As filed with the Securities and Exchange Commission on April 1, 2016March 23, 2017

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20152016

Commission file number 1-13202

Nokia Corporation

(Exact name of Registrant as specified in its charter)

Republic of Finland

(Jurisdiction of incorporation)

Karaportti 3 FI-02610 Espoo, Finland

(Address of principal executive offices)

Riikka Tieaho, Vice President, Corporate Legal, Telephone: +358 (0) 10 44 88 000, Facsimile: +358 (0) 10 44 81 002,Karaportti 3,

FI-02610 Espoo, Finland

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the “Exchange Act”):

 

Title of each class  Name of each exchange on which registered
American Depositary Shares  New York Stock Exchange
Shares  New York Stock Exchange(1)

(1) Not for trading, but only in connection with the registration of American Depositary Shares representing these shares, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered pursuant to Section 12(g) of the Exchange Act:None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Exchange Act:

5.375% Notes due 2019 and 6.625% Notes due 2039.

Indicate the number of outstanding shares of each of the registrant’s classes of capital or common stock as of the

close of the period covered by the annual report. Shares:3 992 863 716.2039.

 

Indicate the number of outstanding shares of each of the registrant’s classes of capital or common stock as of the close of the period covered by the annual report. Shares:5 836 055 012.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x☒             No ¨☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required
to file reports pursuant to Section 13 or 15(d) of the Exchange Act.		 Yes ¨☐             No x☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days.		 Yes x☒             No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):		 

 

Large accelerated filer x☒ Accelerated filer ¨☐
Non-accelerated filer ¨☐ (Do not check if a smaller reporting company) Smaller reporting company ¨☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ¨☐

International Financial Reporting Standards as issued by the International Accounting Standards Board x☒

Other ¨☐

 

If “Other” has been checked in response to the previous question, indicate by check mark which
financial statement item the registrant has elected to follow.		 Item 17 ¨☐    Item 18 ¨☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).		 Yes ¨☐           No x☒

LOGOLOGO

    

Cross-reference table

to Form 20-F

    

 

Form 20-F

Item Number

 Form 20-F Heading  Section in Document
ITEM 1 IDENTITY OF DIRECTORS, SENIOR  N/A
    MANAGEMENT AND ADVISERS   
ITEM 2 OFFER STATISTICS AND EXPECTED  N/A
    TIMETABLE   
ITEM 3 KEY INFORMATION  
 3A Selected Financial Data  General facts on Nokia—Selected financial data
 3B Capitalization and Indebtedness  N/A
 3C Reasons for the Offer and Use of Proceeds  N/A
  3D Risk Factors  Operating and financial review and prospects—Risk factors
ITEM 4 INFORMATION ON THE COMPANY  
 4A History and Development of the Company  Cover page, Overview, Introduction and use of certain terms,terms; General facts on Nokia—History of Nokia,Our history; Operating and financial review and prospects—Liquidity and capital resources,resources; Operating and financial review and prospects—Material subsequent events; Financial statements—Notes to consolidated financial statements—Note 2,4, Segment information,information; Financial statements—Notes to consolidated financial statements—Note 4,5, Acquisitions
 4B Business Overview  Business overview and organization,overview; Operating and financial review and prospects—Principal industry trends affecting our operations,operations; Financial statements—Notes to consolidated financial statements—Note 2,4, Segment information,information; General facts on Nokia—Government Regulationregulation
 4C Organizational Structure  Overview—This is Nokia—Organizational structure and reportable segments; Financial statements—Notes to consolidated financial statements—Note 2,4, Segment information,information; Financial statements—Notes to consolidated financial statements—Note 33,32, Principal Group companies
 4D Property, Plants and Equipment  Business overview and organization—Networks business in 2016, Business overview and organization—Nokia Technologies in 2016,overview; Financial statements—Notes to consolidated financial statements—Note 3, Disposals treated as Discontinued operations,2, Significant accounting policies; Financial statements—Notes to consolidated financial statements—Note 17,6, Disposals treated as Discontinued operations; Financial statements—Notes to consolidated financial statements—Note 15, Property, plant and equipment
  4A UNRESOLVED STAFF COMMENTS  None
ITEM 5 OPERATING AND FINANCIAL REVIEW  
  REVIEW AND PROSPECTS  
 5A Operating Results  Operating and financial review and prospects—Principal industry trends affecting operations, Operating and financial review and prospects—Results of operations, Operating and financial review and prospects—Results of segments,operations; Financial statements—Notes to consolidated financial statements—Note 1, Accounting principles,2, Significant accounting policies; Financial statements—Notes to consolidated financial statements—Note 35,36, Risk management
 5B Liquidity and Capital Resources  Operating and financial review and prospects—Liquidity and capital resources,resources; Financial statements—Notes to consolidated financial statements—Note 19,24, Fair value of financial instruments,instruments; Financial statements—Notes to consolidated financial statements—Note 20,25, Derivative financial instruments,instruments; Financial statements—Notes to consolidated financial statements—Note 31, Contractual obligations,30, Commitments and contingencies; Financial statements—Notes to consolidated financial statements—Note 35,36, Risk management
 5C Research and Development, Patents and Licenses  Business overview and organization—overview—Networks business in 2016—business—Research and development,development; Business overview and organization—overview—Networks business in 2016—business— Patents and licenses,licenses; Business overview and organization—overview—Nokia Technologies in 2016—Technologies—Research and development,development; Business overview and organization—overview—Nokia Technologies in 2016—Technologies—Patents and licenses,licenses; Operating and financial review and prospects—Results of operations,operations; Operating and financial review and prospects—Results of segments,segments; General facts on Nokia—History of Nokia—Acquisition of Alcatel LucentNokia
 5D Trends Information  Business overview and organization,overview; Operating and financial review and prospects—Principal industry trends affecting operations
 5E Off-Balance Sheet Arrangements  Operating and financial review and prospects—Liquidity and capital resources—Off-Balance Sheet Arrangements,Arrangements; Financial statements—Notes to consolidated financial statements—Note 35,36, Risk managementmanagement; Financial statements—Notes to consolidated financial statements—Note 30, Commitments and contingencies
 5F Tabular Disclosure of Contractual Obligations  Financial statements—Notes to consolidated financial statements—Note 31, Contractual obligations30, Commitments and contingencies
5GSafe HarborForward-looking statements
ITEM 6 DIRECTORS, SENIOR MANAGEMENT  
  AND EMPLOYEES  
 6A Directors and Senior Management  Corporate governance—Corporate governance statement
 6B Compensation  Corporate governance—Compensation,Compensation; Financial statements—Notes to consolidated financial statements—Note 34,35, Related party transactions
 6C Board Practices  Corporate governance—Corporate governance statementstatement; Corporate governance—Compensation— Remuneration Report; Financial statements—Notes to consolidated financial statements—Note 35, Related party transactions
 6D Employees  Overview—Key data, Operating and financial review and prospects—Employees Financial statements—Notes to consolidated financial statements—Note 7, Personnel expenses
  6E Share Ownership  Corporate governance—Compensation, Corporate governance—Share ownership of the Board of Directors, the President and Chief Executive Officer and the Nokia Group Leadership Team,Compensation—Remuneration Report; Financial statements—Notes to consolidated financial statements—Note 25,26, Share-based payments

 

 NOKIA ANNUAL REPORT ON FORM 20-F 20152016

    

    

    

    

 

 

Form 20-F

Item Number

 Form 20-F Heading  Section in Document
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS  
 7A Major Shareholders  General facts on Nokia—Shares and shareholders
 7B Related Party Transactions  Corporate governance—Compensation,General facts on Nokia—Related party transactions, Financial statements—Notes to consolidated financial statements—Note 34,35, Related party transactions
  7C Interests of Experts and Counsel  N/A
ITEM 8 FINANCIAL INFORMATION  
 8A Consolidated Statements and Other Financial Information  Financial statements,statements; Report of independent registered public accounting firm,firm; Operating and Financial Reviewfinancial review and Prospects—prospects—Dividend
  8B Significant Changes  General facts on Nokia—SelectedOperating and financial data, review and prospects—Material subsequent events
ITEM 9 THE OFFER AND LISTING  
 9A Offer and Listing Details  General facts on Nokia—Shares and shareholders
 9B Plan of Distribution  N/A
 9C Markets  General facts on Nokia—Shares and shareholders
 9D Selling Shareholders  N/A
 9E Dilution  N/A
  9F Expenses of the Issue  N/A
ITEM 10 ADDITIONAL INFORMATION  
 10A Share capital  N/A
 10B Memorandum and Articles of Association  General facts on Nokia—Memorandum and Articles of Association,Association; Other information—Exhibits
 10C Material Contracts  General facts on Nokia—History of Nokia,Our history; Other information—Exhibits
 10D Exchange Controls  General facts on Nokia—Controls and proceduresprocedures—Exchange controls
 10E Taxation  General facts on Nokia—Taxation
 10F Dividends and Paying Agents  N/A
 10G Statement by Experts  N/A
 10H Documents on Display  Other information—Investor information—Documents on display
  10I Subsidiary Information  N/A
ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  Financial statements—Notes to consolidated financial statements—Note 35:36, Risk Management
ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES  
 12A Debt Securities  N/A
 12B Warrants and Rights  N/A
 12C Other Securities  N/A
  12D American Depositary Shares  General facts on Nokia—Shares and shareholders—Depositary fees and charges,charges; General facts on Nokia—Shares and shareholders—Depositary payments for 2015
ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES  None
ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS  None
ITEM 15 CONTROLS AND PROCEDURES  Corporate governance—Regulatory framework—Risk management, internal control and internal audit functions at NokiaNokia; General facts on Nokia—Controls and procedures
ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT  Corporate governance—Corporate governance statement—Main corporate governance bodiesMembers of Nokia—the Board of Directors— Committees of the Board of Directors
 16B CODE OF ETHICS  Corporate governance—Corporate governance statement—Main corporate governance bodiesMembers of Nokia—the Nokia Group Leadership Team—Further information
 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES  Corporate governance—Corporate governance statement—Main corporate governance bodies of Nokia—Auditor fees and services, Corporate governance—Corporate governance statement—Main corporate governance bodies of Nokia—Audit Committee pre-approval policies and procedures
 16D EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES  N/A
 16E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS  General facts on Nokia—Shares and shareholders—AuthorizationsAuthorization to repurchase shares
 16F CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT  None
 16G CORPORATE GOVERNANCE  Corporate governance—Corporate governance statement—Regulatory framework
  16H MINE SAFETY DISCLOSURE  N/A
ITEM 17 FINANCIAL STATEMENTS  N/A
ITEM 18 FINANCIAL STATEMENTS  Financial Statements
ITEM 19 EXHIBITS  Other information—Exhibits

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016

    

Forward-looking statements

    

    

 

It should be noted that Nokia and its businesses are exposed to various risks and uncertainties and certain statements herein that are not historical facts are forward-looking statements, including, without limitation, those regarding:

 

A)our ability to integrate Alcatel Lucent into our operations and achieve the targeted business plans and benefits, including targeted synergies in relation to the acquisition of Alcatel Lucent announced on April 15, 2015 and closed in early 2016;

B)our ability to squeeze out the remaining Alcatel Lucent shareholders in a timely manner or at all to achieve full ownershipAcquisition of Alcatel Lucent;

 

C)B)expectations, plans or benefits related to our strategies and growth management;

 

D)C)expectations, plans or benefits related to future performance of our businesses;

 

E)D)expectations, plans or benefits related to changes in our managementorganizational and other leadership, operational structure and operating model, including the expected characteristics, business, organizational structure, management and operations following the acquisition of Alcatel Lucent;structure;

 

F)E)expectations regarding market developments, general economic conditions and structural changes;

 

G)F)expectations and targets regarding financial performance, results, operating expenses, taxes, currency exchange rates, hedging, cost savings and competitiveness, as well as results of operations including targeted synergies and those related to market share, prices, net sales, income and margins;

 

H)G)timing of the deliveries of our products and services;

 

I)H)expectations and targets regarding collaboration and partnering arrangements, joint ventures or the creation of joint ventures, as well as our expected customer reach;

 

J)I)outcome of pending and threatened litigation, arbitration, disputes, regulatory proceedings or investigations by authorities;

 

K)J)expectations regarding restructurings, investments, uses of proceeds from transactions, acquisitions and divestments and our ability to achieve the financial and operational targets set in connection with any such restructurings, investments, divestments and acquisitions; and

L)K)statements preceded by or including “believe,” “expect,” “anticipate,” “foresee,” “sees,” “target,” “estimate,” “designed,” “aim,” “plans,” “intends,” “focus,” “continue,” “project,” “should,” “will” or similar expressions.

These statements are based on the management’s best assumptions and beliefs in light of the information currently available to it. Because they involve risks and uncertainties, actual results may differ materially from the results that we currently expect. Factors, including risks and uncertainties that could cause suchthese differences include, but are not limited to:

 

1)our ability to execute our strategy, sustain or improve the operational and financial performance of our business orand correctly identify orand successfully pursue business opportunities or growth;

 

2)our ability to achieve the anticipated businessbenefits, synergies, cost savings and operational benefits and synergies fromefficiencies of the Acquisition of Alcatel Lucent, transaction, including our ability to integrate Alcatel Lucent into our operations and within the timeframe targeted, and our ability to implement our organizationorganizational and operational structure efficiently;

 

3)our ability to complete the purchases of the remaining outstanding Alcatel Lucent securities and realize the benefits of the public exchange offer for all outstanding Alcatel Lucent securities;

4)our dependence on general economic and market conditions and other developments in the economies where we operate;

4)competition and our ability to effectively and profitably compete and invest in new competitive high-quality products, services, upgrades and technologies and bring them to market in a timely manner;

 

5)our dependence on the development of the industries in which we operate, including the cyclicality and variability of the information technology and telecommunications industry;industries;

 

6)our global business and exposure to regulatory, political or other developments in various countries or regions, including emerging markets and the associated risks in relation to tax matters and exchange controls, among others;

 

7)our ability to effectivelymanage and profitably competeimprove our financial and invest in new competitive high-quality products, services, upgradesoperating performance, cost savings, competitiveness and technologies and bring them to market in a timely manner;synergies after the Acquisition of Alcatel Lucent;

 

8)our dependence on a limited number of customers and large multi-year agreements;

 

9)exchange rate fluctuations, as well as hedging activities;

10)Nokia Technologies’ ability to protect its IPR and to maintain and establish new sources of patent licensing income and IPR-related revenues, particularly in the smartphone market;

10)11)our dependence on IPR technologies, including those that we have developed and those that are licensed to us, and the risk of associated IPR-related legal claims, licensing costs and restrictions on use;

 

11)12)our exposure to direct and indirect regulation, including economic or trade policies, and the reliability of our governance, internal controls and compliance processes to prevent regulatory penalties;penalties in our business or in our joint ventures;

 

12)13)our ability to identify and remediate material weaknesses in our internal control over financial reporting;

14)our reliance on third-party solutions for data storage and theservice distribution, of products and services, which expose us to risks relating to security, regulation and cybersecurity breaches;

 

13)15)inefficiencies, breaches, malfunctions or disruptions of information technology systems;

16)Nokia Technologies’ ability to generate net sales and profitability through licensing of the Nokia brand, particularly in digital media and digital health, and the development and sales of products and services, as well as other business ventures which may not materialize as planned;

 

14)17)our exposure to various legislative frameworks and jurisdictions that regulate fraud and enforce economic trade sanctions and policies, and Alcatel Lucent’s previous and current involvementthe possibility of proceedings or investigations that result in anti-corruption allegations;fines, penalties or sanctions;

 

15)18)adverse developments with respect to customer financing or extended payment terms we provide to customers;

19)the potential complex tax issues, tax disputes and tax obligations we may face in various jurisdictions, including the risk of obligations to pay additional taxes;

 

16)20)our actual or anticipated performance, among other factors, which could reduce our ability to utilize deferred tax assets;

 

17)21)our ability to retain, motivate, develop and recruit appropriately skilled employees;

18)our ability to manage our manufacturing, service creation, delivery, logistics and supply chain processes, and the risk related to our geographically- concentrated production sites;

19)the impact of unfavorable outcome of litigation, arbitration, agreement-related disputes or allegations of product liability associated with our businesses;

20)exchange rate fluctuations;

21)inefficiencies, breaches, malfunctions or disruptions of information technology systems;
 

 

 NOKIA ANNUAL REPORT ON FORM 20-F 20152016

    

    

    

    

 

22)disruptions to our manufacturing, service creation, delivery, logistics and supply chain processes, and the risks related to our geographically-concentrated production sites;

23)the impact of litigation, arbitration, agreement-related disputes or product liability allegations associated with our business;

24)our ability to optimize our capital structure as planned and re-establish our investment grade credit rating or otherwise improve our credit ratings;

 

23)25)our ability to achieve targeted benefits from or successfully implement planned transactions, as well as the liabilities related thereto;

26)our involvement in joint ventures and jointly-managed companies;

27)the carrying amount of our goodwill may not be recoverable;

28)uncertainty related to the amount of dividends and equity return we are able to distribute to shareholders for each financial period;

 

24)our ability to achieve targeted benefits from or successfully implement planned transactions, as well as the liabilities related thereto;

25)our involvement in joint ventures and jointly-managed companies;

26)performance failures by our partners or failure to agree to partnering arrangements with third parties;

27)our ability to manage and improve our financial and operating performance, cost savings, competitiveness and synergy benefits after the acquisition of Alcatel Lucent;

28)adverse developments with respect to customer financing or extended payment terms we provide to customers;

29)the carrying amount of our goodwill may not be recoverable;pension costs, employee fund-related costs, and healthcare costs; and

 

30)risks related to undersea infrastructure;

31)unexpected liabilities with respect to pension plans, insurance matters and employees; and

32)unexpected liabilities or issues with respect to the acquisition of Alcatel Lucent, including pension, post- retirement, health and life insurance and other employee liabilities or higher than expected transaction costs, as well as the risk factors specified on pages 69 to 87 of this annual report on Form 20-F under “Operating and financial review and prospects—Risk factors”,

infrastructure, as well as in Nokia’s other filings with the U.S. Securities and Exchange Commission. Other unknown or unpredictable factors or underlying assumptions subsequently proven to be incorrect could cause actual results to differ materially from those in the forward-looking statements. We do not undertake any obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.

Introduction and use

of certain terms

Nokia Corporation is a public limited liability company incorporated under the laws of the Republic of Finland. In this annual report on Form 20-F, any reference to “we,” “us,” “the Group”Group,” “the company” or “Nokia” means Nokia Corporation and its consolidated subsidiaries on a consolidated basis and which refers generally to Nokia’s Continuing operations, except where we separately specify that the term means Nokia Corporation or a particular subsidiary or business segment only or theour Discontinued operations, and except that referencesoperations. References to “our shares”, matters relating to our shares or matters of corporate governance refer to the shares and corporate governance of Nokia Corporation.

Nokia Corporation has published its consolidated financial statements in euro for periods beginning on or after January 1, 1999. In this annual report on Form 20-F, references to “EUR,” “euro” or “€” are to the common currency of the European Economic and Monetary Union, and references to “dollars”, “US“U.S. dollars”, “USD” or “$” are to the currency of the United States. Solely for the convenience of the reader, this annual report on Form 20-F contains conversions of selected euro amounts into USU.S. dollars at specified rates or, if not so specified, at the rate of 1.0859 US1.0552 U.S. dollars per euro, which was the noon buying rate in New York City for cable transfers in euro as certified for customs purposes by the Federal Reserve Bank of New York on December 31, 2015.2016. No representation is made that the amounts have been, could have been or could be converted into USU.S. dollars at the rates indicated or at any other rates.

The information contained in, or accessible through, the websites linked throughout this annual report on form 20-F is not incorporated by reference into this document and should not be considered a part of this document.

Nokia Corporation furnishes Citibank, N.A., as Depositary, with its consolidated financial statements and a related audit opinion of our independent auditors annually. These financial statements are prepared on the basis of International Financial Reporting Standards as issued by the International Accounting Standards Board and in conformity with IFRS as adopted by the European Union (“IFRS”). In accordance with the rules and regulations of the SEC, we do not provide a reconciliation of net income and shareholders’ equity in our consolidated financial statements to accounting principles generally accepted in the United States, or USU.S. GAAP. We also furnish the Depositary with quarterly reports containing unaudited financial information prepared on the basis of IFRS, as well as all notices of shareholders’ meetings and other reports and

communications that are made available generally to our shareholders. The Depositary makes these notices, reports and communications available for inspection by record holders of American Depositary Receipts (“ADRs”), evidencing American Depositary Shares (“ADSs”), and distributes to all record holders of ADRs notices of shareholders’ meetings received by the Depositary.

In addition to the materials delivered to holders of ADRs by the Depositary, holders can access our consolidated financial statements, and other information included in our annual reports and proxy materials, at company.nokia.com/nokia.com/financials. This annual report on Form 20-F is also available at company.nokia.com/nokia.com/ financials as well as on Citibank’s website at http://citibank.ar.wilink. comcitibank.ar.wilink.com (enter “Nokia” in the Company Name Search). Holders may also request a hard copy of this annual report by calling the toll-free number 1-877-NOKIA-ADR (1-877-665-4223), or by directing a written request to Citibank, N.A., Shareholder Services, PO Box 43077, Providence, RI 02940-3081, United States. With each annual distribution of our proxy materials, we offer our record holders of ADRs the option of receiving all of these documents electronically in the future.

 

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 

LOGOLOGO

LOGOLOGO

 

    

 

Contents

  

Overview

01 

Nokia at a glance

02 

Nokia in 2015 – Transformation for the next 150 years

06 

Key data

08 
 

Business overviewOverview

 10 01 
 

Letter from the President and CEOThis is Nokia

 12 02 
 

Nokia’s role in the Programmable WorldKey data

 14 06 
 

Our valuesNokia in 2016 – a successful first year of combined operations

 15 

Nokia’s strategy

16 

Operational governance and leadership

20 

Nokia in 2016

24 

Networks business in 2016

25 

Nokia Technologies in 2016

35 

Discontinued operations

39 08 
 

Operating and financial review and prospectsBusiness overview

 40 10 
 

Principal industry trends affecting operationsLetter from our President and CEO

 42 12 

Our role as a global technology leader

14 
 

Results of operationsOur values

 46 15 
 

Results of segmentsOur strategy

 52 16 
 

Liquidity and capital resourcesOur leadership

 58 22 
 

Material subsequent eventsOur businesses

 61 

Sustainability and corporate responsibility at Nokia

62 

Employees

65 

Shares and share capital

66 

Board of Directors and Management

67 

Dividend

68 

Risk factors

69 24 
 Corporate governanceOperating and financial review and prospects 88 38 
 

Corporate governance statementPrincipal industry trends affecting operations

 90 40 
 

CompensationResults of operations

 104 44 
Results of segments52

Liquidity and capital resources

57

Material subsequent events

61

Sustainability and corporate responsibility

62

Employees

65

Dividend

66

Risk factors

67

Shares and share capital

86

Board of Directors and management

87

Articles of Association

87 
 

General facts on NokiaCorporate governance

 118 88 
 

History of NokiaCorporate governance statement

 120 90 
 

Memorandum and Articles of AssociationCompensation

 122 

Selected financial data

124 

Shares and shareholders

126 

Production of infrastructure equipment and products

133 

Key ratios

134 

Controls and procedures

134 

Government regulation

135 

Sales in US sanctioned countries

135 

Taxation

136 104 
 

Financial statementsGeneral facts on Nokia

 139 120 
 

Consolidated primary statementsOur history

 140 122 
 

Notes to consolidated financial statementsMemorandum and Articles of Association

 146 123 
 

Report of Independent Registered Public Accounting FirmSelected financial data

 206 125 

Shares and shareholders

127

Depositary payments in 2016

��135

Related party transactions

135

Production of infrastructure equipment and products

135

Key ratios

136

Controls and procedures

136

Government regulation

138

Sales in U.S.-sanctioned countries

138

Taxation

140 
 Other informationFinancial statements 207 143 
 

ExhibitsConsolidated primary statements

 208 144 
 

Glossary of termsNotes to consolidated financial statements

 209 150 
 

Investor informationReport of independent registered public accounting firm

 212 214 
Other information215 
 

Contact informationExhibits

 213 216 
 

SignaturesGlossary of terms

 214 217 

Investor information

220

Contact information

221

Signatures

222 

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 01

    

This is Nokia at a glance

2015: A year of transformation

The year 2015 marked our 150th anniversary as a company—an accomplishment that few others can match.

We believe this longevity has been due to a variety of factors, including a capacity for intelligent adaptation, a pedigree for innovation, a focus on the human aspects of technology, and a track record for executing on our strategic goals.

This past year is a prime example of these factors combining to make 2015 another year of transformation.

Acquisition of Alcatel Lucent and divestment of our HERE business

Our acquisition of Alcatel Lucent, announced in April 2015, has produced a new leader in next-generation technologies for the Programmable World. It was made possible due to the hard work and dedication of our employees who ensured that we were able to close the deal in early January, 2016, faster than many thought possible. Our integration planning has been thorough, allowing us to move forward as one company from January 14, 2016.

Another critical development in 2015 was the sale of HERE, our digital mapping and location services business, to a German automotive industry consortium, comprising AUDI AG, BMW Group and Daimler AG (the “Sale of the HERE Business”), in a transaction that was believed to be in the best interests of Nokia and its shareholders, its customers as well as the employees of the HERE business. The sale, valued at an enterprise value of EUR 2.8 billion, closed in December 2015.

02NOKIA ANNUAL REPORT ON FORM 20-F 2015

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Our businessesWe 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 2015Virtual Reality (“VR”) and digital health, we are shaping the future of technology to transform the human experience.

 

In 2015, throughSince the closing of the Alcatel Lucent acquisition in early January 2016 (the “Acquisition of Alcatel Lucent”), we have combined global leadership in mobile and fixed network infrastructure with the software, services and advanced technologies to serve customers in more than 100 countries around the world. We are driving the transition to smart, virtual networks and connectivity by creating one single network for all services, converging mobile and fixed broadband, IP routing and optical networks, with the software and services to manage them. Our research scientists and engineers continue to invent new technologies that will increasingly transform the way people and things communicate and connect: 5G, ultra broadband access, IP and Software Defined Networking (“SDN”), Cloud applications, IoT and security platforms, data analytics, as well as sensors and imaging.

Through our Continuing operations,five business groups, we hadhave a global presence with operations in Europe, the Middle East & Africa, Greater China, North America, Asia-Pacific and Latin America andAmerica. In 2016, we had sales in approximately 130 countries. We also have research and development (“R&D”) facilities in Europe, North America and Asia;Asia, and sales in approximately 130 countries. We employed approximately 56 000 people at the end of 2015.2016, we employed approximately 101 000 people.

Our Continuing operations deliveredWe closed 2016 delivering net sales in 2015 of EUR 12.5 billion with strong underlying profitability.23.6 billion. We once again madecontinued to make significant targeted R&D investments, a bedrock of our success in innovation, with R&D expenditures equaling approximately EUR 2.14.9 billion in 2015.2016.

Countries of operation

100+

Number of employees at the end of 2016

~101 000

R&D investment in 2016

EUR 4.9bn
 

 

02NOKIA ANNUAL REPORT ON FORM 20-F 2016

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Acquisition of Alcatel Lucent

In April 2015, we announced plans to acquire Alcatel Lucent with an aim to create an innovation leader in next generation technology and services. The all-share transaction was agreed on the basis of 0.55 new Nokia shares for every Alcatel Lucent share, a transaction valued at EUR 15.6 billion on a fully diluted basis.

At the end of 2015, our shareholders voted overwhelmingly to approve the Alcatel Lucent acquisition, and in early January 2016 we announced that we had gained control of Alcatel Lucent through the successful public exchange offer for all outstanding Alcatel Lucent securities by holding nearly 80% of outstanding Alcatel Lucent securities.

During the course of the year, we continued to take steps towards gaining full ownership of Alcatel Lucent through the initial and reopened exchange offers and by purchasing Alcatel Lucent shares and OCEANE convertible bonds in privately negotiated transactions, consequently reaching full ownership of Alcatel Lucent in November 2016.

On October 4, 2016, the French stock market authority (Autorité des marchés financiers, the “AMF”) announced that a legal action was filed before the Paris Court of Appeal on September 30, 2016 for annulment of the AMF’s clearance decision regarding our public buy-out offer, which would be followed by a squeeze-out of all remaining securities of Alcatel Lucent. As a result, the public 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.

On October 25, 2016, with the legal challenge still pending, the AMF announced the continuation of the timetable of the public buy-out offer followed by a squeeze-out of all remaining securities of Alcatel Lucent, allowing the public buy-out period to end on October 31, 2016 and the squeeze-out to be implemented on November 2, 2016. On November 2, 2016, we achieved 100% ownership of Alcatel Lucent.

On December 15, 2016, the plaintiffs withdrew the complaint they had filed before the Paris Court of Appeal and, consequently, the public buy-out offer followed by a squeeze-out had therefore become definitive, confirming our ownership of 100% of Alcatel Lucent.

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NOKIA ANNUAL REPORT ON FORM 20-F 201603

    

Net sales 2015 by businessThis is Nokiacontinued

    

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Net sales 2015 by region

    

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Organizational structure and reportable segments

January 14, 2016 was Nokia and Alcatel Lucent’s first day of combined operations.

After the Acquisition of Alcatel Lucent, we organized our networks-oriented businesses into four business groups: Mobile Networks, Fixed Networks, IP/Optical Networks and Applications & Analytics (together the “Networks business”); and kept our driver of future innovation and licensing, Nokia Technologies, as a separate fifth business group. For descriptions of our business groups, refer to “Business overview—Networks business” and “Business overview—Nokia Technologies”.

We have three reportable segments: (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.

Following the changes to our organizational structure announced on March 17, 2017, we will continue to report financial information for Ultra Broadband Networks, IP Networks and Applications and Nokia Technologies. Ultra Broadband Networks will be composed of the Mobile Networks, Global Services and Fixed Networks business groups. IP Networks and Applications is composed of the IP/Optical Networks and Applications & Analytics business groups.

Additionally, we report the results of other business activities that are not reportable segments, such as our undersea cables business, Alcatel-Lucent Submarine Networks (“ASN”), and our antenna systems business, Radio Frequency Systems (“RFS”), in aggregate. Both ASN and RFS are being managed as separate businesses.

 

 

04NOKIA ANNUAL REPORT ON FORM 20-F 2016

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NOKIA ANNUAL REPORT ON FORM 20-F 201605

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

The following table sets forth

summary financial and non-financial

information for the years ended

December 31, 2016 (including Alcatel

Lucent) and December 31, 2015 for

our Continuing operations. This data

has been derived from our

consolidated financial statements,

which are included in this annual

report on Form 20-F.

 For the year ended December 31  

2016

            EURm

  

2015

            EURm

              Change 
 

Net sales

   23 614   12 499   89% 
 

Nokia’s Networks business

   21 800   11 487   90% 
 

Ultra Broadband Networks

   15 771   10 159   55% 
 

IP Networks and Applications

   6 029   1 328   354% 
 

Nokia Technologies

   1 053   1 027   3% 
 

Group Common and Other

   1 145   –   – 
 

Gross margin

   35.8%   44.3%   (850)bps 
 

Operating (loss)/profit

   (1 100)   1 697   – 
 

Nokia’s Networks business

   1 935   1 349   43% 
 

Ultra Broadband Networks

   1 362   1 211   12% 
 

IP Networks and Applications

   573   138   315% 
 

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 China

   2 656   1 712   55% 
 

Latin America

   1 457   973   50% 
 

Middle East & Africa

   1 871   1 177   59% 
 

North America

   7 031   1 594   341% 
 

Total

   23 614   12 499   89% 
 

 

(1)   Includes costs related to the Acquisition of Alcatel Lucent and related integration, goodwill impairment charges, intangible asset amortization and other purchase price fair value adjustments, restructuring and associated charges and certain other items.

    

06NOKIA ANNUAL REPORT ON FORM 20-F 2016

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(1)We also paid a special dividend of EUR 0.10 per share in line with our capital structure optimization program announced on October 29, 2015.
(2)All Nokia Technologies IPR and licensing net sales are allocated to Finland.

Year-on-year change is in parentheses.

Derived from our financial statements which were prepared in accordance with International Financial Reporting Standards, IFRS.

