SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

Report of Foreign Private Issuer

Pursuant to Rule 13a -16 or 15d -16 of

the Securities Exchange Act of 1934

 

Report on Form 6-K dated May 2, 2014

(Commission File No. 1-13202)

 

Nokia Corporation

Karakaari 7

FI-02610 Espoo

Finland

(Name and address of registrant’s principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

Form 20-Fx   Form 40-F: o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes: o   Nox

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes: o   Nox

 

Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes: o   Nox

 

 

 



 

Enclosures:

 

Networks Interim Report for Q1 2014 dated April 30, 2014: Networks Interim Report for Q1 2014

 



 

 

INTERIM REPORT

 

Espoo, Finland — April 30, 2014

Networks(1) Interim Report for Q1 2014

 

Q1 2014 Financial Highlights:

 

·                  First quarter 2014 net sales of EUR 2 328 million, declined 14% year-on-year. Excluding divestments of businesses not consistent with Networks’ strategic focus as well as the exiting of certain customer contracts and countries, net sales year-on-year declined approximately 10%. This was primarily due to reduced wireless infrastructure deployment activity and a negative impact related to foreign currency fluctuations, partially offset by higher net sales in core networks and LTE. Net sales decreased 25% quarter-on-quarter primarily reflecting seasonality.

 

·                  Gross margin before specific items(2) was 39.6% in the first quarter 2014, the highest in Networks’ history, and an improvement of 5.8 percentage points from the first quarter 2013. This was primarily due to a higher proportion of software sales, significant efficiency improvements in Global Services and a higher proportion of Mobile Broadband sales. Sequentially, this represented an increase of 2.0 percentage points from the fourth quarter 2013.

 

·                  Operating expenses before specific items(2) in the first quarter 2014 were EUR 705 million, down from EUR 717 million in the first quarter 2013, and down from EUR 819 million in the fourth quarter 2013. Investment in research and development was reduced in areas not consistent with Networks’ strategy and increased in areas that are, most notably LTE.

 

·                  Underlying profitability for the eighth consecutive quarter, with the first quarter 2014 operating margin before specific items(2) of 9.3%, reflecting the strong gross margin. Operating margin in the first quarter 2014 was up from 7.4% in the first quarter 2013 and down from 11.2% in the fourth quarter 2013.

 

·                  Free cash flow was EUR 153 million in the first quarter 2014, compared to EUR 239 million in the first quarter 2013 and EUR 180 million in the fourth quarter 2013. In the first quarter 2014, Networks’ free cash flow was affected negatively by approximately EUR 110 million of restructuring-related outflows.

 

Corporate Developments

 

On April 29, 2014 Nokia announced a new strategy, a program to optimize capital structure and the leadership team of the Nokia Group, including Rajeev Suri as President and Chief Executive Officer. As part of that announcement Nokia announced that NSN will now be known as Networks and will operate under the Nokia brand. Additionally, in line with the earlier announcement, Jesper Ovesen stepped down from his role as Executive Chairman of Nokia Solutions and Networks upon the closing of the transaction whereby Nokia sold substantially all of its Devices & Services business to Microsoft on Friday April 25, 2014.

 


(1) Nokia Solutions and Networks, also referred to as NSN, was renamed as Networks and will operate under the Nokia brand. The figures presented on a Networks standalone basis in this Interim Report may differ from those reported by Nokia Corporation (‘Nokia’) due to the treatment of discontinued operations and certain accounting presentation differences. In addition, the presentation of underlying business performance information by Nokia and Networks differs due to presentation differences adopted by Nokia (non-IFRS information) and Networks (information before specific items) and the items excluded by each in their respective presentations.

(2) The before specific items financial measures exclude specific items for all periods: restructuring charges, country/contract exit charges, purchase price accounting related charges and other one-time charges. For an analysis of specific items, refer to page 15 of this report.

 

1



 

Operating and Financial Review

 

Financial results

 

The figures presented on a Networks standalone basis in this Interim Report may differ from those reported by Nokia due to the treatment of discontinued operations and certain accounting presentation differences. In addition, the presentation of underlying business performance information by Nokia and Networks differs due to presentation differences adopted by Nokia (non-IFRS information) and Networks (information before specific items) and the items excluded by each in their respective presentations.

 

The following table sets forth Networks’ consolidated income statement for the first quarter of 2014, the first quarter of 2013 and the fourth quarter of 2013:

 

 

 

Q1/2014

 

Q1/2013

 

Q4/2013

 

Unaudited

 

Before
specific
items

 

Specific
items

 

Total

 

Before
specific
items

 

Specific
items

 

Total

 

Before
specific
items

 

Specific
items

 

Total

 

 

 

EURm

 

EURm

 

EURm

 

EURm

 

EURm

 

EURm

 

EURm

 

EURm

 

EURm

 

Net sales

 

2 328

 

 

2 328

 

2 717

 

 

2 717

 

3 106

 

 

3 106

 

Cost of sales

 

(1 406

)

(7

)

(1 413

)

(1 798

)

(20

)

(1 818

)

(1 938

)

(33

)

(1 971

)

Gross profit

 

922

 

(7

)

915

 

919

 

(20

)

899

 

1 168

 

(33

)

1 135

 

Research and development expenses

 

(420

)

(13

)

(433

)

(436

)

(8

)

(444

)

(452

)

(15

)

(467

)

Selling, administrative and general expenses

 

(283

)

(20

)

(303

)

(288

)

(106

)

(394

)

(317

)

(56

)

(373

)

Other income and expenses

 

(2

)

3

 

1

 

7

 

(58

)

(51

)

(50

)

(6

)

(56

)

Operating profit

 

217

 

(37

)

180

 

202

 

(192

)

10

 

349

 

(110

)

239

 

Share of results of associates

 

 

 

 

 

(1

)

 

 

 

 

2

 

 

 

 

 

3

 

Financial income

 

 

 

 

 

6

 

 

 

 

 

3

 

 

 

 

 

6

 

Financial expenses

 

 

 

 

 

(24

)

 

 

 

 

(29

)

 

 

 

 

(23

)

Other financial results

 

 

 

 

 

(8

)

 

 

 

 

(49

)

 

 

 

 

(21

)

Profit/(loss) before tax

 

 

 

 

 

153

 

 

 

 

 

(63

)

 

 

 

 

204

 

Income tax expense

 

 

 

 

 

(29

)

 

 

 

 

(73

)

 

 

 

 

(32

)

Profit/(loss) for the period from continuing operations

 

 

 

 

 

124

 

 

 

 

 

(136

)

 

 

 

 

172

 

Discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit/(loss) for the period from discontinued operations

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

 

 

2

 

Profit/(loss) for the period

 

 

 

 

 

124

 

 

 

 

 

(143

)

 

 

 

 

174

 

Attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity holders of the parent

 

 

 

 

 

122

 

 

 

 

 

(145

)

 

 

 

 

171

 

Non-controlling interests

 

 

 

 

 

2

 

 

 

 

 

2

 

 

 

 

 

3

 

 

 

 

 

 

 

124

 

 

 

 

 

(143

)

 

 

 

 

174

 

 

The before specific items financial measures exclude specific items for all periods: restructuring charges, country/contract exit charges, purchase price accounting related charges and other one-time charges. For an analysis of specific items, refer to page 15 of this report.

