share capital
Share issue premium
Treasury shares
Fair value and other reserves
Reserve for invested unrestricted equity
Retained earnings
(Loss)/profit for the year
Total equity
Provisions
Non-current liabilities
Long-term interest-bearing liabilities
Advance payments from other companies
Total non-current liabilities
Current liabilities
Short-term interest-bearing liabilities to Group companies
Short-term interest-bearing liabilities to other companies
Group contribution liabilities to Group companies
Other financial liabilities to Group companies
Other financial liabilities to other companies
Advances received from other companies
Accounts payable to Group companies
Accounts payable to other companies
Accrued expenses and other liabilities to Group companies
Accrued expenses and other liabilities to other companies
Total current liabilities
Total liabilities
Total shareholders’ equity and liabilities
The notes are an integral part of these financial statements.
Notes
2019
EURm
2018
EURm
11
11
11, 12
11, 12, 13
11, 12
11, 12
11, 12
16
14, 17
14, 17
14, 17
14
14
18
18
246
46
(344)
–
15 199
2 038
(75)
17 110
55
3 714
615
4 329
10 997
5
390
70
782
155
301
35
42
81
12 858
17 187
34 352
246
46
(401)
(2)
15 197
2 439
160
17 685
68
2 558
770
3 328
8 938
754
775
64
784
155
362
29
39
95
11 995
15 323
33 076
197
NOKIA IN 2019
197
Financial statements
Parent Company statement
of cash flows
For the year ended December 31
Cash flow from operating activities
(Loss)/profit for the year
Adjustments, total
Change in net working capital
(Increase)/decrease in accounts receivable
Decrease in non-interest-bearing short-term liabilities
Decrease in non-interest-bearing long-term liabilities
Cash from operations
Interest received
Interest paid
Other financial income and expenses paid, net
Income taxes paid, net
Net cash from operating activities
Cash flow from investing activities
Purchase of shares in subsidiary companies and current financial investments
Purchase of property, plant and equipment and intangible assets
Proceeds from disposal of shares and business
Proceeds from sale of property, plant and equipment and other intangible assets
Payments of/(proceeds from) other non-current receivables
(Proceeds from)/payments of current receivables
Purchase of current investments
Proceeds from current investments
Net cash from/(used in) investing activities
Cash flow from financing activities
Stock option exercise
Proceeds from long-term borrowings
Proceeds from/(payments of) short-term borrowings
Dividends paid
Group contributions, net
Net cash (used in)/from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents as of January 1
Cash and cash equivalents as of December 31
The notes are an integral part of these financial statements.
Notes
21
2019
EURm
(75)
187
(21)
(92)
(155)
(156)
237
(6)
91
(3)
163
(43)
(14)
–
–
394
(2 328)
–
447
(1 544)
–
970
1 007
(560)
(332)
1 085
(296)
3 204
2 908
2018
EURm
160
665
262
(360)
(155)
572
213
(116)
151
(155)
665
(1)
(1)
1
1
(1 370)
4 085
(1 905)
2 224
3 034
1
5
(2 818)
(1 063)
(264)
(4 139)
(440)
3 644
3 204
198
198
NOKIA IN 2019
Notes to the Parent Company financial statements
1. Accounting principles
Basis of presentation
The Parent Company (Nokia Corporation) financial statements are
prepared in accordance with the Finnish Accounting Standards (FAS).
The Parent Company is responsible for arranging group internal
financing. Changes in the internal and external financing needs
arising from changes in operative and organizational models
affect the Parent Company’s financial position.
The Parent Company’s financial statements includes
Switzerland branch.
Revenue recognition
The Parent Company provides its customers with licenses to
intellectual property (IP) by granting customers with rights to use
the Parent Company’s IP in their products.
When the Parent Company grants customers with rights to
use IP in their products, 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 the licensed assets during the contract
term, and therefore revenue is recognized pro rata over the
period during which the Parent Company 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 Parent Company’s
satisfaction of the performance obligation as the IP being licensed
towards the customer includes new inventions patented by the
Parent Company that are highly interdependent and interrelated
and created through the course of continuous R&D efforts that
are relatively stable throughout the year. In some contracts,
the Parent Company 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.
Foreign currency translation
Monetary assets and liabilities denominated in foreign currency
are valued at the exchange rates prevailing at the end of the
reporting period.
Share-based payments
The Parent Company offers three types of equity-settled share-
based compensation plans for employees: performance shares,
restricted shares and the employee share purchase plan. Share-
based compensation is recognized as an expense in the income
statement when the shares are delivered. The settlement covers
taxes and similar charges occurred.
Pensions
Contributions to pension plans are expensed in the income
statement in the period to which the contributions relate.
Pension expenses are reported according to the local legislation.
Intangible assets and property, plant and equipment
Intangible assets are stated at cost less accumulated amortization
according to plan. Property, plant and equipment is stated at cost
less accumulated depreciation according to plan. Depreciation and
amortization according to plan is recorded on a straight-line basis
over the expected useful lives of the assets as follows:
Intangible assets
Buildings
Machinery and equipment
3–7 years
20–33 years
1–10 years
Land and water areas are not depreciated. The accumulated
depreciation and amortization according to plan comply with the
Finnish Business Tax Act.
Classification and measurement of financial instruments
For the presentation of the financial instruments, where applicable,
the Parent Company applies fair value measurement in accordance
with the Finnish Accounting Standards (Accounting Act 5:2a §),
and thus applies same accounting principles as the Group.
Classification and measurement of financial assets
The Parent Company classifies its financial assets into the following
categories: financial assets measured at amortized cost, financial
assets measured at fair value through fair value reserve and
financial assets measured at fair value through profit and loss.
The selection of the appropriate category is made based on both
the Parent Company’s business model for managing the financial
asset and on the contractual cash flow characteristics of the asset.
The 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 fair
value reserve 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 Parent Company commits to
purchase or sell the asset.
199
NOKIA IN 2019
199
Financial statements
Notes to the Parent Company financial statements continued
Other financial assets
Loan receivables include loans to Group companies and third
parties and are measured at nominal value and not in excess of
their probable value. Loans are subject to quarterly review as to
their collectability and available collateral. An allowance is made
if a loan is deemed not to be fully recoverable. The related cost
is recognized in other expenses or financial expenses, depending
on the nature of the receivable to reflect the shortfall between the
carrying amount and the present value of the expected future cash
flows. Interest income on loan receivables is recognized in financial
income and expenses.
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.
Impairment
Impairment requirements apply to the recognition of a loss
allowance for expected credit losses. on financial assets
measured at amortized cost, financial assets measured at fair
value through fair value reserve, financial guarantee contracts
and loan commitments. Parent company continuously assesses
its financial instruments on a forward-looking basis and accounts
for the changes in expected credit losses on a quarterly basis.
Refer to Note 2, Significant accounting policies in the consolidated
financial statements.
Classification and measurement of financial liabilities
The Parent Company 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. In accordance with the Finnish Accounting Standards
(Accounting Act 5:2a §), the Parent Company classifies derivative
liabilities at fair value through profit and loss and all other financial
liabilities at nominal value.
Interest-bearing liabilities
Interest-bearing liabilities, including current part of long-term
interest-bearing liabilities and collaterals for derivative
transactions, are measured at nominal value. Transaction costs
are initially recognized as accruals and amortized to the income
statement over the life of the instrument. Foreign exchange gains
and losses as well interest are recognized in financial income and
expenses in the income statement over the life of the instrument.
Accounts payable
Accounts payable are carried at invoiced amount.