 

NOKIA ANNUAL REPORT ON FORM 20-F 201503

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04NOKIA ANNUAL REPORT ON FORM 20-F 2015

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NOKIA ANNUAL REPORT ON FORM 20-F 201505

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06NOKIA ANNUAL REPORT ON FORM 20-F 2015

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NOKIA ANNUAL REPORT ON FORM 20-F 20152016 07

Key data

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Net sales 2015

€12.5bn

Diluted EPS 2015

€0.31

Operating profit 2015

€1.7bn

Net cash at December 31, 2015

€7.8bn

Net sales (€m)

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The following table sets forth summary financial and non-financial information for the years ended December 31, 2015 and 2014 for our Continuing operations. This data has been derived from our consolidated financial statements, which are included in this annual report on Form 20-F.

For the year ended December 31  

2015

            EURm

  

2014

            EURm

              Change 

Net sales

   12 499    11 762    6%  

Nokia Networks

   11 490    11 198    3%  

Nokia Technologies

   1 024    578    77%  

Gross margin

   43.6%    41.7%    190bps  

Operating profit

   1 688    1 412    20%  

Nokia Networks

   1 096    1 210    (9)%  

Nokia Technologies

   719    343    110%  

Group Common Functions

   (127)   (142)   (11)%  

Operating margin

   13.5%    12.0%    150bps  

Financial income and expenses

   (177)   (401)   (56)%  

Income tax (expense)/benefit

   (346)   1 719    –  

Profit

   1 194    2 718    (56)%  

Earnings per share (“EPS”), EUR diluted

   0.31    0.67    (54)%  

Average number of employees

    

Nokia Networks

   55 509    50 557    10%  

Nokia Technologies

   596    650    (8)%  

Group Common Functions

   585    292    100%  

Total

   56 690    51 499    10%  

Net sales by region

    

Europe

   3 813    3 493    9%  

Middle East & Africa

   1 177    1 053    12%  

Greater China

   1 712    1 380    24%  

Asia-Pacific

   3 230    3 289    (2)%  

North America

   1 594    1 538    4%  

Latin America

   973    1 009    (4)%  

Total

   12 499    11 762    6%  

 

08 NOKIA ANNUAL REPORT ON FORM 20-F 20152016

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NOKIA ANNUAL REPORT ON FORM 20-F 201609

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10NOKIA ANNUAL REPORT ON FORM 20-F 2016

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Contents

Letter from our President and CEO

12

Our role as a global technology leader

14

Our values

15

Our strategy

16

Our leadership

22

Our businesses

24

Networks business

25

Market overview

26

Competition

26

Mobile Networks

27

Fixed Networks

28

IP/Optical Networks

29

Applications & Analytics

30

Services

31

Sales and marketing

31

Research and development

32

Patents and licenses

32

Nokia Technologies

34

Market overview

35

Business overview and organization

35

Sales and marketing

36

Research and development

36

Patents and licenses

36

Competition

37

NOKIA ANNUAL REPORT ON FORM 20-F 201611

Letter from our

President and CEO

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Net Sales in 2016

EUR 23.6bn

Proposed dividend per share

EUR 0.17

Proposed dividends

EUR 972m

2016 was a year of remarkable change for Nokia.

We started the year primarily as a mobile networks and patent licensing company. Today we are a fundamentally different company, with a complete portfolio that spans mobile, fixed, cable, routing, optical, standalone software, services, digital health, and VR, as well as licensing activities covering patents, brand, technology, and more.

During this transformation, we delivered solid financial performance, made significant progress integrating Alcatel Lucent, launched compelling innovations for our customers, moved forward with the execution of our strategy, and are on track to meet our commitment to reduce costs by EUR 1.2 billion in full year 2018.

Financial highlights

In the context of a challenging market and a major integration effort, we performed well in 2016. Our Networks business delivered an operating margin of 8.9% in 2016, and Nokia Technologies’ net sales increased by 3% to EUR 1.1 billion in 2016. While overall sales were down compared to sales of both Nokia and Alcatel Lucent in 2015, profitability held up well. Because of this strong performance, our Board of Directors will propose an increased dividend compared to 2015 and compared to our original capital structure optimization plans.

Integration progress

Despite having only closed the Acquisition of Alcatel Lucent in early January 2016 and gained 100% ownership on November 2,

2016, we have completed the majority of our integration projects. While we have agreed product transition plans with all major customers, execution of those programs will take further time. That said, the speed of progress and quality of work have been considerably higher than I have witnessed in past integrations.

Customers

Customers have responded extremely well to the scope of our new end-to-end portfolio. It has increased our credibility with major communication services providers (“CSPs”), who understand that network performance is based not just on the parts of the networks but on how those parts work together. It has also opened doors for us to new customers in select enterprise segments, who increasingly need the kind of mission-critical networking capability that we provide. In addition, we have successfully agreed product transition plans with all major customers, and implementation is underway in many. This is a remarkable achievement, completed in well under one year.

People

Overall employee engagement scores at Nokia remained high, based on our periodic Cultural Cohesion Tracker. The tracker also pointed to the fact that the Acquisition of Alcatel Lucent created less cultural conflict than might have been expected given the history of acquisitions in our sector. During the year, we also launched a revitalized effort to improve our gender balance within the company. I am confident that we are gaining momentum and within the next two years we will start to see some positive change.

Innovation

We made significant progress in our aspiration to lead in 5G as we began bringing to market innovation from nearly 10 years of research at Nokia Bell Labs. We are preparing the world for 5G with the industry’s best evolutionary path from 4G to 4.5G to 4.5G Pro to 4.9G and finally 5G.

We set records for fiber-like speeds over copper with XG-Fast, delivering 8 gigabits per second in a test with Australia’s National Broadband Network. Our new optical chip sets enabled us to deliver a transmission speed of 1.2 terabits per second over optical fiber in Africa’s first field trial of optical communications technology. In New Zealand, we delivered 200 gigabits per second on a single wavelength over a single fiber.

We introduced our intelligent management platform for all connected things (“IMPACT”) to help our customers deploy new services for IoT applications. Our Nuage SDN platform gained traction helping businesses move to the Cloud, and we continued our development of Cloud service orchestration and network security.

Nokia Bell Labs moved forward with its Future X projects, shaping the network of the future—massively distributed, cognitive, continuously adaptive, learning and optimizing.

Sustainability and corporate responsibility

Reducing our carbon footprint and helping our customers do the same is at the center of our sustainability objectives, as is doing business with integrity. The high standards of our Code

12NOKIA ANNUAL REPORT ON FORM 20-F 2016

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Organizational structureof Conduct allow us to build and

reportable segments in 2015

In 2015, maintain personal integrity across the company and protect our reputation. We work hard to ensure the technology we had two main businesses (Nokia Networksprovide is not used to infringe human rights and Nokia Technologies) followingconduct robust on-site assessments of our suppliers, as well as using the Sale of the HERE Business. For financial reporting purposes we had three operating and reportable segments: Mobile Broadband and Global Services (both within Nokia Networks), and Nokia Technologies.

The HERE business was reported as Discontinued operations from the third quarter of 2015 onwards. ReferEcoVadis scorecards, to “Business overview—Discontinued operations”.

Organizational structure and reportable segments in 2016ensure they meet our high ethical standards. Our customers also use these very same scorecards to assess our sustainability performance.

 

In 2016, we made progress in the EcoVadis framework in areas of environment, labor practices, and supply chain management. We were judged “Outstanding”, the highest gold recognition level, with a score of 85/100 putting us in the top 1% of all suppliers assessed. Our total energy consumption across our facilities decreased by approximately 9% compared to 2015, which reflected a decrease of approximately 16% in our greenhouse gas emissions, including our renewable energy usage. The 2016 figures are compared to the combined figures of Nokia and Alcatel Lucent in 2015. In 2016, we retained our listing in the Dow Jones Sustainability Index with a score of 83/100, and were ranked the leader of the CMT Communications Equipment sector.

Cost reductions

With the Acquisition of Alcatel Lucent, we committed to reduce costs by EUR 1.2 billion in full year 2018. We are progressing well towards this goal and, in 2016, we were ahead of plan. I would note that delivering against this commitment has required and will require us to reduce the number of employees as we eliminate overlaps and use best practices from both Nokia and Alcatel Lucent to find new areas of efficiencies. These reductions are never easy and do not reflect the quality of the people who had to leave the company. Throughout the process, which will continue until the end of 2018, we have fivesought to provide support for those people and to treat them with dignity and respect.

Strategy

Finally, we announced our new strategy and made good progress on execution against four strategic priorities.

Our first strategic priority is to lead in high-performance end-to-end networks with our communication service provider customers. We ended the year with a leading position in LTE, service provider IP edge routing, copper access and services.

To maintain these leadership positions, we launched compelling 4.5G Pro and 4.9G solutions, giving operators the ability to continue to meet capacity demands now while

“The operational foundation we now have in place, together with our financial strength and our disciplined, results-focused culture, have put us in a much stronger position to capitalize on our bigger portfolio and customer set, to tap the greater number of paths available to us for growth and expansion, and to be the innovation leader that enables our connected lives.”

transitioning to 5G in the future. We acquired Gainspeed, giving us a compelling entry into the DOCSIS(Data Over Cable Service InterfaceSpecification) world of cable operators. We also made several other acquisitions designed to expand our capabilities in areas such as big data analytics for network and service automation and network security.

Our second priority is to expand network sales to select vertical markets, specifically energy, transportation, public sector, technical extra-large enterprises (“TXLEs”), and webscale players (“Webscales”) such as Google and Amazon. We saw good momentum in the year in several of these areas, such as building an LTE public safety network in Dubai with our partner Nedaa, IP backbone and network modernization for rail operators such as the S-Bahn in Berlin, and private LTE networks for utilities and mining with major players like Rio Tinto. We see strong future opportunities in all targeted segments.

To tap this opportunity, we are investing where it is needed, including focusing our sales force, and making strategic acquisitions such as Deepfield, a United States-based leader in big data analytics to extend our reach into webscale and large enterprise customers.

Building a strong standalone software business groups: Mobile Networks, Fixed Networks, IP/Optical Networksis our third strategic priority, and Applications & Analytics;in 2016 we made good progress, expanding our current business with communication service providers and expanding to enterprises and IoT platforms. We enhanced our IMPACT platform to help our customers deploy new services and lines of business, such as smart parking, smart lighting, and transportation and automotive. Our planned acquisition of Comptel accelerates our plans for a standalone software business. Comptel’s service orchestration portfolio, when combined with Nokia’s Service Assurance and our Cloudband and Nuage portfolios, enables

us to provide our customers with complete end-to-end orchestration of complex Network Function Virtualization (“NFV”) and SDN deployments.

Finally, our fourth strategic pillar—to create new business and licensing opportunities in the consumer ecosystem—gained strong momentum. Our patent licensing business has also progressed, adding more licensees as well as Nokia Technologies.concluding our arbitration and agreeing an expanded licensing deal with Samsung. We also entered into a brand licensing agreement with HMD Global, which has already launched its first Nokia-branded smartphones. We accelerated our Digital Health business with the acquisition of Withings, and continued to gain momentum in OZO camera sales and in taking steps to see our VR video and audio become embedded in the VR ecosystem. Our primary interest in this area continues to be in developing technology that we can license to other parties and in refreshing our patent portfolio.

 

In China, Alcatel Lucent hasThese are truly exciting times at Nokia. We came a joint venture Alcatel Lucent Shanghai Bell (“ASB”). ASB is the first foreign-invested company limited by shareslong way in China, owned by Alcatel Lucent (50% plus one share)2016 and China Huaxin Post & Telecommunication Economy Development Center (“China Huaxin”, 50% minus one share). ASB provides end-to-end telecommunication solutions and services for customershave plenty of opportunities in China and worldwide.our future.

 

In August 2015, NokiaEven if our business has changed massively, our culture remains uniquely Nokia. We are driven to win, focused on shareholder value, but always guided by our strong core values and China Huaxin signed a memorandumdeep commitment to ethics and integrity. We remain true to our vision to expand the human possibilities of understanding (“MoU”) confirming their intentionthe connected world, creating new and extraordinary experiences in people’s lives through technology that is grounded in real human needs. To that purpose we are dedicated, ready, and ideally placed to combine Nokia’s telecommunications infrastructure businesses in China (“Nokia China”) and ASB into a new joint venture. As agreed under the MoU, Nokia expects to hold 50% plus one share in the new joint venture, with China Huaxin holding the remaining shares. Fair value compensation would be received for the contribution of relevant assets to the joint venture. The new joint venture is expected to be a strong national asset based in China capable of delivering value for both parties.

Nokia China and ASB are leaders in the Chinese telecommunications infrastructure market and both are long-standing contributors to the development of China and innovation in the country. The new joint venture is planned to operate under the English name of Nokia Shanghai Bell and would be registered in the China (Shanghai) Pilot Free Trade Zone. The new joint venture would have one board of directors, one management team, unified customer and business functions, as well as an integrated product portfolio and R&D platform.succeed.

 

For financial reporting purposes, from the first quarter 2016, we intend to align our financial reporting under three reportable segments: (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.

Additionally, we intend to disclose segment-level data for Group Common and Other, which comprises Group-wide support functions and certain unallocated businesses.

NOKIA ANNUAL REPORT ON FORM 20-F 201509

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10NOKIA ANNUAL REPORT ON FORM 20-F 2015

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Contents

Letter from the President and CEO

12

Nokia’s role in the Programmable World

14

Our values

15

Nokia’s strategy

16

Operational governance and leadership

20

Nokia in 2016

24

Networks business in 2016

25

Market overview

25

Business overview and organization

25

Mobile Networks

26

Fixed Networks

27

IP/Optical Networks

28

Applications & Analytics

29

Bell Labs

30

Services

31

Sales and marketing

31

Research and development

33

Patents and licenses

34

Competition

34

Nokia Technologies in 2016

35

Market overview

36

Business overview

36

Strategy

37

Sales and marketing

37

Research and development

38

Patents and licenses

38

Competition

38

Discontinued operations

39

HERE business

39

Devices & Services business

39

NOKIA ANNUAL REPORT ON FORM 20-F 201511

Letter from the

President and CEO

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Profit before tax from Continuing

operations in 2015

€1.5bn

Capital structure optimization program

€7bn

Planned shareholder distributions

€4bn

In 2015, we celebrated our 150th anniversary. In a sector full of start-ups and companies that come and go every year, that is a remarkable achievement. And, despite our age, we are certainly showing no signs of slowing down.

Our acquisition of Alcatel Lucent is an industry-changing event and opens exciting new opportunities for us and our customers. The transaction makes financial and strategic sense on every level. It also does something more: it enables us to pursue our vision to expand the human possibilities of the connected world. In this rapidly approaching world, where everyone and everything will be connected, we are positioned both to do well and do good.

The new Nokia comprises five business groups: Mobile Networks, Fixed Networks, IP/Optical Networks, Applications & Analytics and Nokia Technologies. These groups start from a position of strength, including many number one positions in our key market segments. Further, these groups together give us the broad scope necessary to provide our customers with smarter, more efficient and more agile networks.

The acquisition of Alcatel Lucent, culminating in our first day of combined operations as the new Nokia on January 14, 2016, also gives us a stronger position in many regions. In North America we became the market leader; in China we are the largest vendor headquartered outside the country; in Europe, Latin America and Middle East and Africa we have roughly doubled our size.

Another critical development in 2015 was the sale of HERE—our digital mapping and location services business—to a German automotive industry consortium in December. HERE is a well-established business that we believe will go on to be very successful.

Our cash-generating strength and commitment to creating shareholder value was reflected in our EUR 7 billion capital structure optimization program, announced in October, comprising EUR 4 billion in shareholder distributions and EUR 3 billion in de-leveraging.

These developments have had a transformational effect on our company, yet I am particularly proud of the focus that our employees demonstrated in 2015. Despite a soft start to the year, and difficult market conditions, our two continuing businesses—Nokia Networks and Nokia Technologies—again demonstrated leadership in their respective fields with solid financial and operational performances.

Business performance

In 2015, profit before tax from Continuing operations increased more than 50% to EUR 1.5 billion versus 2014 on EUR 12.5 billion in net sales, which were 6% above the year-ago period.

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“Our acquisition of Alcatel Lucent is an industry-changing event and opens exciting new opportunities for us and our customers. It enables us to pursue our vision to expand the human possibilities of the connected world.”

Nokia Networks recorded a 2015 net sales increase of 3%, and we kept our focus on delivering strong profitability despite market conditions. In that vein, Nokia Networks’ gross margin in the final quarter of the year was an excellent 39.6%, our third consecutive quarter above 39%.

Nokia Networks’ various highlights of 2015 included our announcement with China Mobile in October for a comprehensive framework agreement, valued at more than USD 1 billion (EUR 930 million) for mobile communications equipment and services.

Nokia Technologies’ net sales for the year increased 77% to EUR 1.02 billion as a result of revenue stemming from the positive outcome of a multi-year patent arbitration process with Samsung, with operating profit similarly increasing 110% versus 2014.

The arbitration was focused on a portion of the patent portfolio of Nokia Technologies. There are a number of patents within Nokia Technologies that were not covered and, of course, we have separate patent portfolios outside Nokia Technologies that were excluded as well.

Given this, we expect to have further discussions with Samsung related to those parts of our intellectual property that were not covered by the arbitration. In time, we believe that we will generate additional revenue from Samsung in these areas.

In July, Nokia Technologies launched OZO, the first commercially-available virtual reality camera designed and built for professional content creators, and the first in a planned portfolio of digital media products. We are receiving rave reviews from Hollywood and NASA amongst others, and are excited by OZO’s prospects to transform the media landscape.

Sustainability and the year ahead

Finally, I am proud that our solid 2015 results came while achieving our sustainability objectives.

For example, we were more energy efficient in our own operations and, as a result, our greenhouse gas emissions from our offices and factories around the world decreased by 12%, including our green electricity purchases. And we launched our first ‘zero CO2 emission’ base station site offering that alone cuts base station site energy consumption and CO2 emissions by up to 70%, while remaining CO2 emissions can be reduced to zero by using renewable energy sources.

In September, we were included in the Dow Jones Sustainability Index in recognition of our economic, environmental and social responsibility; and, in November, our commitment to addressing climate change was recognized by the CDP—a leading global organization working with shareholders and companies to disclose greenhouse gas emissions of major corporations—as they included us with a perfect score of 100 in their Climate Change A-list.

These are exciting times for the new Nokia. Despite near-term challenges in our industry, we are well positioned to deliver on the three major opportunities that are ahead of us. Firstly, the convergence between fixed, mobile, and IP and optical networks where we have the talent and expertise to deliver exceptional new products and services to our customers. Secondly, the convergence between the telecommunications world and the IT world, where we are also well placed to deliver game-changing solutions.

Finally, our end-to-end capability and cutting edge research and innovation mean that we are well positioned for the rising tide of IoT products, services and business models. This position will be reinforced as we move toward a more flexible network with 5G. This new connected world will offer great potential for all of us—individuals and businesses alike. By focusing on, and expanding, the human possibilities that this new world will create, we are ideally placed for the future.

Rajeev Suri

President and CEO

NOKIA ANNUAL REPORT ON FORM 20-F 201613

    

NOKIA ANNUAL REPORT ON FORM 20-F 201513

Our role as a global

technology leader

Nokia’s role in the

Programmable World

We are playing a leading role in shaping

the new revolution in connectivity and

digitization in which everyone, everything,

everywhere are connecting.

We call this revolution the Programmable World, one in which there is renewed opportunity to positively impact people’s lives and the environment each day and improve how we access and tap the power of connectivity.

At Nokia, we are enabling a new type of network that is versatile, intelligent, and reliable in order to meet the huge demand on network performance and access; to simplify, optimize, and automate the complex flow of data across the network; and to transform the way networks, data, and technology not only connect us, but intelligently work to enrich our lives.

In the Programmable World, where everyone and everything becomes connected through data from billions of sensors everywhere via the internet, there is a fresh opportunity to positively impact the way people live and work each day—to make the world more productive, efficient, safe, healthy, smart, and sustainable.

For example, the opportunity to transform travel by connecting services with passengers and public safety; to use smart metering and intelligent energy applications to conserve resources; and to automate financial and retail services to simplify our lives.

However, we cannot just keep improving today’s networks in the same way. We need a new approach in which the network is not the limiting factor, but the enabler and accelerator with seemingly unlimited and ubiquitous bandwidth that allows new services and applications to flow without constraint.

The network needs distributed and interconnected intelligence, with enormous versatility in how its resources are controlled, and the cognitive ability to self-organize and dynamically adapt, in real time, to meet demand.

“We are enabling a new type of network that is versatile, intelligent, and reliable; able to simplify, optimize, and automate the complex flow of data; and to transform the way networks, data, and technology intelligently work to enrich our lives.”

    

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Respect is a key value of Nokia.

We work openly and

collaboratively, seeking to

earn respect from others.

Our vision is to enable the human

possibilities of the connected world.

We are innovators of the global nervous system, shaping the future of technology to transform the human experience

Innovating this global nervous system is a role that Nokia is uniquely well placed to play. Our business today is not just focused on meeting extraordinary technological demands, but also on how technology is deployed and used. With the potential of Augmented Intelligence, increasing human and machine interaction, and a supercomputer in every pocket, we believe that current trends will have significant implications for society.

We are shaping a new revolution in technology

We are shaping a new revolution in technology, where intelligent networks augment and aid our daily lives through sensing the world around us and providing the data and analytics needed to make choices that help society thrive. We are innovating this global nervous system with effortless, simple and dependable technology for the IoT, ultra-broadband, Cloud, IP interconnectivity, digital health and immersive VR technologies.

We enable innovative and compelling business models, applications and services

With the advent of new technologies such as the IoT, 5G and Cloud, we believe that enabling new business opportunities for our customers is the key to their rapid transition to new digital networks, capitalizing on the inherent operational benefits of this technology, and generating new services.

We assist our customers in identifying compelling cases for new revenue streams, in addition to enabling the rapid onboarding of new applications and services, scalability and operational efficiency.

We optimize performance to maximize value and customer satisfaction

We believe that agility in today’s fast and constantly evolving marketplace is no longer just an advantage—it is a vital necessity. Agile principles, lean practices and innovative tools are required to successfully survive in the new digital world and enable continuous improvement in quality, value and customer satisfaction.

We enable our customers to move away from an economy-of-scale network operating model to demand-driven operations. We do this by providing the easy programmability and flexible automation needed to support dynamic operations, reduce complexity and improve efficiency.

As a result, our customers can fulfill end user demands—when and where they are needed—by provisioning services in real time while automatically making optimal use of networks assets.

We create disruptive solutions enabling market differentiation and competitive advantage

We believe that innovation is the foundation of everything we do at Nokia. We force the pace of change by pushing technology boundaries, challenging the status quo and working in open collaboration with customers and partners on the next “big idea.” It is through these efforts that Nokia expands and enhances its portfolio, introduces disruptive technologies and identifies new market opportunities for its customers.

We are continually evolving the Nokia portfolio: adding and combining functionality, making it more intuitive and simpler to use. Doing this helps our customers evolve their networks. For instance, by taking the first step towards entering the IoT space with our IMPACT solution; or the next step to transition from LTE to 5G using 4.5G Pro and 4.9G; or perhaps the ultimate step to creating immersive experiences with our OZO VR camera.

It is through innovation that we create paths for our customers—whatever their starting point—to reach the promising new digital world.

 

 

At Nokia, we have always focused on designing technology in the service of people. We are driven by our vision of expanding the human possibilities of technology of the connected world. We are committed to four core strengths that distinguish how we design and deliver technology to help people thrive in the Programmable World:

1. Technology that thinks ahead

We deploy self-managing technology that works invisibly in the background, and adapts to anticipate people’s needs. The more pervasive the network becomes, the more discreetly and smartly it needs to work.

2. Making sophisticated technology simple

We select, create, and apply technology thoughtfully so that it is effortless and intuitive to use for all customers and end users, regardless of the power and complexity that lie beneath the technology.

3. Integrity of design and execution

Our technology, networks, and data, are resilient and dependable. Privacy and security are built-in from the start, not as an afterthought. Quality is designed into everything we do, from our systems, processes, and software interfaces, to the service we provide customers. Integrity is critical for creating networks for the Programmable World, and fundamental to who we are, and how we operate.

4. Grounded in real life

We are realistic about how technology works for people in their daily lives. Our innovation is focused on meeting real human needs to positively impact the everyday experience of people.

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Our values

We want

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We foster a culture of high performance and high integrity, guided by our vision, brand and values.

It is through our people and culture that we shape technology to serve human needs. Our pursuit of performance with integrity and sustainability—a culture that stems from our Finnish roots—is key to why our customers and partners choose to work with us.

Operational excellence is the cultural platform we use to pursue Nokia’s core purpose as a company. It means relentlessly pursuing financial performance by delivering on our end-to-end strategy. It informs our quest for innovation, as we use our insatiable curiosity and deep technical knowledge to share the future for our customers. It also drives our pursuit of continuous improvement, not only over earlier performance, but also in our ability to outperform competitors and be a trusted partner for customers, partners and suppliers.

We pursue high performance, always under the guiding principles of our values:

Respect

Acting with uncompromising integrity, we work openly and collaboratively, seeking to earn respect from others.

Challenge

We are never complacent, ask tough questions, and push for higher performance to deliver the right results.

Achievement

We take responsibility, and are accountable for driving quality, setting high standards, and striving for continuous improvement.

Renewal

We constantly refine our skills, learn and embrace new ways of doing things, and adapt to the world around us.

Our commitments

What we do to design and deploy technology in the service of people

We create the most sophisticated technology that is effortless and intuitive to use

We lead the relentless quest for gains in performance and agility, with technology that thinks for itself.

We solve your future needs

We help customers shape their futures based on a clear view of technology opportunities and constraints. We work closely with customers and partners to anticipate their priorities and guide their choices.

We obsess about integrity, quality, and security

We never compromise our values in the drive for business or technical performance. We pursue quality in all our products and processes, and design for security and privacy from the start.

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We are rebalancing for growth, putting

Nokia at the heart of unprecedented

technology demands as innovators

of the global nervous system.

The vision of the Programmable World continues to guide our corporate strategy. We have identified six global megatrends that drive the Programmable World. These megatrends create massive technological requirements, impact our current and potential customers, change the lives of people and impact business operations on a global scale and ultimately provide opportunities for Nokia to diversify into new growth areas.

The megatrends we have identified are:

1.Network, compute and storage: Ever present broadband capacity coupled with a distributed Cloud for ubiquitous compute and near infinite storage, allowing limitless connectivity and imperceptible latency

2.Internet of Things:In addition to be proudpeople, trillions of what we achieve—and how we achieve it. We pursue high performance, aligned with our values. We continuously pursue this withthings are connected to the highest integrity,internet, collecting unprecedented amounts of data in a human, ethicalprivate and sustainable way.business context

Respect
3.Augmented Intelligence:New tools transform the collected data into actionable insights, fundamentally changing the way decisions are made by businesses, governments and individuals, resulting in time savings, less waste, higher efficiency and new business models

Acting
4.Human and machine interaction: A range of new form factors that fundamentally transform the way humans interact with uncompromising integrity, we work openlyeach other and collaboratively, seeking to earn respect from others.

Challenge

We are never complacent, ask tough questions,with machines, e.g. voice-based digital assistance, gesture control, smart clothes, implantable chips, robotics and push for higher performance to deliver the right results.

Achievement

We take responsibility,Augmented and are accountable for driving quality, setting high standards,Virtual Reality

5.Social and striving for continuous improvement.

Renewal

We constantly refine our skills, learntrust economics: Ubiquitous connectivity, compute and embracestorage, as well as technologies such as block chain, enabling new waysbusiness models based on sharing assets and distributed trust, allowing rapid scalability on a global level

6.Digitization and ecosystems:Next level of doing things,digitization beyond content and adapt to the world aroundinformation, digitizing atoms with additive printing in an industrial, consumer and medical context, fundamentally transforming production processes

These megatrends are driving massive new technology requirements, and end-to-end networks are a central enabler for all aforementioned megatrends, which create a multitude of opportunities for us. Nokia Bell Labs has developed a vision of a future network architecture that fulfills all of these requirements in a holistic way—the Future X network vision. This is our guide not just to how things will change, but also to what we need to do to meet the future needs of our customers and to address these megatrends. The Future X vision encompasses the key domains of future networks: massive scale access, converged edge cloud, smart network fabric, universal adaptive core, programmable network operating systems, augmented cognition systems, digital value platforms and dynamic data security.

Simultaneously, driven by the identified megatrends and the increasing relevance of networks, we are seeing a shift in who is investing in technology. Our primary market, comprised of CSPs, in which we have a leadership position, is expected to remain challenging with a limited estimated growth opportunity over the next five years. However, the megatrends are increasing the demand for large high-performance networks in other key areas, which we define as our select vertical markets. Webscale companies—such as Google, Microsoft, and Alibaba—are investing in Cloud technology and network infrastructure on an increasing scale. As other vertical markets such as energy, transportation and government digitize their operations, they will need massive mission-critical networks. The same is true for TXLEs—technically sophisticated companies, such as banks, that invest heavily in their own network infrastructures to gain a key competitive advantage. Consequently, we have identified attractive growth opportunities in new domains outside our primary market with CSPs, which remains a significant market.

We are addressing both our primary CSP market and the newly identified growth opportunities in our adjacent market with our “Rebalancing for Growth” strategy. This strategy builds on our core strength of delivering large high-performance networks by methodically expanding our business into targeted, higher-growth and higher-margin vertical markets. Our ambition is to grow the share of our revenue that is derived from outside the CSPs.

 

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Our strategycontinued

Our four pillars

 

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This strategy builds on our business

portfolio and continued drive to design

technology that serves people and

includes the following four key priorities:

 

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Lead in high-performance, end-to-end networks with CSPs

Nokia is a leader in this area today and we will use our main competitive advantage—a near 100% end-to-end portfolio that we can deliver on a global scale—to maintain our leadership while managing for profitability. Within this first priority, we are focused on:

∎monetizing additional waves of 4G and establishing leadership in 5G by being first to market with key customers and global technology leadership;
∎maintaining our leading market share in copper access, accelerating momentum in fiber access, successfully entering the cable market, and developing new smart home solutions;

∎leveraging our superior products to expand in both edge and core routing, where we have a fully virtualized portfolio that is differentiated by performance, flexibility, and quality;
∎using our unique capability of offering optical and routing that work together, a capability that is increasingly becoming a customer requirement; and

∎delivering cost savings by realizing synergies and applying best practices across our entire portfolio to maintain the industry’s most profitable networks business.

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Over the next two years, we intend to maintain our leading position with CSPs, while establishing ourselves as a credible and recognized player in our target vertical markets among enterprises. We strive to sustain and rebuild Nokia as a value-adding consumer brand, earning returns through both our own businesses and licensing.

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Expand network sales to select vertical markets

We will expand into five select vertical markets with carrier-grade needs: energy, transportation, public sector, TXLEs and Webscales. As the world becomes ever more digital, the kind of massive, high-performance networks once used almost exclusively in telecommunications are now needed by other organizations. Webscale customers will increasingly require high-performance networks to improve customer experiences and to expand their primary business models.

∎For Webscale companies we have identified two areas for diversification:

–all-IP-led, with a focus on providing more IP routing and optical network infrastructure; and

–mobile access-led, targeted at those Webscales that wish to expand into mobile access connectivity with consumers.
∎In terms of select vertical markets, we have a three-pronged approach:

–target a limited number of customer segments to ensure focus;

–leverage our full end-to-end portfolio to increase penetration with customers; and

–accelerate and diversify our go-to-market.

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Our strategycontinued

Our four pillars

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Build a strong standalone software business

While Nokia has a large software business today, much of that is attached to our hardware products. Our ambition is to move beyond that approach in the medium term and ultimately to create a large global software player that has the margin profile consistent with large software companies. We have three priorities to achieve this ambition:

∎generate an uplift to our business by selling software assets we have today because our software is largely network-agnostic. Fixed, cable and enterprise customers are targets for expansion;

∎market our current software to select vertical markets. Some of our software assets today are highly relevant for our select vertical markets. For example, Webscales can benefit from Nokia’s Operations Support Systems, Service Assurance to enable high-performance IT networks, and inter-data center connections; and
∎assess where we are able to expand into enterprise software and IoT platforms, where our experience in providing mission-critical networks and services at scale is a powerful differentiator.