 

The Optical Networks Business has been presented as discontinued operations in Networks’ consolidated financial statements for the years ended December 31, 2013 and 2012, refer to Note 12, Acquisitions and disposals of the Networks (formerly NSN) 2013 consolidated financial statements.

 

2



 

Key financials

 

The following table sets forth the summary financial information for each of the quarters indicated. This data has been derived from Networks’ unaudited interim consolidated financial statements, which are included in this interim report.

 

From continuing operations

Unaudited
EURm, except percentage data

 

Q1/2014

 

Q1/2013

 

YoY 
change

 

Q4/2013

 

QoQ 
change

 

Net sales

 

2 328

 

2 717

 

(14.3

)%

3 106

 

(25.0

)%

Gross profit

 

915

 

899

 

1.8

%

1 135

 

(19.4

)%

Gross profit before specific items

 

922

 

919

 

0.3

%

1 168

 

(21.1

)%

Gross margin before specific items

 

39.6

%

33.8

%

5.8

pp

37.6

%

2.0

pp

Operating expenses

 

(735

)

(889

)

(17.3

)%

(896

)

(18.0

)%

Operating expenses before specific items

 

(705

)

(717

)

(1.7

)%

(819

)

(13.9

)%

Operating profit (EBIT)

 

180

 

10

 

1700.0

%

239

 

(24.7

)%

Operating profit (EBIT) margin

 

7.7

%

0.4

%

7.3

pp

7.7

%

0.0

pp

EBIT before specific items

 

217

 

202

 

7.4

%

349

 

(37.8

)%

EBIT before specific items margin

 

9.3

%

7.4

%

1.9

pp

11.2

%

(1.9

)pp

Profit/(loss) for the period

 

124

 

(136

)

191.2

%

172

 

(27.9

)%

Depreciation and amortization (excluding PPA)

 

42

 

58

 

(27.6

)%

46

 

(8.7

)%

EBITDA before specific items

 

259

 

260

 

(0.4

)%

395

 

(34.4

)%

EBITDA before specific items margin

 

11.1

%

9.6

%

1.5

pp

12.7

%

(1.6

)pp

 

The before specific items financial measures exclude specific items for all periods: restructuring charges, country/contract exit charges, purchase price accounting related charges and other one-time charges. For an analysis of specific items, refer to page15 of this report.

 

References to EBITDA are to profit/loss for the period from continuing operations, before income tax expense, financial income and expenses, depreciation, amortization and share of results of associates. Accordingly, EBITDA can be extracted from the consolidated financial statements by taking profit/loss for the period and adding back income tax expense, financial income and expenses, depreciation, amortization and share of results of associates.

 

Networks is not presenting EBITDA or EBITDA-based measures as measures of its results of operations. EBITDA and EBITDA-based measures have important limitations as an analytical tool, and they should not be considered in isolation or as substitutes for analysis of our results of operations.

 

Percentage point changes are denoted by ‘pp’ in the above table.

 

3



 

Results of operations

 

The following tables set forth selected segment data from continuing operations for the quarters presented:

 

Mobile Broadband

Unaudited

EURm, except percentage data

 

Q1/2014

 

Q1/2013

 

YoY 
change

 

Q4/2013

 

QoQ 
change

 

Net sales

 

1 250

 

1 244

 

0.5

%

1 563

 

(20.0

)%

Operating profit before specific items

 

103

 

129

 

(20.2

)%

117

 

(12.0

)%

Operating profit% before specific items

 

8.2

%

10.4

%

(2.2

)pp

7.5

%

0.7

pp

 

Global Services

Unaudited
EURm
, except percentage data

 

Q1/2014

 

Q1/2013

 

YoY 
change

 

Q4/2013

 

QoQ 
change

 

Net sales

 

1 069

 

1 423

 

(24.9

)%

1 540

 

(30.6

)%

Operating profit before specific items

 

115

 

80

 

43.8

%

234

 

(50.9

)%

Operating profit% before specific items

 

10.8

%

5.6

%

5.2

pp

15.2

%

(4.4

)pp

 

The before specific items financial measures exclude specific items for all periods: restructuring charges, country/contract exit charges, purchase price accounting related charges and other one-time charges. For an analysis of specific items, refer to page 15 of this report.

 

Percentage point changes are denoted by ‘pp’ in the above table.

 

For all other segment data refer to Note 3, Segment information.

 

The following table sets forth net sales by geographic area by location of customer for the quarters presented:

 

Net sales from continuing operations

Unaudited
EURm
, except percentage data

 

Q1/2014

 

Q1/2013

 

YoY 
change

 

Q4/2013

 

QoQ 
change

 

Asia, Middle East and Africa

 

1 205

 

1 309

 

(7.9

)%

1 654

 

(27.1

)%

Europe and Latin America

 

861

 

1 007

 

(14.5

)%

1 189

 

(27.6

)%

North America

 

262

 

401

 

(34.7

)%

263

 

(0.4

)%

Total

 

2 328

 

2 717

 

(14.3

)%

3 106

 

(25.0

)%

 

Net sales

 

The year-on-year decrease of 14% in Networks’ net sales in the first quarter of 2014 was partially due to divestments of businesses not consistent with its strategic focus, as well as the exiting of certain customer contracts and countries. Excluding these two factors, our net sales in the first quarter of 2014 declined year-on-year by approximately 10%, primarily due to lower net sales in Global Services. Mobile Broadband net sales increased slightly year-on-year. Additionally, our net sales were negatively affected by foreign currency fluctuations. Excluding the negative effect of foreign currency fluctuations and the divestments of businesses not consistent with our strategic focus, as well as the exiting of certain customer contracts and countries, our net sales would have decreased approximately 6% year-on-year.

 

The year-on-year decrease of 25% in Global Services net sales in the first quarter of 2014 was primarily due to a reduction in network implementation and maintenance activity, consistent with lower levels of large scale network deployments, and the exiting of certain customer contracts and countries. In the first quarter of 2014, Mobile Broadband net sales benefited from higher net sales in core networks and LTE, offset by lower net sales in other radio technologies, resulting in a slight net sales increase year-on-year. Additionally, Mobile Broadband net sales were adversely affected by shortages of certain components, which we expect to continue to impact our business at least through the end of the second quarter of 2014.