Accounts receivable
Accounts receivable include amounts invoiced to customers as
well as amounts where the revenue recognition criteria have been
fulfilled but the customers have not yet been invoiced. Accounts
receivable are carried at the original amount invoiced to customers
less loss allowances on accounts receivable accounts. Loss
allowances on accounts receivable are based on a regular review
of all outstanding amounts, including an analysis of historical bad
debt, customer concentrations, customer creditworthiness, past
due amounts, current economic trends and changes in customer
payment terms. Impairment charges on receivables identified as
uncollectible are included in other operating expenses.
Investments
Investments in subsidiaries are stated at cost less accumulated
impairment. Non-current financial investments primarily include
technology-related investments in unlisted private equity shares
and unlisted venture funds which 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 Parent Company 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 income statement.
Current financial investments primarily consist of highly liquid,
interest-bearing investments, such as fixed-income and money-
market investments that are readily convertible to known amounts
of cash with maturities at acquisition of longer than three months.
These investments have characteristics of solely payments of
principal and interest and are not part of a structured investments.
They 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 fair value
reserve. 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.
Investments in money-market funds that do not qualify as cash
equivalents as well as fixed income and money-market securities
having initial maturities over three months that are held for trading
or are included in investment structures consisting of securities
traded in combination with derivatives are classified as fair value
through profit and loss. Investments in this portfolio are executed
with the main purpose of collecting contractual cash flows,
principal repayments and capital appreciation and they can be
sold at any time.
Current financial investments also include term deposits used
as collaterals for derivative transactions. These investments
are initially measured at fair value and in subsequent periods
measured at amortized cost. Interest income as well as foreign
exchange gains and losses are recognized in financial income
and expenses in the income statement.
200
200
NOKIA IN 2019
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.
Derivatives not designated in hedge accounting relationships
carried at fair value through profit and loss
Forward foreign exchange contracts are valued using the forward
exchange rate of the statement of financial position date. Changes
in fair value are measured by comparing these rates with the
original contract-forward rate. Currency options are valued using
the Garman & Kohlhagen option valuation model on the statement
of financial position date. Changes in fair value are recognized in
the income statement.
The Parent Company’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 income statement.
The Parent Company 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 equity. If a hedge relationship no longer meets the criteria for
hedge accounting, hedge accounting ceases, cost of hedging
recorded in cost of hedging reserve is immediately expensed
and any fair value adjustments made to the carrying amount of
the hedged item while the hedge was effective are recognized
in financial income and expenses in the income statement based
on the effective interest method.
Fair values of forward rate agreements, interest rate options,
futures contracts and exchange-traded options are calculated
based on quoted market rates at each statement of financial
position date. Discounted cash flow method is used to value
interest rate and cross-currency swaps. Changes in fair value
are recognized in the income statement.
Interest income or expense on interest rate derivatives is accrued
in the income statement during the financial year.
Hedge accounting
The Parent Company may apply hedge accounting on certain
forward foreign exchange contracts, certain options or option
strategies, and interest rate derivatives. Qualifying options and
option strategies have zero net premium or a net premium paid.
For option structures, the critical terms of the bought and sold
options are the same and the nominal amount of the sold option
component is no greater than that of the bought option.
The Parent Company applies fair value hedge accounting to reduce
exposure to fair value fluctuations of interest-bearing liabilities
due to changes in interest rates and foreign exchange rates.
Interest rate swaps and cross currency swaps are used aligned
with the hedged items to hedge interest rate risk and associated
foreign exchange risk.
The Parent Company 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
Parent Company 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 equity.
Deferred tax
Deferred tax liabilities and deferred tax assets are calculated for
temporary differences between book values and tax bases using
an enacted or substantively enacted tax rate at each statement
of financial position date that are expected to apply in the period
when the asset is realized or the liability is settled. Non-current
and current deferred tax liabilities and deferred tax assets are
presented separately on statement of financial position. Deferred
tax assets are recognized at the probable amount estimated to be
received. Deferred tax assets and deferred tax liabilities are offset
for presentation purposes, because the Parent Company has a
legally enforceable right to set off current tax assets against
current tax liabilities.
Presentation alignment
Presentation of prior year balances has been aligned to
ensure comparability.
201
NOKIA IN 2019
201
Financial statements
Notes to the Parent Company financial statements continued
2. Personnel expenses
EURm
Salaries and wages
Share-based payments
Pension expenses
Social security expenses
Total
Average number of employees
Marketing
Administration
Total average
Number of employees as of December 31
Management compensation
Refer to Note 35, Related party transactions in the consolidated financial statements.
2019
38
9
3
1
51
2019
69
151
220
219
3. Auditor’s fees
EURm
Audit
Assignments described in Auditing Act 1:1.2 §
Tax services
Other services
Total
Parent Company
Nokia Group
2019
4
–
–
–
4
2018
4
–
–
–
4
2019
23
–
2
1
26
2018
37
7
3
–
47
2018
73
163
236
232
2018
25
–
2
2
29
In 2019, PricewaterhouseCoopers Oy performed non-audit services to Parent company in total for EUR 190 thousand (EUR 329 thousand
in 2018). These services included services described in Auditing Act 1:1.2 § for EUR 0 thousand (EUR 18 thousand in 2018) and other
non-audit services for EUR 190 thousand (EUR 311 thousand in 2018).
In 2019, PricewaterhouseCoopers Oy performed non-audit services to Parent company and Group entities in total for EUR 252 thousand
(EUR 343 thousand in 2018). These services included services described in Auditing Act 1.1,2 § for EUR 47 thousand (EUR 31 thousand
in 2018) and other non-audit services for EUR 205 thousand (EUR 311 thousand in 2018).
4. Other operating income and expenses
EURm
Other operating income
Tax Indemnification
Gain on non-current investments
Rental income
Other income
Total
Other operating expenses
Loss from non-current investments
Loss on retirement of fixed assets
Write-off accounts receivables
Other expenses
Total
2019
2018
6
1
1
4
12
(22)
(9)
(2)
(1)
(34)
–
2
1
3
6
(7)
–
–
(3)
(10)
202
202
NOKIA IN 2019
5. Financial income and expenses
EURm
Interest and other financial income
Interest income from Group companies
Interest income from other companies
Foreign exchange gains/losses, net
Other financial income from other companies
Total
Interest and other financial expenses
Interest expenses to Group companies
Interest expenses to other companies
Other financial expenses to other companies
Total
2019
2018
238
64
87
2
391
(92)
(163)
(5)
(260)
238
11
71
28
348
(112)
(120)
(9)
(241)
Financial income and expenses include EUR 129 million income for derivative financial instruments designated in hedge accounting
relationships (EUR 21 million income in 2018) and EUR 133 million expense for liabilities under fair value hedge accounting (EUR 7 million
expense in 2018).
6. Group contributions
EURm
Granted
Received
Total
7. Income taxes
EURm
Current tax
Deferred tax
Total
Income tax from operations
Income tax from appropriations
Income tax relating to previous financial years
Total
Deferred taxes
EURm
Total before netting
Netting of deferred tax assets and liabilities
Total after netting
2019
(390)
–
(390)
2019
(3)
20
17
(60)
78
(1)
17
2018
(775)
443
(332)
2018
(150)
(93)
(243)
(208)
66
(101)
(243)
2019
Deferred tax
assets
Deferred tax
liabilities
2018
Deferred tax
assets
46
(3)
43
(3)
3
–
34
(10)
24
Deferred tax
liabilities
(10)
10
–
203
NOKIA IN 2019
203
Financial statements
Notes to the Parent Company financial statements continued
8. Tangible assets
EURm
Acquisition cost as of January 1, 2018
Additions
Disposals and retirements
Reclassifications
Acquisition cost as of December 31, 2018
Accumulated depreciation as of January 1, 2018
Disposals and retirements
Depreciation(1)
Accumulated depreciation as of December 31, 2018
Net book value as of January 1, 2018
Net book value as of December 31, 2018
Acquisition cost as of January 1, 2019
Additions
Disposals and retirements
Reclassifications
Acquisition cost as of December 31, 2019
Accumulated depreciation as of January 1, 2019
Disposals and retirements
(1)
Depreciation
Accumulated depreciation as of December 31, 2019
Net book value as of January 1, 2019
Net book value as of December 31, 2019
(1) Recognized in selling, general and administrative expenses.
