Nokia has posted its Q1 2016 Financial results and the two continuing businesses Nokia Networks and Nokia Technologies have done well in spite of the seasonality factor in play. The operating profit for Nokia in Q4 2015 is 345 million. Nokia non-IFRS operating profit increased on a Year-on-Year basis. Net sales is EUR 5.6 billion in Q1 2016. In Q1 2016, the net cash and other liquid assets of the combined company increased by EUR 471 million, to EUR 8.2 billion. Read the highlights and CEO Rajeev Suri’s statement below,
- Non-IFRS net sales in Q1 2016 of EUR 5.6 billion. In the year-ago quarter, non-IFRS net sales would have been EUR 6.1 billion on a comparable combined company basis.
- Non-IFRS diluted EPS in Q1 2016 of EUR 0.03. Q1 2016 reflected the acquisition of Alcatel-Lucent, which resulted in a higher share count, as well as higher non-IFRS tax expenses due to unfavorable changes in the regional profit mix. Note that Nokia’s Q1 2016 non-IFRS diluted EPS was reported as a combined company, whereas the Q1 2015 non-IFRS diluted EPS of EUR 0.05 was reported on a Nokia stand-alone basis.
- In Q1 2016, the net cash and other liquid assets of the combined company increased by EUR 471 million, to EUR 8.2 billion, compared to Nokia on a standalone basis at the end of Q4 2015, primarily due to the acquisition of Alcatel-Lucent, partially offset by cash outflows related to working capital.
- 8% year-on-year net sales decrease in Q1 2016. Our performance was primarily due to Ultra Broadband Networks, which declined 12% year-on-year and 27% sequentially, consistent with our outlook for a greater than normal seasonal decline in the wireless infrastructure market in Q1 2016. IP Networks and Applications grew on a year-on-year basis.
- Strong non-IFRS gross margin of 38.3% in Q1 2016 primarily due to improved product mix in Ultra Broadband Networks (led by Mobile Networks) and IP Networks and Applications (led by IP/Optical Networks), as well as efficiency gains.
- Non-IFRS operating margin of 6.5% in Q1 2016. The year-on-year increase of 2.8 percentage points was primarily due to the higher non-IFRS gross margin, as well as continued focus on execution excellence.
- 27% year-on-year net sales decrease in Q1 2016. Our performance was affected by the absence of the following three items which benefitted Q1 2015: non-recurring adjustments to accrued net sales from existing agreements, revenue share related to previously divested intellectual property rights (“IPR”), and IPR divestments. Excluding these three items, net sales increased year-on-year by approximately 10% due to higher intellectual property licensing income.
Nokia CEO’s Statement:
Nokia’s first quarter results demonstrate the strategic value of our combination with Alcatel-Lucent.
I am pleased that we were able to deliver solid profitability in what is typically a seasonally weak quarter and at a time when the risk of integration-related disruption was high. While our revenue decline was disappointing, the shortfall was largely driven by Mobile Networks, where the challenging environment is not a surprise. We noted in our Q4 2015 earnings release that we expected some market headwinds in 2016 in the wireless sector and we continue to hold that view today.
Based on our current assessment, we expect a full year 2016 non-IFRS operating margin above 7% in the Networks business. When looking at the first half of the year, we do not expect typical seasonal patterns to occur given likely market conditions in the second quarter and our ongoing integration of Alcatel-Lucent.
While integrations of the scale of Alcatel-Lucent are complex and take time, we are now sufficiently confident in our progress that we are targeting synergies that are both more than and faster than our original plan. We already have agreed transition plans that cover the most pressing areas of portfolio overlap with most of our top customers; have begun the process of reducing over-lapping personnel including initial reductions in the United States and several other countries; started to consolidate our real estate footprint with several sites already closed and thirty more scheduled for the current quarter; and completed 40 projects with suppliers to drive procurement savings, with 200 more projects currently underway and plans for hundreds of additional projects to be launched largely over the course of Q2 2016.
I am also pleased that we continue to see strong support from our customers, including those from the former Alcatel-Lucent. We are focused on capitalizing on these opportunities through strengthening our sales execution, as well as bringing unique innovation rapidly to market, such as our recently announced 5G-ready AirScale radio access family of products.
On a final note, I am excited that the team from Withings will be joining Nokia, as part of Nokia Technologies. We have said consistently that digital health is an area of strategic interest to us, and with this acquisition we have an excellent opportunity to expand in what is one of the largest markets in the Internet of Things and build future licensing opportunities.