 

On a regional basis, compared to the first quarter of 2013, net sales in North America declined 35%, primarily due to a cyclical slow down in LTE roll-outs; in Middle East and Africa net sales declined 36% and 23%, respectively, primarily due to the focus on a specific set of countries; in Latin America

 

4



 

net sales declined 27%, primarily due to constrained operator spending and the exit of certain projects in line with Networks’ strategy; in Asia Pacific net sales declined 24% primarily due to a decline from the height of LTE network roll-outs in the first quarter of 2013 in Korea; and in Europe net sales declined 9%, primarily due to contract exits in line with our strategy, and operator spending that, on balance, was constrained; and net sales in Greater China increased 26% primarily due to the new TD-LTE network roll-outs. For regional data, refer to Note 3, Segment information.

 

The sequential decrease of 25% in Networks’ net sales in the first quarter of 2014 reflects a seasonal decrease in sales in both Global Services and Mobile Broadband. The sequential decrease in Global Services was primarily due to a reduction in network implementation and maintenance activity. The decrease in Mobile Broadband net sales was driven by decline in legacy radio technologies. On a regional basis, our net sales decreased sequentially primarily due to Asia, Middle East and Africa, and Europe and Latin America.

 

In the first quarter of 2014, Global Services represented 46% of Networks’ net sales, compared to 52% in the first quarter of 2013 and 50% in the fourth quarter of 2013. In the first quarter of 2014, Mobile Broadband represented 54% of our net sales, compared to 46% in the first quarter of 2013 and 50% in the fourth quarter of 2013.

 

At constant currency*, Networks’ net sales would have decreased 10% year-on-year and decreased 23% sequentially. Excluding the negative effect of foreign currency fluctuations and the divestments of businesses not consistent with our strategic focus, as well as the exiting of certain customer contracts and countries, our net sales would have decreased 6% year-on-year and decreased 23% sequentially.

 

Gross margin

 

On a year-on-year basis, the increase in Networks’ gross margin before specific items in the first quarter of 2014 was primarily due to a higher proportion of software sales mainly in Japan, a higher gross margin in Global Services related to significant efficiency improvements as a result of its transformation program and a higher proportion of Mobile Broadband in the overall sales mix.

 

On a sequential basis, the increase in Networks’ gross margin before specific items in the first quarter of 2014 was primarily due to a higher proportion of software sales mainly in Japan, and a higher proportion of Mobile Broadband in the overall sales mix. The improved margin within Mobile Broadband was primarily due to lower costs in connection with the technology shift to TD-LTE in China.

 

Operating expenses

 

Networks’ research and development expenses before specific items decreased 4% year-on-year in the first quarter of 2014. On a year-on-year basis, research and development expenses before specific items were lower, primarily due to business divestments and reduced investments in business activities that are not consistent with our focused strategy, as well as increased research and development efficiency, partially offset by higher investments in areas that are consistent with our focused strategy, most notably LTE.  On a sequential basis, research and development expenses before specific items decreased 7%, primarily due to lower accrued incentive expenses, which were at an elevated level in the fourth quarter of 2013, and improved research and development efficiency.

 

On a year-on-year basis, Networks’ selling, general and administrative expenses before specific items decreased 2%, primarily due to structural cost savings from its transformation and restructuring program. On a sequential basis, selling, general and administrative expenses before specific items decreased 11%, consistent with seasonally lower net sales and lower accrued incentive expenses, which were at an elevated level in the fourth quarter of 2013.

 

Networks’ other income and expenses before specific items was an expense of EUR 2 million in the first quarter of 2014, compared to an income of EUR 7 million in the first quarter of 2013, and an expense of EUR 50 million in the fourth quarter of 2013. On a sequential basis, our other income and expenses before specific items was a lower expense due to the absence of the following factors, which resulted in elevated expense levels in the fourth quarter of 2013: a non-recurring litigation provision, a write down of a VAT receivable, an increase in doubtful account allowances, and asset retirement charges.

 


*Excluding the impact of changes in exchange rates in comparison to the Euro, Networks reporting currency.

 

5



 

Operating profit

 

The year-on-year increase in Networks’ operating profit before specific items in the first quarter of 2014 was primarily due to a higher operating profit before specific items in Global Services, partially offset by a lower operating profit before specific items in Mobile Broadband. On a year-on-year basis, the increase in Global Services operating profit before specific items was primarily due to higher gross profit. On a year-on-year basis, the decrease in Mobile Broadband operating profit before specific items was primarily due to lower gross profit.

 

The sequential decrease in Networks’ operating profit before specific items in the first quarter of 2014 was primarily due to the lower operating profit before specific items in Global Services, and to a lesser degree, a lower operating profit before specific items in Mobile Broadband. On a sequential basis, the decrease in Global Services operating profit before specific items was primarily due to seasonally lower net sales contributing to lower gross profit, partially offset by lower operating expenses. On a sequential basis, the decrease in Mobile Broadband operating profit before specific items was primarily due to seasonally lower net sales contributing to lower gross profit, partially offset by lower operating expenses.

 

Financial income and expenses

 

In the first quarter of 2014, Networks incurred a net expense in financial income and expenses of EUR 26 million compared to a net expense of EUR 75 million in the first quarter of 2013 and a net expense of EUR 38 million in the fourth quarter of 2013. On a year-on-year basis, the reduction in the net financial expense was primarily due to higher net foreign exchange losses in the first quarter of 2013, resulting mainly from the weakening of currencies that could not be hedged.

 

Income tax expense

 

In the first quarter of 2014, Networks incurred an income tax expense of EUR 29 million compared to EUR 73 million in the first quarter of 2013 and EUR 32 million in the fourth quarter of 2013. The Group’s income tax expense fluctuates from quarter to quarter as our effective tax rate varies significantly due to the non-recognition of the Finnish deferred tax assets as well as payments of foreign withholding taxes in certain overseas jurisdictions, for which no benefit is recorded, and the mix of profitability in our subsidiaries.

 

Networks periodically assesses its unrecognized deferred tax assets. At March 31, 2014, we have a total of approximately EUR 1.5 billion unrecognized net deferred tax assets, of which approximately EUR 1.2 billion relate to Finland and have not been recognized in the financial statements due to our history of losses in Finland. A significant portion of our Finnish deferred tax assets is indefinite in nature and available against future Finnish taxable income. We will continue to closely monitor the realizability of these deferred tax assets, including assessing future financial performance in Finland. Should the recent improvements in our financial results be sustained, we may recognize all or part of the unrecognized deferred tax asset in the future.

 

Net profit

 

Networks reported a net profit of EUR 124 million for the first quarter of 2014, up from a net loss of EUR 143 million in the first quarter of 2013 and down from a net profit of EUR 174 million in the fourth quarter of 2013. On a year-on-year basis, our result in the first quarter of 2014 has improved significantly due to lower restructuring related charges and improved profitability as part of our successful transformation to date. The sequential decrease in our net profit in the first quarter of 2014 was primarily due to the lower operating profit.