Land and
water areas
8
–
–
–
8
–
–
(1)
(1)
8
7
8
1
–
–
9
(1)
–
–
(1)
7
8
Buildings
163
–
–
–
163
(72)
–
(6)
(78)
91
85
163
–
(17)
1
Machinery and
equipment
19
–
–
–
19
(16)
–
(1)
(17)
3
2
19
–
(6)
–
Other tangible
assets
15
–
–
–
15
(2)
–
(1)
(3)
13
12
15
–
–
–
Assets under
construction
1
–
–
–
1
–
–
–
–
1
1
1
14
–
(1)
147
(78)
8
(6)
(76)
85
71
13
(17)
6
(1)
(12)
2
1
15
(3)
–
(1)
(4)
12
11
14
–
–
–
–
1
14
Total
206
–
–
–
206
(90)
–
(9)
(99)
116
107
206
15
(23)
–
198
(99)
14
(8)
(93)
107
105
204
204
NOKIA IN 2019
9. Investments
EURm
Investments in subsidiaries
Net carrying amount as of January 1
Additions(1)
Disposals(1)
Net carrying amount as of December 31
Investments in associated companies
Net carrying amount as of January 1
Net carrying amount as of December 31
Non-current financial investments
Net carrying amount as of January 1
Additions
Impairment charges
Other changes
Disposals
Net carrying amount as of December 31
(1) Additions and disposals of 2018 relate to share transactions made to optimize the legal structure of the Group following the acquisition of Alcatel Lucent in 2016.
Investments in associated companies
Associated company
Noksel A.S
10. Prepaid expenses and accrued income
EURm
Expected future cash settlement to acquire non-controlling interest in Nokia Shanghai Bell(1)
Prepaid and accrued royalty income
Divestment-related receivables
Accrued interest
Other accrued income from Group companies
Other prepaid expenses and accrued income from other companies
Total
(1) Refer to Note 33, Significant partly-owned subsidiaries in the consolidated financial statements
Ownership
%
20
2019
631
11
–
70
13
23
748
2019
2018
18 590
43
–
18 633
18 591
27 312
(27 313)
18 590
1
1
22
–
(21)
–
–
1
1
1
27
1
–
(5)
(1)
22
Carrying
amount
EURm
1
2018
618
11
9
61
32
25
756
205
NOKIA IN 2019
205
Financial statements
Notes to the Parent Company financial statements continued
11. Shareholders’ equity
EURm
As of January 1, 2018
Settlement of performance and restricted shares
Cancellation of treasury shares
Fair value reserve, increase
Dividends
Profit for the year
As of December 31, 2018
As of January 1, 2019
Settlement of performance and restricted shares
Fair value reserve, increase
Dividends
Loss for the year
As of December 31, 2019
(1) Treasury shares decrease retained earnings.
12. Distributable earnings
EURm
Reserve for invested unrestricted equity
Retained earnings
(Loss)/profit for the year
Unrestricted equity
Treasury shares
Fair value and other reserves
Total
13. Fair value and other reserves
Share capital
246
–
–
–
–
–
246
Share issue
premium
46
–
–
–
–
–
46
246
–
–
–
–
246
46
–
–
–
–
46
Treasury
shares(1)
(1 473)
72
1 000
–
–
–
(401)
(401)
57
–
–
–
(344)
Fair value
and other
reserves
(9)
–
–
7
–
–
(2)
Reserve for
invested
unrestricted
equity
15 207
(10)
–
–
–
–
15 197
(2)
–
2
–
–
15 197
2
–
–
–
Retained
earnings
4 503
–
(1 000)
–
(1 063)
160
2 599
2 599
(1)
–
(560)
(75)
Total
18 520
62
–
7
(1 063)
160
17 685
17 685
58
2
(560)
(75)
–
15 199
1 963
17 110
2019
15 199
2 038
(75)
17 162
(344)
–
16 818
2018
15 197
2 439
160
17 796
(401)
(2)
17 393
Hedging reserve
Cost of Hedging
Fair value reserve
Total
EURm
As of January 1, 2018
Fair value and cash flow hedges
Net fair value gains/(losses)
Current financial investments
Net fair value gains/(losses)
Transfer to income statement
As of December 31, 2018
As of January 1, 2019
Fair value and cash flow hedges
Net fair value gains/(losses)
Transfer to income statement
Current financial investments
Net fair value gains/(losses)
Transfer to income statement
As of December 31, 2019
Gross
(13)
Tax
3
Net
(10)
Gross
–
Tax
–
9
(2)
7
–
–
–
–
–
–
–
–
–
–
–
–
1
1
–
–
(3)
(3)
(1)
–
7
(2)
8
(10)
(2)
2
–
–
–
–
–
2
–
–
(2)
–
–
–
–
–
(4)
(4)
8
(2)
–
–
2
Net
–
–
–
–
–
–
6
(8)
–
–
(2)
Gross
1
Tax
–
–
–
–
1
1
–
–
(1)
–
–
–
–
–
–
–
–
–
–
–
–
Net
1
–
–
–
1
1
–
–
(1)
–
–
Gross
(12)
Tax
3
Net
(9)
9
(2)
7
–
–
(3)
(3)
–
–
1
1
–
–
(2)
(2)
16
(12)
(3)
2
13
(10)
(1)
–
–
–
–
–
(1)
–
–
206
206
NOKIA IN 2019
14. 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.
Carrying amounts
Fair value(1)
Fair value through
profit and loss
Fair value through
fair value reserve
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Total
Total
EURm
As of December 31, 2019
Non-current financial investments
Non-current loan receivable
Non-current loan receivable
Current loan receivables from Group companies
Other current financial asse
s from Group companies
s from other companies
ts from Group companies
including derivatives
Other current financial asse
ts from other companies
including derivatives
Current financial investments
Cash and cash equivalents
Total financial assets
Long-term interest-bearing
companies
liabilities to other
Short-term interest-bearing liabilities to Group
companies
Short-term interest-beari
ng liabilities to other
companies
Other financial liabilities to Group companies
including derivatives
Other financial liabilities to other companies
including derivatives
Total financial liabilities
Amortized
cost
–
2 915
7
8 427
–
–
43
1 306
–
–
–
–
–
–
–
–
–
–
–
–
53
80
–
1 602
12 698
–
1 735
–
–
–
70
3 714
10 997
5
–
–
14 716
–
–
–
–
–
–
151
631
220
631
1
–
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
2 915
7
8 427
1
2 915
7
8 427
53
53
80
43
2 908
80
43
2 908
14 434
14 434
–
3 714
3 751
–
10 997
10 997
–
–
–
–
5
70
5
70
782
782
15 568
15 605
207
NOKIA IN 2019
207
Financial statements
Notes to the Parent Company financial statements continued
EURm
As of December 31, 2018
Non-current financial investments
Non-current loan receivables from Group companies
Non-current loan receivables from other companies
Current loan receivables from Group companies
Other current financial assets from Group companies
including derivatives
Other current financial assets from other companies
including derivatives
Current financial investments
Cash and cash equivalents
Total financial assets
Long-term interest-bearing liabilities to other
companies
Short-term interest-bearing liabilities to Group
companies
Short-term interest-bearing liabilities to other
companies
Other financial liabilities to Group companies including
derivatives
Other financial liabilities to other companies including
derivatives
Total financial liabilities
Amortized
cost
–
3 275
7
5 678
–
–
103
1 629
10 692
2 558
8 938
754
–
–
12 250
Carrying amounts
Fair value(1)
Fair value through
profit and loss
Fair value through
fair value reserve
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Total
Total
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
22
–
–
–
64
–
117
–
1 575
1 756
–
–
–
22
–
–
–
64
–
–
–
–
166
230
618
618
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
22
3 275
7
5 678
22
3 275
7
5 678
–
64
64
–
386
–
386
–
–
–
–
117
489
3 204
12 856
117
489
3 204
12 856
–
–
–
–
–
–
–
2 558
2 536
–
8 938
8 938
–
754
756
–
64
64
–
–
784
13 098
784
13 078
(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 loans receivable and loans payable are primarily based on discounted cash flow analysis (level 2).