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“We can leverage the strength of our complete and converged portfolio to help our customers to capitalize on the opportunities from an industry in transition.”

We are well-positioned to lead the change in our industry, which is undergoing rapid technological development and continuous disruption, driven by some key trends:

n   Unprecedented increase of data, driven by

consumer demand for video, social networking and other Cloud-based services that are increasingly accessed through mobile devices;

n   Ongoing digitization of business processes

as well as people’s lives, generating vast quantities of data that need to be analyzed and managed, as services and entire industries become ever more connected through Cloud-based applications and IoT becomes a reality;

n   Demand and stricter guidelines for enhanced

network and application security and privacy to protect individuals, businesses, public services and national interests that are all increasingly reliant on connectivity and data;

n    The convergence of disparate network

technologies—across mobile, fixed, and IP and optical networks—to enhance network performance and profitability and simplify networking services; and

n    The convergence of telecommunications and

IT domains, as networks become increasingly virtual, managed through software applications and platforms via the Cloud, decoupled from hardware and increasingly connected to open-source ecosystems through application programming interfaces (“APIs”).

As the industry changes, so does the market opportunity. Operators are facing slowing growth of wireless subscribers, declining revenues per user from connectivity services, and ever-increasing demand for data that is driving traffic on their networks. While driving network efficiency is key, scaling the subscriber base and diversifying service provision are also critical.

In parallel, enterprises and webscale players are requiring greater flexibility with network infrastructures to adjust to the convergence of IT and telecommunications technologies, and to take advantage of the scalability and efficiency that Cloud-based software platforms offer.

To address these opportunities, we are focusing our strategy in four areas:

1. Leading in network infrastructure, converging mobile, fixed, IP and optical networks, optimized by and for the Cloud

2. Expanding in adjacencies and gaining software leadership for network optimization, service innovation, and customer experience enhancement

3. Diversifying by providing network performance and flexibility for large-scale enterprises

4. Leveraging new business opportunities created through the Internet of Things

All the use cases outlined below will provide opportunities for new business models for the players in the IoT ecosystem and create new pockets of revenue growth for network vendors such as us. We believe we can leverage the strength of our complete and converged portfolio of network infrastructure, software, services and advanced technologies, to help our customers—telecommunications operators, governments, enterprises and webscale players—to capitalize on the opportunities from an industry in transition.

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Nokia’s strategycontinued

 

 

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Create new business and licensing opportunities in the consumer ecosystem

In addition to renewing existing patent licenses on favorable terms, our aim is to add new licensees from the mobile industry, and we continue to expand patent licensing into new segments, such as automotive and consumer electronics. Our brand licensing efforts are well underway—we see value creation opportunities in the mobile devices industry leveraging our strong brand. Our exclusive brand licensee for mobile phones and tablets, HMD Global, has already launched new Nokia branded feature phones and smartphones.

In addition to our licensing businesses, we intend to return to the consumer market with two select new businesses in Digital Media and Digital Health. Our current focus in the fast-growing area of VR is to expand the range of OZO cameras as part of creating an industry-leading VR ecosystem. Technology licensing and strategic partnerships will form an essential element of this work, in order to accelerate VR content creation and mass adoption.

In Digital Health, we entered the market through our acquisition of Withings, a pioneer in consumer-focused connected health devices. In the future, we see opportunities to scale globally by building on the powerful reach of the Nokia brand, expanding into corporate wellness and assessing opportunities to transition into business-to-business healthcare, in areas such as connected patient care.

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Our leadership

    

    

 

We have a strong and experienced leadership

team that brings together leaders with many

years of experience in telecommunications

and technology, finance, sales and operations,

as well as various other business disciplines.

The diversity of business backgrounds of the Nokia Group Leadership Team (the “Group Leadership Team”) members has been integral to the transformation of Nokia into an industry and innovation leader in next-generation technology and services in recent years.

The Group Leadership Team is responsible for the operative management of Nokia, including decisions concerning our strategy and the overall business portfolio. The Chair and members of the Group Leadership Team are appointed by the Board. The Group Leadership Team is chaired by the President and Chief Executive Officer (the “President and CEO”).

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1

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Leading in network infrastructure, converging mobile, fixed, IP and optical networks, optimized
by and for the Cloud

2

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Expanding in adjacencies and gaining software leadership for network optimization, service innovation, and customer experience enhancement

With a complete portfolio spanning mobile, fixed and IP and optical networks, we are a global market leader in network infrastructure for telecommunications operators. We will continue to drive profitability by extracting cost through our ultra-lean operating model. We will also enhance network efficiency and performance by converging technologies from across our business groups to create one seamless network for all services. By maximizing the synergies across our products and services—e.g., copper, fiber, LTE, and, in the future, 5G—we will give our customers the flexibility to create customized broadband access solutions to the most economical point.Other areas in which we will leverage our converged portfolio are Software Defined Networks (“SDN”), Cloud transformation, and backhaul solutions. Furthermore, we will enhance our leadership through innovation in next-generation technologies: 5G in mobile networks, TWDM-PON and XG-FAST in fixed networks, and 400G/1TB-transport in optical networks.Our goal is to lead in the network software platforms that will help our customers extract greater value from their network infrastructure. We are building a coherent suite of software and services that bring together Network Function Virtualization (“NFV”), SDN, and advanced applications and analytics, to enable customers to more easily manage, scale, automate, secure, and monetize their networks through intuitive Cloud-based applications.We have strong products and services in this area including subscriber management, device management, IP Multimedia Subsystems, and Customer Experience Management, which further build our strong operator customer relationships and leverage our infrastructure expertise; and with CloudBand and Nuage Networks products, our software expertise extends into the enterprise market. Furthermore, we are developing transversal platforms for security in IoT for connectivity management and application enablement, as well as for analytics to provide network, customer, and business intelligence.
(1)As announced on March 17, 2017, Mr. Elhage will continue as a member of the Group Leadership Team until April 1, 2017.

 

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3

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Diversifying by providing network performance
and flexibility for large-scale enterprises

4

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Leveraging new business opportunities created through the Internet of Things

The increasing digitization of enterprises offers growth opportunities beyond a core customer base of telecommunications operators.

We are focused on serving the needs of webscale players, technology-centric fortune 500 enterprises and public sector bodies that require high performance networks and seek to take advantage of the convergence of telecommunications and IT technologies. More specifically, we are building on the SDN expertise of Nuage Networks to further enter the Enterprise Datacenter business, leveraging our IP and optical assets to increase our presence in key industry verticals, such as utilities and transport.

We are also deploying our expertise in LTE to capture a greater share of mobile networks in the public safety market, and offering our software platforms to enterprise customers.Our strategy is guided by our vision of the Programmable World—a world in which connectivity will greatly expand and link people and billions of physical objects. In this world automated analytics will both improve and simplify people’s lives, reduce costs and optimize business operations. For instance, we envision widespread use of autonomous driving cars that offer the promise of reducing road fatalities significantly and optimizing traffic flows; smart monitoring systems for utilities, decreasing the waste of precious resources such as water and energy; smart cities, optimizing traffic flows and energy consumption; digital health applications to offer patients remote monitoring and preventive care benefits; increasing the well-being of humans; traffic management systems for drones to increase public safety and drone reliability; public safety applications for positioning and augmented reality, to improve first responders’ work processes and, thus, increase the chances of survival of accident victims and the safety of the first responders; and virtual reality, enabling unprecedented experiences.The IoT plays a pivotal role in translating our vision into a reality. It creates new opportunity in all customer and technology segments, and we have a two-fold strategy to capitalize on these opportunities. Firstly, we are designing, building, and optimizing network infrastructure to meet the increased and diverse performance requirements that will enable the IoT: scalable, flexible, Cloud-based, efficient, and secure. To meet the requirements of IoT, mass communication and low-latency communication are critical. Hence, we are creating a strong portfolio of IoT connectivity solutions that adapt to specific customer needs, from LTE-based mobile edge computing, to narrowband IoT, LTE-M, and 5G. Moreover, we provide solutions for IoT core, security and platforms, to enable a broad array of uses. Secondly, we are building an ecosystem of products and services that will enable the specific use cases in the areas of connected mobility, public safety, digital health, connected industry, and smart cities.

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Operational governance

and leadership

We have a strong and experienced leadership

team that brings together leaders with many

years of experience in telecommunications and

technology, finance, sales and operations and

various other business disciplines.

 

The diversity of business backgrounds of the Nokia

+On March 17, 2017, we announced a change in our organizational structure which also impacted our Group Leadership Team (the “Group Leadership Team”) members has been integraleffective from April 1, 2017. Refer to pages 98 to 101 for the transformationupdated composition of Nokia into an industry and innovation leader in next-generation technology and services in recent years.

The Nokiathe Group Leadership Team is responsible for all group-level issues, including our strategy and the overall business portfolio.

full biographies of its members.
 

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(2)As announced on March 17, 2017, Mr. Rouanne will transition to his new role as president of Mobile Networks effective from April 1, 2017.

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Our businesses

We have two businesses: Nokia’s Networks

business and Nokia Technologies.

Within these two businesses, we had five

business groups in 2016: Mobile Networks(1),

Fixed Networks, IP/Optical Networks, and

Applications & Analytics (all within our

Networks business); and Nokia Technologies.

This section presents an overview of Nokia’s

Networks business and Nokia Technologies.

Networks businessNokia Technologies

 

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20

  Fixed Networks

  Nokia Technologies

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  Analytics

 

 

 

 

 

 

 

 

 

  IP/Optical Networks

 

+For the full biographies of the Group Leadership Team, see pages 22 to 23 and 99 to 101
(1)Following the changes to our organizational structure announced on March 17, 2017, our current Mobile Networks business group will be separated into two distinct, but closely linked, organizations effective from April 1, 2017: (1) Mobile Networks, which will focus on products and solutions, and (2) Global Services which will focus on services. These changes are not reflected in the presentation of our businesses below, which reflect our organizational structure for the year ended December 31, 2016.
 

 

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Members of the Nokia Group

Leadership Team

The Group Leadership Team, chaired by Rajeev Suri, comprises the following thirteen (13) members; the President and Chief Executive Officer (“President and CEO”), five (5) business group leaders and seven (7) unit leaders:

Rajeev Suri

b. 1967

President and CEO of Nokia Corporation

With more than 26 years of international experience, Rajeev is a leader with a passion for creating value and delivering technologies that have a positive impact on people’s lives. He joined Nokia in 1995 and has held numerous executive roles in the company, including leading the complete turnaround of Nokia Solutions and Networks. As President and CEO of Nokia, he has helped transform Nokia into a global leader in the technologies that connect people and things. Under Rajeev’s leadership Nokia has seen significant transformational steps including the acquisition of Alcatel Lucent and an increase in market capitalization. He also serves as a member of UN Broadband Commission for Sustainable Development.

Rajeev holds a Bachelor of Engineering (Electronics and Communications) from Manipal Institute of Technology, India.

Samih Elhage

b. 1961

President of Mobile Networks

Samih has more than two decades of senior experience in the telecommunications industry, with a successful track record of business transformation, establishing operational excellence in diverse global markets and creating and implementing strategies for growth and sustained profitability. He joined Nokia Siemens Networks in 2012 as Chief Operating Officer and added the role of Chief Financial Officer of Nokia Solutions and Networks to his responsibilities in 2013.

Samih holds degrees in Electrical Engineering (telecommunications) and Economics from the University of Ottawa, Canada along with a master’s degree in Electrical Engineering (telecommunications) from the École Polytechnique de Montréal, Canada.

Federico Guillén

b.1963

President of Fixed Networks

Federico has over
NOKIA ANNUAL REPORT ON FORM 20-F 201625 years of experience in the telecommunications industry, most recently as President of Fixed Networks at Alcatel Lucent. Prior to this role, he was General Manager of Alcatel Lucent Spain and head of the Telefónica Global account team.

Federico holds a Master’s Degree in Switching & Communication Architectures from ETSIT at Universidad Politécnica de Madrid, Spain, as well as Masters in International Management from ESC Lyon and Alcatel, France.

Basil Alwan

b. 1962

President of IP/Optical Networks

Basil served previously as Alcatel Lucent’s President of IP Routing and Transport, a business that grew over the years into the #2 market position in service provider IP/MPLS routing, with over 400 customers in more than 120 countries. He joined Alcatel Lucent in 2003 following the company’s acquisition of privately held TiMetra Networks, a Silicon Valley based start-up focused on routers for IP/MPLS, networks where he was founder and served as President and CEO.

Basil holds a Bachelor’s Degree in Computer Engineering from the University of Illinois at Urbana-Champaign, the United States.

Bhaskar Gorti

b. 1966

President of Applications & Analytics

Bhaskar oversaw the development of Alcatel Lucent’s business units that developed technologies for Cloud-based networking and virtualization, including NFV. Prior to joining Alcatel Lucent, he served as Senior Vice President and General Manager of Oracle Communications Global Business Unit from 2006 to 2015. He had previously served as Senior Vice President at Portal Software, which was sold to Oracle Corporation in 2006.

Bhaskar holds a Bachelor’s in Technology, Electrical Engineering, from National Institute of Technology, Warangal, India and a Master of Science Degree in Electric Engineering from Virginia Tech, the United States.

    

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Networks business

    

    

    

    

    

    

 

Ramzi Haidamus

b. 1964

President of Nokia Technologies

Ramzi is a technology-licensing expert with proven business skills and a strong innovation background. Before joining Nokia, he spent 17 years helping Dolby Laboratories, Inc. grow into a world-class patent licensing organization.

Ramzi holds a BS in electrical engineering and an MS in computer engineering from the University of the Pacific, California, the United States, and has completed advanced coursework at Stanford University, the University of California at Berkeley, Harvard University, and the Center for Creative Leadership in the United States.

Timo Ihamuotila

b. 1966

Chief Financial Officer

Timo is responsible for financial matters of the Nokia Corporation including external and internal reporting, business performance reviews and capital allocation. He also oversees Investor Relations, M&A, Treasury and Nokia Growth Partners. He has been a member of the Nokia Leadership Team since 2007. Timo joined Nokia in 1993 and his responsibilities at Nokia have ranged from sales to business unit leadership and from risk management to treasury and corporate finance. He is a firm believer in a corporate culture based on strong values and vision.

Hans-Jürgen Bill

b. 1960

Chief Human Resources Officer

Hans-Jürgen has over 20 years of experience in the telecommunications industry. Prior to Nokia Siemens Networks, he held a range of diverse roles at Siemens, which he joined in 1983. When Nokia Siemens Networks was formed in 2007, Hans-Jürgen became Head of West South Europe region. He assumed the role of Head of Human Resources for Nokia Siemens Networks in 2009 and for Nokia Corporation in 2014.

Kathrin Buvac

b. 1980

Chief Strategy Officer

With over 15 years of telecommunications experience, Kathrin has helped shape Nokia Networks’ vision and strategy over the years, most recently as Vice President of Corporate Strategy. Her responsibilities include market forecasting, portfolio watch, business development and leading the company’s overall efforts in the Internet of Things. Before her current role, she served as Chief of staff to the CEO of Nokia Solutions and Networks from 2011-2013.

Kathrin previously worked at Siemens and EADS Aerospace and Defence.

Ashish Chowdhary

b. 1965

Chief Customer Operations Officer

Ashish holds over 25 years of international experience in the enterprise and telecommunications sectors and has a track record of consistently delivering strong results. He has led various regional and global organizations including Head of Global Services and Head of Customer Operations AMEA (the Asia, Middle East and Africa market) of Nokia Networks. He was also a member of the Nokia Networks leadership team from 2009 until the closing of the acquisition of Alcatel Lucent.

Barry French

b. 1963

Chief Marketing Officer

Barry joined Nokia in 2006 and was instrumental in the creation and later turnaround of Nokia’s Networks business. Previous experience includes leadership positions in technology, restructuring and politics.

Barry holds a Master’s Degree in International Affairs from Columbia University’s School of International and Public Affairs, New York, the United States.

Marc Rouanne

b. 1963

Chief Innovation & Operating Officer

Marc has more than 20 years of international management experience in the telecommunications industry, having held positions in research and development, customer operations and product management in the United States, France and Finland. He joined Nokia in 2008 from Alcatel Lucent and before that Alcatel, where he held various senior management positions. Marc has led Nokia’s Mobile Broadband Business, successfully shifting the investment focus to new technologies, opened up the company to the open ecosystem accelerating time to market, improved the company’s R&D efficiency significantly every year, and implemented a strong quality culture, working towards becoming employer of choice in each R&D site.

Maria Varsellona

b. 1970

Chief Legal Officer

Maria joined Nokia Siemens Networks in 2013 from Tetra Pak, where she was the Group General Counsel. Previously, Maria held senior legal positions in GE Oil & Gas for many years. As an admitted lawyer in Italy and England, she started her career in private practice, and she also lectured in international contract law at the University of Florence, Italy.

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24NOKIA ANNUAL REPORT ON FORM 20-F 2015

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Networks business

in 2016

Our Networks business isin 2016 was conducted

through its four business groups: Mobile

Networks, Fixed Networks, IP/Optical

Networks and Applications & Analytics.

Market overview

Through our comprehensive, end-to-end portfolio of products and services, we are addressing a market described as “network and IP infrastructure, software, and related services”. This market encompasses mobile network infrastructure, fixed network infrastructure, IP routing and optical networks as well as the software platforms and applications to optimize operations, business, network performance, and customer experience. While the majority of our products and services are targeted at telecommunications operators, an increasing focus is on the public sector and large scale enterprises, including webscale players and industry verticals.

Demand for our portfolio is driven by the increasing global demand for bandwidth and network capacity as people’s lives and enterprises become ever more digitized. Data-rich websites, Cloud-based applications and services, and video usage are ever more pervasive, and enterprises are increasingly digitalizing their processes and value chains. Furthermore, we see a convergence of disparate network technologies—across mobile, fixed, and IP and optical—enhancing network performance and profitability, as well as simplifying end-to-end networking services. In a similar manner, telecommunications and IT domains are increasingly converging, as networks become more virtual, managed through software applications and platforms via the Cloud. This includes software decoupled from hardware, open-source ecosystems leveraging APIs, as well as more of the intelligence moving from the core to the edges of the network to increase efficiency and decrease latency. As the only player that offers an integrated end-to-end portfolio on a global scale, we have a strong competitive position to capitalize on these opportunities.

Business overview and organization

Our Networks business is conducted through four business groups: Mobile Networks, Fixed Networks, IP/Optical Networks, and Applications & Analytics.

Market overview

Through our comprehensive end-to-end portfolio of products and services, we are addressing a market that encompasses mobile and fixed network access infrastructure, IP routing and optical networks as well as software platforms and applications.

We define our primary market as a network and IP infrastructure, software and related services market for CSPs. We estimate that our primary market was EUR 113 billion in 2016. In addition, we have an adjacent market, including a vertical market that includes our Networks businesses expansion areas in both a customer and product dimension. The adjacent market includes customer segments such as Webscales, energy, transport, public sector and TXLEs. In the product dimension, this includes solutions like Nuage Networks, SDN, Analytics, IoT and Security. The adjacent market was estimated at EUR 18 billion in 2016.

Demand for our portfolio is driven by exponentially increasing growth in data traffic as people’s lives and enterprises become ever more digitized. This drives the demand for highly reliable networks for  massive connectivity.

Competition

The competitors in our primary market are Huawei and Ericsson. We also compete with technology experts in some of our other market segments, such as Juniper and Cisco in the routing segment, and Ciena, Adtran, and Calix in the optical networks and fixed access segments. Both the optical networks and the applications and analytics market segments are still highly fragmented markets.

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Mobile

Networks

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Market overview

The primary market for our Mobile Networks business group includes technologies for mobile access, converged core and microwave transport as well as related services. This encompasses access and core technologies ranging from 2G to 5G licensed spectrum for both macro and small cell deployments. The services market includes implementation, care and professional services for mobile networks in addition to managed services for both mobile and fixed networks. The primary market for Mobile Networks was estimated at EUR 64 billion in 2016.

The vertical market for Mobile Networks includes solutions for the public sector, TXLEs and Webscales, and drives expansion into domains such as IoT connectivity, LTE for public safety, private LTE and unlicensed radio access. The vertical market, including verticals, was estimated at EUR 2 billion in 2016.

Business overview and organization

Our aim is to lead with traditional telecommunications operators, as well as expand into select attractive, vertical segments. This is accomplished by delivering a comprehensive end-to-end portfolio of mobile products and services across Radio Networks, Converged Core, Advanced Mobile Networks Solutions and Global Services businesses.

Radio Networks has the task of driving leadership in radio access and specifically has end-to-end responsibility for one of the most important areas for Nokia’s future: 5G. We believe that 5G will change the way in which mobile technology is used in virtually every sphere of life. As we move along the path towards making 5G a commercial reality, we aim to extend our leadership in LTE with a smooth evolution path comprising successive generations of 4.5G, 4.5G Pro and 4.9G offerings. Mobile Networks’ rationalized portfolio, featuring the 5G-ready AirScale radio access, is setting the standard for scalability, openness, energy efficiency and multitechnology support (“Single RAN”). AirScale is the platform to enable 4.5G Pro/4.9G, Cloud and IoT connectivity.

The further evolution of 4G, and ultimately 5G, requires a continuous transformation of the core network. Mobile Networks’ Converged Core is designing a radically simplified, robust and scalable core network based on its concept of a Cloud Native Core. Mobile Networks is already executing on this path and distinguishing its offer through its superior Shared Data Layer and AirFrame data center infrastructure solutions, which enable a Telco Cloud architecture that combines the best of both a centralized and a distributed approach. Using truly open interfaces and open source software building blocks, Mobile Networks can provide excellent performance for its customers in and beyond traditional telecommunications operators. Mobile Networks aims for a leading market position in end-to-end IP multimedia subsystem (“IMS”)/voice over LTE (“VoLTE”), subscriber data management and other virtualized software infrastructure solutions, putting together the key building blocks which will enable new digital business models.

Advanced Mobile Networks Solutions spearheads Mobile Networks’ expansion beyond traditional telecommunications operators to vertical markets in public safety; connectivity for IoT and connected automotive; and private LTE networks for, for example, transportation and energy companies. With a leading small cells portfolio and strong positions in unlicensed LTE and fixed wireless access—as well as innovative backhaul solutions, including a strong microwave offering—Mobile Networks aims to meet the need for increasingly dense networks to supply the capacity demands of our changing world.

Finally, through our Global Services offering, we aim to be the most innovative and complete service provider for the connected world. Our services, solutions and multivendor capabilities help our customers navigate through the evolving technology landscape, network complexity and data growth as well as improve personalized end user experience while supporting them in day-to-day network planning, implementation, operations and maintenance. We differentiate strategically through our service delivery by driving speed, quality and efficiency with the right combination of local expertise and globalized delivery centers, as well as advanced analytics, virtualization and automation using the Nokia AVA platform.

Competition

The mobile networks market is a highly consolidated market and our main competitors are Huawei and Ericsson. Additionally, there are two regional vendors, ZTE and Samsung, that operate with a below 10% market share. As network infrastructure gets virtualized and cloudified, we expect IT companies to emerge, such as HP Enterprise.

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Fixed

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Market overview

The primary market for our Fixed Network business group includes technologies for fixed access and related services in addition to fixed network transformation services with focus on transformation of legacy fixed switching networks. The primary market for Fixed Networks was estimated at EUR 9 billion in 2016. In this market, we see a shift from copper to fiber technologies. The copper market is currently stable partially due to Nokia-driven innovations that improve the performance of the existing copper networks.

The adjacent market, including verticals, for Fixed Networks includes virtualization solutions for cable access platforms, Digital Home (IoT) and passive optical LAN. The vertical market, including verticals, was estimated at EUR 3 billion in 2016, including related services.

Business overview and organization

The adjacent market, including verticals, for Fixed business group provides copper, fiber and coax access products, solutions and services to deliver more bandwidth to more people, faster and in a cost-efficient way. The portfolio allows for a customized combination of technologies that brings fiber to the most economical point for our customers. It consists of advanced copper-based solutions to boost capacity on existing copper infrastructure, such as VDSL2 Vectoring, Vplus and G.fast.

The Fixed Networks business group is also a leader in fiber-to-the-home solutions, such as Ethernet point-to-point, and all versions of Passive Optical Networks (“PON”), including EPON and GPON, as well as 10 gigabit next generation fiber technologies (XGS-PON and TWDM-PON). Together with Nokia Bell Labs, we continue innovation and development of even higher-capacity technologies like XG-Fast, which allows 10 Gb/s over copper, and XLG-PON enabling 40 Gb/s symmetrical bandwidth over fiber.

With our acquisition of Gainspeed, a California-based start-up specializing in DAA solutions for the cable industry via its Virtual Converged Cable Access Platform (“Virtual CCAP”) product line, we have complemented our fiber access technologies for cable multiple-system operators. With this enhanced product portfolio, we provide cable operators with the end-to-end technology capabilities needed to support growing capacity requirements today and into the future. With this acquisition, we are able to offer a turnkey solution for the cable industry that includes products for routing, transport, wireless and analytics.

Additionally, our smart home solution supports digital home devices that enable communication providers to provide enriched customer experiences and diversify their offering.

The Fixed Networks services portfolio is based on our unparalleled expertise and experience and is comprised of deployment, maintenance and professional services such as copper and fiber broadband evolution, public switched telephone network transformation, ultra-broadband network design, deployment and operation, site implementation and outside plant, as well as multivendor maintenance.

Competition

The competitive landscape in fixed access has similar characteristics to the mobile access where the market is dominated by three main vendors, Huawei, Nokia and ZTE and a handful of other vendors with less than 10% market share.

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IP/Optical

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Market overview

The primary market for our IP/Optical Networks business group includes routing and optical technologies and related services sold to CSPs. This market includes technologies such as IP edge and core routing, mobile packet core and Wave Division Multiplex and Optical Multi-Service Network solutions. The primary market for IP/Optical Networks was estimated at EUR 28 billion in 2016.

A significant portion of IP/Optical Networks revenue is derived from its vertical market, which includes customer segments like Webscales, energy, transport, public sector and TXLEs. We have also included technologies like SDN controllers, addressed with our Nuage portfolio, in this market. The vertical market was estimated at EUR 6 billion in 2016.

Business overview and organization

The IP/Optical Networks business group provides the high-performance and massively scalable networks that underpin the digital world’s dynamic interconnectivity. IP/Optical Networks portfolio of carrier-grade software, systems and services play across multiple domains, from programmable IP and optical transport networks for the smart fabric to software-defined capabilities for the programmable network operating system and more.

The networks of CSPs are under tremendous pressure from Cloud-based applications, ultra-broadband evolution and the IoT. IP/Optical Networks solutions reduce CSPs time-to-market and risk in launching new services, enabling rapid scaling to meet surging demands in the most optimized configurations. The solutions further assure that network services are delivered with consistent quality, reliability and security and that restorative actions are automatically initiated when any parameter varies beyond set limits. These carrier-grade attributes also benefit—and are valued by—the needs of vertical markets including internet content providers, public sector and verticals, and TXLEs.

The IP/Optical Networks product portfolio includes:

∎comprehensive IP and optical Wide Area Networking (“WAN”) solutions that dynamically, reliably and securely connect people and things from any technology modality to any Cloud at the lowest cost-per-bit;

∎advanced, Cloud-optimized IP service gateways for residential, business, mobile and IoT services and unique hybrid solutions enabling a converged services future;

∎carrier SDN solutions for network management that dynamically provision, optimize and assure network services and resources end-to-end, from access to the Cloud, and spanning IP and optical technology layers;
∎advanced datacenter automation and software-defined WAN solutions that configure network connectivity among Clouds and to any enterprise branch office with the ease and efficiency of Cloud compute using products from our Nuage portfolio;

∎advanced IP video services offering the utmost user experience streamed efficiently and flawlessly from the Cloud; and

∎an extensive portfolio of professional services to accelerate the benefits of integrating new technologies to transform networks and leverage the latest innovations in SDN, virtualization, video and programmable all-IP networks.

Competition

The competitive landscape is dominated by Cisco, Juniper, Huawei and Nokia in addition to various specialized players in optics such as Ciena.

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Market overview

The Applications & Analytics market is focused on software platforms and applications that help CSPs to optimize their operations, monetize services and improve customer experiences. Applications & Analytics’ primary businesses include Business Support Systems (“BSS”), Operational Support Systems (“OSS”) and Service Delivery Platforms (“SDP”). The primary market for Applications & Analytics and associated professional services was estimated at EUR 12 billion in 2016.

The adjacent market, including verticals, for Applications & Analytics includes emerging software and services for Self-Organizing Networks (“SON”), Cloud, Analytics, Security and IoT. From a customer perspective this market also includes Webscales, digital enterprises and IoT verticals. The adjacent market, including verticals, was estimated at EUR 6 billion in 2016.

Business overview and organization

The Applications & Analytics business group is our dedicated software business. We have long-standing positions in its primary markets: our BSS solutions support hundreds of millions of subscribers and manage over 1.5 billion devices each day; we lead in LTE network management; we have thousands of OSS deployments with differentiated capabilities in service assurance, automation, analytics and Cloud; and our Session Border Controller, a SDP that secures network borders and connects an exploding number of devices, stands out for its virtualization capabilities.

These markets are being reshaped by four trends: the transition to the Cloud, the growth of the IoT, the increased need for security and privacy, and the impact of augmented intelligence and machine learning. These trends impact the way networks will operate, how new services and business models will be monetized, how customer expectations will evolve and the speed at which CSPs and TXLEs will need to innovate.

The Applications & Analytics business group is driving an aggressive innovation agenda that includes an Emerging Business unit that is developing software for IoT, security, Cloud, SON, and analytics. These advances are helping our customers:

∎modernize BSS systems to rapidly launch and monetize new IoT and Cloud services;

∎improve customer experiences with rich analytics and machine learning;

∎operate larger networks and more services with fewer staff through virtualization and automation;

∎predict issues before they happen with augmented intelligence;

∎scale IoT services with a platform that handles data collection, event processing, device management, data contextualization, data analytics, and end-to-end security;

∎increase the success of digital transformations with improved processes, collaboration and profitability; and

∎secure services and data with confidence.

Growing this business into a standalone software business at scale is a key tenet of our strategy. Please refer to “—Our strategy” for more information on our strategy.

Competition

The Applications & Analytics business group operates in a highly fragmented market in which very few players have a market share above 10%. Our main competitors are Ericsson, Huawei, Amdocs, Oracle, HPE, Cisco and Netcracker.

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Within our

Networks business

Services

Our Services are focused on developing innovative services, solutions and multivendor capabilities around the mobile, fixed and IP networks and beyond. With our full service portfolio we address the current and future needs of our customers, including network operators, public sector, TXLEs and transportation. Customer satisfaction, quality and efficiency are key in service delivery. To achieve that, we leverage a combination of local engagement with the customers, the network of Global Delivery Centers, and Nokia AVA, the next-generation delivery platform. Altogether, our service portfolio and delivery are powered by 38 000 services experts around the globe.

Sales and marketing

The Customer Operations (“CO”) organization is responsible for sales and account management across the four network-oriented business groups. The CO teams are active in approximately 130 countries to ensure that we are close to our customers, both physically and in terms of understanding the local markets, thus helping us build and maintain our customer relationships. Refer to “General facts on Nokia—Production of infrastructure equipment and products” for more information on our manufacturing facilities globally.

The CO organization is divided into seven markets:

∎Asia-Pacific and Japanspans a varied geographical scope, ranging from advanced telecommunications markets, such as Japan and the Republic of Korea, to developing markets including Bangladesh, Myanmar and Vietnam. We work with leading operators in the market, including Indosat, KDDI, KT, LG Uplus, NBN Australia, NTT DoCoMo, Singtel, SK Broadband, SK Telecom, Smartfren, SoftBank, Spark, StarHub, Telekom Malaysia, Telkom Indonesia, Telkomsel, VNPT and Vodafone.

We have close technology cooperation with leading operators in Korea and Japan as well as two Service Delivery Hubs located in Japan and Indonesia.

∎InEurope, we are engaged with all the major operators, including Deutsche Telekom, MegaFon, MTS Sistema, Orange, Telefónica, Telia Company and Vodafone Group, serving millions of customers. We have extensive R&D expertise in Europe, and some of our largest Technology Centers, which are developing future mobile broadband technologies, are based in this market. We also have a Global Delivery Center and four regional Service Delivery Hubs in Europe.

