Nokia Corporation (NOK) hosted a conference call with investors and analysts to discuss Q3 2014 earnings results on October 23, 2014 at 8:00 a.m. ET. The following are the webcast audio and the associated transcript of the event…
Nokia Corporation (ADR) (NYSE:NOK)
Q3 2014 Earnings Conference Call
October 23, 2014 08:00 AM ET
Matt Shimao – Head, IR
Rajeev Suri – President and CEO
Timo Ihamuotila – EVP and Group CFO
Alexander Peterc – Exane BNP Paribas
Gareth Jenkins – UBS
Stuart Jeffrey – Nomura
Sandeep Deshpande – JPMorgan
Andrew Gardiner – Barclays
Mike Walkley – Canaccord Genuity
Joanne Zuo – Deutsche Bank
Tim Long – BMO Capital Markets
Kulbinder Garcha – Credit Suisse
Pierre Ferragu – Bernstein
Mark Sue – RBC Capital Markets
Francois Meunier – Morgan Stanley
Ittai Kidron – Oppenheimer
Ehud Gelblum – Citigroup
Richard Kramer – Arete
Good day. My name is Stephanie and I will be your conference operator today. At this time, I would like to welcome everyone to the Nokia Q3 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions).
I would now like to turn the call over to Matt Shimao, Head of Investor Relations. Mr. Shimao, you may begin.
Matt Shimao – Head, IR
Ladies and gentlemen, welcome to Nokia’s third quarter 2014 conference call. I’m Matt Shimao, Head of Nokia Investor Relations. Rajeev Suri, President and CEO; and Timo Ihamuotila, EVP and Group CFO, are here in Espoo with me today.
Before we begin our discussion, I’d like to remind and ask investors who plan to attend our Capital Markets Day on November 14 to please register as soon as possible, so that we can optimize the venue logistics. Any questions can be addressed to firstname.lastname@example.org.
During this call, we’ll be making forward-looking statements regarding the future business and financial performance of Nokia and its industry. These statements are predictions that involve risks and uncertainties. Actual results may therefore differ materially from the results we currently expect. Factors that could cause such differences can be both external, such as general economic and industry conditions, as well as internal operating factors. We have identified these in more detail in the risk factors section of our 20-F for 2013 and in our Interim Report issued today.
Please note that our results release, the complete interim report with tables and the presentation on our Web site include non-IFRS results information in addition to the reported results information. Our complete interim report with tables available on our Web site includes a detailed explanation of the content of the non-IFRS information and a reconciliation between the non-IFRS and the reported information.
With that Rajeev, over to you.
Rajeev Suri – President and CEO
Thank you Matt and thanks to all of you for joining. It is a please to speak to you today after a quarter where Nokia delivered both growth and strong profitability. As you know, in our guidance earlier this year we pointed to networks growth in the second half. In fact all three of our businesses grew on a year-on-year basis in the third quarter and networks delivered a particularly strong overall performance with 13% year-on-year net sales growth and near record profitability.
HERE followed closely behind with 12% growth and technologies with 9%. This robust performance is a result of the right strategic choices, strong execution across our three businesses, particularly in Nokia Networks and some interesting tailwinds in the quarter that I will discuss in a bit more depth later.
Last quarter I gave you an update on the progress of my 100 day plan and while I won’t go through each of the five priorities that I set, I would like to give a brief comment in two areas. The first is the effort to move rapidly from high level strategy and vision to bold and detailed execution plans. I believe that we have made good progress in that area and I’m looking forward to sharing more with you and getting your feedback at our Capital Markets Day in London on November 14th. We have looked hard at where we are today, where we see opportunities in the future and how we define our long-term strategy and vision.
The second is on the topic of culture and values. One quarter ago on the same day as our earnings announcement, we started sharing our refreshed values with company leaders, followed by an all employee cascade. The response from employees have been remarkable with about 95% awareness of our new values and close to 90% favorability. Given that the launch was done in the midst of summer holidays, we are extremely pleased with this outcome and in fact my team tells me that the short time it took to reach such levels is among the best they have ever seen. So good momentum in this area that provides a sound foundation as we now move further align our culture around some common things.
Let’s now turn to the quarter. At the group level we delivered net sales of €3.3 billion, a 44.5% non-IFRS gross margin and non-IFRS operating profit of €457 million or 13.7% of sales. In terms of our businesses let me start with HERE, where we just announced the appointment of Sean Fernback as President. Sean is a well-recognized technology expert with 25 years of experience in the location, automotive, consumer and telecommunication businesses. He joined HERE earlier this year from TomTom, where he oversaw the overall product design, hardware and software engineering and manufacturing of all of their consumer products and accessories. I’m extremely pleased to have Sean take on this challenge and join the Nokia Group leadership team.
In addition to Sean’s appointment, the primary topic I would like to discuss about HERE is an adjustment to our strategy. We will increase our focus on our excellent automotives and small but fast growing enterprise businesses. We will also continue to extend our reach to consumers to work with mobile device vendors such as Samsung and internet players such as Yahoo!. This is a business for us that leverages our location cloud capabilities and it will help us remain fully tapped into the innovation of the consumer eco system.
While we increase focus in these areas, we will de-prioritize efforts to build direct-to-consumer businesses. We simply see better opportunities in other parts of the HERE business and we want to target our resources to those areas. As I mentioned on our last call, we will also work to strengthen operational effectiveness at HERE in order to ensure that we’re getting maximum output from our significant R&D investment and to improve longer term profitability.
Despite these actions, I want to be very clear that the vast majority of HERE will not change and much of it will even be strengthened through greater focus. We know we have customers who depend on us today and we remain absolutely committed to meeting their needs in the future. With this adjustment to our strategy, we will require to conduct impairment testing, which as you will have seen as resulted in a significant impairment of goodwill and change in the asset carrying value of HERE. Timo will share additional details about this topic in his remarks.
Turning back to the quarter, HERE had net sales of €236 million, up 12% year-on-year and the first year-on-year growth since the second quarter of 2012. Strong automotive and enterprise sales and the positive impact of our expanded license agreement with Microsoft more than offset the loss of revenue from the former devices and services business.
From a profitability perspective HERE had another breakeven quarter, reflecting the investments we are making in the business. An example of this is the commitment we are making to our location platform, which enables faster time to market for our customers and helps them provide a broad range of services such as real-time traffic and parking to end users. HERE’s customers are starting to move from being content only customers to platform customers.
Highlights in the quarter for HERE include the completion of the acquisition of Medio, a pioneer in the area of real-time analytics, the demonstration of new technology to support the development of the connect car and enable smart cities and an agreement with Samsung to bring HERE maps and location platform services to Tizen-powered smart devices combined with the development of a companion application for Android based Samsung Galaxy products.
HERE’s leadership was recognized by Frost & Sullivan, who noted that HERE stands apart for its knowledge and industry experience, impressive data collection ability, high level of personalization, revolutionary products and wide ranging partnerships with nearly every OEM and system vendor. As we bring more focus to HERE’s strategy and that we start to benefit from some of our significant R&D investments, we see opportunities to improve HERE’s financial performance as I already noted.