The fair value is estimated to equal the carrying amount for current financial assets and financial liabilities due to limited credit risk and short time to maturity. Refer to Note 2, Significant
accounting policies.
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 Parent
Company’s own valuation models whereby the material assumptions are market observable. The majority of the Parent Company’s listed
bonds and other securities, over-the-counter derivatives and certain other products are included within this category.
The level 3 financial assets category includes a large number of investments in unlisted equities and unlisted venture funds. 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
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 Nokia 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. Change in this
liability does not have an impact on income statement. Refer to Note 33, Significant partly-owned subsidiaries in the consolidated
financial statements.
208
208
NOKIA IN 2019
Reconciliation of the opening and closing balances on level 3 financial assets and liabilities:
EURm
As of January 1, 2018
Net losses in income statement
Additions
Deductions
Other movements
As of December 31, 2018
As of January 1, 2019
Net losses in income statement
Net gains in income statement
Additions
Deductions
Other movements
As of December 31, 2019
Level 3 Financial
Assets
27
(5)
1
(1)
–
22
22
(21)
–
–
–
–
Level 3 Financial
Liabilities
(556)
–
–
–
(62)
(618)
(618)
–
–
–
–
(13)
1
(631)
The gains and losses from venture fund and similar investments categorized in level 3 are included in other operating income an
expenses. A net loss of EUR 21 million (net loss of EUR 67 million in 2018) related to level 3 financial instruments held as of December 31,
2019 is recognized in the income statement.
d
15. Derivative financial instruments
EURm
As of December 31, 2019
Fair value hedges
Interest rate swaps
Cash flow and fair value hedges(3)
Cross-currency inte
rest rate swaps
Derivatives not designated in hedge accounting relationships carried at fair value
through profit and loss
Forward foreign exchange contracts, other companies
Forward foreign exchange contracts, Group companies
Currency options bought, other companies
Currency options bought, Group companies
, other companies
Currency options sold
Currency options sold, Group companies
Total
As of December 31, 2018
Fair value hedges
Interest rate swaps
Cash flow and fair value hedges(3)
Cross-currency interest rate swaps
Derivatives not designated in hedge accounting relationships carried at fair value
through profit and loss
Forward foreign exchange contracts, other companies
Forward foreign exchange contracts, Group companies
Currency options bought, other companies
Currency options bought, Group companies
Currency options sold, other companies
Currency options sold, Group companies
Total
Assets
Liabilities
Fair value(1)
Notional(2)
Fair value(1)
Notional(2)
–
–
71
53
9
–
–
–
–
–
–
–
(49)
1 246
8 654
3 082
996
–
–
–
(101)
(65)
–
–
–
(5)
9 840
6 885
–
–
–
774
133
12 732
(220)
18 745
7
600
–
–
22
260
(69)
1 512
78
64
10
–
–
–
181
9 558
6 344
865
15
–
44
17 686
(98)
(53)
–
–
–
(10)
(230)
10 719
5 314
44
–
15
865
18 469
(1) Included in other financial assets and other financial liabilities in the statement of financial position.
(2) Includes the gross amount of all notional values for contracts that have not yet been settled or cancelled. The amount of notional value outstanding is not necessarily a measure or indication
of market risk as the exposure of certain contracts may be offset by that of other contracts.
(3) Cross-currency interest rate swaps have been designated partly as fair value hedges and partly as cash flow hedges.
209
NOKIA IN 2019
209
Financial statements
Notes to the Parent Company financial statements continued
Derivative financial instrument designation to hedging relationships in the table above presents the use of and accounting for
derivative financial instruments from the perspective of the Parent Company’s standalone financial statements, which may differ
from the designation in the consolidated financial statements. Refer to Note 25, Derivative financial instruments in the consolidated
financial statements.
16. Provisions
EURm
Divestment-related
Other
Total
17. Interest-bearing liabilities
Instrument
6.75% Senior Notes(1)
5.375% Senior Notes(2)
1.00% Senior Notes
3.375% Senior Notes
2.00% Senior Notes
Issuer/borrower
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation NIB R&D Loan(3)
Nokia Corporation
Nokia Corporation
Nokia Corporation
Nokia Corporation Other liabilities to Group companies
Nokia Corporation Other liabilities to other companies
2.00% Senior Notes(4)
4.375% Senior Notes
6.625% Senior Notes
Total
Currency
EUR
USD
EUR
USD
EUR
EUR
EUR
USD
USD
Nominal
(million)
Final maturity
231 February 2019
May 2019
581
March 2021
500
June 2022
500
March 2024
750
May 2025
250
March 2026
750
June 2027
500
May 2039
500
2019
45
10
55
Carrying amount EURm
2019
–
–
500
447
770
250
771
456
520
10 997
5
14 716
(1) Nokia repaid its EUR 231 million 6.75% Senior Notes in February 2019.
(2) Nokia repaid its USD 581 million 5.375% Senior Notes in May 2019.
(3) Nokia drew an amortizing loan from Nordic Investment Bank (NIB) in May 2019. The loan is repayable in three equal annual installments in 2023, 2024 and 2025.
(4) Nokia issued EUR 750 million 2.00% Senior Notes due 2026 under its EUR 5 billion Euro Medium-Term Note Programme in March 2019.
Significant credit facilities and funding programs:
Committed/Uncommitted
Financing arrangement
Committed
Committed
Uncommitted
Uncommitted
Total
Revolving Credit Facility(1)
EIB R&D Loan Facility(2)
Finnish Commercial Paper Programme
Euro Medium-Term Note Programme(3)
Currency
EUR
EUR
EUR
EUR
Nominal
(million)
1 500
500
750
5 000
2019
–
–
–
2 000
2 000
2018
58
10
68
2018
232
508
500
425
755
–
–
418
459
8 938
15
12 250
2018
–
–
–
1 250
1 250
(1) In June 2019, Nokia refinanced its EUR 1 579 million revolving credit facility maturing in June 2020 with EUR 1 500 million five-year revolving credit facility with two one-year extension options.
(2) The loan facility of EUR 500 million with the European Investment Bank (EIB) was signed in August 2018 and will have an average maturity of approximately five years after disbursement.
The facility has not been disbursed as of December 31, 2019, and the availability period ends in February 2020.
(3) All euro-denominated bonds are issued under Euro Medium-Term Note Programme.
All borrowings and credit facilities presented in the tables above are senior unsecured and have no financial covenants.