∎InGreater China, we are the number one player with headquarters outside China, and we are working with all the operators including China Mobile, China Telecom, China Tower and China Unicom. We have also extended our market presence to the public and enterprise sectors, including railways and public security. In Taiwan, we work with all major operators, including Chunghwa Telecom and Taiwan Mobile. In China, we have six Technology Centers, one regional Service Delivery Hub and more than 80 offices spread over megacities and provinces.

∎InIndia, we are a strong supplier and service provider to the leading public and private operators, including Bharti Airtel, Vodafone, Reliance Jio, Idea, BSNL, MTNL, Aircel and Uninor. Collectively, our networks for these operators carry over 280 million subscribers across over 230 000 sites, and these figures are growing every day. In addition, we are a key telecom infrastructure supplier to non-operator segments, including large enterprises, utilities companies such as Tata Power and GAIL, Indian defense sector through L&T and BEL, and we are a strategic telecommunication partner for GSM-Railways technology to Indian Railways, including Kolkata Metro Railways and DMRC (Delhi Metro Rail Corporation). We have a Global Delivery Center, a Service Delivery Hub and a Global Technology Center in India.
∎In Latin America, 16% of the population use LTE services, and high-speed fixed broadband is still in its early phase. With the aim of providing broadband services to a population of over 600 million people in the area, we supply ultra-competitive solutions to all major operators, such as América Móvil, AT&T, Oi, Telefónica, Telmex and Tim, as well as local operator groups, such as Avantel, Milicom, Nuevatel and Personal.

∎InMiddle East and Africa, we have built a position of considerable strength, working alongside leading operators such as Airtel, du, Etisalat, Maroc Telecom, Mobily, MTN, Ooredoo, Orange, OTA Djezzy, Smile, STC, Telkom, Vodacom and Zain, among our key customers in the market.

∎InNorth America, we count all the major operators as our key customers. We also deliver advanced IP networking, ultra-broadband access, and Cloud technology solutions to a wide array of customers, including local service providers, cable operators, large enterprises, state and local governments, utilities, and many others. North America is also home to the company’s most important and thriving innovation practices—from the renowned Nokia Bell Labs headquarters in Murray Hill, New Jersey, to the development labs of Nokia Technologies in Silicon Valley.

In addition, we have a dedicated sales organization focused on driving mission-critical communications sales to organizations outside the telecommunications operator market. This structure is targeted at allowing us to gain speed and efficiency in dealing with customer requirements and cultivating new and existing customer relationships.

The Global Enterprise and Public Sector organization focuses on four segments vertical to the telecommunications operators that require mission-critical communications networks: Public Safety, Transportation, Energy and TXLEs. This global sales organization is dedicated to serving the needs of customers such as Nedaa in Dubai, which provides telecommunication

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services to all specialized governmental, semi-governmental and private institutions; the Swiss railway company SBB (Swiss BundesBahn); the Swiss electricity transmission system operator Swissgrid; Smart City initiatives e.g. ‘Bristol is open’, which aim at exploring solutions to make cities smarter, safer and more sustainable; and name-brand banks such as BBVA and Santander that are transforming complex legacy environments into leading-edge Clouds that improve their global customer experience.

Research and development

Our Networks business is one of the industry’s largest R&D investors in information communication technology and we expect it to drive innovation across telecommunications and vertical industries to meet the needs of a digitally connected world. Product development is continually underway to meet the highly programmable, agile and efficiency requirements of the next generation software-defined networks that will accommodate the IoT, intelligent analytics, and automation used to forge new human possibilities.

Our four networks-focused business groups are responsible for product R&D within the Networks business. The Networks business has a global network of R&D centers, each with individual technology and competence specialties. The main R&D centers are located in Belgium, Canada, China, Finland, France, Germany, Greece, Hungary, India, Italy, Japan, Poland, the Philippines, Portugal, Romania, the United Kingdom and the United States. We believe that the geographical diversity of our R&D network is an important competitive advantage for us. In addition, the ecosystem around each R&D center helps us to connect with experts on a global scale and our R&D network is further complemented by cooperation with universities and other research facilities.

Innovation steering within our Networks business is carried out by the Chief Innovation and Operating Office (“CIOO”). For R&D activities of our Nokia Technologies business group refer to “Nokia Technologies—Research and development”. Within the CIOO, the Chief Technology Office (“CTO”) and Nokia Bell Labs organization are responsible for our research agenda and research portfolio along with group services for architecture, compliance, reliability and standards. The CIOO develops disruptive technologies, incubates these technologies into novel prototype systems and solutions and then launches them through our business groups to generate growth and differentiation across our entire portfolio. The CIOO organization also steers innovation externally with customers, partners and governments, and has new solutions tested in collaboration with customers and our business groups.

In response to the six megatrends identified by Nokia as driving the Programmable World (for a more detailed description refer to “Our strategy” above), Nokia Bell Labs has defined the Future X network architecture—a massively distributed, cognitive, continuously adaptive, learning and optimizing network connecting humans, senses, things, systems, infrastructure, and processes. All of our Networks business groups—and also Nokia Technologies—are committed to this single architecture view and are developing products in their respective domains to build seamless end-to-end solutions in the future:

∎Mobile Networks will enable 1 000X higher throughput, 100X lower latency, 10X peak speed, support for multiple spectrum bands and technologies by building application-aware and self-organizing networks that are ultra-secure;

∎Fixed Networks will provide massive-scale, ubiquitous access, fiber-like speed over any media, and flexible software-defined access;
∎IP/Optical Networks will implement terabit scale capacity, dynamic cloud-optimized smart networks and unlimited network programmability/slicing;

∎Applications & Analytics will automate edge/Telco Cloud networks, and enable cognitive network operation and future enterprise interactivity, as well as provide terabit-scale automated IoT/device management contextual security; and

∎Nokia Technologies will explore and innovate new digital value platforms, as well as continue to innovate professional and consumer devices and technologies, with focus on digital health and digital media.

Patents and licenses

Intellectual property assets are fundamental to Nokia, which owns a large patent portfolio of more than 26 000 patent families, originating from three distinct organizations (Nokia Technologies, Nokia Solutions and Networks and Alcatel Lucent). The Patent Business in Nokia Technologies is the primary monetization entity for patent assets. Refer to “Nokia Technologies—Patents and licenses” for a description of the patent licensing activities of Nokia Technologies.

Our Networks business, including Nokia Bell Labs, generates valuable patents from their industry leading R&D in fields, such as wireless, IP networking, ultra-broadband access and Cloud technologies and applications.

Our patent portfolio includes high-quality standard-essential patents (“SEPs”) and patent applications which have been declared to the European Telecommunications Standards Institute and other Standards Developing Organizations as essential to standards including LTE, WCDMA, GSM and other standards. We continue to drive new patent generation.

Our Networks business has patent license agreements in place with a number of third parties as part of its ordinary course of business.

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Nokia Bell Labs

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Nokia Bell Labs is the world-renowned industrial research and innovation arm of Nokia. Over its 90-year history, Nokia Bell Labs has invented many of the foundational technologies that underpin information and communications networks and all digital devices and systems. This research has resulted in eight Nobel Prizes, two Turing Awards, three Japan Prizes, a plethora of National Medals of Science and Engineering, as well as an Oscar, two Grammys and an Emmy award for technical innovation. Nokia Bell Labs continues to conduct disruptive research focused on solving the challenges of the new digital era, defined by the contextual connection and interaction of everything and everyone.

Nokia Bell Labs searches for the fundamental limits of what is possible, rather than being constrained by the current state of the art. It looks to the future to understand essential human needs and the potential barriers to enabling this new human existence. It then uses its unique diversity of research intellects and disciplines and perspectives to solve the key complex problems by discovering or inventing disruptive innovations that have the power to enable new economic capabilities, new societal behaviors, new business models and new types of services—in other words, to drive technological revolutions.

Research at Nokia Bell Labs is focused on key scientific, technological, engineering or mathematical areas which require 10x or more improvement in one or more dimensions. It then combines these areas of research into the Future X network architecture, which brings these disruptive research elements together into industry-redefining solutions. These innovations are brought to market through our business groups bring together deep expertiseor through technology and leadership that spanpatent licensing. Nokia Bell Labs also engages directly with the keymarket and customers through its consulting service to help define the path to the future network technology areas: smart productswith business model innovation and innovative services for mobile, fixed and IP networks, and beyond.

the optimum techno-economics.

 

This model of defining future needs and inventing game-changing solutions to critical problems while advising the market on the path forward has been the constant mission of Nokia Bell Labs.

Nokia Bell Labs and Alcatel-Lucent Submarine Networks achieved65 Tb/s transmission recordfor transoceanic cable systems using Bell Labs’ new Probabilistic Constellation Shaping (“PCS”) technology, a ground-breaking new modulation technique that maximizes the distance and capacity of high-speed transmission in optical networks.

Nokia Bell Labs, Deutsche Telekom T-Labs and the Technical University of Munich achieved a1 Tb/s transmission rate over optical fiber using Bell Labs’ Probabilistic Constellation Shaping technology to provide greater flexibility and performance enabling optical networks to operate closer to the Shannon limit to meet growing consumer and business data demands.

Nokia Bell Labs achieved the world’s first10 Gb/s symmetrical data speeds over traditional cable access networks using XG-CABLE that is based on unique access technology innovations and applications developed by Nokia Bell Labs.

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Mobile Networks

High-quality, reliable

mobile broadband.
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Nokia Technologies

    

    

The Mobile Networks business group offers an industry-leading portfolio of end-to-end mobile networking solutions comprising hardware, software, and services for telecommunications operators, enterprises and related markets/verticals such as public safety and IoT. The product portfolio includes macro radio access network (“RAN”) offerings for mobile data and voice communication using existing 2G, 3G and LTE technology, as well as evolution to the future 5G standard. Mobile Networks also brings to market a comprehensive Converged Core offering, including market-leading Subscriber Data Management and IP Multimedia Subsystem solutions, enabling all-IP communication, including Voice over LTE (“VoLTE”). The product portfolio includes small cell access as well as back haul and front haul (x-haul) solutions. Additionally, a strong Services organization within Mobile Networks supports customers with the design, deployment, optimization, operation and maintenance of mobile networks, adding value to customers through the breadth, quality, efficiency and innovation of its services across five business areas: Network Planning & Optimization, Network Implementation, Systems Integration, Managed Services and Care.

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Nokia Technologies is an engine

of growth and innovation for Nokia.

Nokia Technologies develops advanced consumer and professional technology products in Digital Health and Digital Media, and licenses our industry-leading innovations as well as the Nokia brand for mobile devices. Nokia Technologies is determined to explore, discover and develop the ways in which technology can transform our lives. Whether taking steps towards a healthier life or sharing experiences like never before, Nokia Technologies makes our vision for a connected future your reality for today. Nokia Technologies’ mission is to create effortless and impactful technological products and solutions that expand human possibilities.

Market overview

Nokia Technologies is driving innovation and product development in two key growing sectors of consumer technology—VR and digital health—as well as overseeing the reintroduction of the Nokia brand to handsets through a licensing agreement with HMD Global and the expansion of our patent licensing business based on decades of innovation and R&D leadership in enabling technologies used in virtually all mobile devices used today.

The market for VR products and technologies remains at a very early stage, with estimates of the total market as high as EUR 65 billion by 2020, with significant growth expected over the next five to ten years. We believe the solutions we develop today, the standards we establish and the patents associated with them, will position us as a leading player in this market as adoption grows in products as well as in technology licensing.

The global digital health market is expected to grow exponentially over the next five to seven years, up to EUR 220 billion by 2020. Within that market, we are focused on the segments fueling the most significant growth: 1) connected devices that go beyond trackers and smart watches to include scales and blood pressure monitors; and 2) remote patient monitoring.

Smartphones, feature phones, and tablets had a global estimated market of over EUR 400 billion in 2016, accounting for nearly 40% of the total consumer electronics segment. In the automotive industry, expectations are that around half of the approximately 100 million new cars sold annually around the world will have connectivity in the next five years.

Business overview and organization

Nokia Technologies consists of a portfolio of four growing businesses.

In Digital Media, we are pioneers of the technology enabling VR, an exciting new medium that is transporting people to places, events and experiences like never before.

In Digital Health, we are entering the market through our acquisition of Withings with a portfolio of premium, intuitive products designed to inspire the individual to take control of their own health.

We have established a brand licensing business, and our exclusive brand licensee for mobile phones and tablets, HMD Global, has already launched new Nokia branded feature phones and smartphones.

Nokia Technologies continues to grow its successful patent licensing business, which drives most of its revenue today, giving us the ability to invest in our new businesses in a disciplined, venture capital-like manner.

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Sales and marketing

Nokia Technologies has significant ongoing R&D activities and an established patent licensing business. Nokia Technologies manages intellectual property as a technology asset and seeks a return on its investments by making its innovations available to the markets through licensing activities and transactions. Nokia Technologies currently has more than 100 licensees, mainly for our SEPs. Nokia Technologies is actively engaged in sales and marketing in support of the OZO VR camera and related technology solutions that enable fully immersive audio and video experiences.

Nokia Technologies is also engaged in sales and marketing activities to support the Withings portfolio of connected heath products in global markets, which span the regulated and non-regulated segments of the market.

Nokia Technologies introduced the OZO VR camera and related technologies including the OZO Live solution in the United States, European and Asian markets in 2016 and is engaged in marketing these solutions to professional content creators in industries including film and entertainment, music, sport, news, travel and education.

Nokia Technologies sees further opportunities in licensing its proprietary technologies, intellectual property and brand assets into telecommunications and vertical industries.

Research and development

The applied nature of our R&D in Nokia Technologies has resulted in various relevant and valuable inventions in areas that we believe are important for emerging consumer experiences in the Programmable World, such as underlying connectivity and sensing technologies, as well as codecs for VR video and audio and advanced machine learning-based health analytics.

Nokia Technologies has R&D centers in Finland, France, the United Kingdom and the United States.

Patents and licenses

For more than 20 years, we have defined many of the fundamental technologies used in virtually all mobile devices and taken a leadership role in standards setting. As a result, we own a leading share of essential patents for GSM, 3G radio and 4G LTE technologies. These, together with others for Wi-Fi and video standards, form the core of our patent portfolio for monetization purposes. As mentioned above, Nokia Technologies currently has more than 100 licensees, mainly for our SEPs.

26NOKIA ANNUAL REPORT ON FORM 20-F 2015

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36NOKIA ANNUAL REPORT ON FORM 20-F 2016

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With the acquisition of Nokia Siemens Networks (“NSN”) in 2013 and the Acquisition of Alcatel Lucent, we have added the results of their sustained innovation, including that of Nokia Bell Labs, creating a larger and more valuable IP portfolio than ever before. The portfolio spans more than 26 000 patent families, built on combined R&D investments of more than EUR 119 billion over the last two decades.

We continue to refresh our portfolio from R&D activities across all of our businesses, filing patent applications on more than 1 300 new inventions in 2016. Continuing our focus on communications standards, we also expect to have a leading position in 5G. In 2016, we were a leading contributor to the development of 5G standards. As part of our active portfolio management approach, we are continuously evaluating our collective assets and taking actions to optimize the size of our overall portfolio while preserving the high quality of our patents.

Competition

While several major technology companies are entering the VR market, it is still nascent, and long-term trends for capture and playback solutions have not yet been identified. We expect opportunities for technology licensing within the VR ecosystem to grow over time.

In Digital Health, we are focused on high growth segments of the total market, including consumer products in both regulated and non-regulated markets, and going beyond fitness trackers to blood pressure monitors, scales and thermometers, as well as remote patient monitoring. In this area, Koninklijke Philips N.V. (Philips) is most notable for its competing products. While Fitbit is primarily focused on fitness trackers, they have also pointed to the broader digital health value proposition as part of their evolution.

Number of new filings in 2016

1300+

R&D investment over the last two decades

~EUR119bn

Number of patent licensees

100+

NOKIA ANNUAL REPORT ON FORM 20-F 201637

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38NOKIA ANNUAL REPORT ON FORM 20-F 2016

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Fixed NetworksContents

More bandwidth toPrincipal industry trends affecting operations

40

more users, sooner.Business-specific trends

40

Networks business

40

Nokia Technologies

42

Trends affecting our businesses

43

Results of operations

44

Continuing operations

44

Discontinued operations

50

Results of segments

52

Networks business

52

Nokia Technologies

55

Group Common and Other

56

Liquidity and capital resources

57

Financial position

57

Cash flow

57

Financial assets and debt

58

Capital structure optimization program

59

Structured finance

60

Venture fund investments and commitments

60

Treasury policy

60

Material subsequent events

61

Sustainability and corporate responsibility

62

Managing sustainability

62

Improving people’s lives through connectivity

62

Protecting the environment

63

Running our business with integrity

64

Respecting our people

64

Making change happen together

65

Employees

65

Dividend

66

Risk factors

67

Shares and share capital

86

Board of Directors and management

87

Articles of Association

87

NOKIA ANNUAL REPORT ON FORM 20-F 201639

Principal industry trends

affecting operations

 

 

The Fixed Networks business group provides copper and fiber access products, solutions and services to deliver more bandwidth to more people, faster and in a cost-efficient way. The portfolio allows for a customized combination of technologies that brings fiber to the most economical point for the customer. It consists of advanced copper based solutions such as very high rate digital subscriber line (“VDSL2”), and innovative vectoring technology to reduce cross-talk interference and improve performance. The Fixed Networks business group is leading in the development of next-generation copper technologies, such as Vplus and G.fast, allowing for even greater bandwidth to the home. The Fixed Networks business group is also developing fiber to the home solutions, such as Gigabit Passive Optical Networks (“GPON”) and leading in next-generation fiber access technologies like TWDM-PON. Additionally, digital home devices enable an enriched customer experience and smart homes. The service portfolio is comprised of deployment, maintenance and professional services such as copper and fiber broadband evolution, public switched telephone network transformation, site implementation and outside plant, as well as multi-vendor maintenance.

Business-specific trends

Networks business

We are a leading vendor in the network and IP infrastructure, software, and related services market. We provide a broad range of different products, from the hardware components of networks used by network operators and increasingly by customers in other select verticals, to software solutions supporting the efficient interaction of networks, as well as services to plan, optimize, implement, run and upgrade networks. Our Networks business is conducted through four business groups: Mobile Networks, Fixed Networks, IP/Optical Networks and Applications & Analytics. These business groups provide an end-to-end portfolio of hardware, software and services to enable us to deliver the next generation of leading networks solutions and services to our customers. We aim for all four business groups to be innovation leaders, drawing on our frontline R&D capabilities to deliver leading products and services for our customers, and ultimately ensure the company’s long-term value creation. For more information on the Networks business refer to “Business overview—Networks business” above.

Industry trends

The networks industry has witnessed certain prominent trends in recent years, which have also affected our Networks business. First, the increase in the use of data services and the resulting exponential increase in data traffic has resulted in an increased need for high-performance, high-quality and highly reliable networks. The continuing increase in data traffic has, however, not been directly reflected in operators’ revenue. Consequently, there is an increased need for efficiency for both operators and network infrastructure and services vendors.

Second, we are witnessing more operator consolidation driven by operators’ needs to provide a wider scope of services, especially through the convergence of disparate network technologies across mobile, fixed, and IP and optical networks. In order to improve networks in terms of coverage, capacity and quality, network operators are continuing their transition to all-IP architectures, with an emphasis on fast access to their networks through copper, fiber, LTE and new digital services delivery. We are also seeing similar trends with cable operators, who are investing in the deployment of high-speed networks. Both the fixed mobile convergence and the transition to all-IP architectures were major rationales behind our Acquisition of Alcatel Lucent and creating our end-to-end portfolio of products and services.

Third, we see an increasing demand for large high-performance networks in some key areas outside the traditional CSPs space, which we define as our select vertical markets. Webscales—such as Google, Microsoft and Alibaba—are investing in Cloud technology and network infrastructure an increasing scale. In addition, other vertical markets such as energy, transportation, government and TXLEs are investing in their own network infrastructure, to connect data centers and provide seamless IP interconnection and digital services delivery.

Pricing and price erosion

In 2016, we did not witness a dramatic change in the overall pricing environment. The environment remained similar to what we witnessed in the prior year, when competition intensified in the first quarter of 2015 and impacted the net sales and profitability of our Networks business.

Product mix

The profitability of our Networks business is also affected by our product mix, including the share of software in the sales mix. Products and services have varying profitability profiles. For instance, our Ultra Broadband Networks reportable segment offers a combination of hardware, software and services. Hardware, and especially software products, generally have higher gross margins, but also require significant R&D investment, whereas the service offerings are typically labor-intensive, while carrying low R&D investment, and have relatively low gross margins compared to the hardware and software products.

Seasonality and cyclical nature of projects

Our Networks business’ sales are affected by seasonality in the network operators’ spending cycles, with generally higher sales in the fourth quarter, as compared to the first quarter of the following year. In addition to normal industry seasonality, there are normal peaks and troughs in the deployment of large infrastructure projects. The timing of these projects depends on new radio spectrum allocation, network upgrade cycles and the availability of new consumer devices and services, which in turn affects our Networks’ business sales. As an example, during the last couple of years some of the major LTE roll-outs have been largely completed. The next major technology cycle is expected to begin in 2017 when early use-case trials of 5G technology are expected to start, with the initial commercial deployments currently expected to start in 2018. Another example of cyclicality is the IP/Optical Networks market, where network operators often first deploy optical capacity into their networks, which is then followed by investments in routing equipment.

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NOKIA ANNUAL REPORT ON FORM 20-F 201527

 

Networks business in
40NOKIA ANNUAL REPORT ON FORM 20-F 2016continued

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IP/Optical Networks

Optimizing IP and optical

networks for the Cloud.

The IP/Optical Networks business group provides the key IP routing and optical transport systems, software and services to build high capacity network infrastructure for the internet and global connectivity. IP routers understand the global patterns of both the internet, private IP and Multiprotocol Label Switching (“MPLS”) services and intelligently route packets to the right locations. The transformation to all-IP architectures is driving demand for increasingly high capacity switching and routing. The IP/Optical Networks business group provides IP networking solutions for advanced residential, business and mobile services spanning the IP core, IP edge, mobile packet core, wireless backhaul and IP/Ethernet metro and aggregation. Furthermore, the IP/Optical Networks business group provides scalable, versatile and dynamic packet-optimized and optical transport solutions to maximize bandwidth, distance and resilience over long-haul, regional and metropolitan fiber infrastructure. Wavelength Division Multiplexing and wavelength routing are the predominant optical technologies, allowing for high data capacity by multiplexing many wavelengths over each fiber and programmability by dynamically routing wavelengths across the network. The IP and optical solutions are controlled and managed by carrier SDN and Network Management Systems that enable dynamic networking services and resource optimization over the programmable IP and optical fabric. To make the network as readily consumable and efficient as Cloud computing and storage is to IT applications, Nuage Networks offers automation and policy-based control of datacenter and branch network resources. Across all these offerings, a comprehensive service portfolio supports customers to deploy, maintain and optimize network design to accelerate the benefits of SDN, NFV, and programmable all-IP networks.

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28NOKIA ANNUAL REPORT ON FORM 20-F 2015

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Applications & Analytics

Intelligent platforms that

optimize and automate

network performance.

The Applications & Analytics business group offers carrier-grade software applications and platforms to provide operations and business support systems, build, deliver, and optimize services, enable their monetization, and to improve customer experience. These include: customer and network operations software, such as device management and multi-channel customer care with orchestration workflows and service assurance; network management and self-organizing networks solutions for multi-vendor network management, and automation to optimize network performance; communication and collaboration solutions, including Cloud-based platforms, for integrated contextual communications services targeted at operator and enterprise customers; policy and charging solutions for implementing payment plans and policies; analytics solutions and algorithms to improve business performance by maximizing the value of subscriber and network data; comprehensive, automated, and predictive security solutions to defend networks, services, end-users and IoT devices against malicious attacks; IoT platforms to develop, deliver, manage and monetize services and ecosystems; and CloudBand Cloud management and orchestration solutions enabling a unified Cloud engine and platform for NFV.

Additionally, the Networks business is supported by Bell Labs and Services.

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NOKIA ANNUAL REPORT ON FORM 20-F 201529

Networks business in 2016continued

Bell Labs

Creating the technologies

shaping the future of

connectivity.

Bell Labs, our research arm, produces disruptive innovations for the next phase of human existence. This human challenge has been the charter for Bell Labs for 90 years and led to a wealth of industry redefining innovations, eight Nobel Prizes and countless other honors.

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XG-FAST for multi-gigabit speeds over existing phone lines

We recently worked with Deutsche Telekom to test XG-FAST, an extension of our commercially available G.fast technology developed by Bell Labs. The lab trial showed speeds of over 10Gbps, around 200 times faster than today’s average residential broadband connections. With these fiber-like speeds, the technology can download a two-hour HD movie in less than ten seconds.

Services

Our Services are focused on developing innovative services, solutions and multi-vendor capabilities around the mobile, fixed and IP networks and beyond. With our full service portfolio, we address the current and future needs of our customers, including mobile network operators, enterprises, governments, transportation industries and verticals. Customer satisfaction, quality and efficiency are key in service delivery. To achieve that, we leverage a combination of local engagement with the customers, the network of two Global Delivery Centers and eight Service Delivery Hubs as well as the next-generation delivery platforms. Altogether, our service portfolio and delivery are powered by 40 000 services experts around the globe.

Sales and marketing

The Customer Operations (“CO”) organization is responsible for sales and account management across the four network-oriented business groups. The teams are active in approximately 130 countries. They ensure that we are close to our customers, both physically and in terms of understanding the local markets, and help us build and maintain our customer relationships.

The CO organization is divided into seven markets which are presented below. This structure is targeted at allowing us to gain speed and efficiency in dealing with customer requirements while preserving existing customer relationships.

nAsia-Pacific and Japanspans a varied geographical scope, ranging from advanced telecommunications markets, such as Japan and the Republic of Korea, to developing markets including Bangladesh, Myanmar and Vietnam. We work with leading operators in the market, including Indosat, KDDI, KT, LG Uplus, NBN Australia, NTT DoCoMo, Singtel, SK Broadband, SK Telecom, Smartfren, SoftBank, Spark, StarHub, Telekom Malaysia, Telkom Indonesia, Telkomsel, VNPT and Vodafone. We have close technology cooperation with leading operators in Korea and Japan as well as two Service Delivery Hubs in Japan and Indonesia.

NOKIA ANNUAL REPORT ON FORM 20-F 201531

Networks business in 2016continued

    

    

    

    

    

    

 

 

 

 

nInEurope, we are engaged with all the major operators, including Deutsche Telekom, MegaFon, MTS Sistema, Orange, Telefónica, TeliaSonera and Vodafone Group, serving millions of customers. We have extensive R&D expertise in Europe, and some of our largest Technology Centers, which are working on future mobile broadband technologies, are based in this market. We also have a Global Delivery Center and four regional Service Delivery Hubs in Europe.

nInGreater China, we are the number one player with headquarters outside China, and working with all the operators including China Mobile, China Telecom, China Tower and China Unicom. We also have extended our market presence to the public and enterprise sectors including railways and public security. In Taiwan, we work with all major operators including Chunghwa Telecom and Taiwan Mobile. In China, we have five Technology Centers, one regional Service Delivery Hub as well as offices spread over 40 mega cities and provinces.

nInIndia, we are a strong supplier and service provider to the leading public and private operators. We have a Global Delivery Center, a Service Delivery Hub and a Global Technology Center in India.
nInLatin America, less than 10% of the population use LTE services, and high speed fixed broadband is still in its early phase. With an aim of providing broadband services to the population of over 600 million people in the area, we supply ultra-competitive solutions to all major operators, América Móvil, AT&T, Oi, Telefónica, Telmex and Tim in the region, as well as local operator groups such as Avantel, Milicom, Nuevatel and Personal.

nInMiddle East and Africawe have built a position of considerable strength, with our work alongside leading operators such as Airtel, du, Etisalat, Maroc Telecom, Mobily, MTN, Ooredoo, Orange, OTA Djezzy, Smile, STC, Telkom, Vodacom and Zain among our key customers in the market.

nInNorth America, we count all the major operators as key customers. We also deliver advanced IP networking, ultra-broadband access, and Cloud technology solutions to a wide arrange of customers, including local service providers, cable operators, large enterprises, state and local governments, utilities, and many others. North America is also home to the company’s most important and thriving innovation practices—from the renowned Bell Labs headquarters in Murray Hill, New Jersey, to our development labs in Silicon Valley.

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TWDM-PON powers the first

10-gigabit community in the United States

EPB Fiber Optics, Chattanooga’s municipal utility, launched the world’s first community-wide 10-gigabit internet service. This is powered by our TWDM-PON fiber technology, which uses many wavelengths to provide more capacity, and is available to every home and business in EPB’s service area.

32NOKIA ANNUAL REPORT ON FORM 20-F 2015

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Research and development

The Chief Innovation and Operating Office (“CIOO”) is responsible for innovation steering in Nokia. Within the CIOO, the Chief Technology Office (“CTO”) and Bell Labs organization are responsible for our research agenda and research portfolio. The CIOO develops disruptive technologies, incubates these technologies into novel prototype systems and solutions and then launches these via the business groups to generate growth and differentiation across our entire portfolio. The CIOO organization also steers innovation externally with customers, partners and governments, and has new solutions trialed in collaboration with customers and our business groups.

The four networks-oriented business groups are responsible for the product R&D within the Networks business.

The Networks business has a global network of Technology Centers, each with individual technology and competence specialties. These Technology Centers are located in China, Finland, France, Germany, India, the Philippines and the United States, among others.

We believe that the geographical diversity of our R&D network is an important competitive advantage for us. In addition, the ecosystem around each R&D site helps us to connect with experts on a global scale, and our R&D network is complemented by cooperation with universities and other research facilities.

As a result of its investments in R&D,2016, our Networks business is one of the largest R&D investors in the telecommunications industry. We expect these capabilitiescontinued to enable itfocus on operational improvement across its business groups. In order to continue to drive innovationmake our Networks business more efficient, higher-performing and positioned for long-term success, we aim to further strengthen our productivity, efficiency and competitive cost structure. To help us achieve this, we continue to bring performance excellence methodologies such as Kaizen, Lean and Six Sigma to all areas of the business. Our Networks business will also pursue further efficiency gains from increased automation in delivery of Global Services and in other areas, as well as continued improvements in R&D efficiency and agility.

Cost of components and raw materials

There are several important factors driving the dynamic telecommunications sector, where product development constantly needs to improve in speedprofitability and efficiency in order to help operators cope with increasing subscriber demands and exponential data traffic growth.

Nokia Networks has a joint venture, TD Tech Communication Technologies Ltd., for development and manufacturing of TD-SCDMA and LTE technologies and related products in Beijing, Shanghai and Chengdu, China. The joint venture has supported the growthcompetitiveness of our market position in China,Networks business: scale, operational efficiency and demonstrates that this partnering has beenpricing, and cost discipline. The costs of great mutual benefit for both enterprises. Mutual customizationour networks products comprise, among others, components, manufacturing, labor and overheads, royalties and licensing fees, depreciation of the most commoditized part of the portfolio allows Nokia to focus on lowering costs while producing a higher value offering.

Bell Labs, our research arm, focuses its research on key scientific, technological, engineering or mathematical areas, which require fundamental improvement in one or more dimensions,product machinery, logistics and combines these areas of research into so-called “Future X” solutions. These innovations are brought to the market through Nokia’s business groups or through technologywarranty and patent licensing. Bell Labs also engages directly with the market and customers through Bell Labs consulting.

Bell Labs’ successes over the last 90 years have been recognized with eight Nobel Prizes and many other honors, including National Medals of Science and Engineering, the Turing Prize, and the Japan Prize.quality costs.

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Enabling NFV with CloudBand

CloudBand is the first carrier grade NFV platform purpose-built for service providers.

NOKIA ANNUAL REPORT ON FORM 20-F 201641

    

NOKIA ANNUAL REPORT ON FORM 20-F 201533

Networks business in 2016

Principal industry trends

affecting operationscontinued

“We have a global network of Technology Centers, each with individual technology and competence specialties.”