 

Transformation and restructuring program (announced in November 2011)

 

During the first quarter of 2014, restructuring related charges were approximately EUR 15 million and the related cash outflows were approximately EUR 110 million. At March 31, 2014, since the commencement of the global transformation and restructuring program, cumulative restructuring charges amounted to approximately EUR 1 850 million, and cumulative related cash outflows amounted to approximately EUR 1 350 million. Networks continues to estimate cumulative restructuring related charges and related cash outflows to be approximately EUR 1 950 million and EUR 1 700 million, respectively, by the end of 2014. Changes in estimates of timing or amounts of costs to be incurred and associated cash flows may become necessary as the transformation and restructuring program is being completed.

 

6



 

At the end of the first quarter of 2014, Networks had approximately 48 500 employees, a reduction of approximately 8 200 employees compared to the end of the first quarter of 2013, and a reduction of approximately 100 employees compared to the end of the fourth quarter of 2013.

 

Financial position

 

At March 31, 2014, non-current assets remained at EUR 1.5 billion, current assets remained at EUR 7.3 billion and non-current liabilities at EUR 1.3 billion in comparison to December 31, 2013. Current liabilities increased from EUR 5.2 billion at December 31, 2013 to EUR 5.3 billion at March 31, 2014 mainly due to an increase in advance payments received.

 

Cash flows

 

The table below sets forth information regarding Networks’ cash flows from continuing and discontinued operations for the quarters presented:

 

Unaudited
EURm 

 

Q1/2014

 

Q1/2013

 

Q4/2013

 

Statement of cash flows information:

 

 

 

 

 

 

 

Net cash from operating activities

 

203

 

274

 

204

 

Net cash used in investing activities

 

(50

)

(35

)

(17

)

Net cash (used in)/from financing activities

 

(35

)

104

 

(33

)

Net increase in cash and cash equivalents

 

100

 

333

 

120

 

Free cash flow(1)

 

153

 

239

 

180

 

Capital expenditures(2)

 

(39

)

(41

)

(35

)

Decrease/(increase) in net working capital

 

21

 

133

 

(72

)

Total cash and other liquid assets(3)

 

2 869

 

2 751

 

2 769

 

Net cash and other liquid assets(4)

 

1 867

 

1 484

 

1 678

 

 


(1) Free cash flow represents the sum of net cash from operating activities and net cash used in investing activities less proceeds from/purchases of current available-for-sale investments, liquid assets. The proceeds from/purchases of current available-for-sale investments, liquid assets, are presented in the Condensed Interim Consolidated Statement of Cash Flows.

 

(2) Capital expenditures represent purchases of property, plant and equipment and intangible assets.

 

(3) Includes EUR 25 million (EUR 76 million at December 31, 2013) non-interest bearing liabilities relating to cash held temporarily due to divested businesses where the Group continues to perform services within a contractually defined scope for a specified timeframe. The balances at March 31, 2013 and December 31, 2013 also included EUR 11 million and EUR 7 million, respectively, related to the sale of receivable arrangements in China.

 

(4) Consists of total cash and other liquid assets less total loans and borrowings. Total loans and borrowings consist of long-term interest-bearing liabilities, the current portion of long-term loans and short-term borrowings. Refer to Note 6, Loans and borrowings.

 

In the first quarter of 2014, Networks continued its strong performance from a cash perspective, generating EUR 153 million free cash flow, compared to EUR 239 million in the first quarter 2013 and EUR 180 million in the fourth quarter 2013. In the first quarter 2014, our free cash flow was affected negatively by approximately EUR 110 million of restructuring-related outflows.

 

For an analysis of Networks’ loans and borrowings related commitments at March 31, 2014, refer to Note 6, Loans and borrowings.

 

7



 

Q1 2014 Operating Highlights:

 

·             Networks’ strong deal momentum in mobile broadband and related services continued. During the quarter we were granted a five-year contract with Vodafone for the SingleRAN and Subscriber Data Management solutions in the operator’s Project Spring network upgrade, and selected by Everything Everywhere in the UK to support the continued expansion of its LTE network. We were also selected as the sole supplier of Elisa’s LTE network in Finland. Other contracts in the quarter included VimpelCom’s LTE radio access networks in the central region of Russia, Siberia, South and most of the Volga and Ural regions; the implementation of an LTE network and modernization of the existing GSM and 3G networks for TELE Greenland; the implementation of Taiwan Mobile’s multi-band LTE and LTE-Advanced network; the upgrade of Telkomsel’s GSM and 3G HSPA+ network in Indonesia; the modernization and expansion of Mobily’s 2G, 3G WCDMA and TD-LTE networks in Saudi Arabia; and LTE infrastructure for Avantel in Colombia. At the end of the first quarter of 2014, we had 138 commercial LTE contracts.

 

·             Networks continues to lead in 4G radio technology, demonstrating 2.6 Gbps throughput over a single sector in Sprint’s TD-LTE network. In the live network of Optus in Australia, the operator and Networks built the world’s first ‘Gigasite’ attaining an aggregate downlink capacity of 1.7 Gbps.

 

·             Networks announced the world’s first TDD-FDD carrier aggregation demonstration together with two South Korean operators, Korea Telecom and SK Telecom; and together with Broadcom Corporation and Elisa in Finland, the first ever demonstration of LTE Advanced carrier aggregation on a live commercial network.

 

·             Networks continues to invest in innovation and further evolve its Smart Scheduler that is now able to provide up to 30 percent faster downlink speeds at the cell edge; and announced new Centralized RAN software capable of doubling the uplink capacity of existing LTE networks. We also demonstrated our FutureWorks 5G research concept that enables ultra-dense networks, a mobile network ‘on demand’ for mega events, and a self-learning network that analyzes big data in real time and responds in an instant.

 

·             Networks extended its Flexi Zone small cell architecture and introduced the Flexi Zone controller that supports the integration of its Liquid Applications to deliver services directly from small cell base station clusters.

 

·             Networks announced the first telco cloud based IP Multimedia Subsystem (IMS); launched the Telco Cloud Management solution for operators; and extended its Services to help operators prepare, implement and run their own telco clouds and migrate existing telco services to cloud-based networks.

 

·             Tele2 Sweden chose Networks’ Serve at Once Traffica Customer Experience Management (CEM) solution, and we announced CEM for Loyalty Scores and the CEM Umbrella Solution for a customized overview of customer experience across an operator group’s countries or regions.

 

·             Networks renewed the managed services contract with Saudi Telecom Company, covering the operator’s GSM, 3G and LTE network; and launched Predictive Operations, the world’s first managed service for predicting mobile broadband service and network degradations; LTE Service Management that helps ensure the quality of mobile broadband services running over LTE networks; and Services for OTT management that helps operators improve the delivery of OTT content.

 

·             Telecommunication Development Industry Alliance (TDIA) awarded Networks’ contribution to time division (TD) technology; our Liquid Applications won a Global TD-LTE Initiative (GTI) Award in the “Innovative Solutions” category; and at the GSMA Global Mobile Awards 2014, Networks and O2 (Telefónica UK) won the top prize in the “Best Mobile Infrastructure” category for the deployment of iSON Automation for Operations.