210
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NOKIA IN 2019
18. Accrued expenses and other liabilities
EURm
VAT and other indirect taxes
Accrued interest expenses
Salaries and social expenses
Divestment-related liabilities
Other accrued expenses to Group companies
Other accrued expenses to other companies
Total
19. Commitments and contingencies
EURm
Contingent liabilities on behalf of Group companies
Leasing guarantees
Other guarantees
Contingent liabilities on behalf of other companies
Other guarantees
2019
23
29
14
–
42
15
123
2018
21
39
13
7
39
15
134
2019
2018
245
1 412
257
1 239
5
24
As of December 31, 2019 operating lease commitments amounted to EUR 1 million (EUR 1 million in 2018).
20. Loans granted to the management of the company
There were no loans granted to the members of the Group Leadership Team and Board of Directors as of December 31, 2019 or 2018.
21. Notes to the statement of cash flows
EURm
Adjustments for
Depreciation and amortization
Income tax expense
Financial income and expenses, net
Impairment charges
Loss on sale of shares and businesses
Asset retirements
Share-based payment
Group Contributions
Total
2019
2018
8
(17)
(233)
21
–
9
9
390
187
9
243
16
–
6
–
59
332
665
Following the acquisition of Alcatel Lucent, in 2018 various intra-group subsidiary share transfers were made to enable the merger
of legal entities. Transfers were made through share exchanges with no cash impact.
211
NOKIA IN 2019
211
Financial statements
Notes to the Parent Company financial statements continued
22. Principal Group companies
Refer to Note 32, Principal Group companies in the consolidated financial statements.
The full list of Group companies is included in the Financial statements filed with the Registrar of Companies.
23. The shares of the Parent Company
Refer to Note 20, Shares of the Parent Company in the consolidated financial statements.
24. Financial risk management
The Group has a systematic and structured approach to financial risk management across business operations and processes. Financial
risk management policies and procedures are Group-wide, there are no separate or individual financial risk management policies or
procedures for the Parent Company. Hence, internal and external financial risk exposures and transactions are managed only in the
context of the Group financial risk management strategy. The Parent Company is the centralized external dealing entity in the Group.
The Parent Company executes all significant external financial transactions with banks based on the Group’s financial risk management
strategy, and executes identical opposite internal financial transactions with Group Companies as required. Refer to Note 36, Financial
Risk Management in the consolidated financial statements.
25. Subsequent events
Financing transactions
On February 24, 2020, Nokia Corporation drew a loan of EUR 500 million from European Investment Bank (EIB). The loan facility
agreement was signed in August 2018 and the loan will mature on February 2025.
Change of President and Chief Executive Officer
On March 2, 2020 Nokia’s Board of Directors appointed Pekka Lundmark as President and Chief Executive Officer of Nokia and he is
expected to start in his new role on September 1, 2020. Rajeev Suri will leave his current position as President and Chief Executive Officer
on August 31, 2020 and continue to serve as an advisor to the Nokia Board until January 1, 2021.
212
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NOKIA IN 2019
Signing of the Annual Accounts 2019
The distributable funds on the balance sheet of the Parent company on December 31, 2019 amounted to EUR 16 818 million.
The Board plans to propose to the Annual General Meeting that no dividend will be paid for the financial year 2019.
On the date of issuing the financial statements for 2019 the number of the company’s shares is 5 653 886 159.(1)
The proposed distribution is in line with the Company’s distribution policy.
(1) The number of company’s shares on December 31, 2019 was 5 640 536 159 after which the company has issued 13 350 000 new shares.
Risto Siilasmaa
Chair of the Board
Bruce Brown
Edward Kozel
Olivier Piou
Carla Smits-Nusteling
March 5, 2020
Rajeev Suri
President and CEO
Sari Baldauf
Jeanette Horan
Elizabeth Nelson
Søren Skou
Kari Stadigh
NOKIA IN 2019
213
Financial statements
Auditor’s report
To the Annual General Meeting of Nokia Oyj
Report on the Audit of the Financial Statements
Our audit approach
Overview
Opinion
In our opinion:
■ The consolidated financial statements give a true and fair view of
the group’s financial position and financial performance and cash
flows in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union; and,
■ The financial statements give a true and fair view of the parent
company’s financial performance and financial position in accordance
with the laws and regulations governing the preparation of the
financial statements in Finland and comply with statutory requirements.
■ Our opinion is consistent with our additional report to the
Audit Committee.
What we have audited
We have audited the financial statements of Nokia Oyj (business
identity code 0112038-9) for the year ended 31 December 2019.
The financial statements comprise:
■ The consolidated statement of financial position, income statement,
statement of comprehensive income, statement of changes in
shareholders’ equity and statement of cash flows, and notes to the
consolidated financial statements including a summary of significant
accounting policies; and
■ The parent company’s statement of financial position, income
statement, statement of cash flows and notes to the financial
statements.
Basis for opinion
We conducted our audit in accordance with good auditing practice in
Finland. Our responsibilities under good auditing practice are further
described in the Auditor’s Responsibilities for the Audit of the Financial
Statements section of our report.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Independence
We are independent of the parent company and of the group
companies in accordance with the ethical requirements that are
applicable in Finland and are relevant to our audit, and we have fulfilled
our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge, the non-audit services that we have
provided to the parent company and to the group companies are in
accordance with the applicable law and regulations in Finland and we
have not provided non-audit services that are prohibited under Article
5(1) of Regulation (EU) No 537/2014. The non-audit services that we
have provided are disclosed in Auditor’s fees in Note 3 to the parent
company financial statements.
Materiality
Group
scoping
Key audit
matters
■ Overall group materiality:
€125 million, which represents
0.5% of consolidated net sales
■ We performed audit procedures
at 23 reporting components, in
addition to group level procedures
over specific consolidated
accounts and analytical
procedures to assess unusual
movements across all entities
■ Identification of Performance
Obligations related to Networks
and Nokia Software
■ Utilization of deferred tax assets
in Finland
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements. In particular, we considered where management made
subjective judgements; for example, in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain.
Materiality
The scope of our audit was influenced by our application of materiality.
An audit is designed to obtain reasonable assurance whether
the financial statements are free from material misstatement.
Misstatements may arise due to fraud or error. They are considered
material if individually or in aggregate, they could reasonably be
expected to influence the economic decisions of users taken
on the basis of the financial statements.
Based on our professional judgement, we determined certain
quantitative thresholds for materiality, including the overall group
materiality for the consolidated financial statements as set out in the
table below. These, together with qualitative considerations, helped us
to determine the scope of our audit and the nature, timing and extent
of our audit procedures and to evaluate the effect of misstatements
on the financial statements as a whole.
Overall group materiality €125 million (previous year €125 million)
How we determined it
0.5% of consolidated net sales
Rationale for
the materiality
benchmark applied
The Group‘s results from operations were
near breakeven, and therefore we assessed
that an earnings based measure was not
the most appropriate benchmark to
determine our materiality. Instead of an
earnings based measure, we utilized a
percentage of revenue. This is based on
perspectives and expectations of the users
of the financial statements in the context
of our understanding of the entity and
the environment in which it operates.
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NOKIA IN 2019
How we tailored our group audit scope
We tailored the scope of our audit in order to perform sufficient
work to enable us to provide an opinion on the consolidated financial
statements as a whole, taking into account the structure of the Group,
the accounting processes and controls, and the industry in which the
Group operates.
The Group operates in a significant number of legal entities or
“reporting components” globally. We determined the nature, timing
and extent of audit work that needed to be performed at reporting
components by us, as the group engagement team, or component
auditors from other PwC network firms operating under our
instruction. Where the work was performed by reporting component
auditors, we issued specific instructions to those auditors which
included our risk analysis, materiality and global audit approach to
centralized processes and systems. We visited all significant reporting
components and communicated regularly with the reporting
component auditors throughout our audit. We performed audits of
financial information at individually financially significant reporting
components. Additionally, we performed audits of one or more
financial statement line items or specified audit procedures at
other significant reporting components based on our overall risk
assessment and materiality.