Patents and licenses

Intellectual property assets are fundamental to Nokia, which now controls three distinct IP portfolios: the Nokia Networks, Alcatel Lucent and Nokia Technologies portfolios. The first two are of particular relevance to the Networks business. For information on the Nokia Technologies patent portfolio please refer to “Business Overview—Nokia Technologies—Patents and Licenses”.

The Nokia Networks portfolio includes around 3 700 patent families, comprising approximately 10 000 individual patents and patent applications, built on its work as an industry leader in R&D of wireless, broadband and transport technologies.

The Alcatel Lucent portfolio includes around 17 500 patent families, comprising approximately 47 000 individual patents and patent applications, built from the wide ranging R&D activities of Alcatel Lucent, including Bell Labs, in fields such as wireless, IP networking, ultra-broadband access and Cloud technologies, and applications.

Nokia’s IPR portfolios include high-quality standard-essential patents (“SEPs”) and patent applications which have been declared to the European Telecommunications Standards Institute and other standards developing organizations as essential to standards including LTE, WCDMA, GSM and other standards. In addition, we hold copyright registrations relating to certain aspects of our products and services. We continue to drive new patent generation from R&D activities across our businesses and seek to safeguard our investments in technology through appropriate protection.

We receive and pay patent license royalties in the ordinary course of business based on existing agreements with telecommunications vendors and other third parties. We have a number of patent license agreements in place with other major companies and patent holders, and these provide us with freedom to operate with limited risk of infringing SEPs owned by others.

Competition

At present, we consider Cisco, Ericsson, Huawei and ZTE to be our main competitors in the operator infrastructure business. We also compete with technology-focused companies such as Adtran (fixed access networks), Ciena (optical network equipment) and Juniper (routing). Additionally, we consider Amdocs, IBM, Oracle and other IT companies as our competitors in the Applications & Analytics domain.

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400Gbps over existing fiber network

Alcatel Lucent, now part of Nokia, and Vodafone Spain trialed transporting data at speeds of up to 400Gbps over 400km between Madrid and Zaragoza, using existing optical infrastructure.

The trial used Alcatel Lucent’s 400G technology and showed that an existing optical network can carry data at up to 17.6Tbps, doubling the current speed of fiber. It’s the equivalent of transmitting the contents of 88 Blu-ray discs in a single second, while reducing power and space consumption by half.

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Nokia Technologies in 2016

Technology to move us forward.

    

    

    

    

Our advanced technology development and licensing business group, Nokia Technologies, was established with two main objectives:

Nokia Technologies

Nokia Technologies pursues new business opportunities building on our innovations and the Nokia brand. Nokia Technologies develops and licenses cutting-edge innovations that are powering the next revolution in computing and mobility. The Nokia Technologies strategy consists of: 1) patent licensing, focused on licensing standard-essential and other patents in the Nokia portfolio to companies in the mobile devices market and beyond; 2) technology licensing, focused on licensing proprietary technologies to enable our customers to build better products; 3) brand partnerships, to help our customers leverage the value of the Nokia brand in consumer devices; and 4) incubation, focused on developing new products and solutions in the areas of digital media and digital health. All of these activities are supported by Nokia Bell Labs, our world-class R&D team. For more information on the Nokia Technologies business, refer to “Business overview—Nokia Technologies”.

Monetization strategies of IPR

Success in the technology industry requires significant R&D investment, with the resulting patents and other IPR utilized to protect and generate a return on those investments and related inventions. In recent years, we have seen new entrants in the mobile device industry, many of which do not have licenses to our patents. Our aim is to approach these companies by potentially using one or more means of monetization. We believe we are well-positioned to protect, and build on, our existing industry-leading patent portfolio, and consequently to increase our shareholders’ value.

We see a number of means of monetizing our innovations: on the one hand, we seek to license our patent portfolio, the Nokia brand and new technological innovations to be integrated into other companies’ products and services. On the other hand, our incubation activities may also, from time to time, lead to concepts that we bring to the market ourselves as products or services like OZO, the extraordinary VR camera designed and built specifically for professional content

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creators. We also accelerated our expansion into digital health in 2016 with the acquisition of Withings SA, a leading innovator in health and lifestyle product technology with a family of award-winning digital health products and services. Overall, we have sharpened our focus on research and product development in alignment with the strategic growth opportunities we see emerging in the areas of digital health and digital media, including preventive health care and immersive VR.

In patent licensing, the main opportunities we are pursuing are: 1) renewing existing license agreements, and negotiating new license agreements with mobile device manufacturers; and 2) expanding the scope of licensing activities to other industries, in particular those that implement mobile communication technologies. We no longer need patent licenses for our own mobile phone business, enabling the possibility of improving the balance of inbound and outbound patent licensing.

In brand licensing, we will continue to seek further opportunities to bring the Nokia brand into consumer devices, by licensing our brand and other intellectual property, as well as, for example, industrial design. For example, under a strategic agreement covering branding rights and intellectual property licensing, Nokia Technologies granted HMD Global, a newly founded company based in Finland, an exclusive global license to create Nokia-branded mobile phones and tablets for the next ten years.

In technology licensing, the opportunities are more long-term in our view, but we will look at opportunities to license technologies developed by Nokia Technologies and delivered to partners in consumer electronics as solutions or technology packages that can be integrated into their products and services to help enable the Programmable World.

To grow each of the aforementioned business programs, it is necessary to invest in commercial capabilities to support them.

 

n   to drive growth and renewal in the existing

patent licensing business; and
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General trends in IPR licensing

In general, there has been increased focus on IPR protection and licensing, and this trend is expected to continue. As such, new agreements are generally a product of lengthy negotiations and potential litigation or arbitration, and therefore the timing and outcome may be difficult to forecast. Due to the structure of patent license agreements, the payments may be very infrequent, at times may be partly retrospective, and the lengths of license agreements can vary.

Additionally, there are clear regional differences in the ease of protecting and licensing patented innovations. We have seen some licensees actively avoiding making license payments, and some licensors using aggressive methods to collect them; both behaviors have attracted regulatory attention. We expect discussion of the regulation of licensing to continue at both a global and a regional level. Some of those regulatory developments may be adverse to the interests of technology developers and patent owners, including us.

Research, development and patent portfolio development

As the creation of new technology assets and patented innovations is heavily focused on R&D activities with long lead-times to incremental revenues, we may from time to time see investment opportunities that have strategic importance. This generally affects the operating expenses before sales reflect a return on those investments.

Trends affecting our businesses

Exchange rates

We are a company with global operations and net sales derived from various countries, invoiced in various currencies. Therefore, our business and results from operations are exposed to changes in exchange rates between the euro, our reporting currency, and other currencies, such as the U.S. dollar and the Chinese yuan. The magnitude of foreign exchange exposures changes over time as a function of our net sales and costs in different markets, as well as the prevalent currencies used for transactions in those markets. Refer also to “General facts on Nokia—Selected financial data—Exchange rate data” below.

To mitigate the impact of changes in exchange rates on our results, we hedge material net foreign exchange exposures (net sales less costs in a currency) typically with up to a 12-month hedging horizon. For the majority of these hedges, hedge accounting is applied to reduce income statement volatility.

In 2016, approximately 25% of Continuing operations net sales and approximately 25% of Continuing operations costs were denominated in euro. In 2016, approximately 50% of Continuing operations net sales were denominated in U.S. dollar and approximately 10% in Chinese yuan.

During 2016, the U.S. dollar appreciated against the euro and this had a positive impact on our net sales expressed in euros. However, the stronger U.S. dollar also contributed to higher cost of sales and operating expenses, as approximately 45% of our total cost base was in U.S. dollars. In total, before hedging, the appreciation of the U.S. dollar had a slightly positive effect on our operating profit in 2016.

During 2016, the Chinese yuan depreciated against the euro and this had a negative impact on our net sales expressed in euros. However, the weaker Chinese yuan also contributed to lower cost of sales and operating expenses, as approximately 10% of Continuing operations total costs were denominated in Chinese yuan. In total, before hedging, the depreciation of the Chinese yuan had a slightly negative effect on our operating profit in 2016.

Significant changes in exchange rates may also impact our competitive position and related price pressures through their impact on our competitors.

For a discussion of the instruments used by us in connection with our hedging activities, refer to Note 36, Risk management of our consolidated financial statements included in this annual report on Form 20-F. Refer also to “Operating and financial review and prospects—Risk factors”.

The average currency mix for net sales and total costs:

    2016      2015 
Currency          Net sales           Total costs              Net sales           Total costs 

EUR

   ~25%    ~25%     ~30%    ~30% 

USD

   ~50%    ~45%     ~35%    ~30% 

CNY

   ~10%    ~10%     ~10%    ~10% 

Other

   ~15%    ~20%      ~25%    ~30% 

Total

   100%    100%      100%    100% 

 

n   to build new businesses for us, based

on breakthrough innovation in key

Programmable World technologies

and products.

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NOKIA ANNUAL REPORT ON FORM 20-F 201643

    

NOKIA ANNUAL REPORT ON FORM 20-F 201535

Nokia Technologies in 2016

R&D investment over the last two decades

€50bn+

Patent families

9 900

Individual patents

30 000

Results of operations

The financial information included in this “Operating and financial review and prospects” section as of December 31, 2016 and 2015 and for each of the three years ended December 31, 2016, 2015 and 2014 has been derived from our audited consolidated financial statements included in this annual report on Form 20-F. The financial information as of December 31, 2016 and 2015 and for each of the three years ended December 31, 2016, 2015 and 2014 should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements.

In 2016, following the Acquisition of Alcatel Lucent on January 4, 2016 (refer to Note 5, Acquisitions, of our consolidated financial statements included in this annual report on Form 20-F), we revised our financial reporting structure. We have two businesses: Nokia’s Networks business and Nokia Technologies, and three reportable segments for financial reporting purposes: Ultra Broadband Networks and IP Networks and Applications (within Nokia’s Networks business) and Nokia Technologies. We also present certain segment data for Group Common and Other as well as for Discontinued operations. The comparative financial information presented below has been prepared to reflect the financial results of our Continuing operations as if the new financial reporting structure had been in operation for the full years 2015 and 2014. Certain accounting policy alignments, adjustments and reclassifications have been necessary. Refer to Note 4, Segment information, of our consolidated financial statements included in this annual report on Form 20-F.

Continuing operations

For the year ended December 31, 2016 compared to the year ended December 31, 2015

The following table sets forth selective line items and the percentage of net sales for the years indicated.

For the year ended December 31  

2016

            EURm

      % of net sales  

2015

            EURm

      % of net sales  

    Year-on-year

change %

 

Net sales

   23 614   100.0   12 499   100.0   89 

Cost of sales

   (15 158)   (64.2)   (6 963)   (55.7)   118 

Gross profit

   8 456   35.8   5 536   44.3   53 

Research and development expenses

   (4 904)   (20.8)   (2 080)   (16.6)   136 

Selling, general and administrative expenses

   (3 819)   (16.2)   (1 772)   (14.2)   116 

Other income and expenses

   (833)   (3.5)   13   0.1   – 

Operating (loss)/profit

   (1 100)   (4.7)   1 697   13.6   – 

Share of results of associated companies and joint ventures

   18   0.1   29   0.2   (38) 

Financial income and expenses

   (287)   (1.2)   (186)   (1.5)   (54) 

(Loss)/profit before tax

   (1 369)   (5.8)   1 540   12.3   – 

Income tax benefit/(expense)

   457   1.9   (346)   (2.8)   – 

(Loss)/profit for the year

   (912)   (3.9)   1 194   9.6   – 

Net sales

Continuing operations net sales in 2016 were EUR 23 614 million, an increase of EUR 11 115 million, or 89%, compared to EUR 12 499 million in 2015. The increase in Continuing operations net sales was primarily attributable to growth in Nokia’s Networks business and Group Common and Other, primarily related to the Acquisition of Alcatel Lucent and, to a lesser extent, growth in Nokia Technologies.

Nokia’s Networks business net sales in 2016 were EUR 21 800 million, an increase of EUR 10 313 million, or 90%, compared to EUR 11 487 million in 2015. Ultra Broadband Networks net sales were EUR 15 771 million in 2016, an increase of EUR 5 612 million, or 55%, compared to EUR 10 159 million in 2015. IP Networks and Applications net sales were EUR 6 029 million in 2016, an increase of EUR 4 701 million compared to EUR 1 328 million in 2015. The increase in Ultra Broadband Networks net sales is comprised of an increase in Mobile Networks net sales of EUR 3 383 million and an increase in Fixed Networks net sales of EUR 2 229 million. The increase in Mobile Networks net sales was primarily attributable to the Acquisition of Alcatel Lucent, which drove higher net sales in both Radio Networks and Services. This was partially offset by revenue declines from several key customers in Asia-Pacific and North America due to previous build-outs and investments, as well as adverse market conditions in Latin America. The increase in Fixed Networks net sales was primarily attributable to the Acquisition of Alcatel Lucent, and increases in Broadband Access, supported by the completion of a large project in Asia-Pacific.

The increase in IP Networks and Applications net sales is comprised of an increase in IP/Optical Networks net sales of EUR 3 987 million and an increase in Applications & Analytics net sales of EUR 714 million, primarily attributable to the Acquisition of Alcatel Lucent. The increase in IP/Optical Networks net sales was attributable to an increase in IP Routing net sales of EUR 2 425 million and an increase in Optical Networks net sales of EUR 1 562 million. The increase in Applications & Analytics net sales was primarily attributable to the Acquisition of Alcatel Lucent, and increases in Services.

Group Common and Other net sales in 2016 were EUR 1 145 million, an increase of EUR 1 145 million, compared to approximately zero in 2015. The increase in Group Common and Other net sales was primarily due to ASN and RFS net sales.

Nokia Technologies net sales in 2016 were EUR 1 053 million, an increase of EUR 26 million, or 3%, compared to EUR 1 027 million in 2015. The increase in Nokia Technologies net sales was primarily attributable to higher IPR licensing income and the inclusion of Withings’ net sales from June 2016 onwards resulting from the acquisition of Withings, partially offset by the absence of non-recurring adjustments to accrued net sales from existing and new agreements, and lower licensing income from certain existing licensees.

 

 

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44NOKIA ANNUAL REPORT ON FORM 20-F 2016

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The following table sets forth distribution of net sales by geographical area for the years indicated.

For the year ended December 31 

2016

        EURm

  

2015

            EURm

  

    Year-on-year

change %

 

Asia-Pacific

  4 206   3 230   30 

Europe(1)

  6 393   3 813   68 

Greater China

  2 656   1 712   55 

Latin America

  1 457   973   50 

Middle East & Africa

  1 871   1 177   59 

North America

  7 031   1 594   341 

Total

  23 614   12 499   89 

The first professional virtual reality camera

The OZO virtual reality camera is the first ever professional virtual reality camera for content creators. Crafted by
(1)All Nokia Technologies OZO combines the ultimate in engineering capabilitiesIPR and intelligent designlicensing net sales are allocated to offer the best virtual reality production experience.Finland.

Refer to “—Results of segments—Nokia’s Networks business” for the main changes in regional net sales.

Gross margin

Gross margin for Continuing operations in 2016 was 35.8% compared to 44.3% in 2015. The decrease in gross margin was primarily due to Nokia’s Networks business and, to a lesser extent, Nokia Technologies and Group Common and Other.

Nokia’s Networks business gross margin in 2016 was 38.5%, compared to 39.0% in 2015. The slight decrease in Nokia’s Networks business gross margin was due to decreases in both Ultra Broadband Networks gross margin and IP Networks and Applications gross margin. Ultra Broadband Networks gross margin in 2016 was 36.3%, compared to 37.5% in 2015. The decrease in Ultra Broadband Networks gross margin was primarily attributable to higher central cost of sales in Mobile Networks, partially offset by favorable region and product mix, and the completion of a large Fixed Networks project in the Asia-Pacific region. IP Networks and Applications gross margin in 2016 was 44.1%, compared to 50.9% in 2015. The decrease in IP Networks and Applications gross margin was primarily attributable to changes in the business volume and mix, primarily attributable to the Acquisition of Alcatel Lucent.

Nokia Technologies gross margin in 2016 was 96.0%, compared to 99.3% in 2015. The decrease in Nokia Technologies gross margin in 2016 was primarily attributable to new, lower gross margin business in digital health from Withings, and to a lesser extent, digital media.

Group Common and Other gross margin in 2016 was 16.8%. The Group Common and Other gross margin was attributable to gross margin in ASN and RFS.

In 2016, cost of sales included working capital-related purchase price allocation adjustments of EUR 509 million, which resulted in higher cost of sales and lower gross profit when the inventory was sold; and product portfolio integration-related costs of EUR 274 million.

Operating expenses

Our R&D expenses for Continuing operations in 2016 were EUR 4 904 million, an increase of EUR 2 824 million, or 136%, compared to EUR 2 080 million in 2015. R&D expenses represented 20.8% of our net sales in 2016 compared to 16.6% in 2015. The increase in R&D expenses was primarily attributable to Nokia’s Networks business, amortization of acquired intangible assets and depreciation of acquired property, plant and equipment; and, to a lesser extent, product portfolio integration costs, as well as Group Common and Other, all of which primarily related to the Acquisition of Alcatel Lucent, in addition to Nokia Technologies.

In 2016, Nokia Technologies is operating with the following structure:

 

nPatent Business:We aim to expand Nokia’s industry leading patent licensing business and manage the Nokia Technologies portfolio of approximately 9 900 patent families. Built on more than EUR 50 billion invested in R&D over the last two decades, the approximately 30 000 individual patents and patent applications cover innovations including many enabling technologies used in virtually all mobile devices used today.

nBrand Partnerships:We aim to work with our partners to deliver Nokia-branded consumer products to the market, starting with the N1 Android tablet launched in 2015.

nDigital Media:We focus on connecting people to stories, experiences and the world around them through immersive virtual reality capture and playback technologies, including the previously launched OZO virtual reality camera for professional content creators. Beyond OZO, Nokia Technologies expects to establish a virtual reality ecosystem (format, player licensing, new virtual reality experiences) to optimally manage virtual reality workflows and content to offer new and compelling end-user experiences (in production, distribution and consumption of virtual reality digital content).

nDigital Health:We aim to connect people to digital solutions that can improve their health.

nLabs:Through the R&D unit of Nokia Technologies, we seek to continue our track record of R&D leadership and innovation. Labs primarily supports the long-term Digital Media and Digital Health offering, and drives the renewal of our intellectual property portfolio.

Market overview

Nokia Technologies aims to be a leader in technology development and licensing. We see a world where billions of devices—large, small and minuscule—will connect to form intelligent systems, and we see significant potential for our own technologies and intellectual property in that world.

Business overview

Nokia Technologies develops and licenses technologies we believe will enable the Programmable World. We seek to create value from our

Nokia’s Networks business R&D expenses were EUR 3 691 million in 2016, an increase of EUR 1 953 million, or 112%, compared to EUR 1 738 million in 2015. The increase in Nokia’s Networks business R&D expenses was primarily attributable to an increase in headcount, partially offset by operational and synergy savings. Group Common and Other R&D expenses in 2016 were EUR 282 million, an increase of EUR 198 million, compared to EUR 84 million in 2015. Group Common and Other R&D expenses increased, primarily attributable to Nokia Bell Labs. Nokia Technologies R&D expenses in 2016 were EUR 250 million, an increase of EUR 30 million, or 14%, compared to EUR 220 million in 2015. The increase in R&D expenses in Nokia Technologies was primarily attributable to the inclusion of Bell Labs’ patent portfolio costs, resulting from the Acquisition of Alcatel Lucent, and higher investments by expanding our successful patent licensing program and helping other companies and organizations benefit from our innovations through our established and successful licensing business. Additionally, we are exploring the possibility of utilizing new technologies in our own future products and services.

Nokia Technologies was formed upon the closing of the Sale of the D&S Business (as defined below). The Nokia Technologies business combines a leading team from our former CTO with our world-class IPR activities. The business builds on the foundation we have established through investing cumulatively more than EUR 50 billion in R&D over the last two decades.

Innovations from our R&D activities created and shaped the fundamental technologies used in all mobile products and in multiple wireless communications technologies today. We are continuing to build on that heritage to drive further innovations in the areas of digital media and digital health. R&D expenses included amortization and depreciation of acquired intangible assets, and property, plant and equipment of EUR 619 million in 2016 compared to EUR 35 million in 2015, as well as product portfolio integration-related costs of EUR 61 million in 2016.

Our selling, general and administrative expenses for Continuing operations in 2016 were EUR 3 819 million, an increase of EUR 2 047 million, or 116%, compared to EUR 1 772 million in 2015. Selling, general and administrative expenses represented 16.2% of our net sales in 2016 compared to 14.2% in 2015. The increase in selling, general and administrative expenses was primarily attributable to Nokia’s Networks business, amortization of acquired intangible assets and depreciation of acquired property, plant and equipment, and transaction and integration-related costs and Group Common and Other, all of which primarily related to the Acquisition of Alcatel Lucent, as well as Nokia Technologies.

Nokia’s Networks business selling, general and administrative expenses were EUR 2 720 million in 2016, an increase of EUR 1 300 million, or 92%, compared to EUR 1 420 million in 2015. The increase in Nokia’s Networks business selling, general and administrative expenses was primarily attributable to an increase in headcount, partially offset by operational and synergy savings. Group Common and Other selling, general and administrative expenses in 2016 were EUR 231 million, an increase of EUR 134 million compared to EUR 97 million in 2015. Nokia Technologies selling, general and administrative expenses in 2016 were EUR 183 million, an increase of EUR 74 million, or 68%, compared to EUR 109 million in 2015. The increase in Nokia Technologies selling, general and administrative expenses was primarily attributable to the ramp-up of Digital Health and Digital Media, higher business support costs and increased licensing. Selling, general and administrative expenses included amortization and depreciation of acquired intangible assets, and property, plant and equipment of EUR 385 million in 2016 compared to EUR 44 million in 2015, as well as transaction and integration-related costs of EUR 294 million in 2016.

Other income and expenses for Continuing operations in 2016 was a net expense of EUR 833 million, a change of EUR 846 million, compared to a net income of EUR 13 million in 2015. The change was primarily attributable to higher restructuring and associated charges and, to a lesser extent, the absence of realized gains related to certain investments made through venture funds. Other income and expenses included restructuring and associated charges of EUR 759 million in 2016 compared to EUR 121 million in 2015.

NOKIA ANNUAL REPORT ON FORM 20-F 201645

Results of operationscontinued

Operating loss/profit

Our operating loss for Continuing operations in 2016 was EUR 1 100 million, a change of EUR 2 797 million, compared to an operating profit of EUR 1 697 million in 2015. The change in operating result was primarily attributable to higher R&D expenses and selling, general and administrative expenses, and a net negative fluctuation in other income and expenses, partially offset by higher gross profit. Our operating margin in 2016 was negative 4.7% compared to positive 13.6% in 2015.

The following table sets forth the impact of unallocated items on operating loss/profit:

EURm  2016  2015 

Total segment operating profit(1)

   2 172   1 958 

Amortization and depreciation of acquired intangible assets and property, plant and equipment

   (1 026)   (79) 

Release of acquisition-related fair value adjustments to deferred revenue and inventory

   (840)   – 

Restructuring and associated charges

   (774)   (123) 

Product portfolio strategy costs

   (348)   – 

Transaction and related costs, including integration costs relating to the Acquisition of Alcatel Lucent

   (295)   (99) 

Other

   11   40 

Total operating loss/profit

   (1 100)   1 697 

(1)Excludes costs related to the Acquisition of Alcatel Lucent and related integration, goodwill impairment charges, intangible asset amortization and other purchase price fair value adjustments, restructuring and associated charges and certain other items.

Financial income and expenses

Financial income and expenses for Continuing operations was a net expense of EUR 287 million in 2016 compared to a net expense of EUR 186 million in 2015, an increase of EUR 101 million, or 54%. The change in financial income and expenses was primarily attributable to higher interest expenses, including charges of EUR 41 million related to the redemption of Alcatel Lucent bonds, net interest expenses of EUR 65 million for defined benefit pensions, and impairments of EUR 108 million for certain investments in private funds; partially offset by higher interest income, significantly lower foreign exchange losses and realized gains from venture fund distributions.

Refer to “—Liquidity and capital resources” below.

Loss/profit before tax

Our loss before tax for Continuing operations in 2016 was EUR 1 369 million, a change of EUR 2 909 million compared to a profit of EUR 1 540 million in 2015.

Income tax

Income taxes for Continuing operations was a net benefit of EUR 457 million in 2016, a change of EUR 803 million compared to a net expense of EUR 346 million in 2015. In 2016, net income tax benefit was primarily related to two factors. Firstly, we recorded a loss before tax compared to profit before tax in 2015. Secondly, following the completion of the squeeze-out of the remaining Alcatel Lucent securities, we launched actions to integrate the former Alcatel Lucent and Nokia operating models. In 2016, in connection with these integration activities, we transferred certain intellectual property to our operations in the United States, recording a tax benefit and additional deferred tax assets of EUR 348 million. In addition, we elected to treat the Acquisition of Alcatel Lucent’s operations in the United States as an asset purchase for United States tax purposes. The impact of this election was to utilize or forfeit existing deferred tax assets and record new deferred tax assets with a longer amortization period than the life of those forfeited assets. As a result of this we recorded EUR 91 million additional deferred tax assets in 2016.

Following the acquisition of Alcatel Lucent, we now have a strong presence in three jurisdictions: Finland, France and the United States, which had an impact on our effective tax rate in 2016. The local corporate tax rate in the United States and France is significantly higher compared to Finland. In addition, we do not recognize deferred tax assets for tax losses and temporary differences in France as our ability to utilize unrecognized deferred tax assets is currently uncertain. As of December 31, 2016 we have unrecognized deferred tax assets in France of EUR 4.8 billion.

We will continue to make changes in our operating model in 2017 and expect this to have an impact on our effective tax rate in 2017 and going forward (refer to Note 37, Subsequent events, of our consolidated financial statements included in this annual report on Form 20-F).

Loss/profit attributable to equity holders of the parent and earnings per share

The loss attributable to equity holders of the parent in 2016 was EUR 766 million, a change of EUR 3 232 million, compared to a profit of EUR 2 466 million in 2015. Continuing operations generated a loss attributable to equity holders of the parent in 2016 of EUR 751 million compared to a profit of EUR 1 192 million in 2015. The change in profit attributable to equity holders of the parent was primarily attributable to the operating loss in 2016, compared to an operating profit in 2015 and, to a lesser extent, a net negative fluctuation in financial income and expenses, both of which primarily related to the Acquisition of Alcatel Lucent. This was partially offset by an income tax benefit, resulting from the Acquisition of Alcatel Lucent, compared to an income tax expense in 2015. In addition, the loss attributable to the non-controlling interests was higher, as a result of the Acquisition of Alcatel Lucent. Our total basic EPS in 2016 decreased to negative EUR 0.13 (basic) and negative EUR 0.13 (diluted) compared to EUR 0.67 (basic) and EUR 0.63 (diluted) in 2015. In 2015, profit for the year included EUR 1 178 million gain on the Sale of the HERE Business recorded in Discontinued operations. From Continuing operations, EPS in 2016 decreased to negative EUR 0.13 (basic) and negative EUR 0.13 (diluted) compared to EUR 0.32 (basic) and EUR 0.31 (diluted) in 2015.

46NOKIA ANNUAL REPORT ON FORM 20-F 2016

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Cost savings program

On April 6, 2016, we launched a new cost savings program, targeting approximately EUR 1 200 million of total annual cost savings to be achieved in full year 2018. In 2016, we recognized restructuring and associated charges of EUR 750 million related to the cost savings program. Total expected restructuring and associated charges are EUR 1 700 million. In 2016, we had cumulative restructuring and associated cash outflows of EUR 590 million relating to this cost savings program. We expect the remaining restructuring and associated cash outflows relating to this cost savings program to be approximately EUR 2 150 million, including EUR 450 million related to previous Nokia and Alcatel Lucent restructuring and cost savings programs.

Carrying value of cash-generating units

The recoverable amounts of our cash-generating units (“CGUs”) were based on fair value less costs of disposal that was determined using market participant assumptions based on a discounted cash flow calculation. The cash flow projections used in calculating the recoverable amounts were based on financial plans approved by management covering an explicit forecast period of five years. Five additional years of cash flow projections subsequent to the explicit forecast period reflect a gradual progression towards the steady state cash flow projections modeled in the terminal year.

Estimation and judgment are required in determining the components of the recoverable amount calculation, including the discount rate, the terminal growth rate, estimated revenue growth rates, gross margin and operating margin. The discount rates reflect current

assessments of the time value of money and relevant market risk premiums reflecting risks and uncertainties for which the future cash flow estimates have not been adjusted. The terminal growth rate assumptions reflect long-term average growth rates for the industry and economies in which our CGUs operate.

We allocated a significant proportion of the goodwill arising from the Acquisition of Alcatel Lucent to the IP/Optical Networks group of CGUs, which is comprised mainly of businesses acquired in the acquisition. As a result, the fair value of the IP/Optical Networks group of CGU’s corresponds closely to its respective carrying amount.

The results of our impairment testing indicate significant headroom for each CGU, except for the IP/Optical Networks group of CGUs, where the recoverable amount exceeds its carrying amount by approximately EUR 1 200 million. Taken in isolation, the following changes would cause the recoverable amount of IP/Optical Networks group of CGUs to equal its carrying amount:

∎Increase in discount rate from 8.9% to 10.7%.

∎Reduction in operational profitability in the terminal year by 40%, which is equal to the decrease in the operating profit of EUR 331 million.

Goodwill amounts to EUR 5 724 million as of December 31, 2016 (EUR 237 million in 2015).

Refer to Note 16, Impairment, of our consolidated financial statements included in this annual report on Form 20-F.

 

 

36NOKIA ANNUAL REPORT ON FORM 20-F 2015

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For the year ended December 31, 2015 compared to the year ended December 31, 2014

The following table sets forth selective line items and the percentage of net sales that they represent for the years indicated.

For the year ended December 31  2015
           EURm		      % of net sales  2014
           EURm		      % of net sales       Year-on-year
change %		 

Net sales

   12 499   100.0   11 762   100.0   6 

Cost of sales

   (6 963)   (55.7)   (6 774)   (57.6)   3 

Gross profit

   5 536   44.3   4 988   42.4   11 

Research and development expenses

   (2 080)   (16.6)   (1 904)   (16.2)   9 

Selling, general and administrative expenses

   (1 772)   (14.2)   (1 559)   (13.3)   14 

Other income and expenses

   13   0.1   (111)   (0.9)   – 

Operating profit

   1 697   13.6   1 414   12.0   20 

Share of results of associated companies and joint ventures

   29   0.2   (12)   (0.1)   – 

Financial income and expenses

   (186)   (1.5)   (403)   (3.4)   (54) 

Profit before tax

   1 540   12.3   999   8.5   54 

Income tax (expense)/benefit

   (346)   (2.8)   1 719   14.6   – 

Profit for the year

   1 194   9.6   2 718   23.1   (56) 

Net sales

Continuing operations net sales in 2015 were EUR 12 499 million, an increase of EUR 737 million, or 6%, compared to EUR 11 762 million in 2014. The increase in Continuing operations net sales was attributable to higher net sales in both Nokia’s Networks business and Nokia Technologies. The increase in Nokia’s Networks business net sales was primarily attributable to an increase in net sales in Ultra Broadband Networks, partially offset by the absence of non-recurring IPR net sales which benefited full year 2014. The increase in Nokia Technologies net

sales was primarily attributable to non-recurring net sales from existing and new agreements and revenue share related to previously divested IPR, and IPR divestments; higher IPR licensing income from existing and new licensees related to settled and ongoing arbitrations; as well as Microsoft becoming a more significant intellectual property licensee following the Sale of the D&S Business. The increase in net sales was partially offset by lower licensing income from certain existing licensees that experienced decreases in handset sales.

 

NOKIA ANNUAL REPORT ON FORM 20-F 201647

Results of operationscontinued

The following table sets forth distribution of net sales by geographical area for the years indicated.

For the year ended December 31  

2015

EURm

   

2014

            EURm

   

Year-on-year

change %

 

Asia-Pacific

   3 230    3 289    (2) 

Europe(1)

   3 813    3 493    9 

Greater China

   1 712    1 380    24 

Latin America

   973    1 009    (4) 

Middle East & Africa

   1 177    1 053    12 

North America

   1 594    1 538    4 

Total

   12 499    11 762    6 

 

Strategy

Nokia Technologies’ strategy consists of:

1) patent licensing, focused on licensing standard-essential and other patents in the
(1)All Nokia Technologies portfolionet sales are allocated to companies in the mobile devices market and beyond;Finland.

