Rebalancing for Growth
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Rebalancing for growth Nokia in 2016 Overview Contents Overview 01 This is Nokia 02 Key data 06 Nokia in 2016 – a successful first year of combined operations 08 Business overview 10 Letter from our President and CEO 12 Our role as a global technology leader 16 Our values 17 Our strategy 18 Our leadership 24 Our businesses 26 Principal industry trends affecting operations 40 Board review 44 Board review 46 Results of operations 47 Results of segments 55 Liquidity and capital resources 61 Material subsequent events 65 Sustainability and corporate responsibility 66 Employees 69 Dividend 70 Nokia’s outlook 71 Risk factors 72 Shares and share capital 74 Board of Directors and management 75 Articles of Association 75 Corporate governance 76 Corporate governance statement 78 Compensation 92 General facts on Nokia 108 Our history 110 Memorandum and Articles of Association 111 Selected financial data 113 Shares and shareholders 115 Related party transactions 123 Production of infrastructure equipment and products 123 Key ratios 124 Financial statements 125 Consolidated primary statements 126 Notes to consolidated financial statements 132 Parent company primary statements 196 Notes to the parent company primary statements 200 Signing of the Annual Accounts 2016 and proposal by the Board of Directors for distribution of profit 211 Auditor’s Report 212 Other information 217 Forward-looking statements 218 Glossary of terms 220 Investor information 223 Contact information 224 NOKIA IN 2016 01 This is Nokia We create the technology to connect the world. Powered by the research and innovation of Nokia Bell Labs, we serve communications service providers, governments, large enterprises and consumers with the industry’s most complete end-to-end portfolio of products, services and licensing. From the enabling infrastructure for 5G and the Internet of Things (“IoT”) to emerging applications in Virtual Reality (“VR”) and digital health, we are shaping the future of technology to transform the human experience. Since the closing of the Alcatel Lucent Through our five business groups, we have Countries of operation acquisition in early January 2016 (the a global presence with operations in Europe, “Acquisition of Alcatel Lucent”), we have the Middle East & Africa, Greater China, combined global leadership in mobile and North America, Asia-Pacific and Latin America. fixed network infrastructure with the In 2016, we had sales in approximately 100+ software, services and advanced technologies 130 countries. We also have research and to serve customers in more than 100 development (“R&D”) facilities in Europe, countries around the world. We are driving the North America and Asia, and at the end Number of employees at the end of 2016 transition to smart, virtual networks and of 2016, we employed approximately connectivity by creating one single network 101 000 people. for all services, converging mobile and fixed broadband, IP routing and optical networks, We closed 2016 delivering net sales of ~101 000 with the software and services to manage EUR 23.6 billion. We continued to make them. Our research scientists and engineers significant targeted R&D investments, a continue to invent new technologies that will bedrock of our success in innovation, with R&D investment in 2016 increasingly transform the way people and R&D expenditures equaling EUR 4.9 billion things communicate and connect: 5G, ultra in 2016. broadband access, IP and Software Defined Networking (“SDN”), Cloud applications, E U R 4 . 9 b n IoT and security platforms, data analytics, as well as sensors and imaging. 02 NOKIA IN 2016 Overview Acquisition of Alcatel Lucent During the course of the year, we continued On October 25, 2016, with the legal challenge to take steps towards gaining full ownership still pending, the AMF announced the In April 2015, we announced plans to acquire of Alcatel Lucent through the initial and continuation of the timetable of the public Alcatel Lucent with an aim to create an reopened exchange offers and by purchasing buy-out offer followed by a squeeze-out innovation leader in next generation Alcatel Lucent shares and OCEANE convertible of all remaining securities of Alcatel Lucent, technology and services. The all-share bonds in privately negotiated transactions, allowing the public buy-out period to end transaction was agreed on the basis of 0.55 consequently reaching full ownership of on October 31, 2016 and the squeeze-out new Nokia shares for every Alcatel Lucent Alcatel Lucent in November 2016. to be implemented on November 2, 2016. share, a transaction valued at EUR 15.6 billion On November 2, 2016, we achieved 100% on a fully diluted basis. On October 4, 2016, the French stock market ownership of