We also performed targeted audit procedures at less significant
reporting components in order to provide further coverage over the
Group’s revenue and consolidation process. None of the remaining
reporting components individually contributed greater than 2.5% of
either Group net sales or Group total assets. In addition to the audit
work performed on internal controls which operate on a Group-wide
basis, we performed analytical procedures over these components,
which corroborated our assessment that these components did not
present a reasonable risk of material misstatement. By performing the
procedures above at reporting components, combined with additional
procedures at the Group level, we have obtained sufficient and
appropriate evidence regarding the financial information of the Group
as a whole to provide a basis for our opinion on the consolidated
financial statements.
Key audit matters
Key audit matters are those matters that, in our professional
judgment were of most significance in our audit of the financial
statements of the current period. These matters were addressed
in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
As in all of our audits, we also addressed the risk of management
override of internal controls, including among other matters
consideration of whether there was evidence of bias that represented
a risk of material misstatement due to fraud.
Key audit matter in the audit of the group
How our audit addressed the key audit matter
Identification of Performance Obligations related to Networks and
Nokia Software
Refer to Note 4, Use of estimates and critical accounting judgments,
and Note 7, Revenue recognition of the consolidated financial
statements
Certain revenue contracts in the Networks and Nokia Software
businesses include multiple performance obligations. For example,
a revenue arrangement may include a combination of hardware,
software, licensing of intellectual property and rendering of services.
The associated revenue recognized for such contracts depends on
the nature of the underlying goods and services provided. The Group
conducts an assessment at contract inception to determine which
promised goods and services in a customer contract are distinct
and accordingly identified as performance obligations. 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. These arrangements may
give rise to the risk of material misstatement due to the incorrect
identification of performance obligations and timing of revenue
recognition for each obligation.
We have determined that this area constitutes a significant risk of
material misstatement referred to in Article 10(2c) of Regulation (EU)
No 537/2014.
We designed our audit procedures to be responsive to this risk.
We obtained an understanding of management’s revenue recognition
process and evaluated the design and tested the operating
effectiveness of controls over revenue recognition, with particular
focus on the controls related to the identification of performance
obligations, within revenue contracts and determination of the timing
of recognition for each revenue obligation.
Audit procedures were performed over revenue recognition at the
Group level and at each of the reporting components that were in
scope for revenue for the Group audit.
We completed detailed testing procedures over revenue arrangements
that we selected based on size and complexity to assess the
appropriateness of judgements made by management regarding
performance obligations, the determination of fair value of
deliverables and the appropriateness of recognition triggers.
We tested a sample of revenue transactions recorded during the year
by tracing them to supporting evidence of delivery and acceptance
and assessed the revenue recorded in the period by comparing it to
contractual terms.
We assessed the Group’s revenue recognition accounting policies for
compliance with IFRS.
NOKIA IN 2019
215
Financial statements Auditor’s report continued
Key audit matter in the audit of the group
How our audit addressed the key audit matter
Utilization of deferred tax assets in Finland
Refer to Note 4, Use of estimates and critical accounting
judgments, and Note 12, Income taxes of the consolidated financial
statements
At December 31, 2019, the Group had recognized net deferred tax
assets of EUR €4.7, billion, of which €2.8 billion related to Finland.
The recognition of deferred tax assets is based on the assessment of
whether it is probable 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. The analysis of the utilization of
the deferred tax assets was significant to our audit as the amounts
are material, the assessment process is judgemental and is based on
assumptions that are impacted by expected future market conditions,
specifically as it relates to future performance in Finland.
We have determined that this area constitutes a significant risk of
material misstatement referred to in Article 10(2c) of Regulation (EU)
No 537/2014.
We designed our audit procedures to be responsive to this risk.
We obtained an understanding of the process that management has
implemented for accounting for deferred tax assets. We also evaluated
the design and tested the operating effectiveness of controls in
this area.
We performed substantive audit procedures to validate the deferred
tax balances, which are recorded with a consideration of enacted tax
laws in each jurisdiction in accordance with IFRS.
Our audit work on the valuation of deferred tax assets, with the
involvement of our tax specialists, included:
■ Validating the completeness and accuracy of tax attributes;
■ Confirming the appropriate application of tax rules for utilizing
deferred tax assets, including expiry of those attributes;
■ Evaluating the Company’s ability to generate sufficient taxable
income to utilize deferred tax assets. This evaluation takes into
account the Company’s historical profitability and future
projections; and,
■ Reviewing the adequacy of the disclosures made by the company
in accordance with IFRS.
In addition, we assessed the Group’s accounting for compliance
with IFRS.
There are no key audit matters to report or significant risks of material misstatement referred to in Article 10(2c) of Regulation (EU) No 537/2014
with respect to the parent company financial statements.
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NOKIA IN 2019
Responsibilities of the Board of Directors and the Managing
Director for the Financial Statements
The Board of Directors and the Managing Director are responsible for
the preparation of consolidated financial statements that give a true
and fair view in accordance with International Financial Reporting
Standards (IFRS) as adopted by the EU, and of financial statements
that give a true and fair view in accordance with the laws and
regulations governing the preparation of financial statements in
Finland and comply with statutory requirements. The Board of
Directors and the Managing Director are also responsible for such
internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors and the
Managing Director are responsible for assessing the parent company’s
and the group’s ability to continue as a going concern, disclosing, as
applicable, matters relating to going concern and using the going
concern basis of accounting. The financial statements are prepared
using the going concern basis of accounting unless there is an
intention to liquidate the parent company or the group or to cease
operations, or there is no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in
accordance with good auditing practice will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with good auditing practice, we
exercise professional judgment and maintain professional skepticism
throughout the audit. We also:
■ Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis
for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control;
■ Obtain an understanding of internal control relevant to the audit
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the parent company’s or the group’s
internal control;
■ Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures
made by management;
■ Conclude on the appropriateness of the Board of Directors’ and the
Managing Director’s use of the going concern basis of accounting
and based on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may cast
significant doubt on the parent company’s or the group’s ability
to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial statements or,
if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the
date of our auditor’s report. However, future events or conditions
may cause the parent company or the group to cease to continue
as a going concern;
■ Evaluate the overall presentation, structure and content of the
financial statements, including the disclosures, and whether the
financial statements represent the underlying transactions and
events so that the financial statements give a true and fair view;
and,
■ Obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the group to
express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the
group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships
and other matters that may reasonably be thought to bear on
our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance,
we determine those matters that were of most significance in the
audit of the financial statements of the current period and are
therefore the key audit matters. We describe these matters in our
auditor’s report unless law or regulation precludes public disclosure
about the matter or when, in extremely rare circumstances,
we determine that a matter should not be communicated in
our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits
of such communication.
NOKIA IN 2019
217
Financial statements Auditor’s report continued
Other reporting requirements
Appointment
We were first appointed as auditors by the annual general meeting
on 25 March 1987. Our appointment represents a total period of
uninterrupted engagement of 33 years.
Other Information
The Board of Directors and the Managing Director are responsible for
the other information. The other information comprises the report
of the Board of Directors and the information included in the
Annual Report, but does not include the financial statements
and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other
information.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit,
or otherwise appears to be materially misstated. With respect to the
report of the Board of Directors, our responsibility also includes
considering whether the report of the Board of Directors has been
prepared in accordance with the applicable laws and regulations.
In our opinion:
■ the information in the report of the Board of Directors is consistent
with the information in the financial statements; and,
■ the report of the Board of Directors has been prepared in
accordance with the applicable laws and regulations.