Refer to “Results of segments—Nokia’s Networks business” for the main changes in regional net sales.

Gross margin

Gross margin for Continuing operations in 2015 was 44.3% compared to 42.4% in 2014. The increase in Continuing operations gross margin was primarily attributable to an increase in Nokia Technologies and Nokia’s Networks business gross margins, and to a lesser extent to Group Common and Other gross margin. The increase in Nokia Technologies gross margin in 2015 was primarily attributable to higher net sales. The increase in Nokia’s Networks business gross margin in 2015 was attributable to a higher gross margin in Ultra Broadband Networks, partially offset by lower gross margin in IP Networks and Applications and the absence of non-recurring IPR net sales which benefited full year 2014. The increase in Group Common and Other gross margin in 2015 was primarily attributable to lower cost of sales.

Operating expenses

Our R&D expenses for Continuing operations in 2015 were EUR 2 080 million, an increase of EUR 176 million, or 9%, compared to EUR 1 904 million in 2014. R&D expenses represented 16.6% of our net sales in 2015 compared to 16.2% in 2014. The increase in R&D expenses was primarily attributable to higher R&D expenses in Nokia’s Networks business and to a lesser extent in Nokia Technologies. The increase in Nokia’s Networks business R&D expenses in 2015 was primarily attributable to higher personnel expenses and increased investments in LTE, 5G, small cells and Cloud core, partially offset by continued operational improvements. The increase in Nokia Technologies R&D expenses was primarily attributable to higher investments in Digital Media and technology incubation, higher patent portfolio costs and higher investments in Digital Health. R&D expenses included amortization of acquired intangible assets of EUR 35 million and transaction-related costs of EUR 1 million in 2015 compared to EUR 32 million and EUR 13 million in 2014 respectively.

Our selling, general and administrative expenses for Continuing operations in 2015 were EUR 1 772 million, an increase of EUR 213 million, or 14%, compared to EUR 1 559 million in 2014. Selling, general and administrative expenses represented 14.2% of our net sales in 2015 compared to 13.3% in 2014. The increase in selling, general and administrative expenses was primarily attributable to higher selling, general and administrative expenses in Nokia’s Networks business, and to a lesser extent in Nokia Technologies, partially offset by lower selling, general and administrative expenses in Group Common and Other. The increase in Nokia’s Networks business selling, general and administrative expenses was primarily attributable to higher personnel expenses, partially offset by a continued focus on cost efficiency. The increase in Nokia Technologies selling, general and administrative expenses was primarily attributable to the ramp-up of new businesses, increased licensing activities, and higher business support costs. Selling, general and administrative expenses included transaction-related costs of EUR 99 million and amortization of acquired intangible assets of EUR 44 million in 2015 compared to EUR 29 million and EUR 35 million in 2014 respectively.

Other income and expenses for Continuing operations in 2015 was a net income of EUR 13 million, an increase of EUR 124 million, compared to a net expense of EUR 111 million in 2014. The increase in other income and expenses was primarily attributable to Group Common and Other, and to a lesser extent to Nokia’s Networks business and Nokia Technologies. Group Common and Other other income and expenses in 2015 included net income of approximately EUR 100 million related to realized gains on investments made through unlisted venture funds. The change in Nokia’s Networks business other income and expenses in 2015 was primarily attributable to lower costs related to the sale of receivables, lower net indirect tax expenses and the release of certain doubtful account allowances. Other income and expenses included restructuring and associated charges of EUR 121 million and contractual remediation costs of EUR 5 million in 2015 compared to EUR 57 million and EUR 31 million in 2014 respectively.

2) technology licensing, focused on licensing proprietary technologies to enable our customers to build better products;
48NOKIA ANNUAL REPORT ON FORM 20-F 2016

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Operating profit

Our operating profit for Continuing operations in 2015 was EUR 1 697 million, an increase of EUR 283 million, or 20%, compared to an operating profit of EUR 1 414 million in 2014. The increase in operating profit was primarily attributable to an increase in operating profit in Nokia Technologies and a lower operating loss from Group Common and Other, partially offset by lower operating profit in Nokia’s Networks business. Our operating margin in 2015 was 13.6% compared to 12.0% in 2014.

The following table sets forth the impact of unallocated items on operating profit:

EURm  2015  2014 

Total segment operating profit(1)

   1 958   1 602 

Restructuring and associated charges

   (123)   (57) 

Transaction and related costs, including integration costs relating to the Acquisition of Alcatel Lucent

   (99)   (39) 

Amortization of acquired intangible assets

   (79)   (67) 

Other

   40   (25) 

Total operating profit

   1 697   1 414 

3) brand partnerships, to help our customers leverage the value of the Nokia brand in consumer devices; and

4) incubation, focused on developing new products and solutions in the areas of Digital Media and Digital Health; all of these activities are supported by Labs, its world-class R&D team.

Sales and marketing

Nokia Technologies has significant ongoing R&D activities and an established patent licensing program. Nokia Technologies manages intellectual property as a technology asset and seeks a return on its investments by making its innovations available
(1)Excludes costs related to the markets through licensing activities and transactions. Nokia Technologies currently has more than 100 licensees, mainly for our SEPs. Nokia Technologies is actively engaged in sales and marketing in supportAcquisition of the OZO virtual reality camera and related technology solutions that enable fully immersive audio and video experiences. Nokia Technologies is also building sales and marketing capabilities to support additional consumer and business-to-business products.

Nokia Technologies sees further opportunities in licensing its proprietary technologies, intellectual property and brand assets into telecommunications and adjacent industries. Over the past ten years, we have also systematically licensed certain of our proprietary technologies, which we have decided not to reserve solely for our internal use. This has enabled numerous companies and businesses to benefit from our innovations in areas such as connectivity and imaging.

“Nokia Technologies aims to be a leader in technology development and licensing. We see a world where billions of devices will connect to form intelligent systems, and we see significant potential for our own technologies and intellectual property in that world.”

NOKIA ANNUAL REPORT ON FORM 20-F 201537

Nokia Technologies in 2016continued

Breakdown of Nokia Technologies’

IP portfolio

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Research and development

The Nokia Technologies team of world-class scientists and engineers has driven more than half of Nokia’s recent patent filings. The applied nature of our R&D in Nokia Technologies has resulted in various relevant and valuable inventions in technology areas, which we believe are important for emerging consumer experiences in the Programmable World, such as underlying connectivity and sensing technologies as well as codecs for virtual reality video and audio and advanced machine learning-based analytics of health data.

Nokia Technologies has R&D activities in Finland, the United Kingdom and the United States.

Nokia Technologies holds several central roles in standardization bodies and contributes to standardization work by filing technical proposals which, when found relevant, are often accepted and embodied in standards. In addition, Nokia Technologies develops reference implementations while defining the standards, which result in significant innovations covering proprietary ways to implement relevant technologies.

Patents and licenses

Intellectual property assets are fundamental to Nokia, which now controls three distinct IP portfolios: the Nokia Networks, Alcatel Lucent and Nokia Technologies portfolios. For information on the first two portfolios, please refer to “Business Overview—Networks business in 2016—Patents and Licenses”.

We continue to renew our patent portfolio with innovations from our strong R&D teams in Nokia Technologies.

Competition

The Nokia Technologies patent portfolio spans a number of technology categories including radio connectivity and networking, multimedia, user interface and mobile device software and hardware products. As Nokia Technologies expands its successful licensing program to cover patents which have not been broadly licensed to date, as well as proprietary technologiesrelated integration, goodwill impairment charges, intangible asset amortization and other intellectual property, it could face competition from alternate technologies or solutions. However, it is too early to anticipate which of these may be significant in the future.

While several major technology companies are entering the virtual reality market, it is still nascent,purchase price fair value adjustments, restructuring and long-term trends for captureassociated charges and playback solutions have not yet been identified.

certain other items.
38NOKIA ANNUAL REPORT ON FORM 20-F

Financial income and expenses

Financial income and expenses for Continuing operations was a net expense of EUR 186 million in 2015 compared to a net expense of EUR 403 million in 2014, a decrease of EUR 217 million, or 54%. The lower net financial expense in 2015 was primarily attributable to the absence of a financial expense of EUR 123 million relating to the redemption of all material Nokia’s Networks business’ borrowings in 2014, and the absence of a non-cash charge of EUR 57 million relating to the repayment of EUR 1 500 million convertible bonds issued to Microsoft.

Refer to “—Liquidity and capital resources” below.

Profit before tax

Our profit before tax for Continuing operations in 2015 was EUR 1 540 million, an increase of EUR 541 million compared to EUR 999 million in 2014.

Income tax

Income taxes for Continuing operations were a net expense of EUR 346 million in 2015, a change of EUR 2 065 million compared to a net benefit of EUR 1 719 million in 2014. In 2014, the net income tax benefit was primarily attributable to the recognition of EUR 2 126 million deferred tax assets following the reassessment of recoverability of tax assets in Finland and Germany.

Profit attributable to equity holders of the parent and earnings per share

Profit attributable to equity holders of the parent in 2015 was EUR 2 466 million, a decrease of EUR 996 million, compared to a profit of EUR 3 462 million in 2014. Continuing operations generated profit attributable to equity holders of the parent in 2015 of EUR 1 192 million compared to a profit of EUR 2 710 million in 2014. Profit attributable to equity holders of the parent in 2014 was favorably impacted by the recognition of EUR 2 126 million deferred tax assets. Nokia Group’s total basic EPS in 2015 decreased to EUR 0.67 (basic) and EUR 0.63 (diluted) compared to EUR 0.94 (basic) and EUR 0.85 (diluted) in 2014. Profit for the year included EUR 1 178 million gain on the Sale of the HERE Business (EUR 2 803 million gain on the Sale of the D&S Business in 2014) recorded in Discontinued operations. From Continuing operations, EPS in 2015 decreased to EUR 0.32 (basic) and EUR 0.31 (diluted) compared to EUR 0.73 (basic) and EUR 0.67 (diluted) in 2014.

NOKIA ANNUAL REPORT ON FORM 20-F 201649

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Results of operationscontinued

Discontinued

operations

    

    

    

 

 

 

Discontinued operations

Background

The two businesses below are presented as Discontinued operations in this annual report on Form 20-F.

HERE business

We sold our HERE digital mapping and location services business to a German automotive industry consortium comprised of AUDI AG, BMW Group and Daimler AG, that was completed on December 4, 2015 (“the Sale of HERE Business”).

The transaction, originally announced on August 3, 2015, valued HERE at an enterprise value of EUR 2.8 billion, subject to certain purchase price adjustments. We received net proceeds from the transaction of approximately EUR 2.55 billion at the closing of the transaction. We recorded a gain on the Sale of the HERE Business, including a related release of cumulative foreign exchange translation differences of approximately EUR 1.2 billion, in the year ended December 31, 2015.

HERE business

We sold our HERE digital mapping and location services business to a German automotive industry consortium comprising of AUDI AG, BMW Group and Daimler AG and the sale was completed on December 4, 2015.

The transaction, originally announced on August 3, 2015, valued HERE at an enterprise value of EUR 2.8 billion, subject to certain purchase price adjustments. We received net proceeds from the transaction of approximately EUR 2.55 billion at closing of the transaction.

We recorded a gain on the Sale of the HERE Business, including a related release of cumulative foreign exchange translation differences of approximately EUR 1.2 billion.

Devices & Services business

We sold substantially all of our Devices & Services business to Microsoft in a transaction that was completed on April 25, 2014 (the “Sale of the D&S Business”). We granted Microsoft a ten-year non-exclusive license to our patents and patent applications. The announced purchase price of the transaction was EUR 5.44 billion, of which EUR 3.79 billion related to the purchase of substantially all of the Devices & Services business, and EUR 1.65 billion to the ten-year mutual patent license agreement and the option to extend this agreement into perpetuity. Of the Devices & Services-related assets, our former CTO organization and our patent portfolio remained within the Nokia Group, and are now part of the Nokia Technologies business group.

 

 

NOKIA ANNUAL REPORT ON FORM 20-F

For the year ended December 31, 2016 compared to the year ended December 31, 2015

39

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40NOKIA ANNUAL REPORT ON FORM 20-F 2015

LOGO

As the Sale of the HERE Business closed on December 4, 2015, the financial results of Discontinued operations in 2016 are not comparable to the financial results of Discontinued operations in 2015.

The following table sets forth selective line items for the years indicated.

 

 

Contents

Principal industry trends affecting operations
For the year ended December 31  2016
                             EURm		  2015
                             EURm		 

Net sales

   –   1 075 

Cost of sales

   –   (244) 

Gross profit

   –   831 

Research and development expenses

   –   (498) 

Selling, general and administrative expenses

   (11)   (213) 

Other income and expenses

   (4)   (23) 

Operating (loss)/profit

   (15)   97 

Financial income and expenses

   14   (9) 

(Loss)/profit before tax

   (1)   88 

Income tax (expense)/benefit

   (28)   8 

(Loss)/profit for the year, ordinary activities

   (29)   96 

Gain on the Sale of the HERE and D&S Businesses, net of tax(1)

   14   1 178 

(Loss)/profit for the year

   (15)   1 274 

42

Business specific trends

42

Networks business

42

Nokia Technologies

44

Nokia Group

45

Trends affecting our businesses

45

Results of operations

46

Continuing operations

46

Discontinued operations

50

Results of segments

52

Nokia Networks

52

Nokia Technologies

56

Group Common Functions

57

Liquidity and capital resources

58

Financial position

58

Cash flow

58

Financial assets and debt

59

Capital structure optimization program

59

Structured finance

60

Venture fund investments and commitments

60

Material subsequent events

61

Sustainability and corporate responsibility at Nokia

62

Improving people’s lives with technology

62

Respecting people in everything we do

62

Protecting the environment

63

Making change happen together

64

Reporting on our performance

65

Employees

65

Shares and share capital

66

Board of Directors and Management

67

Dividend

68

Risk factors

69
(1)In 2016, an additional gain of EUR 7 million was recognized on the Sale of the HERE Business following the final purchase price settlement, and EUR 7 million on the Sale of the D&S Business due to a tax indemnification.

 

50NOKIA ANNUAL REPORT ON FORM 20-F 2016
NOKIA ANNUAL REPORT ON FORM 20-F 201541

Principal industry trends

affecting operations

Business specific trends

Networks business

We are a leading vendor in the converged networks infrastructure market, providing a broad range of different products, from the hardware components of networks used by network operators and increasingly by enterprise customers, to software solutions supporting the efficient interaction of networks, as well as services to plan, optimize, implement, run and upgrade networks. The Networks business is conducted through four business groups: Mobile Networks, Fixed Networks, IP/Optical Networks and Applications & Analytics. These business groups provide an end-to-end portfolio of hardware, software and services to enable us to deliver the next generation of leading networks solutions and services to our customers. We aim for all four business groups to be innovation leaders, drawing on our frontline R&D capabilities to deliver leading products and services for our customers, and ultimately ensure the company’s long-term value creation. For more information on the Networks business refer to “Business overview—Nokia in 2016—Networks business in 2016” above.

Industry trends

The networks industry has witnessed some important trends in recent years, affecting also our Networks business. First, the increase in the use of mobile data services and the resulting exponential increase in data traffic has led to an increased need for high performance, quality and reliability in networks. The continuing data traffic increase has, however, not been directly reflected in operators’ revenue. As a result, there is an increased need for efficiency for both operators and network infrastructure and services vendors.

Second, we are witnessing more operator consolidation driven by operators’ needs to provide a wider scope of services, especially through the convergence of disparate network technologies across mobile, fixed, and IP and optical networks. In order to improve networks in terms of coverage, capacity and quality, network operators continue their transition to all-IP architectures, with an emphasis on fast access to their networks through copper, fiber, LTE and new digital services delivery. We are also seeing similar trends with cable operators, who are investing to deploy high-speed networks. Both the fixed-mobile convergence and the transition to all-IP architectures were major rationales behind the acquisition of Alcatel Lucent with its IP and optical networks and fixed-access businesses.

Third, in addition to the attempts to reduce their costs, the operators may need to increase their agility through the adoption of the emerging Telco Cloud and network virtualization technologies. Web scale players, such as Amazon and Google, and large enterprises are driving the development of huge data centers, providing seamless IP interconnection and digital services delivery on a large scale. IP routing is at the heart of the telecommunications equipment and related services industry’s transformation, impacting fixed and mobile broadband as well as Cloud services.

Pricing and price erosion

The pricing environment intensified during the first quarter of 2015 and remained approximately at the same level throughout 2015, impacting Nokia Networks’ net sales and profitability.

Product mix

The profitability of our Networks business is also affected by product mix including the share of software in the sales mix. Products and services have varying profitability profiles. For instance, our Mobile Networks business group offers a combination of hardware, software and services. Hardware, and especially software products, generally have higher gross margins, but also require significant R&D investments, whereas the service offerings are typically labor-intensive, while carrying low R&D investment, and have relatively low gross margins compared to the hardware and software products of Mobile Networks.

Seasonality and cyclical nature of projects

Our Networks business’ sales are affected by seasonality in the network operators’ spending cycles, with generally higher sales in the fourth quarter, as compared to the first quarter of the following year. In addition to normal industry seasonality, there are normal peaks and troughs in the deployment of large infrastructure projects. The timing of these projects depends on new radio spectrum allocation, network upgrade cycles and the availability of new consumer devices and services, which in turn affects our Networks’ business sales. As an example, during the last couple of years some of the major LTE roll-outs have been largely completed. The next major technology cycle is expected to begin in 2017 when utilization of 5G technology is expected to begin, with the initial commercial deployments currently expected from 2018 onwards.

42NOKIA ANNUAL REPORT ON FORM 20-F 2015

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LOGO

    

    

    

    

    

    

    

    

 

 

Continued operational efficiency improvements

In 2015, Nokia Networks continued to focus on operational improvement across its business. In order to continue to make the Networks business more efficient and high-performing and positioned for long-term success, we aim to further strengthen our productivity, efficiency and competitive cost structure. To help to achieve this, we will bring performance excellence methodologies such as Kaizen, Lean, and Six Sigma to the operations acquired from Alcatel Lucent. The Networks business will also pursue further efficiency gains from increased automation in delivery of Global Services and in other areas, as well as continued improvements in R&D efficiency and agility.

Cost of components and raw materials

There are several important factors driving the profitability and competitiveness of our Networks business: scale, operational efficiency, and pricing and cost discipline. The costs of our networks products comprise, among others, components, manufacturing, labor and overhead, royalties and licensing fees, depreciation of product machinery, logistics and warranty and other quality costs.

Targets and priorities

Due to the acquisition of Alcatel Lucent, we believe it is not appropriate to provide an annual outlook for the Networks business at the present time, and we intend to provide our full year outlook in conjunction with our first quarter interim results announcement in May 2016. The 2016 net sales and operating margin, excluding special items and purchase price accounting-related items, are expected to be influenced by factors including:

n   a flattish capex environment in 2016 for

      our overall addressable market;

n   a declining wireless infrastructure

market in 2016;

n   competitive industry dynamics;

n    product and regional mix;

n   the timing of major network

      deployments; and

n    execution of integration and synergy

      plans.

LOGO

 

Net sales

Discontinued operations did not generate net sales in 2016. In 2015, Discontinued operations net sales were EUR 1 075 million. The decrease was attributable to the absence of net sales from HERE.

Gross margin

Discontinued operations did not generate gross margin in 2016. In 2015, Discontinued operations gross margin was 77.3% in 2015. The decrease in gross margin was attributable to the absence of net sales and cost of sales from HERE.

Operating expenses

Discontinued operations operating expenses in 2016 were EUR 15 million, a decrease of EUR 719 million, compared to EUR 734 million in 2015. The decrease was attributable to the absence of operating expenses from HERE.

 

NOKIA ANNUAL REPORT ON FORM 20-F 201543

Principal industry trends

affecting operations

Operating loss/profitcontinued

Nokia Technologies

Nokia Technologies pursues new business opportunities building on our innovations and the Nokia brand. Nokia Technologies develops and licenses cutting-edge innovations that are powering the next revolution in computing and mobility. The Nokia Technologies strategy consists of: 1) patent licensing, focused on licensing standard-essential and other patents in the Nokia Technologies portfolio to companies in the mobile devices market and beyond; 2) technology licensing, focused on licensing proprietary technologies to enable our customers to build better products; 3) brand partnerships, to help our customers leverage the value of the Nokia brand in consumer devices; and 4) incubation, focused on developing new products and solutions in the areas of Digital Media and Digital Health. All of these activities are supported by Labs, its world-class R&D team. For more information on the Nokia Technologies business, refer to “Business overview—Nokia in 2016—Nokia Technologies”.

LOGO

Monetization strategies of IPR

Success in the technology industry requires significant R&D investments, with the resulting patents and other IPR utilized to protect and generate a return on those investments and related inventions. In recent years, we have seen new entrants in the mobile device industry, many of which do not have licenses to our patents. Our aim is to approach these companies by potentially using one or more means of monetization. We believe we are well-positioned to protect, and build on, our existing industry-leading patent portfolios, and consequently to increase our shareholders’ value.

We see a number of means of monetizing our innovations: on the one hand we seek to license our patent portfolios, the Nokia brand and new technological innovations to be integrated into other companies’ products and services. On the other hand, our incubation activities may also, from time to time, lead to concepts that we bring to the market ourselves as products or services like OZO, the extraordinary virtual reality camera designed and built specifically for professional content creators. Overall, we have sharpened our focus in research and product development in alignment with the strategic growth opportunities we see emerging in the areas of digital health and digital media, including preventive health care and immersive virtual reality.

In patent licensing, the main opportunities we are pursuing are: 1) renewal of existing license agreements, and negotiating new license agreements with mobile device manufacturers; and 2) expanding the scope of licensing activities to other industries, in particular those that implement mobile communication technologies. We no longer need patent licenses for our former Devices & Services business, enabling possibilities to improve the balance of inbound and outbound patent licensing.

In technology licensing the opportunities are more long-term in our view, but we will look at opportunities to license technologies developed by Nokia Technologies and delivered to partners in consumer electronics as solutions or technology packages that can be integrated into their products and services to help enable the Programmable World.

In brand licensing, we will continue to seek further opportunities to bring the Nokia brand into consumer devices, by licensing our brand and other intellectual property, as well as, for example, industrial design.

To grow each of the aforementioned business programs, it is necessary to invest in commercial capabilities to support them.

General trends in IPR licensing

In general, there has been increased focus on IPR protection and licensing, and this trend is expected to continue. As such, new agreements are generally a product of lengthy negotiations and potential litigation or arbitration, and therefore the timing and outcome may be difficult to forecast. Due to the structure of patent license agreements, the payments may be very infrequent, at times may be partly retrospective, and the lengths of license agreements can vary.

Additionally, there are clear regional differences in the ease of protecting and licensing patented innovations. We have seen some licensees actively avoiding making license payments, and some licensors using aggressive methods to collect them; both behaviors have attracted regulatory attention. We expect the discussion on the regulation of licensing to continue on both a global and a regional level. Some of those regulatory developments may be adverse to the interests of technology developers and patent owners, including us.

Discontinued operations operating loss in 2016 was EUR 15 million, a change of EUR 112 million, compared to an operating profit of EUR 97 million in 2015. The change in Discontinued operations operating result was attributable to the absence of net sales and operating expenses from HERE.

Loss/profit for the year

Discontinued operations loss in 2016 was EUR 15 million, a change of EUR 1 289 million compared to a profit of EUR 1 274 million in 2015. The gain on the Sale of the HERE Business recorded in 2015 was EUR 1 178 million, which included a reclassification of EUR 1 174 million of foreign exchange differences from other comprehensive income.

 

 

44NOKIA ANNUAL REPORT ON FORM 20-F 2015

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For the year ended December 31, 2015 compared to the year ended December 31, 2014

As the Sale of the HERE Business closed on December 4, 2015 and the Sale of the D&S Business closed on April 25, 2014, the financial results of Discontinued operations in 2015 are not comparable to the financial results of Discontinued operations in 2014.

The following table sets forth selective line items for the years indicated.

For the year ended December 31  2015
                             EURm		  2014
                             EURm		 

Net sales

   1 075   3 428 

Cost of sales

   (244)   (2 325) 

Gross profit

   831   1 103 

Research and development expenses

   (498)   (899) 

Selling, general and administrative expenses

   (213)   (628) 

Other income and expenses(1)

   (23)   (1 354) 

Operating profit/(loss)

   97   (1 778) 

Financial income and expenses

   (9)   10 

Profit/(loss) before tax

   88   (1 768) 

Income tax benefit/(expense)

   8   (277) 

Profit/(loss) for the year, ordinary activities

   96   (2 045) 

Gain on the Sale of the HERE and D&S Businesses, net of tax

   1 178   2 803 

Profit for the year

   1 274   758 

 

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Research, development and patent portfolio development

As the creation
(1)Includes impairment of new technology assets and patented innovations is heavily focused on R&D activities with long lead-time to incremental revenues, we may from time to time see investment opportunities that have strategic importance. This generally affects the operating expenses before sales reflect a return on those investments.

Targets and priorities

Due to risks and uncertainties in determining the timing and valuegoodwill of significant licensing agreements, we believe it is not appropriate to provide an annual outlook for Nokia Technologies.

Nokia Group

Targets and priorities

In 2015, following our announcement to acquire Alcatel Lucent, we announced plans to target approximately EUR 9001 209 million of net operating cost synergies to be achieved in full year 2018, compared to the combined operating costs of Nokia and Alcatel Lucent for full year 2015, excluding special items and purchase price accounting-related items. The operating cost synergies are expected to be derived from a wide range of initiatives related to operating expenses and cost of sales, including:

nstreamlining of overlapping products and services, particularly within the Mobile Networks business group;HERE in 2014.

 

nrationalization of regional and sales organizations;

Net sales

Discontinued operations net sales in 2015 were EUR 1 075 million, a decrease of EUR 2 353 million, or 69%, compared to EUR 3 428 million in 2014. The decrease was attributable to the absence of net sales from Devices & Services.

Gross margin

Discontinued operations gross margin in 2015 was 77.3%, compared to a gross margin of 32.2% in 2014. The increase in gross margin was attributable to the absence of cost of sales from Devices & Services.

Operating expenses

Discontinued operations operating expenses in 2015 were EUR 734 million, a decrease of EUR 2 147 million, or 74.5%, compared to EUR 2 881 million in 2014. The decrease was primarily attributable to the absence of a EUR 1 209 million impairment charge related to HERE which negatively affected 2014, and lower operating expenses attributable to Devices & Services.

Operating profit/loss

Discontinued operations operating profit in 2015 was EUR 97 million, an increase of EUR 1 875 million, compared to an operating loss of EUR 1 778 million in 2014. The change in Discontinued operations operating result was primarily attributable to the absence of a EUR 1 209 million impairment charge related to HERE which negatively affected 2014, and lower operating expenses attributable to Devices & Services, partially offset by lower gross profit.

Profit for the year

Discontinued operations profit in 2015 was EUR 1 274 million, an increase of EUR 516 million compared to a profit of EUR 758 million in 2014. The gain on the Sale of the HERE Business recorded in 2015 was EUR 1 178 million, which included a reclassification of EUR 1 174 million of foreign exchange differences from other comprehensive income. The gain on the Sale of the D&S Business recorded in 2014 was EUR 2 803 million.

NOKIA ANNUAL REPORT ON FORM 20-F 201651

    

nrationalization of overhead, particularly within manufacturing, supply chain, real estate and information technology;

Results of segments

    

nreduction of central function and public company costs; and

    

nprocurement efficiencies, given the combined company’s expanded purchasing power.

In addition, we target approximately EUR 200 million of reductions in interest expenses to be achieved on a full year basis in 2016, compared to the cost of debt run rate for the combined entity at year end 2014.

Networks business

For the year ended December 31, 2016 compared to the year ended December 31, 2015

The following table sets forth selective line items and the percentage of net sales for the years indicated.

For the year ended December 31     2016
               EURm		    % of net sales  2015
               EURm		    % of net sales     Year-on-year
change %		 

Net sales

   21 800   100.0   11 487   100.0   90 

Cost of sales

      (13 414)   (61.5)   (7 006)   (61.0)   91 

Gross profit

   8 386   38.5   4 481   39.0   87 

Research and development expenses

   (3 691)   (16.9)   (1 738)   (15.1)   112 

Selling, general and administrative expenses

   (2 720)   (12.5)   (1 420)   (12.4)   92 

Other income and expenses

      (40)   (0.2)   26   0.2   – 

Operating profit

      1 935   8.9   1 349   11.7   43 

 

Segment information(1)

 

 

For the year ended December 31  

Ultra
       Broadband
Networks

2016

EURm

 
 
(2) 

 

 

  

IP Networks
and

Applications

2016

EURm

 
 

(3) 

 

 

  


Networks
total

2016
EURm

 
(4) 

 
 

  


Ultra
Broadband
Networks

2015
EURm

 
 
(2) 

 
 

  

IP Networks
and

Applications

2015

EURm

 
 

(3) 

 

 

  


Networks
total

2015
EURm

 
(4) 

 
 

Net sales

  15 771   6 029   21 800   10 159   1 328   11 487 

Cost of sales

  (10 044)   (3 370)   (13 414)   (6 354)   (652)   (7 006) 

Gross profit

  5 727   2 659   8 386   3 805   676   4 481 

Research and development expenses

  (2 405)   (1 286)   (3 691)   (1 470)   (268)   (1 738) 

Selling, general and administrative expenses

  (1 936)   (784)   (2 720)   (1 146)   (274)   (1 420) 

Other income and expenses

  (24)   (16)   (40)   22   4   26 

Operating profit

  1 362   573   1 935   1 211   138   1 349 

Trends affecting our businesses

Exchange rates

We are a company with global operations and net sales derived from various countries and invoiced in various currencies. Therefore, our business and results from operations are exposed to changes in exchange rates between the euro, our reporting currency, and other currencies, such as the US dollar, Japanese yen and the Chinese yuan. The magnitude of foreign exchange exposures changes over time as a function of our net sales and costs in different markets, as well as the prevalent currencies used for transactions in those markets.
(1)Refer also to “General Facts on Nokia—Selected financial data—Exchange rate data” below.

To mitigate the impact of changes in exchange rates on our results, we hedge material net foreign exchange exposures (net sales less costs in a currency). We hedge forecast net cash flows typically with up to a 12-month hedging horizon. For the majority of these hedges, hedge accounting is applied to reduce income statement volatility.

In 2015, approximately 30% of Continuing operations net sales and approximately 30% of Continuing operations costs were denominated in euro. In 2015, approximately 35% of Continuing operations net sales were denominated in US dollar, approximately 10% in Chinese yuan, and approximately 5% in Japanese yen.

During 2015, the US dollar appreciated against the euro and this had a positive impact on our net sales expressed in euros. However, the stronger US dollar also contributed to higher cost of sales and operating expenses, as approximately 30% of our total cost base was in US dollars. In total, before hedging, the appreciation of the US dollar had a positive effect on our operating profit in 2015.

During 2015, the Japanese yen appreciated against the euro and this had a positive impact on our net sales expressed in euros. However, the stronger Japanese yen also contributed to higher cost of sales and operating expenses, as approximately 5% of Continuing operations total costs were denominated in Japanese yen. In total, before hedging, the appreciation of the Japanese yen had a positive effect on our operating profit in 2015.

During 2015, the Chinese yuan appreciated against the euro and this had a positive impact on our net sales expressed in euros. However, the stronger Chinese yuan also contributed to higher cost of sales and operating expenses, as approximately 10% of Continuing operations total costs were denominated in Chinese yuan. In total, before hedging, the appreciation of the Chinese yuan had a negative effect on our operating profit in 2015.

Significant changes in exchange rates may also impact our competitive position and related price pressures through their impact on our competitors.

For a discussion of the instruments used by us in connection with our hedging activities, refer to Note 35, Risk management,4, Segment information, of our consolidated financial statements included in this annual report on Form 20-F. Refer also to “Operating and financial review and prospects—Risk factors”.

NOKIA ANNUAL REPORT ON FORM 20-F 201545report.