 

8



 

Condensed Interim Consolidated Income Statement

 

 

 

March 31, 2014

 

March 31, 2013

 

 

 

 

 

Before

 

 

 

 

 

Before

 

 

 

 

 

For the three-month periods ended
Unaudited

 

Notes

 

specific
items

 

Specific
items

 

Total

 

specific
items

 

Specific
items

 

Total

 

 

 

 

 

EURm

 

EURm

 

EURm

 

EURm

 

EURm

 

EURm

 

Net sales

 

 

 

2 328

 

 

2 328

 

2 717

 

 

2 717

 

Cost of sales

 

 

 

(1 406

)

(7

)

(1 413

)

(1 798

)

(20

)

(1 818

)

Gross profit

 

 

 

922

 

(7

)

915

 

919

 

(20

)

899

 

Research and development expenses

 

 

 

(420

)

(13

)

(433

)

(436

)

(8

)

(444

)

Selling, administrative and general expenses

 

 

 

(283

)

(20

)

(303

)

(288

)

(106

)

(394

)

Other income and expenses

 

 

 

(2

)

3

 

1

 

7

 

(58

)

(51

)

Operating profit

 

 

 

217

 

(37

)

180

 

202

 

(192

)

10

 

Share of results of associates

 

 

 

 

 

 

 

(1

)

 

 

 

 

2

 

Financial income

 

 

 

 

 

 

 

6

 

 

 

 

 

3

 

Financial expenses

 

 

 

 

 

 

 

(24

)

 

 

 

 

(29

)

Other financial results

 

 

 

 

 

 

 

(8

)

 

 

 

 

(49

)

Profit/(loss) before tax

 

 

 

 

 

 

 

153

 

 

 

 

 

(63

)

Income tax expense

 

4

 

 

 

 

 

(29

)

 

 

 

 

(73

)

Profit/(loss) for the period from continuing operations

 

 

 

 

 

 

 

124

 

 

 

 

 

(136

)

Discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the period from discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

(7

)

Profit/(loss) for the period

 

 

 

 

 

 

 

124

 

 

 

 

 

(143

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity holders of the parent

 

 

 

 

 

 

 

122

 

 

 

 

 

(145

)

Non-controlling interests

 

 

 

 

 

 

 

2

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

124

 

 

 

 

 

(143

)

 

For an analysis of specific items, refer to Note 2, Specific items.

 

The notes are an integral part of these unaudited condensed interim consolidated financial statements.

 

9



 

Condensed Interim Consolidated Statement of Comprehensive Income

 

For the three-month periods ended
Unaudited

 

March 31, 
2014

 

March 31, 
2013

 

 

 

EURm

 

EURm

 

Profit/(loss) for the period

 

124

 

(143

)

Other comprehensive income

 

 

 

 

 

Items that will not be reclassified to profit or loss:

 

 

 

 

 

Remeasurements of defined benefit plans

 

(81

)

 

Income tax related to remeasurements of defined benefit plans

 

3

 

 

 

 

(78

)

 

Items that may be reclassified subsequently to profit or loss:

 

 

 

 

 

Translation differences

 

(11

)

44

 

Cash flow hedges

 

(26

)

(6

)

Available-for-sale investments

 

 

(2

)

Other decrease

 

 

(2

)

Income tax related to components of other comprehensive income

 

 

 

 

 

(37

)

34

 

Other comprehensive income for the period, net of tax

 

(115

)

34

 

Total comprehensive income/(loss) for the period

 

9

 

(109

)

Attributable to:

 

 

 

 

 

Equity holders of the parent

 

9

 

(112

)

Non-controlling interests

 

 

3

 

Total comprehensive income/(loss) for the period

 

9

 

(109

)

Total comprehensive income/(loss) attributable to equity shareholders arises from:

 

 

 

 

 

Continuing operations

 

9

 

(105

)

Discontinued operations

 

 

(7

)

 

 

9

 

(112

)

 

The notes are an integral part of these unaudited condensed interim consolidated financial statements.

 

10



 

Condensed Interim Consolidated Statement of Financial Position

 

 

 

 

 

March 31,
2014

 

December 31,

 

 

 

Notes

 

(unaudited)

 

2013

 

 

 

 

 

EURm

 

EURm

 

ASSETS

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

Goodwill

 

 

 

173

 

173

 

Other intangible assets

 

 

 

255

 

259

 

Property, plant and equipment

 

 

 

396

 

404

 

Investments in associates

 

 

 

35

 

36

 

Deferred tax assets

 

 

 

554

 

512

 

Long-term loans receivable

 

5

 

29

 

29

 

Available-for-sale investments

 

5

 

29

 

30

 

Other non-current assets

 

 

 

30

 

38

 

 

 

 

 

1 501

 

1 481

 

Current assets

 

 

 

 

 

 

 

Inventories

 

 

 

923

 

792

 

Accounts receivable, net of allowances for doubtful accounts

 

5

 

2 778

 

2 864

 

Prepaid expenses and accrued income

 

 

 

489

 

498

 

Current portion of long-term loans receivable

 

5

 

32

 

29

 

Other financial assets

 

5

 

93

 

163

 

Current income tax assets

 

 

 

146

 

140

 

Cash and cash equivalents

 

 

 

2 869

 

2 769

 

 

 

 

 

7 330

 

7 255

 

Total assets

 

 

 

8 831

 

8 736

 

EQUITY AND LIABILITIES

 

 

 

 

 

 

 

Equity attributable to equity holders of the parent

 

 

 

 

 

 

 

Share capital

 

 

 

0

 

0

 

Share premium

 

 

 

9 753

 

9 753

 

Translation differences

 

 

 

(31

)

(22

)

Fair value and other reserves

 

 

 

(128

)

(24

)

Accumulated deficit

 

 

 

(7 495

)

(7 617

)

 

 

 

 

2 099

 

2 090

 

Non-controlling interests

 

 

 

86

 

86

 

Total equity

 

 

 

2 185

 

2 176

 

Non-current liabilities

 

 

 

 

 

 

 

Long-term interest-bearing liabilities

 

5, 6

 

831

 

895

 

Deferred tax liabilities

 

 

 

41

 

44

 

Provisions

 

 

 

225

 

242

 

Other non-current liabilities

 

 

 

239

 

166

 

 

 

 

 

1 336

 

1 347

 

Current liabilities

 

 

 

 

 

 

 

Current portion of long-term interest-bearing liabilities

 

5, 6

 

145

 

86

 

Short-term borrowings

 

5, 6

 

26

 

110

 

Other financial liabilities

 

5

 

3

 

3

 

Accounts payable

 

5

 

1 809

 

1 787

 

Accrued expenses

 

 

 

2 587

 

2 424

 

Current income tax liabilities

 

 

 

152

 

140

 

Provisions

 

 

 

588

 

663

 

 

 

 

 

5 310

 

5 213

 

Total liabilities

 

 

 

6 646

 

6 560

 

Total equity and liabilities

 

 

 

8 831

 

8 736

 

 

The notes are an integral part of these unaudited condensed interim consolidated financial statements.

