To change the document information in the footer, press [Alt + F8] and use the “FORM“
Nokia Networks Reinvented
Samih Elhage Chief Financial and Operating Officer Nokia Networks
1 14/11/14 © Nokia Confidential
Core and background colors:
R 18 R 0 R 104 R 168 R 216 G 65 G 201 G 113 G 187 G 217 B 145 B 255 B 122 B 192 B 218 To change the document information in the footer, press [Alt + F8] and use the “FORM“
Our evolution to continuous improvement
TO: continuous improvement
1. Winning in key markets, expanding FROM: restructuring partnering and leveraging targeted and transformation acquisitions 2. Protecting our gross margin performance › 3. Managing our OPEX: focus and discipline 4. Protecting our operating profit performance
5. Differentiating through quality and operating model
Core and background colors:
R 18 R 0 R 104 R 168 R 216 G 65 G 201 G 113 G 187 G 217 B 145 B 255 B 122 B 192 B 218 To change the document information in the footer, press [Alt + F8] and use the “FORM“
1. Winning in key markets (1/2) Net sales (year-on-year change)
20% Nokia Networks 10% 13% • Execution is critical 3% 0%
• Extremely well-organized global Customer -10%
Operations -20% -26% • Tight sales funnel control -30% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 • Sales effectiveness KPIs 2012 2013 2014
• Structures and governance in place 40% 33% 30% • 20% Mobile Clearly defined steps and decision gates Broadband 10% 6% • 0% Leverage customer base for continued -5% -10% 2% upsell opportunities Global -20% Services -30% -23% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2013 2014
*) Numbers shown are non-IFRS results as reported by Nokia. Non-IFRS results exclude special items for all periods.
Core and background colors:
R 18 R 0 R 104 R 168 R 216 G 65 G 201 G 113 G 187 G 217 B 145 B 255 B 122 B 192 B 218 To change the document information in the footer, press [Alt + F8] and use the “FORM“
1. Winning in key markets (2/2)
Expanding partnering Leveraging acquisitions • Revenue expansion • Four acquisitions to date • Creating new ecosystems • Precise technology objectives • Exploiting technology disruptions • Specific geographic aims
Extend Embed *) Our portfolio & Partner elements offerings inside our portfolio
Plug-in Channel Via open interface New channels, to communities new customers
*) Expected to close in 2015
Core and background colors:
R 18 R 0 R 104 R 168 R 216 G 65 G 201 G 113 G 187 G 217 B 145 B 255 B 122 B 192 B 218 To change the document information in the footer, press [Alt + F8] and use the “FORM“
2. Protecting our gross margin performance Non-IFRS Gross Margin (%) • Structured transformation delivering continuous improvement in gross margin 50% 45% 36.6% 39.1% • Limited gross margin improvement from 40% 32.2% contract and country exits 35% 30% • Majority of gross margin improvement from 25% operational excellence 20% 15% • Permanent improvements in Mode of Operations 10% 5% • Pricing War Room 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
• Total Cost of Ownership 2012 2013 2014
• Regional Delivery
• Global Delivery Centers Capability *) Numbers shown are non-IFRS results as reported by Nokia. Non-IFRS results exclude special items for all periods.
Core and background colors:
R 18 R 0 R 104 R 168 R 216 G 65 G 201 G 113 G 187 G 217 B 145 B 255 B 122 B 192 B 218 To change the document information in the footer, press [Alt + F8] and use the “FORM“
3. Managing our OPEX: continued focus & discipline -22% non-IFRS OPEX EUR million, 1-3Q 2 719 2 570 2 262 2 133 • Overall reductions in OPEX, while maintaining cost intensity 2011 2012 2013 2014
• Continued optimization of R&D
• Rebalancing portfolio investments -19% towards growth technologies e.g. 4G, cloud, small cells non-IFRS R&D OPEX EUR million, 1-3Q 1 564 1 522 1 351 1 267
• Shifting costs from high to low cost 2011 2012 2013 2014 locations
• Improved R&D efficiency and quality
• Continuous improvement in SG&A -25% non-IFRS SG&A OPEX EUR million, 1-3Q 1 155 • Focused S&M to improve customer 1 048 911 866 acquisition and revenue impact 2011 2012 2013 2014 • Tight cost discipline in G&A
Core and background colors:
R 18 R 0 R 104 R 168 R 216 G 65 G 201 G 113 G 187 G 217 B 145 B 255 B 122 B 192 B 218 To change the document information in the footer, press [Alt + F8] and use the “FORM“
Non-IFRS Operating Margin (%) 4. Protecting our operating profit Nokia Networks performance 20% 13.5% 15% 9.3% 8.4% 10% • Achieved restructuring and transformation 5% targets 0% -5% • Business model with a strong operating -10% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 profitability mindset across all areas of the business 2012 2013 2014
• Maximising profitability through continuous 20% Global improvement of business segment specific 18% Services 15% levers 15% 12% 10% 11% • Focus on operating performance 5% Mobile 3% 5% Broadband 0% • Six quarters of double-digit operating -5% profit in Global Services -10% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 • Four quarters of continuous 2012 2013 2014 improvement in Mobile Broadband operating profit *) Numbers shown are non-IFRS results as reported by Nokia. Non-IFRS results exclude special items for all periods.