Results of operations

The financial information included in this “Operating and financial review and prospects” section at December 31, 2015 and 2014 and for each of the three years ended December 31, 2015, 2014 and 2013 has been derived from our audited consolidated financial statements included in this annual report on Form 20-F. The financial information at December 31, 2015 and 2014 and for each of the three years ended December 31, 2015, 2014 and 2013 should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements.

Continuing operations

For the year ended December 31, 2015 compared to the year ended December 31, 2014

The following table sets forth selective line items and the percentage of net
(2)Net sales that they represent for the years indicated.

For the year ended December 31  

2015

                EURm

      % of net sales  

2014

                EURm

      % of net sales     Year-on-year
change %		 

Net sales

   12 499    100.0    11 762    100.0    6  

Cost of sales

   (7 046)   (56.4)   (6 855)   (58.3)   3  

Gross profit

   5 453    43.6    4 907    41.7    11  

Research and development expenses

   (2 126)   (17.0)   (1 948)   (16.6)   9  

Selling, general and administrative expenses

   (1 652)   (13.2)   (1 453)   (12.4)   14  

Other income and expenses

   13    0.1    (94)   (0.8)   –  

Operating profit

   1 688    13.5    1 412    12.0    20  

Net sales

Continuing operations net sales in 2015 wereinclude EUR 12 49913 406 million an increase of EUR 737 million, or 6%, compared to EUR 11 762(EUR 10 023 million in 2014. The increase in Continuing operations net sales was2015) attributable to higher net sales in both NokiaMobile Networks and Nokia Technologies. The increaseEUR 2 365 million (EUR 136 million in Nokia Networks net sales was primarily2015) attributable to an increaseFixed Networks.

(3)Net sales include EUR 2 940 million (EUR 515 million in net sales in Global Services, partially offset by the absence of non-recurring intellectual property rights (“IPR”) net sales which benefitted 2014. The increase in Nokia Technologies net sales was primarily2015) attributable to non-recurring net sales from existing and new agreements and revenue share related to previously divested IPR, and IPR divestments; higher IPR licensing income from existing and new licensees related to settled and ongoing arbitrations; as well as Microsoft becoming a more significant intellectual property licensee following the Sale of the D&S Business. The increase in net sales was partially offset by lower licensing income from certain existing licensees that experienced decreases in handset sales.

The following table sets forth distribution of net sales by geographical area for the years indicated.

For the year ended December 31  

2015

        EURm

   

2014

        EURm

        Year-on-year
change %		 

Europe(1)

   3 813     3 493     9  

Middle East & Africa

   1 177     1 053     12  

Greater China

   1 712     1 380     24  

Asia-Pacific

   3 230     3 289     (2) 

North America

   1 594     1 538     4  

Latin America

   973     1 009     (4) 

Total

   12 499     11 762     6  

(1)All Nokia Technologies net sales are allocated to Finland.

Refer to “Results of segments—Nokia Networks” for the main changes in regional net sales.

Gross margin

Gross margin for Continuing operations in 2015 was 43.6% compared to 41.7% in 2014. The increase in Continuing operations gross margin wasIP Routing; EUR 1 562 million attributable to an increaseOptical Networks; and EUR 1 527 million (EUR 813 million in Nokia Technologies gross margin. The increase was partially offset by a slight decrease in Nokia Networks gross margin. The increase in Nokia Technologies gross margin in 2015 was primarily2015) attributable to higher net sales. The slight decrease in Nokia Networks gross margin in 2015 was primarily attributable to a lower gross margin in Global Services, a negative mix shift attributable to a higher proportion of GlobalApplications & Analytics.

(4)Includes Services net sales and a lower proportion of Mobile Broadband net sales and the absence of non-recurring IPR net sales in Nokia Networks Other, partially offset by a higher gross margin in Mobile Broadband.

Operating expenses

Our R&D expenses for Continuing operations in 2015 were EUR 2 126 million, an increase of EUR 1788 531 million or 9%, compared to EUR 1 948(EUR 5 424 million in 2014. R&D expenses represented 17.0% of our net sales in 2015 compared to 16.6% in 2014. The increase in R&D expenses was primarily attributable to higher R&D expenses in Nokia Networks and to a lesser extent in Nokia Technologies. The increase in Nokia Networks R&D expenses in 2015 was primarily attributable to higher personnel expenses and increased investments in LTE, 5G, small cells and Cloud core, partially offset by continued operational improvements. The increase in Nokia Technologies R&D expenses was primarily attributable to higher investments in digital media and technology incubation, higher patent portfolio costs and higher investments in digital health. R&D expenses included purchase price accounting-related items of EUR 35 million in 2015 compared to EUR 32 million in 2014.

2015).

 

46NOKIA ANNUAL REPORT ON FORM 20-F 2015

LOGO

Our selling, general and administrative expenses for Continuing operations in 2015 were EUR 1 652 million, an increase of EUR 199 million, or 14%, compared to EUR 1 453 million in 2014. Selling, general and administrative expenses represented 13.2% of our net

Net sales in 2015 compared to 12.4% in 2014. The increase in selling, general and administrative expenses was attributable to higher selling, general and administrative expenses in Nokia Networks, and to a lesser extent in Group Common Functions and Nokia Technologies. The increase in Nokia Networks selling, general and administrative expenses was primarily attributable to higher personnel expenses, partially offset by a continued focus on cost efficiency. The increase in Group Common Functions selling, general and administrative expenses was primarily attributable to transaction and other related costs. In 2015, Group Common Functions included transaction-related costs of EUR 99 million compared to EUR 29 million in 2014. The increase in Nokia Technologies selling, general and administrative expenses was primarily attributable to the ramp-up of new businesses, increased licensing activities, and higher business support costs. Selling, general and administrative expenses included purchase price accounting-related items of EUR 44 million in 2015 compared to EUR 35 million in 2014.

Other income and expenses for Continuing operations in 2015 was a net income of EUR 13 million, an increase of EUR 107 million, compared to a net expense of EUR 94 million in 2014. The increase in other income and expenses was primarily attributable to Group Common Functions, and to a lesser extent Nokia Networks and Nokia Technologies. Group Common Functions other income and expenses in 2015 included net income of approximately EUR 100 million related to investments made through unlisted venture funds. The change in Nokia Networks other income and expenses in 2015 was primarily attributable to the absence of a EUR 31 million charge in 2014 for anticipated contractual remediation costs related to a technical issue with a third party component, lower costs related to the sale of receivables, lower net indirect tax expenses and the release of certain doubtful account allowances, partially offset by higher restructuring and associated charges. Nokia Networks other income and expenses included restructuring and associated charges of EUR 121 million in 2015 compared to EUR 57 million in 2014.

Operating profit

Our operating profit for Continuing operations in 2015 was EUR 1 688 million, an increase of EUR 276 million, or 19.5%, compared to an operating profit of EUR 1 412 million in 2014. The increase in operating profit was primarily attributable to an increase in operating profit in Nokia Technologies and a lower operating loss from Group Common Functions, partially offset by lower operating profit in Nokia Networks. Our operating profit in 2015 included purchase price accounting-related items, restructuring charges and other special items of EUR 261 million compared to EUR 188 million in 2014. Our operating margin in 2015 was 13.5% compared to 12.0% in 2014.

Financial income and expenses

Financial income and expenses for Continuing operations was a net expense of EUR 177 million in 2015 compared to a net expense of EUR 401 million in 2014, a decrease of EUR 224 million, or 56%. The lower net financial expense in 2015 was primarily attributable to the absence of a financial expense of EUR 123 million relating to the redemption of all material Nokia Networks’ borrowings in 2014, and the absence of a non-cash charge of EUR 57 million relating to the repayment of EUR 1 500 million convertible bonds issued to Microsoft.

Refer to “—Liquidity and capital resources” below.

Profit before tax

Our profit before tax for Continuing operations in 2015 was EUR 1 540 million, an increase of EUR 541 million compared to EUR 999 million in 2014.

Income tax

Income taxes for Continuing operations was a net expense of EUR 346 million in 2015, a change of EUR 2 065 million compared to a net benefit of EUR 1 719 million in 2014. In 2014, the net income tax benefit was primarily attributable to the recognition of EUR 2 126 million deferred tax assets following the reassessment of recoverability of tax assets in Finland and Germany.

Profit attributable to equity holders of the parent and earnings per share

Profit attributable to equity holders of the parent in 2015 was EUR 2 466 million, a decrease of EUR 996 million, compared to a profit of EUR 3 462 million in 2014. Continuing operations generated profit attributable to equity holders of the parent in 2015 of EUR 1 192 million compared to a profit of EUR 2 710 million in 2014. Profit attributable to equity holders of the parent in 2014 was favorably impacted by the recognition of EUR 2 126 million deferred tax assets. Nokia Group’s total basic EPS in 2015 decreased to EUR 0.67 (basic) and EUR 0.63 (diluted) compared to EUR 0.94 (basic) and EUR 0.85 (diluted) in 2014. From Continuing operations, EPS in 2015 decreased to EUR 0.32 (basic) and EUR 0.31 (diluted) compared to EUR 0.73 (basic) and EUR 0.67 (diluted) in 2014.

NOKIA ANNUAL REPORT ON FORM 20-F 201547

Results of operationscontinued

For the year ended December 31, 2014 compared to the year ended December 31, 2013

The following table sets forth selective line items and the percentage of net sales that they represent for years indicated.

For the year ended December 31  

2014

                EURm

      % of net sales  

2013

                EURm

      % of net sales     Year-on-year
change %		 

Net sales

   11 762    100.0    11 795    100.0    –  

Cost of sales

   (6 855)   (58.3)   (7 157)   (60.7)   (4) 

Gross profit

   4 907    41.7    4 638    39.3    6  

Research and development expenses

   (1 948)   (16.6)   (1 970)   (16.7)   (1) 

Selling, general and administrative expenses

   (1 453)   (12.4)   (1 483)   (12.6)   (2) 

Other income and expenses

   (94)   (0.8)   (513)   (4.3)   (82) 

Operating profit

   1 412    12.0    672    5.7    110  

Net sales

Continuing operations net sales in 2014 were EUR 11 762 million, a decrease of EUR 33 million, compared to EUR 11 795 million in 2013. The slight decrease in Continuing operations net sales was primarily attributable to a slight decrease in net sales in Nokia Networks. The decrease was partly offset by an increase in net sales in Nokia Technologies. The decrease in Nokia Networks net sales was primarily attributable to a decrease in Global Services net sales, and the absence of sales from businesses that were divested and certain customer agreements and countries that were exited in 2013. The decrease was partially offset by an increase in Mobile Broadband net sales. The increase in Nokia Technologies net sales was primarily attributable to higher intellectual property licensing income from certain licensees, including Microsoft becoming a more significant intellectual property licensee in connection with the Sale of the D&S Business.

Nokia’s Networks business net sales in 2016 were EUR 21 800 million, an increase of EUR 10 313 million, or 90%, compared to EUR 11 487 million in 2016. The increase in Nokia’s Networks business net sales was primarily attributable to the Acquisition of Alcatel Lucent. Ultra Broadband Networks net sales were EUR 15 771 million in 2016, an increase of EUR 5 612 million, or 55%, compared to EUR 10 159 million in 2015. IP Networks and Applications net sales were EUR 6 029 million in 2016, an increase of EUR 4 701 million compared to EUR 1 328 million in 2015.

The increase in Ultra Broadband Networks net sales is comprised of an increase in Mobile Networks net sales of EUR 3 383 million and an increase in Fixed Networks net sales of EUR 2 229 million. The increase in Mobile Networks net sales was primarily attributable to the Acquisition of Alcatel Lucent, which drove higher net sales in both Radio Networks and Services. This was partially offset by revenue declines from several key customers in Asia-Pacific and North America due to previous build-outs and investments, as well as adverse market conditions in Latin America. The increase in Fixed Networks net sales was primarily attributable to the Acquisition of Alcatel Lucent, and increases in Broadband Access, supported by the completion of a large project in Asia-Pacific.

The increase in IP Networks and Applications net sales is comprised of an increase in IP/Optical Networks net sales of EUR 3 987 million and an increase in Applications & Analytics net sales of EUR 714 million, primarily attributable to the Acquisition of Alcatel Lucent. The increase in IP/Optical Networks net sales was attributable to an increase in IP Routing net sales of EUR 2 425 million and an increase in Optical Networks net sales of EUR 1 562 million. The increase in Applications & Analytics net sales was primarily attributable to the Acquisition of Alcatel Lucent, and increases in Services.

The following table sets forth distribution of net sales by geographical area for the years indicated.

 

For the year ended December 31

2014

        EURm

2013

        EURm

     Year-on-year
change %

Europe(1)

3 4933 556(2) 

Middle East & Africa

1 0531 112(5) 

Greater China

1 3801 18417

Asia-Pacific

3 2893 353(2) 

North America

1 5381 33415

Latin America

1 0091 256(20) 

Total

11 76211 795–

 

For the year ended December 31  2016
            EURm		   2015
            EURm		      Year-on-year
change %		 

Asia-Pacific

   4 216    3 231    30 

Europe

   4 881    2 805    74 

Greater China

   2 640    1 710    54 

Latin America

   1 444    970    49 

Middle East & Africa

   1 889    1 177    60 

North America

   6 730    1 594    322 

Total

   21 800    11 487    90 

(1)All Nokia Technologies net sales are allocated to Finland.

Refer to “Results of segments—Nokia Networks” for the main changes in regional net sales.

Gross margin

Gross margin for Continuing operations in 2014 was 41.7%, compared to 39.3% in 2013. The increase in gross margin was attributable to the increase in gross margin in both Nokia Networks and Nokia Technologies. The increase in Nokia Networks gross margin was primarily attributable to a higher proportion of Mobile Broadband in the overall sales mix and an increase in the gross margin of Global Services, partially offset by a slight decrease in the gross margin of Mobile Broadband. The increase in Nokia Technologies gross margin was primarily attributable to the absence of a one-time cost related to a patent divestment transaction which negatively affected gross margin in 2013.

Operating expenses

Our R&D expenses were EUR 1 948 million in 2014, a decrease of EUR 22 million compared to EUR 1 970 million in 2013. R&D expenses represented 16.6% of our net sales in 2014, compared to 16.7% in 2013. The decrease in R&D expenses was primarily attributable to Nokia Networks, partially offset by Nokia Technologies. The decrease in Nokia Networks R&D expenses was primarily attributable to lower subcontracting costs. The decrease was partially offset by headcount increases mainly related to increased in-house activities. The increase in R&D expenses in Nokia Technologies was primarily attributable to investments in business activities, such as building the technology and brand licensing units, which target new and significant long-term growth opportunities. In 2014, R&D expenses included EUR 13 million of transaction-related personnel costs related to the Sale of the D&S Business compared to EUR 15 million in 2013. R&D expenses included purchase price accounting-related items of EUR 32 million in 2014, compared to EUR 20 million in 2013.

52NOKIA ANNUAL REPORT ON FORM 20-F 2016

LOGO

On a regional basis, Nokia’s Networks business net sales increased across all regions, with particularly strong growth in North America and Europe, primarily attributable to the Acquisition of Alcatel Lucent.

The increase in Mobile Networks net sales was driven by the Acquisition of Alcatel Lucent, resulting in significant improvements in the North America, Greater China, and the Middle East & Africa regions, partially offset by revenue decreases in Asia-Pacific and Latin America. The increase in Fixed Networks net sales was primarily attributable to the Acquisition of Alcatel Lucent, supported by the completion of a large project in Asia-Pacific, offset by contraction in Europe.

The increases in both IP/Optical Networks net sales and Applications & Analytics net sales were primarily attributable to significant increases in North America following the Acquisition of Alcatel Lucent.

Gross margin

Nokia’s Networks business gross margin in 2016 was 38.5%, compared to 39.0% in 2015. The slight decrease in Nokia’s Networks business gross margin was due to decreases in both Ultra Broadband Networks gross margin and IP Networks and Applications gross margin. Ultra Broadband Networks gross margin in 2016 was 36.3%, compared to 37.5% in 2015. The decrease in Ultra Broadband Networks gross margin was primarily attributable to higher central cost of sales in Mobile Networks, partially offset by favorable region and product mix, and the completion of a large Fixed Networks project in the Asia-Pacific region.

IP Networks and Applications gross margin in 2016 was 44.1%, compared to 50.9% in 2015. The decrease in IP Networks and Applications gross margin was primarily attributable to changes in the business volume and mix, primarily attributable to the Acquisition of Alcatel Lucent.

Operating expenses

Nokia’s Networks business R&D expenses were EUR 3 691 million in 2016, an increase of EUR 1 953 million, or 112%, compared to EUR 1 738 million in 2015. The increase in Nokia’s Networks business R&D expenses was primarily attributable to an increase in headcount attributable to the Acquisition of Alcatel Lucent, partially offset by operational and synergy savings. The increase in Nokia’s Networks

business R&D expenses was attributable to both Ultra Broadband Networks and IP Networks and Applications. Ultra Broadband Networks R&D expenses were EUR 2 405 million in 2016, an increase of EUR 935 million, compared to EUR 1 470 million in 2015. IP Networks and Applications R&D expenses were EUR 1 286 million in 2016, an increase of EUR 1 018 million, compared to EUR 268 million in 2015.

Nokia’s Networks business selling, general and administrative expenses were EUR 2 720 million in 2016, an increase of EUR 1 300 million, or 92%, compared to EUR 1 420 million in 2015. The increase in Nokia’s Networks business selling, general and administrative expenses was primarily attributable to an increase in headcount attributable to the Acquisition of Alcatel Lucent, partially offset by operational and synergy savings. The increase in Nokia’s Networks business selling, general and administrative expenses was attributable to both Ultra Broadband Networks and IP Networks and Applications. Ultra Broadband Networks selling, general and administrative expenses were EUR 1 936 million in 2016, an increase of EUR 790 million, compared to EUR 1 146 million in 2015. IP Networks and Applications selling, general and administrative expenses were EUR 784 million in 2016, an increase of EUR 510 million, compared to EUR 274 million in 2015.

Nokia’s Networks business other income and expenses was an expense of EUR 40 million in 2016, a change of EUR 66 million compared to an income of EUR 26 million in 2015. The change was attributable to both Ultra Broadband Networks and IP Networks and Applications, primarily related to doubtful accounts allowances.

Operating profit

Nokia’s Networks business operating profit was EUR 1 935 million in 2016, an increase of EUR 586 million compared to EUR 1 349 million in 2015. Nokia’s Networks business operating margin in 2016 was 8.9% compared to 11.7% in 2015. The decrease in operating margin was primarily attributable to Ultra Broadband Networks. Ultra Broadband Networks operating margin decreased from 11.9% in 2015 to 8.6% in 2016. IP Networks and Applications operating margin decreased from 10.4% in 2015 to 9.5% in 2016. The decreases in both Ultra Broadband Networks and IP Networks and Applications operating margins in 2016 were attributable to lower gross margin and higher operating expenses.

 

 

For the year ended December 31, 2015 compared to the year ended December 31, 2014

The following table sets forth selective line items and the percentage of net sales for the years indicated.

For the year ended December 31  2015
             EURm		    % of net sales  2014
             EURm		    % of net sales     Year-on-year
change %		 

Net sales

   11 487   100.0   11 144   100.0   3 

Cost of sales

   (7 006)   (61.0)   (6 755)   (60.6)   4 

Gross profit

   4 481   39.0   4 389   39.4   2 

Research and development expenses

   (1 738)   (15.1)  ��(1 616)   (14.5)   8 

Selling, general and administrative expenses

   (1 420)   (12.4)   (1 296)   (11.6)   10 

Other income and expenses

   26   0.2   (38)   (0.3)   – 

Operating profit

   1 349   11.7   1 439   12.9   (6) 

NOKIA ANNUAL REPORT ON FORM 20-F 201653
48NOKIA ANNUAL REPORT ON FORM 20-F 2015

Results of segmentscontinued

Segment information(1)

For the year ended December 31   


Ultra
Broadband
Networks

2015
EURm

 
 
(2) 

 
 

  

IP Networks
and
    Applications

2015

EURm

 
 
(3) 

 

 

  

      Networks
total

2015

EURm

 
(4) 

 

 

  

Ultra
    Broadband
Networks

2014

EURm

 
 
(2) 

 

 

  

IP Networks
and

    Applications

2014

EURm

 
 

(3) 

 

 

  

        Networks
total

2014

EURm

 
(4) 

 

 

Net sales

   10 159   1 328   11 487   9 818   1 326   11 144 

Cost of sales

   (6 354)   (652)   (7 006)   (6 119)   (636)   (6 755) 

Gross profit

   3 805   676   4 481   3 699   690   4 389 

Research and development expenses

   (1 470)   (268)   (1 738)   (1 368)   (248)   (1 616) 

Selling, general and administrative expenses

   (1 146)   (274)   (1 420)   (1 053)   (243)   (1 296) 

Other income and expenses

   22   4   26   (27)   (11)   (38) 

Operating profit

   1 211   138   1 349   1 251   188   1 439 

(1)Refer to Note 4, Segment information, of our consolidated financial statements included in this annual report on Form 20-F.

LOGO

In 2014, our selling, general and administrative expenses were
(2)Net sales include EUR 1 45310 023 million a decrease of EUR 30 million or 2%, compared to EUR 1 483(EUR 9 639 million in 2013. Selling, general and administrative expenses represented 12.4% of our net sales in 2014 compared to 12.6% in 2013. The decrease in selling, general and administrative expenses was primarily2014) attributable to the decreaseMobile Networks and EUR 136 million (EUR 179 million in selling, general and administrative expenses in Nokia Networks. The decrease was partially offset by an increase in selling, general and administrative expenses in Group Common Functions and Nokia Technologies. The decrease in selling, general and administrative expenses in Nokia Networks was primarily2014) attributable to structural cost savings from Nokia Networks global restructuring program. The decrease was partially offset by headcount increases related to an increased focus on growth. The increaseFixed Networks.
(3)Net sales include EUR 515 million (EUR 523 million in selling, general and administrative expenses in Group Common Functions was primarily2014) attributable to transaction-related costs resulting from the Sale of the D&S Business. The increaseIP Routing and EUR 813 million (EUR 803 million in selling, general and administrative expenses in Nokia Technologies was primarily2014) attributable to increased activities, such as building the technology and brand licensing units, related to anticipated and ongoing patent licensing cases, as well as higher business support costs. In 2014, selling, general and administrative expenses included EUR 30 million of transaction-related costs. Selling, general and administrative expenses included purchase price accounting-related items of EUR 35 million in 2014 compared to EUR 80 million in 2013.

Other income and expenses was a net expense of EUR 94 million in 2014, compared to a net expense of EUR 513 million in 2013. The change in other income and expenses was primarily attributable to Nokia Networks, partially offset by Group Common Functions. In 2014, Nokia Networks other income and expenses included restructuring and associated charges of EUR 57 million and anticipated contractual remediation costs of EUR 31 million. In 2013, Nokia Networks other income and expenses included restructuring and associated charges of EUR 570 million.

Operating profit

Our operating profit in 2014 was EUR 1 412 million, an increase of EUR 740 million, or 110%, compared to an operating profit of EUR 672 million in 2013. The increase in operating profit was attributable to both Nokia Networks and Nokia Technologies. Our operating profit in 2014 included purchase price accounting-related items, restructuring charges and other special items of EUR 188 million compared to EUR 716 million in 2013. Our operating margin in 2014 was 12.0% compared to 5.7% in 2013.

Financial income and expenses

Financial income and expenses in 2014 was a net expense of EUR 401 million, compared to a net expense of EUR 277 million in 2013. The higher net financial expense in 2014 was primarily attributable to a EUR 123 million one–time charge related to the redemption of materially all of Nokia Networks’ borrowings, and a non-cash charge of EUR 57 million related to the repayment of EUR 1 500 million convertible bond issued to Microsoft. These charges were partially offset by reduced interest expenses and lower net foreign exchange losses.

Refer to “—Liquidity and capital resources” below.

Profit before tax

Continuing operations’ profit before tax was EUR 999 million in 2014, compared to EUR 399 million in 2013.

Income tax

Income taxes for Continuing operations was a net benefit of EUR 1 719 million in 2014, a change of EUR 1 990 million compared to a net expense of EUR 271 million in 2013. The net income tax benefit was primarily attributable to the recognition of EUR 2 126 million deferred tax assets from the reassessment of recoverability of tax assets in Finland and Germany in 2014, which resulted in a EUR 2 034 million non-cash tax benefit in the third quarter 2014. Following the global restructuring actions taken primarily in 2012 and 2013 to reduce annualized operating expenses and production overheads; and the recent profitability of Nokia Networks, the divestment of the previously loss-making DevicesApplications & Services business; and forecasts of future profitability for Continuing operations, we were able to re-establish a pattern of sufficient profitability in Finland and Germany to utilize the cumulative losses, foreign tax credits and other temporary differences. A significant portion of our Finnish and German deferred tax assets are indefinite in nature and available against future Finnish and German tax liabilities.

Non-controlling interests

Profit for Continuing operations attributable to non-controlling interests was EUR 8 million in 2014, compared to a loss attributable to non-controlling interests of EUR 145 million in 2013. The change was primarily attributable to our acquisition of Siemens’ stake in Nokia Networks (formerly Nokia Siemens Networks) in August 2013, which significantly reduced non-controlling interests in that business.

Profit/loss attributable to equity holders of the parent and earnings per share

Profit attributable to equity holders of the parent in 2014 equaled EUR 3 462 million, compared to a loss of EUR 615 million in 2013. Continuing operations generated a profit attributable to equity holders of the parent in 2014, equaling EUR 2 710 million, compared to EUR 273 million in 2013. Profit attributable to equity holders of the parent in 2014 was favorably impacted by the recognition of EUR 2 126 million deferred tax assets. Nokia Group’s total EPS in 2014 increased to EUR 0.94 (basic) and EUR 0.85 (diluted), compared to EUR (0.17) (basic) and EUR (0.17) (diluted) in 2013. From Continuing operations, EPS in 2014 increased to EUR 0.73 (basic) and EUR 0.67 (diluted), compared to EUR 0.07 (basic) and EUR 0.07 (diluted) in 2013.

NOKIA ANNUAL REPORT ON FORM 20-F 201549Analytics.

Results of operationscontinued

Discontinued operations

For the year ended December 31, 2015 compared to the year ended December 31, 2014

As the Sale of the HERE Business closed on December 4, 2015 and the Sale of the D&S Business closed on April 25, 2014, the financial results of Discontinued operations in 2015 are not comparable to the financial results of Discontinued operations in 2014.

The following table sets forth selective line items and the percentage of net sales that they represent for the years indicated.

For the year ended December 31  

2015

                EURm

    % of net sales  

2014

                EURm

    % of net sales     Year-on-year
change %		 

Net sales

   1 075    100.0    3 428    100.0    (69) 

Cost of sales

   (244)   (22.7)   (2 325)   (67.8)   (90) 

Gross profit

   831    77.3    1 103    32.2    (25) 

Research and development expenses

   (498)   (46.3)   (899)   (26.2)   (45) 

Selling, general and administrative expenses

   (213)   (19.8)   (628)   (18.3)   (66) 

Other income and expenses(1)

   (23)   (2.1)   (1 354)   (39.5)   (98) 

Operating profit/(loss)

   97    9.0    (1 778)   (51.9)   –  

(1)
(4)Includes impairment of goodwill of EUR 1 209 million related to HERE in 2014.

Net sales

Discontinued operations net sales in 2015 were EUR 1 075 million, a decrease of EUR 2 353 million, or 69%, compared to EUR 3 428 million in 2014. The decrease was attributable to the absence of net sales from Devices and Services.

Gross margin

Discontinued operations gross margin in 2015 was 77.3%, compared to a gross margin of 32.2% in 2014. The increase in gross margin was attributable to the absence of cost of sales from Devices and Services.

Operating expenses

Discontinued operations operating expenses in 2015 were EUR 734 million, a decrease of EUR 2 147 million, or 74.5%, compared to EUR 2 881 million in 2014. The decrease was primarily attributable to the absence of a EUR 1 209 million impairment charge related to HERE which negatively affected 2014, and lower operating expenses attributable to Devices & Services.

Operating profit/loss

Discontinued operations operating profit in 2015 was EUR 97 million, an increase of EUR 1 875 million, compared to an operating loss of EUR 1 778 million in 2014. The change in Discontinued operations operating result was primarily attributable to the absence of a EUR 1 209 million impairment charge related to HERE which negatively affected 2014, and lower operating expenses attributable to Devices & Services, partially offset by lower gross profit.

Profit for the year

Discontinued operations profit in 2015 was EUR 1 274 million, an increase of EUR 516 million compared to a profit of EUR 758 million in 2014. The gain on the Sale of the HERE Business recorded in 2015 was EUR 1 178 million, which included a reclassification of EUR 1 174 million of foreign exchange differences from other comprehensive income. The gain on the Sale of the D&S Business recorded in 2014 was EUR 2 803 million.

50NOKIA ANNUAL REPORT ON FORM 20-F 2015

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For the year ended December 31, 2014 compared to the year ended December 31, 2013

As the Sale of the D&S Business closed on April 25, 2014, the financial results of Discontinued operations in 2014 are not comparable to the financial results of Discontinued operations in 2013.

The following table sets forth selective line items and the percentage of net sales that they represent for the years indicated.

For the year ended December 31  

2014

                EURm

      % of net sales  

2013

                EURm

      % of net sales     Year-on-year
change %		 

Net sales

   3 428    100.0    11 649    100.0    (71) 

Cost of sales

   (2 325)   (67.8)   (8 734)   (75.0)   (73) 

Gross profit

   1 103    32.2    2 915    25.0    (62) 

Research and development expenses

   (899)   (26.2)   (1 778)   (15.3)   (49) 

Selling, general and administrative expenses

   (628)   (18.3)   (1 747)   (15.0)   (64) 

Other income and expenses(1)

   (1 354)   (39.5)   (133)   (1.1)   917  

Operating loss

   (1 778)   (51.9)   (743)   (6.4)   (139) 

(1)Includes impairment of goodwill of EUR 1 209 million related to HERE in 2014.

Net sales

Discontinued operations net sales in 2014 were EUR 3 428 million, a decrease of EUR 8 221 million, or 71%, compared to EUR 11 649 million in 2013. The decrease was primarily attributable to the part-year absence of net sales from Devices and Services, partially offset by an increase in net sales in HERE.

Gross margin

Discontinued operations gross margin in 2014 was 32.2%, compared to 25.0% in 2013. The increase in gross margin was primarily attributable to the part-year absence of Devices and Services.

Operating expenses

Discontinued operations operating expenses were EUR 2 881 million in 2014, a decrease of EUR 777 million, or 21%, compared to EUR 3 658 million in 2013. The decrease was primarily attributable to the part-year absence of Devices and Services, partially offset by a EUR 1 209 million impairment charge related to HERE, which negatively affected 2014.

Operating loss

Discontinued operations operating loss was EUR 1 778 million in 2014 compared to EUR 743 million in 2013. The increase in operating loss in 2014 was primarily attributable to a EUR 1 209 million impairment charge related to HERE which negatively affected 2014.

Profit/loss for the year

Discontinued operations profit in 2014 was EUR 758 million, an increase of EUR 1 625 million compared to a loss of EUR 867 million in 2013. The gain on the Sale of the D&S Business recorded in 2014 was EUR 2 803 million.

NOKIA ANNUAL REPORT ON FORM 20-F 201551

Results of segments

Nokia Networks

For the year ended December 31, 2015 compared to the year ended December 31, 2014

The following table sets forth selective line items and the percentage of net sales that they represent for the years indicated.

For the year ended December 31  

2015

        EURm

          % of net  sales  

2014

        EURm

    % of net sales  

Year-on-year

change %

 

Net sales

   11 490    100.0    11 198    100.0    3  

Cost of sales

   (7 053)   (61.4)   (6 862)   (61.3)   3  

Gross profit

   4 437    38.6    4 336    38.7    2  

Research and development expenses

   (1 928)   (16.8)   (1 786)   (15.9)   8  

Selling, general and administrative expenses

   (1 321)   (11.5)   (1 236)   (11.0)   7  

Other income and expenses

   (92)   (0.8)   (104)   (0.9)   (12) 

Operating profit

   1 096    9.5    1 210    10.8    (9) 
Segment information(1)      

For the year ended December 31

EURm

       
 		Mobile
    Broadband		  
  		  
 		Global
        Services		  
  		  
 		Nokia  Networks
Other		  
(2) 		  
 		Nokia Networks
Total		  
  

2015

      

Net sales

    6 064    5 422    4    11 490  

Operating profit/(loss)

    604    654    (162)   1 096  

% of net sales

       10.0    12.1    –    9.5  

2014

      

Net sales

    6 039    5 105    54    11 198  

Operating profit/(loss)

    683    653    (126)   1 210  

% of net sales

       11.3    12.8    –    10.8  

(1)Refer to Note 2, Segment information, of our consolidated financial statements included in this annual report on Form 20-F.
(2)Nokia Networks Other includes net sales and related cost of sales and operating expenses of non-core businesses, as well as IPR net sales and related costs. It also includes restructuring and associated charges for the Nokia Networks business.