If, based on the work we have performed, we conclude that there
is a material misstatement of the other information, we are required
to report that fact. We have nothing to report in this regard.
Other Statements
We support that the financial statements and the consolidated
financial statements should be adopted. The proposal by the Board
of Directors regarding the use of profit shown in the balance sheet is
in compliance with the Limited Liability Companies Act. We support
that the Members of the Board of Directors and the Managing
Director should be discharged from liability for the financial period
audited by us.
Helsinki 5 March 2020
PricewaterhouseCoopers Oy
Authorised Public Accountants
Pasi Karppinen
Authorised Public Accountant (KHT)
218
NOKIA IN 2019
Other information
Contents
Forward-looking statements
Introduction and use of certain terms
Key ratios
Alternative performance measures
Glossary of terms
Investor information
Contact information
220
221
222
223
224
227
228
NOKIA IN 2019
219
Other information 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 but are not limited to the
risk factors specified under “Board review—Risk factors” of this annual
report. 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.
Forward-looking statements
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) 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;
B) future performance of our businesses and any future distributions
and dividends;
C) expectations and targets regarding financial performance, results,
operating expenses, cash flows, 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) market developments in our current and future markets and their
seasonality and cyclicality, including the communication service
provider market, as well as general economic conditions and
future regulatory developments;
F) 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 our order pipeline
over time;
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) the outcome of pending and threatened litigation, arbitration,
disputes, regulatory proceedings or investigations by authorities;
J) 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;
K) future capital expenditures, temporary incremental expenditures
or other R&D expenditures to develop or rollout new products,
including 5G; and
L) the sustainability and corporate responsibility contained in
the sustainability and corporate responsibility section of this
annual report.
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Introduction and use of certain terms
Nokia Corporation is a public limited liability company incorporated
under the laws of the Republic of Finland. In this annual report any
reference to “we,” “us,” “the Group,” “the company” or “Nokia”
means Nokia Corporation and its consolidated subsidiaries and
generally Nokia’s Continuing operations, except where we separately
specify that the term means Nokia Corporation or a particular
subsidiary or business segment only or our Discontinued operations.
References to “our shares” matters relating to our shares or matters
of corporate governance refer to the shares and corporate governance
of Nokia Corporation.
Nokia Corporation has published its consolidated financial statements
in euro for periods beginning on or after January 1, 1999. In this
annual report, references to “EUR,” “euro” or “€” are to the common
currency of the European Economic and Monetary Union, references to
“dollars”, “US 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.
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Other information Key ratios
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 at December 31
Earnings per share (basic) for Continuing operations
Payout ratio
Dividend per share
Earnings per share (basic) for Continuing operations
Dividend yield %
Dividend per share
Closing share price at December 31
Shareholders’ equity per share
Capital and reserves attributable to equity holders of the parent
Number of shares at December 31 - number of treasury shares at December 31
Market capitalization
(Number of shares at December 31—number of treasury shares at December 31) x closing share price at December 31
Share turnover %
Number of shares traded during the year
Average number of shares during the year
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Alternative performance measures
Certain financial measures and ratios presented in this annual report are not measures of financial performance, financial position or cash flows
under IFRS. These measures are not defined by IFRS and therefore may not be directly comparable with financial measures and ratios used by
other companies, including those in the same industry. The reason for presenting these measures is that either they are statutory requirements
applicable to the annual report of the Group or the management believes that these measures provide meaningful supplemental information
on the underlying business performance of the Group. These financial measures should not be considered in isolation from, or as a substitute
for, financial information presented in compliance with IFRS.
Financial measure
Return on capital
employed %
Return on shareholders’
equity %
Equity ratio %
Definition
Profit before tax + financial expenses / Average capital
and reserves attributable to equity holders of the
parent + average non-controlling interests + average
interest-bearing liabilities
Profit attributable to the equity holders of the parent /
Average capital and reserves attributable to equity
holders of the parent
Capital and reserves attributable to equity holders of
the parent + non-controlling interests / Total assets
Net debt to equity
(gearing) %
Interest-bearing liabilities - cash and current financial
investments / Capital and reserves attributable to the
equity holders of the parent + non-controlling interests
Total cash and current
financial investments
Total cash and current financial investments
consists of cash and cash equivalents and current
financial investments.
Net cash and current
financial investments
Free cash flow
Capital expenditure
Net cash and current financial investments equals total
cash and current financial investments less long-term
and short-term interest-bearing liabilities.
Net cash from operating activities - purchases of
property, plant and equipment and intangible assets
(capital expenditures) + proceeds from sale of property,
plant and equipment and intangible assets – purchase
of non-current financial investments + proceeds from
sale of non-current financial investments.
Purchases of property, plant and equipment and
intangible assets (excluding assets acquired under
business combinations).
Purpose
Return on capital employed indicates how efficiently the
Group uses its capital to generate profits.
Return on shareholders’ equity indicates how efficiently
the Group uses the capital invested by its shareholders
to generate profits.
Equity ratio indicates the proportion of assets financed
by the capital provided by the equity holders of the parent
to total assets of the Group.
Net debt to equity ratio presents the relative proportion
of shareholders’ equity and interest-bearing liabilities used
to finance the Group’s assets and indicates the leverage
of the Group’s business.
Total cash and current financial investments is used to
indicate funds available to the Group to run its current and
invest in future business activities as well as provide return
for security holders.
Net cash and current financial investments is used to
indicate the Group’s liquidity position after cash required
to settle the interest-bearing liabilities.
Free cash flow is the cash that the Group generates after
net investments to tangible, intangible and non-current
financial investments and it represents the cash available
for distribution among its security holders. It is a measure
of cash generation, working capital efficiency and capital
discipline of the business.
Capital expenditure is used to describe investments in
profit generating activities in the future.
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223
Other information Glossary of terms
2G (Second Generation Mobile Communications): Also known as
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.
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. See also WCDMA.
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. See also LTE.
5G (Fifth Generation Mobile Communications): The next major
phase of mobile telecommunications standards. 5G is a complete
redesign of network architecture with the flexibility and agility to
support upcoming service opportunities. It delivers higher speeds,
higher capacity, extremely low latency and greater reliability.
Access network: A telecommunications network between a local
exchange and the subscriber station.
Airframe: Our 5G-ready, end-to-end data center solution that
combines the benefits of cloud computing technologies with the
requirements of the core and radio telecommunications world. It is
available in Rackmount and Open Compute Project (OCP) form factors.
This enables the solution to be very scalable: from small distributed
latency-optimized data centers, all the way to massive centralized
hyperscale 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 radio frequency elements and system modules; Nokia
AirScale Active Antennas; Cloud RAN with Nokia AirScale Cloud Base
Station Server and the cloud-based AirScale RNC (Radio Network
Controller) 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.
Anyhaul: Mobile transport solution for 5G networks covering
microwave, IP, optical and broadband.
Artificial Intelligence (AI): Autonomous and adaptive intelligence
of machines, where machines have the ability to perform tasks in
complex environments without constant guidance by a user and have
the ability to improve performance by learning from experience.
Bandwidth: The width of a communication channel, which affects
transmission speeds over that channel.
CloudBand: Our Cloud management and orchestration solutions
enabling a unified cloud engine and platform for NFV.
Common Software Foundation (CSF): As a coherent software suite,
Nokia’s cloud-native Common Software Foundation is designed to
deliver applications that are hardware- and vendor-agnostic, and easy
to deploy, integrate, use and upgrade.
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.