 

11



 

Condensed Interim Consolidated Statement of Cash Flows

 

For the three month periods ended
Unaudited

 

March 31,
2014

 

March 31,
2013

 

 

 

EURm

 

EURm

 

Cash flows from operating activities

 

 

 

 

 

Profit/(loss) for the period

 

124

 

(143

)

Adjusted for:

 

 

 

 

 

Restructuring and other specific items(1)

 

7

 

117

 

Depreciation and amortization

 

64

 

126

 

Income taxes

 

29

 

73

 

Financial income and expenses

 

26

 

75

 

Profit on sale of property, plant and equipment, businesses and Group companies

 

(3

)

 

Other adjustments

 

(17

)

(37

)

 

 

230

 

211

 

Change in net working capital:

 

 

 

 

 

Decrease in current receivables

 

28

 

501

 

(Increase)/decrease in inventories

 

(140

)

52

 

Increase/(decrease) in interest-free liabilities(2)

 

133

 

(420

)

Cash from operations

 

251

 

344

 

Interest received

 

5

 

2

 

Interest paid

 

(6

)

(24

)

Other financial income and expenses, net received

 

27

 

30

 

Income taxes paid

 

(74

)

(78

)

Net cash from operating activities

 

203

 

274

 

Cash flows from investing activities

 

 

 

 

 

Acquisition of Group companies, net of acquired cash

 

(12

)

 

Proceeds from current available-for-sale investments, liquid assets

 

 

 

Proceeds from short-term and other long-term loans receivable

 

 

5

 

Purchases of property, plant and equipment, and intangible assets

 

(39

)

(41

)

Proceeds from sale of property, plant and equipment, and intangible assets

 

1

 

1

 

Net cash used in investing activities

 

(50

)

(35

)

Cash flows from financing activities

 

 

 

 

 

Net proceeds from long-term borrowings

 

 

785

 

Repayment of long-term borrowings

 

(5

)

(676

)

Proceeds from/(repayments of) short-term borrowings

 

(30

)

24

 

Dividends and other payments to non-controlling interests

 

 

(29

)

Net cash (used in)/from financing activities

 

(35

)

104

 

Foreign exchange adjustments

 

(18

)

(10

)

Net increase in cash and cash equivalents

 

100

 

333

 

Cash and cash equivalents at beginning of period

 

2 769

 

2 418

 

Cash and cash equivalents at end of period

 

2 869

 

2 751

 

Cash and cash equivalents comprise:

 

 

 

 

 

Bank and cash

 

1 679

 

2 056

 

Current available-for-sale investments, cash equivalents

 

1 190

 

695

 

 

 

2 869

 

2 751

 

 


(1) Excludes PPA related charges, divestment results and impairments which are included in other line items within the above adjustments section.

(2) Includes changes in the following line items in the statement of financial position: accounts payable, accrued expenses, provisions and other short-term liabilities.

 

The figures in the condensed interim consolidated statement of cash flows cannot be directly traced from the statement of financial position without additional information as a result of acquisitions and disposals of subsidiaries and net foreign exchange differences arising on consolidation.

 

The notes are an integral part of these unaudited condensed interim consolidated financial statements.

 

12



 

Condensed Interim Consolidated Statement of Changes in Shareholders’ Equity

 

 

 

Attributable to owners of the parent

 

 

 

 

 

 

 

Unaudited
EURm

 

Number
of
ordinary
shares

 

Number
of cumu-

lative
preference
shares

 

Ordinary
share
capital(1)

 

Share
premium

 

Translation
differences

 

Fair
value
and
other
reserves

 

Accumulated
deficit

 

Before
Non-
Controlling
Interests

 

Non-
Controlling
Interests

 

Total

 

Balance at January 1, 2013

 

100 073

 

500

 

0

 

9 744

 

133

 

(96

)

(7 620

)

2 161

 

126

 

2 287

 

(Loss)/profit for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

(145

)

(145

)

2

 

(143

)

Other comprehensive income (net of tax)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remeasurements of defined benefit plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

(6

)

 

 

(6

)

 

 

(6

)

Available-for-sale investments

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

(2

)

 

 

(2

)

Currency translation differences

 

 

 

 

 

 

 

 

 

43

 

 

 

 

 

43

 

1

 

44

 

Other increase

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

(2

)

 

 

(2

)

Total comprehensive income/(loss) for the period

 

 

 

 

 

 

 

 

 

43

 

(8

)

(147

)

(112

)

3

 

(109

)

Other changes in non-controlling interests(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28

)

(28

)

Balance at March 31, 2013

 

100 073

 

500

 

0

 

9 744

 

176

 

(104

)

(7 767

)

2 049

 

101

 

2 150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2014

 

800 294

 

 

0

 

9 753

 

(22

)

(24

)

(7 617

)

2 090

 

86

 

2 176

 

Profit for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

122

 

122

 

2

 

124

 

Other comprehensive income (net of tax)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remeasurements of defined benefit plan

 

 

 

 

 

 

 

 

 

 

 

(78

)

 

 

(78

)

 

 

(78

)

Cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

(26

)

 

 

(26

)

 

 

(26

)

Available-for-sale investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation differences

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

(9

)

(2

)

(11

)

Other increase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive (loss)/income for the period

 

 

 

 

 

 

 

 

 

(9

)

(104

)

122

 

9

 

 

9

 

Other changes in non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2014

 

800 294

 

 

0

 

9 753

 

(31

)

(128

)

(7 495

)

2 099

 

86

 

2 185

 

 


(1) Ordinary share capital comprises EUR 400 thousand.

(2) Relates primarily to liquidation of a Group subsidiary.

 

The notes are an integral part of these unaudited condensed interim consolidated financial statements.

 

13



 

1.              Accounting principles

 

Basis of presentation

 

This report comprises Networks’ (‘the Group’) unaudited condensed interim consolidated income statement, statement of comprehensive income, statement of cash flows and statement of changes in shareholders’ equity for the three-month periods ended March 31, 2014 and 2013, and the unaudited consolidated statement of financial position as at March 31, 2014 (‘the unaudited condensed interim consolidated financial statements’). The unaudited condensed interim consolidated financial statements have been derived from the Group’s accounting records for the respective periods and represent non-statutory interim financial statements. The audited consolidated statement of financial position as at December 31, 2013 was derived from the Networks (formerly NSN) annual financial statements for the year ended December 31, 2013 (‘the 2013 consolidated financial statements’).

 

The unaudited condensed interim consolidated financial statements and the notes thereto, have been prepared in accordance with IAS 34, Interim Financial Reporting. The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board (‘IASB’) and in conformity with IFRS as adopted by the European Union (‘EU’). The consolidated financial statements are presented in millions of euro (‘EURm’).