Core and background colors:
R 18 R 0 R 104 R 168 R 216 G 65 G 201 G 113 G 187 G 217 B 145 B 255 B 122 B 192 B 218 To change the document information in the footer, press [Alt + F8] and use the “FORM“
5. Differentiating by quality and operating model (1/2) • Quality Business System focused on improvements with transparent financial impacts
• Quality Methodologies are the foundation (e.g., Kaizen, Lean & 6 Sigma) Customer- Defect & centric waste • Process improvements optimising our mode of alignment elimination operations and cost
• Operating model rooted deep in the organization
QUALITY with financial & operational KPIs Increased BUSINESS Leanest market share SYSTEM process • Governance model and operating rhythm to drive execution excellence
• Quality improvements yielding:
• measurable financial impacts linked directly to Top line Bottom-line the P&L growth improvement • improved Customer Perceived Value
Core and background colors:
R 18 R 0 R 104 R 168 R 216 G 65 G 201 G 113 G 187 G 217 B 145 B 255 B 122 B 192 B 218 To change the document information in the footer, press [Alt + F8] and use the “FORM“
5. Differentiating by quality and operating model (2/2) – through ‘Smarter’ programs
1 Structural pricing improvement Net Sales & Gross Margin
2 Services productivity and cost improvement Gross Margin 3 Design to cost and hardware cost improvement 4 Design for serviceability improvement
5 Quality improvement Gross Margin & OPEX
6 R&D transformation OPEX 7 IT transformation
8 End-to-end supply chain improvement Enabler 9 Finance backbone
Core and background colors:
R 18 R 0 R 104 R 168 R 216 G 65 G 201 G 113 G 187 G 217 B 145 B 255 B 122 B 192 B 218 To change the document information in the footer, press [Alt + F8] and use the “FORM“
Summary
• Winning in key markets, expanding Nokia partnering and leveraging targeted acquisitions
Networks • Protecting our gross margin performance Reinvented • Managing our OPEX: focus and discipline • Protecting our operating profit performance
• Differentiating through quality and operating model
Core and background colors:
R 18 R 0 R 104 R 168 R 216 G 65 G 201 G 113 G 187 G 217 B 145 B 255 B 122 B 192 B 218 To change the document information in the footer, press [Alt + F8] and use the “FORM“
Disclaimer
It should be noted that Nokia and its business are incorrect could cause actual results to differ materially information and a reconciliation between the non-IFRS exposed to various risks and uncertainties and certain from those in the forward-looking statements. Nokia and the reported information for historical periods can statements herein that are not historical facts are does not undertake any obligation to publicly update be found in Nokia’s respective results reports. Please forward-looking statements, including, without or revise forward-looking statements, whether as a see our issued Interim Reports for more information limitation, those regarding future business and result of new information, future events or otherwise, on our results and financial performance for the financial performance of Nokia and its industry and except to the extent legally required. indicated periods as well as our operating and statements preceded by "believe“, "expect“, reporting structure. "anticipate“, "foresee“, "sees“, "target“, "estimate“, In addition to information on our reported IFRS "designed“, "aim", "plans“, "intends“, "focus“, results, we provide certain information on a non-IFRS, Nokia is a registered trademark of Nokia Corporation. “continue”, "will" or similar expressions. These or underlying business performance, basis. Non-IFRS Other product and company names mentioned herein statements are based on management's best results exclude all material special items for all periods. may be trademarks or trade names of their respective assumptions and beliefs in light of the information In addition, non-IFRS results exclude intangible asset owners. currently available to it. Because they involve risks and amortization and other purchase price accounting uncertainties, actual results may differ materially from related items arising from business acquisitions. Nokia © Nokia 2014 the results that we currently expect. Factors, including believes that our non-IFRS financial measures provide risks and uncertainties that could cause these meaningful supplemental information to both differences can be both external, such as general, management and investors regarding Nokia’s economic and industry conditions, as well as internal underlying business performance by excluding the operating factors. We have identified these in more above-described items that may not be indicative of detail on pages 12-35 of Nokia's annual report on Nokia’s business operating results. These non-IFRS Form 20-F for the year ended December 31, 2013 financial measures should not be viewed in isolation or under Item 3D. "Risk Factors." and in our Interim as substitutes to the equivalent IFRS measure(s), but Reports issued on July 24, 2014 and October 23, should be used in conjunction with the most directly 2014. Other unknown or unpredictable factors or comparable IFRS measure(s) in the reported results. A underlying assumptions subsequently proven to be detailed explanation of the content of the non-IFRS
Core and background colors:
R 18 R 0 R 104 R 168 R 216 G 65 G 201 G 113 G 187 G 217 B 145 B 255 B 122 B 192 B 218 To change the document information in the footer, press [Alt + F8] and use the “FORM“
Core and background colors:
R 18 R 0 R 104 R 168 R 216 G 65 G 201 G 113 G 187 G 217 B 145 B 255 B 122 B 192 B 218