Alcatel Lucent. authority (Autorité des marchés financiers, At the end of 2015, our shareholders voted the “AMF”) announced that a legal action On December 15, 2016, the plaintiffs overwhelmingly to approve the Alcatel Lucent was filed before the Paris Court of Appeal on withdrew the complaint they had filed before acquisition, and in early January 2016 we September 30, 2016 for annulment of the the Paris Court of Appeal and, consequently, announced that we had gained control of AMF’s clearance decision regarding our public the public buy-out offer followed by a Alcatel Lucent through the successful public buy-out offer, which would be followed by squeeze-out had therefore become definitive, exchange offer for all outstanding Alcatel a squeeze-out of all remaining securities confirming our ownership of 100% of Lucent securities by holding nearly 80% of Alcatel Lucent. As a result, the public Alcatel Lucent. of outstanding Alcatel Lucent securities. buy-out offer period was extended and the squeeze-out was postponed. We found the legal challenge to be without merit, as we believed that the offer complied with all applicable laws and regulations. NOKIA IN 2016 03 This is Nokia continued Organizational structure Following the changes to our organizational structure announced on March 17, 2017, we and reportable segments will continue to report financial information January 14, 2016 was Nokia and Alcatel for Ultra Broadband Networks, IP Networks Lucent’s first day of combined operations. and Applications and Nokia Technologies. Ultra Broadband Networks will be composed After the Acquisition of Alcatel Lucent, we of the Mobile Networks, Global Services and organized our networks-oriented businesses Fixed Networks business groups. IP Networks into four business groups: Mobile Networks, and Applications is composed of the IP/Optical Fixed Networks, IP/Optical Networks and Networks and Applications & Analytics Applications & Analytics (together the business groups. “Networks business”); and kept our driver of future innovation and licensing, Nokia Additionally, we report the results of other Technologies, as a separate fifth business business activities that are not reportable group. For descriptions of our business segments, such as our undersea cables groups, refer to “Business overview— business, Alcatel-Lucent Submarine Networks business” and “Business overview— Networks (“ASN”), and our antenna systems Nokia Technologies”. business, Radio Frequency Systems (“RFS”), in aggregate. Both ASN and RFS are being We have three reportable segments: managed as separate businesses. (i) Ultra Broadband Networks comprising Mobile Networks and Fixed Networks, (ii) IP Networks and Applications comprising IP/ Optical Networks and Applications & Analytics (all within our Networks business), and (iii) Nokia Technologies. 04 NOKIA IN 2016 Overview Our business groups in 2016 Mobile Networks Fixed Networks IP/Optical Networks Higher quality and more More bandwidth in more Massively scalable networks reliable mobile broadband places giving communities securely connecting everyone experiences more access to the world and everything to the Cloud Applications & Analytics Nokia Technologies Intelligent software platforms Connected health devices; optimizing and automating professional Virtual Reality network performance capture and broadcast; and highly valuable brand, intellectual property and technologies NOKIA IN 2016 05 Key data Net sales 2016 Gross margin 2016 EUR 23.6bn 35.8% Dividend per share 2016 Net cash as of December 31, 2016 EUR 0.17 EUR 5.3bn 2016 2015 The following table sets For the year ended December 31 EURm EURm Change forth summary financial and Net sales 23 614 12 499 89% non-financial information for the Nokia’s Networks business 21 800 11 487 90% years ended December 31, 2016 Ultra Broadband Networks 15 771 10 159 55% (including Alcatel Lucent) and IP Networks and Applications 6 029 1 328 354% Nokia Technologies 1 053 1 027 3% December 31, 2015 for our Group Common and Other 1 145 – – Continuing operations. This Gross margin 35.8% 44.3% (850)bps data has been derived from Operating (loss)/profit (1 100) 1 697 – our consolidated financial Nokia’s Networks business 1 935 1 349 43% Ultra Broadband Networks 1 362 1 211 12% statements, which are included IP Networks and Applications 573 138 315% in this annual report. Nokia Technologies 579 698 (17)% Group Common and Other (342) (89) 284% Unallocated items(1) (3 272) (261) – Operating margin (4.7)% 13.6% (1 830)bps Financial income and expenses, net (287) (186) 54% Income tax benefit/(expense) 457 (346) – (Loss)/profit (912) 1 194 – Earnings per share (“EPS”), EUR diluted (0.13) 0.31 – Average number of employees 102 687 56 690 81% Net sales by region Asia-Pacific 4 206 3 230 30% Europe 6 393 3 813 68% Greater