 

Accounting policies

 

The same accounting policies, presentation and methods of computation have been followed in the unaudited condensed interim consolidated financial statements as were applied in the preparation of the 2013 consolidated financial statements. Refer to Note 1, Accounting principles, of the 2013 consolidated financial statements. The financial statements in this condensed report do not contain all the information included in the 2013 consolidated financial statements.

 

Adoption of new and amended standards

 

On January 1, 2014, the Group adopted the following revised standards issued by the IASB that are relevant to its operations and effective for accounting periods commencing on or after January 1, 2014:

 

Amendment to IAS 32, Offsetting Financial Assets and Financial Liabilities

 

The amendment clarified the meaning of ‘currently has a legally enforceable right to set-off’.

 

Amendments to IAS 36, Recoverable Amount Disclosures for Non-Financial Assets

 

The amendment added guidance on the disclosure of recoverable amounts and discount rates.

 

Amendments to IAS 19, Defined Benefit Plans: Employee Contributions

 

The amendment clarified the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service.

 

IFRIC 21, Levies, an interpretation of IAS 37, Provisions, contingent liabilities and contingent assets

 

The interpretation clarified that the obligating event giving rise to a liability to pay a levy to a government agency is the activity that triggers the payment.

 

The adoptation of these amendments and guidance did not have a material impact on the unaudited condensed interim consolidated financial statements.

 

Seasonality

 

The Group experiences seasonality. The Group’s sales are generally higher in the last quarter of the year compared with the first quarter of the following year due to network operators’ planning, budgeting and spending cycles.

 

14



 

Estimates

 

The preparation of interim financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from those estimates. In preparing these condensed interim financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the 2013 consolidated financial statements.

 

2.              Specific items

 

The Group separately identifies and discloses certain items, referred to as specific items, by virtue of size, nature or occurrence, including restructuring charges, country/contract exit charges, purchase price accounting (‘PPA’) related charges and asset impairment charges. This is consistent with the way that financial performance is measured by management and reported to the senior management team and Board of Directors, and it assists in providing a meaningful analysis of operating results by excluding items that may not be indicative of the operating results of the Group’s business.

 

The nature of the specific items recognized in the three-month period ended March 31, 2014 has not materially changed since December 31, 2013 and as such, the rationale provided in Note 2, Specific items, of the 2013 consolidated financial statements is still valid.

 

The following table presents specific items included in the operating profit for the Group’s continuing operations for the three-month periods ended:

 

EURm

 

Restructuring
charges

 

Country/
contract
exit
charges

 

PPA
adjustments

 

Other one-
time
charges

 

Total

 

March 31, 2014

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

9

 

(2

)

 

 

7

 

Research and development expenses

 

 

 

13

 

 

13

 

Selling, administrative and general expenses

 

2

 

 

9

 

9

 

20

 

Other income and expenses

 

(3

)

 

 

 

(3

)

Total

 

8

 

(2

)

22

 

9

 

37

 

March 31, 2013

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

2

 

18

 

 

 

20

 

Research and development expenses

 

1

 

 

7

 

 

8

 

Selling, administrative and general expenses

 

22

 

 

61

 

23

 

106

 

Other income and expenses

 

 

36

 

 

22

 

58

 

Total

 

25

 

54

 

68

 

45

 

192

 

 

Restructuring charges in the three-month period ended March 31, 2014 consist primarily of personnel restructuring charges. In the first quarter of 2013, restructuring charges consisted primarily of real estate costs.

 

The country/contract exit charges relate to the realignment of the Group’s customer contract and geographic market portfolio and the related charges to terminate certain underperforming contracts and to withdraw from certain countries in line with the Group’s restructuring program.

 

Purchase price accounting (‘PPA’) related charges primarily consist of the amortization of finite lived intangible assets (customer relationships, developed technology and licenses to use tradename and trademark) recognized in the purchase price allocation stemming from the Group’s formation and subsequent business combinations. The purchase price accounting related charges arising from the Group’s formation were fully amortized at the end of the first quarter of 2013.

 

The other one-time charges included in selling, administrative and general expenses consist of consultancy fees incurred in connection with the Group’s restructuring program announced in 2011.

 

15



 

For the three months ended March 31, 2013, the other one-time charges included in other expenses relate to a provision in connection with the closure of a manufacturing facility. Additionally, the Group’s discontinued operations incurred EUR 5 million of other one-time charges for the three-month period ended March 31, 2013.

 

3.              Segment information

 

The following table presents segment information for the Group’s continuing operations for the three-month periods ended:

 

EURm

 

Mobile
Broadband

 

Global
Services

 

All other
segments

 

Total
segments

 

Other

 

Total

 

March 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

1 250

 

1 069

 

1

 

2 320

 

8

 

2 328

 

Operating profit/(loss) before specific items

 

103

 

115

 

(9

)

209

 

8

 

217

 

Operating profit/(loss)% before specific items

 

8.2

%

10.8

%

n/a

 

 

 

 

 

9.3

%

Depreciation and amortization (excluding PPA related charges)

 

34

 

8

 

 

42

 

 

42

 

PPA related charges

 

17

 

5

 

 

22

 

 

22

 

Restructuring charges

 

2

 

6

 

 

8

 

 

8

 

March 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

1 244

 

1 423

 

50

 

2 717

 

 

2 717

 

Operating profit/(loss) before specific items

 

129

 

80

 

(7

)

202

 

 

202

 

Operating profit/(loss)% before specific items

 

10.4

%

5.6

%

n/a

 

 

 

 

 

7.4

%

Depreciation and amortization (excluding PPA related charges)

 

42

 

14

 

2

 

58

 

 

58

 

PPA related charges

 

35

 

32

 

1

 

68

 

 

68

 

Restructuring charges

 

9

 

10

 

(1

)

18

 

7

 

25

 

 

The following table presents net sales by geographic area by location of customer for the Group’s continuing operations for the three-month periods ended:

 

EURm

 

March 31,
2014

 

March 31,
2013

 

Greater China

 

278

 

220

 

Japan

 

373

 

393

 

India

 

165

 

164

 

Asia Pacific

 

211

 

276

 

Middle East

 

98

 

152

 

Africa

 

80

 

104

 

Asia, Middle East and Africa

 

1 205

 

1 309

 

East Europe

 

107

 

95

 

West Europe

 

349

 

403

 

South East Europe

 

194

 

220

 

Latin America

 

211

 

289

 

Europe and Latin America

 

861

 

1 007

 

North America

 

262

 

401

 

Total

 

2 328

 

2 717

 

 

16



 

4.              Taxation

 

In the three-month period ended March 31, 2014, the Group incurred an income tax expense of EUR 29 million, compared to an income tax expense of EUR 73 million for the three-month period ended March 31, 2013. The Group’s income tax expense fluctuates from quarter to quarter as the Group’s effective tax rate varies significantly due to the non-recognition of the Finnish deferred tax assets as well as payments of foreign withholding taxes in certain overseas jurisdictions, for which no benefit is recorded, and the mix of profitability in subsidiaries.