Converged Core: Converged core refers to wireless and fixed access
convergence within the core. As we move towards a 5G standalone
core, service providers will be able to use a common set of control
plane functions within the core to manage both wireless and fixed user
plane functions. The ability of a unified control plane will simplify
operations and provide independent location, scaling and lifecycle
management capabilities.
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.
CSP: Communication service providers.
Customer Experience Management: Software suite used to manage
and improve the customer experience, based on customer, device and
network insights.
Devices & Services: Our former mobile device business, substantially
all of which was sold to Microsoft.
Digital: A signaling technique in which a signal is encoded into digits
for transmission.
Discontinued operations: Discontinued operations include the
continuing financial effects of the HERE business and the Devices &
Services business. HERE was divested to an automotive consortium
and substantially all of Devices & Services business was sold 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.
ETSI (European Telecommunications Standards Institute): Standards
produced by the ETSI contain technical specifications laying down the
characteristics required for a telecommunications product.
Base station: A network element in a mobile network responsible
for radio transmission and reception to or from the mobile station.
Fixed Networks: Our Fixed Networks business group provides copper
and fiber access products, solutions, and services.
Broadband: The delivery of higher bandwidth by using transmission
channels capable of supporting data rates greater than the primary
rate of 9.6 Kbps.
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.
Fixed Wireless Access (FWA): Uses wireless networks to connect fixed
locations such as homes and businesses with broadband services.
Future X: A network architecture – a massively distributed, cognitive,
continuously adaptive, learning and optimizing network connecting
humans, senses, things, systems, infrastructure, processes.
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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 Services: Our Global Services business group provides a broad
variety of services to communication service providers and enterprises
ranging from network infrastructure services, professional services
and managed operations to network cognitive services and analytics.
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. See also 2G.
GSM-R (GSM-Railway): An international wireless communications
standard for railway communication and applications. A sub-system
of European Rail Traffic Management System (ERTMS), it is used for
communication between train and railway regulation control centers.
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.
IP (Internet Protocol): A network layer protocol that offers a
connectionless internet work service and forms part of the
TCP/IP protocol.
IP (Intellectual Property): Intellectual property results from original
creative thought, covering items such as patents, copyright material
and trademarks, as well as business models and plans.
IPR (Intellectual Property Right): Legal right protecting the economic
exploitation of intellectual property, a generic term used to describe
products of human intellect, for example patents, that have an
economic value.
IP/MPLS (IP multiprotocol label switching): IP/MPLS is a routing
technique in telecommunications networks that directs data from one
node to the next based on short path labels rather than long network
addresses, thus avoiding complex lookups in a routing table and
speeding traffic flows.
IPR licensing: Generally refers to an agreement or an arrangement
where a company allows another company to use its intellectual
property (such as patents, trademarks or copyrights) under certain
terms.
IP/Optical Networks: Our IP/Optical Networks business group
provides the key IP routing and optical transport systems, software
and services to build high capacity network infrastructure for the
internet and global connectivity.
LTE (Long-Term Evolution): 3GPP radio technology evolution
architecture and a standard for wireless communication of high-speed
data. Also referred to as 4G.
Mission-critical networks/communications: One of the key elements
of 5G. Mission-critical communications meets the needs of emergency
responders such as emergency operations centers, fire departments,
emergency vehicles, police, and search and rescue services, replacing
traditional radio with new communications capabilities available to
smartphone users.
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 radio access networks solutions, including
2G, 3G, 4G, 5G and Single-RAN, microwave radio links and cloud
computing hardware platforms.
MPLS: Multiprotocol Label Switching, a routing technique for networks.
MSO: Multiple system operators (MSO) are operators of multiple
cable television systems. The majority of system operators run cable
systems in more than one community and hence most of them are
multiple system operators.
Networks segment: One of our three reportable segments that
provides net sales disclosure for the following businesses i.e.
reportable businesses: Mobile Access (a combination of Mobile
Networks and Global Services business groups), Fixed Access,
IP Routing, Optical Networks.
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 Nokia Enterprise
business group, effective January 1, 2019. It addresses the mission-
and business-critical networking requirements of asset-intensive
industries such as transportation, energy, manufacturing and logistics
– as well as governments and cities.
Nokia Networks: Our former business focused on mobile network
infrastructure software, hardware and services.
Nokia Software: One of our three reportable segments and 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: One of our three reportable segments and our
business group 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 Nokia brand, focused on creating Software
Defined Networking (SDN) solutions that simplify and automate
Telco cloud networks and enterprise wide area networks (SD-WAN).
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.
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225
Other information Glossary of terms continued
Packet: Part of a message transmitted over a packet switched network.
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.
PSE-3: The PSE-3 chipset is the first coherent digital signal processor
to implement probabilistic constellation shaping (PCS), a modulation
technique pioneered by Nokia Bell Labs.
RAN (Radio Access Network): A mobile telecommunications system
consisting of radio base stations and transmission equipment.
SDAN: Software Defined Access Network.
TXLE (Technical extra-large enterprise): 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,
which is an architectural framework designed to deliver IP-based
multimedia services on telecommunications networks; standardized
by 3GPP.
SDN (Software Defined Networking): Decoupling of network control
and data forwarding to simplify and automate connections in data
centers, clouds and across the wide area.
WAN (Wide Area Networking): A geographically distributed private
telecommunications network that interconnects multiple local
area networks.
SD-WAN: Software-defined networking in a wide area network (WAN)
that simplifies and automates enterprise networks, seamlessly
connecting users and applications, from branch office to cloud.
WCDMA (Wideband Code Division Multiple Access): A third-generation
mobile wireless technology that offers high data speeds to mobile
and portable wireless devices. Also referred to as 3G.
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.
WING: Worldwide IoT Network Grid is a managed service that offers
CSPs the ability to support their enterprise customers with global IoT
connectivity across borders and technologies.
WLAN (Wireless Local Area Network): A local area network using
wireless connections, such as radio, microwave or infrared links,
in place of physical cables.
SEP (Standard-Essential Patent): 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. Can be referred to as essential
patent also.
Single RAN: Single RAN (S-RAN) allows different radio technologies
to be provided at the same time from a single base station, using a
multi-purpose platform.
Small cells: Low-powered radio access nodes (micro cells or picocells)
that are a vital element in handling very dense data traffic demands.
3G and LTE small cells use spectrum licensed by the operator; Wi-Fi
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.
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NOKIA IN 2019
Investor information
Information on the internet
www.nokia.com
Available on the internet: financial reports, members of the Group Leadership Team, other investor-related materials and events, and press
releases as well as environmental and social information, including our Sustainability Report, Code of Conduct, Corporate Governance
Statement and Remuneration Statement.
Investor Relations contacts
investor.relations@nokia.com
Annual General Meeting
April 8, 2020
Date:
Place:
Helsinki, Finland
Dividend
The Board proposes to the Annual General Meeting that no dividend be paid for the year 2019.
Financial reporting
Our interim reports in 2020 are planned to be published on April 30, 2020, July 31, 2020 and October 29, 2020. The full-year 2020
results are planned to be published in February 2021.
Information published in 2019
All our global press releases and statements published in 2019 are available on the internet at www.nokia.com/en_int/news/releases.
Stock exchanges
The Nokia Corporation share is quoted on the following stock exchanges:
Nasdaq Helsinki (since 1915)
New York Stock Exchange (since 1994)
Euronext Paris (since 2015)
Symbol
NOKIA
NOK
NOKIA
Trading currency
EUR
USD
EUR
NOKIA IN 2019
227
Other information Contact information
Nokia Head Office
Karakaari 7
FI 02610 Espoo, Finland
FINLAND
Tel. +358 (0) 10 44 88 000
Fax +358 (0) 10 44 81 002
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NOKIA IN 2019
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