 

The Group periodically assesses its unrecognized deferred tax assets. For the three-month period ended March 31, 2014, the Group has a total of approximately EUR 1.5 billion unrecognized net deferred tax assets, of which approximately EUR 1.2 billion relate to Finland and have not been recognized in the financial statements due to the Group’s history of losses in Finland. A significant portion of the Group’s Finnish deferred tax assets are indefinite in nature and available against future Finnish taxable income. The Group will continue to closely monitor the realizability of these deferred tax assets, including assessing future financial performance in Finland. Should the recent improvements in financial results be sustained, all or part of the unrecognized deferred tax assets may be recognized in the future.

 

5.              Fair value of financial instruments

 

The following table presents the carrying amounts and the fair values of financial instruments by measurement category at:

 

 

 

Carrying amounts

 

 

 

March 31, 2014
EURm

 

Current
available-
for-sale
financial
assets

 

Non-
current
available-
for-sale
financial
assets

 

Financial
assets and
liabilities at
fair value
through
profit or
loss

 

Loans and
receivables
measured
at
amortized
cost

 

Financial
liabilities
measured
at
amortized
cost

 

Total
carrying
amounts

 

Fair value

 

Long-term loans receivable (1)

 

 

 

 

 

 

 

29

 

 

 

29

 

28

 

Available-for-sale investments(2)

 

 

 

29

 

 

 

 

 

 

 

29

 

29

 

Accounts receivable

 

 

 

 

 

 

 

2 778

 

 

 

2 778

 

2 778

 

Current portion of long-term loans receivable (3)

 

 

 

 

 

 

 

32

 

 

 

32

 

32

 

Derivative and other current financial assets

 

 

 

 

 

49

 

44

 

 

 

93

 

93

 

Fixed income and money-market investments carried at fair value(4)

 

1 190

 

 

 

 

 

 

 

 

 

1 190

 

1 190

 

Total financial assets

 

1 190

 

29

 

49

 

2 883

 

 

 

4 151

 

4 150

 

Long-term interest-bearing liabilities

 

 

 

 

 

 

 

 

 

831

 

831

 

934

 

Current portion of long-term interest-bearing liabilities

 

 

 

 

 

 

 

 

 

145

 

145

 

145

 

Short-term borrowings

 

 

 

 

 

 

 

 

 

26

 

26

 

26

 

Other financial liabilities

 

 

 

 

 

3

 

 

 

 

 

3

 

3

 

Accounts payable

 

 

 

 

 

 

 

 

 

1 809

 

1 809

 

1 809

 

Total financial liabilities

 

 

 

 

 

3

 

 

 

2 811

 

2 814

 

2 917

 

 

17



 

 

 

Carrying amounts

 

 

 

December 31, 2013
EURm

 

Current
available-
for-sale
financial
assets

 

Non-
current
available-
for-sale 
financial 
assets

 

Financial
assets and
liabilities at
fair value
through
profit or
loss

 

Loans and
receivables
measured
at
amortized
cost

 

Financial
liabilities
measured
at
amortized
cost

 

Total
carrying
amounts

 

Fair value

 

Long-term loans receivable (1)

 

 

 

 

 

 

 

29

 

 

 

29

 

28

 

Available-for-sale investments(2)

 

 

 

30

 

 

 

 

 

 

 

30

 

30

 

Accounts receivable

 

 

 

 

 

 

 

2 864

 

 

 

2 864

 

2 864

 

Current portion of long-term loans receivable (3)

 

 

 

 

 

 

 

29

 

 

 

29

 

29

 

Derivative and other current financial assets

 

 

 

 

 

69

 

94

 

 

 

163

 

163

 

Fixed income and money-market investments carried at fair value

 

924

 

 

 

 

 

 

 

 

 

924

 

924

 

Total financial assets

 

924

 

30

 

69

 

3 016

 

 

4 039

 

4 038

 

Long-term interest-bearing liabilities

 

 

 

 

 

 

 

 

 

895

 

895

 

1 000

 

Current portion of long-term interest-bearing liabilities

 

 

 

 

 

 

 

 

 

86

 

86

 

86

 

Short-term borrowings

 

 

 

 

 

 

 

 

 

110

 

110

 

110

 

Other financial liabilities

 

 

 

 

 

3

 

 

 

 

 

3

 

3

 

Accounts payable

 

 

 

 

 

 

 

 

 

1 787

 

1 787

 

1 787

 

Total financial liabilities

 

 

 

3

 

 

2 878

 

2 881

 

2 986

 

 


(1)         Includes EUR 11 million (EUR 10 million at December 31, 2013) relating to customer financing.

(2)         Includes investments carried at fair value and investments in publicly quoted equity shares of EUR 27 million and EUR 2 million, respectively (EUR 28 million and EUR 2 million at December 31, 2013).

(3)         Includes EUR 31 million (EUR 29 million at December 31, 2013) relating to customer financing.

(4)         Consists of available-for-sale investments, cash equivalents.

 

The fair value of long-term loans receivable is measured by amortizing the future cash flows of customer loans using the current credit risk factor (discount factor) of the borrower, whereas the carrying amount is based on the effective interest rate. The fair values of accounts receivable and accounts payable are assumed to approximate their carrying amounts due to their short-term nature. The fair values are estimated to be equal to the carrying amounts for short-term financial assets and financial liabilities due to the limited credit risk and short maturity. The fair value of long-term interest bearing liabilities is determined with reference to quoted yield curves. The fair value of short-term borrowings is assumed to approximate the carrying amount due to its short-term nature. For information on the valuation of items measured at fair value refer to Note 1, Accounting principles, of the 2013 consolidated financial statements.

 

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 the increasing amount of judgment associated with the inputs used to derive fair valuation for these assets and liabilities. At the end of each reporting period, the Group categorizes its financial assets and liabilities to an appropriate level of the fair value hierarchy. Refer to Note 20, Fair value of financial instruments, of the 2013 consolidated financial statements.

 

18



 

The following table presents the valuation methods used to determine the fair values of financial instruments carried at fair value at:

 

EURm

 

Instruments 
with quoted 
prices in active 
markets
 
(Level 1)

 

Valuation 
technique 
using 
observable 
data
 
(Level 2)

 

Valuation 
technique 
using non-
observable 
data 
(Level 3)

 

Total

 

March 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed income and money-market investments carried at fair value

 

1 190

 

 

 

 

 

1 190

 

Available-for-sale investments in publicly quoted equity shares

 

2

 

 

 

 

 

2

 

Other available-for-sale investments carried at fair value

 

 

 

17

 

10

 

27

 

Derivative assets

 

 

 

49

 

 

 

49

 

Total financial assets

 

1 192

 

66

 

10

 

1 268

 

Derivative liabilities

 

 

 

3

 

 

 

3

 

Total financial liabilities

 

 

3

 

 

3

 

December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed income and money-market investments carried at fair value

 

924

 

 

 

 

 

924

 

Available-for-sale investments in publicly quoted equity shares

 

2

 

 

 

 

 

2