Net sales

Nokia Networks net sales in 2015 were EUR 11 490 million, an increase of EUR 292 million, or 3%, compared to EUR 11 198 million in 2014. The increase in Nokia Networks net sales was primarily attributable to an increase in net sales in Global Services, partially offset by the absence of non-recurring IPR net sales which benefited 2014. Global Services net sales wereof EUR 5 422424 million (EUR 5 078 million in 2015, an increase of EUR 317 million, or 6%, compared to EUR 5 105 million in 2014. The increase was primarily attributable to growth in all business lines except managed services. Mobile Broadband net sales in 2015 were EUR 6 064 million, approximately flat compared to EUR 6 0392014).

Net sales

Nokia’s Networks business net sales in 2015 were EUR 11 487 million, an increase of EUR 343 million, or 3%, compared to EUR 11 144 million in 2014. The increase in Nokia’s Networks business net sales was primarily attributable to an increase in net sales in Ultra Broadband Networks. Ultra Broadband Networks net sales were EUR 10 159 million in 2015, an increase of EUR 341 million, or 3%, compared to EUR 9 818 million in 2014. IP Networks and Applications net sales in 2015 were EUR 1 328 million, approximately flat compared to EUR 1 326 million in 2014. Foreign exchange fluctuations had a positive impact on net sales in 2015 compared to 2014.

The following table sets forth distribution of net sales by geographical area for the years indicated.

For the year ended December 31  

2015

        EURm

   

2014

        EURm

   

Year-on-year

change %

 

Europe

   2 804     2 929     (4) 

Middle East & Africa

   1 177     1 053     12  

Greater China

   1 712     1 380     24  

Asia-Pacific

   3 230     3 289     (2) 

North America

   1 594     1 538     4  

Latin America

   973     1 009     (4) 

Total

   11 490     11 198     3  

Nokia Networks net sales in Greater China increased 24% in 2015 compared to 2014 driven by higher net sales in both Mobile Broadband and Global Services. The higher net sales in Mobile Broadband was primarily attributable to growth in LTE and core networking technologies, partially offset by lower net sales in other radio technologies. The higher net sales in Global Services was driven by growth across all business lines.

In Middle East and Africa, net sales increased 12% in 2015 compared to 2014 driven by higher net sales in both Global Services and Mobile Broadband. The overall increase in Middle East and Africa was primarily attributable to growth in several countries in the Middle East.

In North America, net sales increased 4% in 2015 compared to 2014, driven by higher net sales in Global Services, partially offset by lower net sales in Mobile Broadband, as well as the absence of non-recurring IPR net sales which benefited 2014. The higher net sales in Global Services was primarily attributable to strength in the network implementation business line, including the benefit from the acquisition of SAC Wireless. The lower net sales in Mobile Broadband was primarily attributable to lower net sales in overall radio technologies.

In Europe, net sales decreased 4% in 2015 compared to 2014, primarily driven by lower net sales in Global Services. The overall decrease in Europe was primarily attributable to lower net sales in Germany and Russia, partially offset by growth in the United Kingdom.

52NOKIA ANNUAL REPORT ON FORM 20-F 2015

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In Asia-Pacific, net sales decreased 2% in 2015 compared to 2014, driven by lower net sales in both Global Services and Mobile Broadband. The overall decrease in Asia-Pacific was primarily attributable to lower net sales in Japan and South Korea, partially offset by growth in India and Myanmar.

In Latin America, net sales decreased 4% in 2015 compared to 2014, driven by lower net sales in both Mobile Broadband and Global Services. The overall decrease in Latin America was primarily attributable to lower net sales in Brazil, partially offset by growth in Argentina.

Gross margin

Nokia Networks gross margin in 2015 was 38.6%, compared to 38.7% in 2014. The slight decrease in Nokia Networks gross margin in 2015 was primarily attributable to a lower gross margin in Global Services, a negative mix shift attributable to a higher proportion of Global Services net sales and a lower proportion of Mobile Broadband net sales and the absence of non-recurring IPR net sales in Nokia Networks Other, partially offset by a higher gross margin in Mobile Broadband.

The decrease in gross margin in Global Services was primarily attributable to lower gross margin in the network implementation and network planning and optimization business lines, partially offset by higher gross margin in the care business line. The increase in gross margin in Mobile Broadband was primarily attributable to higher gross margin in overall radio technologies. In addition, Nokia Networks gross margin was negatively impacted by higher costs related to the short-term impact of strategic entry deals, and challenging market conditions. The proportion of high margin software sales in the Nokia Networks sales mix was approximately flat in 2015 compared to 2014.

Operating expenses

Nokia Networks R&D expenses were EUR 1 928 million in 2015, an increase of EUR 142 million, or 8%, compared to EUR 1 786 million in 2014. The increase was primarily attributable to higher personnel expenses and increased investments in LTE, 5G, small cells and Cloud core, partially offset by continued operational improvements.

Nokia Networks selling, general and administrative expenses were EUR 1 321 million in 2015, an increase of EUR 85 million, or 7%, compared to EUR 1 236 million in 2014. In 2015, the increase was primarily attributable to higher personnel expenses, partially offset by a continued focus on cost efficiency.

Nokia Networks other income and expenses was an expense of EUR 92 million in 2015 compared to an expense of EUR 104 million in 2014, a change of EUR 12 million. The change was primarily attributable to the absence of a EUR 31 million charge in 2014 for anticipated contractual remediation costs related to a technical issue with a third party component, lower costs related to the sale of receivables, lower net indirect tax expenses and the release of certain doubtful account allowances, partially offset by higher restructuring and associated charges. In 2015, Nokia Networks other income and expenses included EUR 121 million of restructuring and associated charges, compared to EUR 57 million in 2014. In 2015, Nokia Networks recorded costs of EUR 85 million, related to certain cost reduction and efficiency improvement initiatives. The related annual cost savings are expected to be approximately EUR 70 million in 2016. The costs related to the cost reduction and efficiency improvement initiatives consist of personnel severance charges in Germany, the United States, China and Japan, and are expected to result in cash outflows of approximately EUR 80 million. In addition, Nokia Networks recorded EUR 37 million costs following changes in estimates for the Brazil and Germany provisions, related to the global restructuring program announced in 2011.

Operating profit

Nokia Networks operating profit was EUR 1 096 million in 2015, a decrease of EUR 114 million compared to EUR 1 210 million in 2014. Nokia Networks operating margin in 2015 was 9.5% compared to 10.8% in 2014. The decrease in operating profit was primarily attributable to lower operating profit in Mobile Broadband and Nokia Networks Other.

Mobile Broadband operating profit decreased from EUR 683 million in 2014 to EUR 604 million in 2015. The decrease in Mobile Broadband operating profit in 2015 was primarily attributable to higher operating expenses, partially offset by higher gross profit.

Global Services operating profit was EUR 654 million in 2015 compared to EUR 653 million in 2014. The approximately flat Global Services operating profit in 2015 was primarily attributable to higher operating expenses, offset by higher gross profit.

The decrease in operating profit in Nokia Networks Other was primarily attributable to lower gross profit and higher operating expenses.

NOKIA ANNUAL REPORT ON FORM 20-F 201553

Results of segmentscontinued

For the year ended December 31, 2014 compared to the year ended December 31, 2013

The following table sets forth selective line items and the percentage of net sales that they represent for the years indicated.

For the year ended December 31  

2014

        EURm

      % of net sales  

2013

        EURm

      % of net sales  

Year-on-year

change %

 

Net sales

   11 198    100.0    11 282    100.0    (1) 

Cost of sales

   (6 862)   (61.3)   (7 148)   (63.4)   4  

Gross profit

   4 336    38.7    4 134    36.6    5  

Research and development expenses

   (1 786)   (15.9)   (1 822)   (16.1)   (2) 

Selling, general and administrative expenses

   (1 236)   (11.0)   (1 310)   (11.6)   (6) 

Other income and expenses

   (104)   (0.9)   (582)   (5.2)   (82) 

Operating profit

   1 210    10.8    420    3.7    188  
Segment information(1)      

For the year ended December 31

EURm

       

 

Mobile

Broadband

  

  

  

 

Global

Services

  

  

  

 

 

Nokia

Networks

Other

  

  

(2) 

  

 

 

Nokia

Networks

Total

  

  

  

2014

      

Net sales

    6 039    5 105    54    11 198  

Operating profit/(loss)

    683    653    (126)   1 210  

% of net sales

       11.3    12.8    –    10.8  

2013

      

Net sales

    5 347    5 753    182    11 282  

Operating loss/(loss)

    420    693    (693)   420  

% of net sales

       7.9    12.0    –    3.7  

(1)Refer to Note 2, Segment information, of our consolidated financial statements included in this annual report on Form 20-F.
(2)Nokia Networks Other includes net sales and related cost of sales and operating expenses of non-core businesses, IPR net sales and related costs, as well as Nokia Networks’ Optical business until May 6, 2013, when its divestment was completed. It also includes restructuring and associated charges for the Nokia Networks business.

Net sales

Nokia Networks net sales in 2014 were EUR 11 198 million, a decrease of EUR 84 million, or 1%, compared to EUR 11 282 million in 2013. The decrease in Nokia Networks net sales was primarily attributable to a decrease in Global Services net sales and the absence of sales from businesses that were divested and certain customer agreements and countries that were exited in 2013. The decrease was partly offset by an increase in Mobile Broadband net sales.

Mobile Broadband net sales increased to EUR 6 039 million in 2014 by EUR 692 million, or 13%, compared to EUR 5 347 million in 2013. The increase was primarily attributable to an increase in net sales in radio and core networking technologies. The increase in radio technologies net sales was primarily attributable to growth in LTE. The increase was partially offset by a decrease in net sales in mature radio technologies.

Global Services net sales decreased to EUR 5 105 million in 2014 by EUR 648 million, or 11%, compared to EUR 5 753 million in 2013. The decrease was primarily attributable to decreases in net sales in network implementation and managed services including the exiting of certain customer agreements and countries, as well as a decrease in the care business line. The decrease was partially offset by an increase in net sales in the systems integration business line.

The following table sets forth distribution of net sales by geographical area for the years indicated.

 

For the year ended December 31

2014

EURm

2013

EURm

Year-on-year

change %

Europe

2 9293 041(4) 

Middle East & Africa

1 0531 111(5) 

Greater China

1 3801 18516

Asia-Pacific

3 2893 354(2) 

North America

1 5381 33415

Latin America

1 0091 257(20) 

Total

11 19811 282(1) 

In Europe, net sales decreased 4% primarily attributable to lower network deployments in Western Europe, partially offset by higher network deployments in Eastern Europe. In Middle East and Africa, net sales decreased 5% primarily attributable to lower network deployments. In Greater China, net sales increased 16% primarily attributable to higher LTE network deployments. In Asia-Pacific, net sales decreased 2% primarily attributable to lower network deployments in Japan, partially offset by higher network deployments in India and Korea. In North America, net sales increased 15% primarily attributable to LTE network deployments at major customers. Nokia Networks net sales in Latin America decreased 20% in 2014 compared to 2013 primarily attributable to the exiting of certain customer agreements and lower network deployments in Brazil, Chile and Mexico.
For the year ended December 31  2015
             EURm		   2014
             EURm		        Year-on-year
change %		 

Asia-Pacific

   3 231    3 283    (2) 

Europe

   2 805    2 910    (4) 

Greater China

   1 710    1 374    24 

Latin America

   970    1 021    (5) 

Middle East & Africa

   1 177    1 052    12 

North America

   1 594    1 504    6 

Total

   11 487    11 144    3 

Nokia’s Networks business net sales in Greater China increased 24% in 2015 compared to 2014 driven by higher net sales in both Ultra Broadband Networks and IP Networks and Applications.

In Middle East & Africa, net sales increased 12% in 2015 compared to 2014. The overall increase in Middle East & Africa was primarily attributable to growth in several countries in the Middle East.

In North America, net sales increased 6% in 2015 compared to 2014, driven by higher net sales in Ultra Broadband Networks, partially offset by lower net sales in IP Networks and Applications, as well as the absence of non-recurring IPR net sales which benefited 2014.

In Europe, net sales decreased 4% in 2015 compared to 2014. The overall decrease in Europe was primarily attributable to lower net sales in Germany and Russia, partially offset by growth in the United Kingdom.

In Asia-Pacific, net sales decreased 2% in 2015 compared to 2014. The overall decrease in Asia-Pacific was primarily attributable to lower net sales in Japan and South Korea, partially offset by growth in India and Myanmar.

In Latin America, net sales decreased 5% in 2015 compared to 2014. The overall decrease in Latin America was primarily attributable to lower net sales in Brazil, partially offset by growth in Argentina.

Gross margin

Nokia’s Networks business gross margin in 2015 was 39.0%, compared to 39.4% in 2014. The slight decrease in Nokia’s Networks business gross margin in 2015 was primarily attributable to a lower gross margin in IP Networks and Applications and to a lesser extent to a lower gross margin in Ultra Broadband Networks.

Operating expenses

Nokia’s Networks business R&D expenses were EUR 1 738 million in 2015, an increase of EUR 122 million, or 8%, compared to EUR 1 616 million in 2014. The increase was primarily attributable to higher personnel expenses and increased investments in LTE, 5G, small cells and Cloud core, partially offset by continued operational improvements.

Nokia’s Networks business selling, general and administrative expenses were EUR 1 420 million in 2015, an increase of EUR 124 million, or 10%, compared to EUR 1 296 million in 2014. In 2015, the increase was primarily attributable to higher personnel expenses, partially offset by a continued focus on cost efficiency.

Nokia’s Networks business other income and expenses was an income of EUR 26 million in 2015 compared to an expense of EUR 38 million in 2014, a change of EUR 64 million. The change was primarily attributable to the lower costs related to the sale of receivables, lower net indirect tax expenses and the release of certain doubtful account allowances.

Operating profit

Nokia’s Networks business operating profit was EUR 1 349 million in 2015, a decrease of EUR 90 million compared to EUR 1 439 million in 2014. Nokia’s Networks business operating margin in 2015 was 11.7% compared to 12.9% in 2014. The decrease in operating profit was primarily attributable to lower operating profit in Ultra Broadband Networks and to a lesser extent to IP Networks and Applications.

Ultra Broadband Networks operating profit decreased from EUR 1 251 million in 2014 to EUR 1 211 million in 2015. The decrease in Ultra Broadband Networks operating profit in 2015 was primarily attributable to higher operating expenses, partially offset by higher gross profit.

IP Networks operating profit was EUR 138 million in 2015 compared to EUR 188 million in 2014. The decrease in IP Networks and Applications operating profit was primarily attributable to higher operating expenses and to a lesser extent to lower gross margin.

 

54NOKIA ANNUAL REPORT ON FORM 20-F 2015

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Gross margin

Nokia Networks gross margin in 2014 was 38.7%, compared to 36.6% in 2013. The increase in Nokia Networks gross margin was primarily attributable to a higher proportion of Mobile Broadband in the overall sales mix and an increase in the gross margin of Global Services, partially offset by a slight decrease in the gross margin of Mobile Broadband.

The decrease in the gross margin of Mobile Broadband was primarily attributable to a lower gross margin in mature radio technologies. The decrease was partially offset by a higher gross margin in LTE and core networking technologies. In addition, Mobile Broadband gross margin in 2014 benefitted from lower costs incurred in anticipation of a technology shift to TD-LTE, which adversely affected the gross margin of Mobile Broadband in 2013.

The increase in the gross margin of Global Services was primarily attributable to a more favorable sales mix including a lower proportion of managed services and a higher proportion of systems integration in the sales mix, as well as margin improvement in systems integration. The increase was partially offset by lower gross margin in care, network implementation and network planning and optimization.

Operating expenses

Nokia Networks R&D expenses were EUR 1 786 million in 2014, a decrease of EUR 36 million, or 2%, compared to EUR 1 822 million in 2013. The decrease in Nokia Networks R&D expenses was primarily attributable to lower subcontracting costs. The decrease was partially offset by headcount increases mainly related to increased in-house activities. Nokia Networks continues to invest in targeted growth areas, most notably LTE, small cells and Telco Cloud, while reducing investments in mature technologies.

Nokia Networks selling, general and administrative expenses were EUR 1 236 million in 2014, a decrease of EUR 74 million, or 6%, compared to EUR 1 310 million in 2013. The decrease was primarily attributable to structural cost savings from Nokia Networks global restructuring program. The decrease was partially offset by headcount increases related to an increased focus on growth.

Nokia Networks other income and expenses decreased in 2014 to an expense of EUR 104 million from an expense of EUR 582 million in 2013. In 2014, other income and expenses included restructuring and associated charges of EUR 57 million and anticipated contractual remediation costs of EUR 31 million. In 2013, other income and expenses included restructuring and associated charges of EUR 570 million.

Operating profit

Nokia Networks operating profit was EUR 1 210 million in 2014, an increase of EUR 790 million compared to an operating profit of EUR 420 million in 2013. Nokia Networks operating margin in 2014 was 10.8% compared to 3.7% in 2013. The increase in operating profit was primarily attributable to an increase in operating profit in Mobile Broadband. The increase was partially offset by a decrease in operating profit in Global Services.

Mobile Broadband operating profit increased from EUR 420 million in 2013 to EUR 683 million in 2014. The increase in operating profit was attributable to higher gross profit.

Global Services operating profit decreased from EUR 693 million in 2013 to EUR 653 million in 2014. The decrease in operating profit was primarily attributable to lower gross profit. The decrease was partially offset by lower operating expenses.

In 2014, Nokia Networks recognized restructuring and associated charges of EUR 57 million related to the global restructuring program. At the end of 2014, the cumulative charges were approximately EUR 1 900 million and the cumulative restructuring-related cash outflows approximately EUR 1 550 million.

NOKIA ANNUAL REPORT ON FORM 20-F 201555

Results of segmentscontinued

Nokia Technologies

For the year ended December 31, 2015 compared to the year ended December 31, 2014

The following table sets forth selective line items and the percentage of net sales that they represent for the years indicated.

For the year ended December 31  

2015

        EURm

      % of net sales  

2014

        EURm

      % of net sales  

Year-on-year

change %

 

Net sales

   1 024    100.0    578    100.0    77  

Cost of sales

   (7)   (0.7)   (8)   (1.4)   (13) 

Gross profit

   1 017    99.3    570    98.6    78  

Research and development expenses

   (199)   (19.4)   (161)   (27.9)   24  

Selling, general and administrative expenses

   (109)   (10.6)   (65)   (11.2)   68  

Other income and expenses

   10    1.0    (1)   (0.2)   –  

Operating profit

   719    70.2    343    59.3    110  

Net sales

Nokia Technologies net sales in 2015 were EUR 1 024 million, an increase of EUR 446 million, or 77%, compared to EUR 578 million in 2014. The increase in Nokia Technologies net sales was primarily attributable to two factors. Firstly, approximately 70% of the growth, or approximately EUR 310 million, of Nokia Technologies net sales in 2015 related to non-recurring net sales from existing and new agreements, and revenue share related to previously divested IPR and IPR divestments. Secondly, approximately 30% of the growth, or EUR 130 million, of Nokia Technologies net sales in 2015 related to higher IPR licensing income from existing and new licensees, related to settled and ongoing arbitrations, as well as Microsoft becoming a more significant intellectual property licensee following the Sale of the D&S Business. The increase in net sales was partially offset by lower licensing income from certain existing licensees that experienced decreases in handset sales.

Gross margin

Nokia Technologies gross margin in 2015 was 99.3%, compared to 98.6% in 2014. The increase in Nokia Technologies gross margin in 2015 was primarily attributable to higher net sales.

Operating expenses

Nokia Technologies R&D expenses in 2015 were EUR 199 million, an increase of EUR 38 million, or 24%, compared to EUR 161 million in 2014. The increase in R&D expenses was primarily attributable to higher investments in digital media and technology incubation, higher patent portfolio costs, and higher investments in digital health.

Nokia Technologies selling, general and administrative expenses in 2015 were EUR 109 million, an increase of EUR 44 million, or 68%, compared to EUR 65 million in 2014. The increase in selling, general and administrative expenses was primarily attributable to the ramp-up of new businesses, increased licensing activities, and higher business support costs.

Nokia Technologies other income and expense in 2015 was a net income of EUR 10 million, a change of EUR 11 million compared to a net expense of EUR 1 million in 2014.

Operating profit

Nokia Technologies operating profit in 2015 was EUR 719 million, an increase of EUR 376 million, or 110%, compared to an operating profit of EUR 343 million in 2014. The increase in operating profit was attributable to higher gross profit, partially offset by higher operating expenses. Nokia Technologies operating margin in 2015 was 70.2% compared to 59.3% in 2014.

56
54 NOKIA ANNUAL REPORT ON FORM 20-F 2015

LOGO

For the year ended December 31, 2014 compared to the year ended December 31, 2013

The following table sets forth selective line items and the percentage of net sales that they represent for the years indicated.

For the year ended December 31  

2014

EURm

    % of net sales  

2013

            EURm

    % of net sales  

  Year-on-year

change %

 

Net sales

   578    100.0    529    100.0    9  

Cost of sales

   (8)   (1.4)   (14)   (2.6)   (43) 

Gross profit

   570    98.6    515    97.4    11  

Research and development expenses

   (161)   (27.9)   (147)   (27.8)   10  

Selling, general and administrative expenses

   (65)   (11.2)   (56)   (10.6)   16  

Other income and expenses

   (1)   (0.2)   (2)   (0.4)   (50) 

Operating profit

   343    59.3    310    58.6    11  

Net sales

Nokia Technologies net sales in 2014 were EUR 578 million, an increase of EUR 49 million, or 9%, compared to EUR 529 million in 2013. The increase in Nokia Technologies net sales was primarily attributable to higher intellectual property licensing income from certain licensees, including Microsoft becoming a more significant intellectual property licensee in connection with the Sale of the D&S Business. The increase was partially offset by decreases in licensing income from certain other licensees that experienced lower levels of business activity, as well as lower levels of non-recurring IPR income compared to 2013.

Gross margin

Nokia Technologies gross margin in 2014 was 98.6%, compared to 97.4% in 2013. The increase in Nokia Technologies gross margin was primarily attributable to the absence of a one-time cost related to a patent divestment transaction which negatively affected gross margin in 2013.

Operating expenses

Nokia Technologies R&D expenses in 2014 were EUR 161 million, an increase of EUR 14 million, or 10%, compared to EUR 147 million in 2013. The increase in R&D expenses was primarily attributable to investments in business activities, such as building the technology and brand licensing units, which target new and significant long-term growth opportunities.

Nokia Technologies selling, general and administrative expenses in 2014 were EUR 65 million, an increase of EUR 9 million, or 16%, compared to EUR 56 million in 2013. The increase in selling, general and administrative expenses was primarily attributable to increased activities, such as building the technology and brand licensing units related to anticipated and ongoing patent licensing cases, as well as higher business support costs.

Nokia Technologies other income and expense in 2014 was a net expense of EUR 1 million, a decrease of EUR 1 million, compared to a net expense of EUR 2 million in 2013.

Operating profit

Nokia Technologies operating profit in 2014 was EUR 343 million, an increase of EUR 33 million, or 11%, compared to an operating profit of EUR 310 million in 2013. The increase in operating profit was primarily attributable to an increase in gross profit. The increase was partially offset by higher operating expenses. Nokia Technologies operating margin in 2014 was 59.3% compared to 58.6% in 2013.

Group Common Functions

For the year ended December 31, 2015 compared to the year ended December 31, 2014

Group Common Functions operating loss in 2015 was EUR 127 million, a decrease of EUR 15 million, or 11%, compared to an operating loss of EUR 142 million in 2014. The decrease in Group Common Functions operating loss was primarily attributable to change in other income and expense, partially offset by an increase in selling, general and administrative expenses. Other income and expense in 2015 included net income of approximately EUR 100 million related to investments made through unlisted venture funds, a significant portion of which resulted from Nokia Growth Partners selling its holdings in Ganji.com to 58.com for a combination of cash and shares. The increase in selling, general and administrative expenses was primarily attributable to transaction and other related costs. In 2015, Group Common Functions included transaction-related costs of EUR 99 million compared to EUR 25 million in 2014.

For the year ended December 31, 2014 compared to the year ended December 31, 2013

Group Common Functions operating loss in 2014 was EUR 142 million, an increase of EUR 85 million, or 149%, compared to an operating loss of EUR 57 million in 2013. The increase in operating loss was primarily attributable to the absence of a distribution from an unlisted venture fund-related to the disposal of the fund’s investment in Waze Ltd of EUR 59 million that benefited Group Common Functions in 2013. In 2014, Group Common Functions included transaction-related costs of EUR 25 million. In 2013, Group Common Functions included restructuring charges and associated impairments of EUR 10 million, as well as transaction-related costs of EUR 18 million related to the Sale of the D&S Business.

NOKIA ANNUAL REPORT ON FORM 20-F 201557

Liquidity and

capital resources

Financial position

At December 31, 2015, our total cash and other liquid assets (defined as cash and cash equivalents; available-for-sale investments, liquid assets; and investments at fair value through profit and loss, liquid assets) equaled EUR 9 849 million, an increase of EUR 2 134 million, compared to EUR 7 715 million at December 31, 2014. The increase was primarily attributable to drivers affecting our net cash as described below. At December 31, 2013, our total cash and other liquid assets equaled EUR 8 971 million.

At December 31, 2015, our net cash and other liquid assets (defined as total cash and other liquid assets less long-term interest-bearing liabilities and short-term borrowings) equaled EUR 7 775 million, an increase of EUR 2 752 million, compared to EUR 5 023 million at December 31, 2014. The increase was primarily attributable to cash proceeds of EUR 2 536 million from the Sale of the HERE Business, net cash flow of EUR 507 million from operating activities, as well as an increase in net cash resulting from the conversion of the Nokia EUR 750 million convertible bond into shares. This increase was partially offset by costs associated with our capital structure optimization program, which included the payment of a dividend of EUR 512 million, as well as the repurchase of shares of EUR 173 million. Our net cash and other liquid assets was also adversely impacted by cash outflows related to acquisitions of EUR 98 million and capital expenditures of EUR 314 million. At December 31, 2013, our net cash and other liquid assets equaled EUR 2 309 million.

At December 31, 2015, our cash and cash equivalents equaled EUR 6 995 million, an increase of EUR 1 825 million, compared to EUR 5 170 million at December 31, 2014. Our cash and cash equivalents equaled EUR 7 633 million at December 31, 2013.

Cash flow

In 2015, our cash flow from operating activities equaled EUR 507 million, a decrease of EUR 768 million, as compared to EUR 1 275 million in 2014. The decrease was primarily attributable to EUR 998 million cash being tied up in net working capital in 2015 as compared to EUR 1 153 million cash release in 2014, partly offset by an increase in net profit, adjusted for non-cash items of EUR 993 million. The primary drivers for the increase in net working capital were higher accounts receivables, mainly relating to the Samsung patent license receivables and lower accounts payable.

In 2015, we had cash outflows of EUR 702 million related to net financial income and expenses and income taxes, a decrease of EUR 390 million, as compared to EUR 1 092 million in 2014. The decrease was primarily attributable to lower net income taxes paid. Paid taxes in 2014 included approximately EUR 300 million cash outflows relating to Discontinued operations.

In 2014, our cash flow from operating activities equaled EUR 1 275 million, an increase of EUR 1 203 million, as compared to EUR 72 million in 2013. The increase was primarily attributable to EUR 1 214 million net profit, adjusted for non-cash items and a EUR 1 153 million cash release from net working capital. The primary driver for the cash release from net working capital was a EUR 1 650 million cash inflow relating to the upfront payment on a ten-year patent license agreement and related option to extend the license in perpetuity with Microsoft, partially offset by approximately EUR 320 million restructuring-related cash outflows in Continuing operations and approximately EUR 210 million net working capital-related cash outflows in Discontinued operations.

In 2014, we had cash outflows of EUR 1 092 million related to net financial income and expenses and income taxes, an increase of EUR 935 million, as compared to EUR 157 million in 2013. The increase was primarily attributable to the early redemption of Nokia Networks’ borrowings of approximately EUR 84 million, foreign exchange hedging of approximately EUR 180 million and income taxes of EUR 636 million, of which approximately EUR 300 million were cash outflows relating to discontinued operations.

In 2015, our cash flow from investing activities equaled EUR 1 896 million, an increase of EUR 1 010 million, as compared to EUR 886 million cash received from investing activities in 2014. Cash inflow from investing activities was primarily driven by gross proceeds attributable to the Sale of the HERE Business of approximately EUR 2 540 million, and the increase in proceeds from maturities and sale of current available-for-sale investments, liquid assets. The increase was partially offset by an increase in purchases of current available-for-sale investments, liquid assets, purchases of investments at fair value through profit and loss, liquid assets and cash outflows related to capital expenditure of EUR 314 million and acquisitions of EUR 98 million.

In 2015, our capital expenditure equaled EUR 314 million, an increase of EUR 3 million, as compared to EUR 311 million in 2014. Major items of capital expenditure in 2015 included investments in production lines, test equipment and computer hardware used primarily in R&D, office and manufacturing facilities as well as services and software related intangible assets.

In 2014, our cash flow from investing activities equaled EUR 886 million, an increase of EUR 1 577 million, as compared to EUR 691 million cash used in investing activities in 2013. Cash inflows from investing activities was primarily driven by gross proceeds attributable to the Sale of the D&S Business of approximately EUR 4 010 million, which included the proceeds used to repay the convertible bonds issued to Microsoft and the increase in proceeds from maturities and sale of current available-for-sale investments, liquid assets. The increase was offset by an increase in purchases of current available-for-sale investments, liquid assets. Cash inflows from investing activities also benefited EUR 44 million from the sale of property, plant and equipment. The increase was partially offset by cash outflows related to capital expenditure of EUR 311 million and acquisitions of EUR 175 million.

In 2014, our capital expenditure equaled EUR 311 million, a decrease of EUR 96 million, as compared to EUR 407 million in 2013. Major items of capital expenditure in 2014 included investments in production lines, test equipment and computer hardware used primarily in R&D, office and manufacturing facilities as well as services and software- related intangible assets.

In 2015, our cash flow used in financing activities equaled EUR 584 million, a decrease of EUR 3 992 million, as compared to EUR 4 576 million in 2014. Cash outflows from financing activities were primarily attributable to the payment of EUR 0.14 per share in dividends equaling EUR 507 and EUR 173 million in cash outflows relating to share repurchases. Cash outflows from financing activities also included payments to non-controlling interest holders to acquire subsidiary shares and pay dividends equaling EUR 57 million.

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In 2014, our cash flow used in financing activities equaled EUR 4 576 million, an increase of EUR 4 099 million, as compared to EUR 477 million in 2013. Cash outflows from financing activities were primarily attributable to the repayment of EUR 2 791 million in interest-bearing liabilities, payment of EUR 0.11 per share in dividends equaling EUR 408 million and EUR 0.26 per share in special dividends equaling EUR 966 million, as well as EUR 427 million in cash outflows relating to share repurchases. We also acquired subsidiary shares from a non-controlling interest holder and paid dividends to non-controlling interest holders in 2014 equaling approximately EUR 60 million.

Financial assets and debt

At December 31, 2015 our net cash and other liquid assets equaled EUR 7 775 million and consisted of EUR 9 849 million in total cash and other liquid assets and EUR 2 074 million of long-term interest-bearing liabilities and short-term borrowings.

We hold our cash and other liquid assets predominantly in euro. Our liquid assets are mainly invested in high-quality money market and fixed income instruments with strict maturity limits. We also have a EUR 1 500 million undrawn revolving credit facility available for liquidity purposes.

Our interest-bearing liabilities consisted of a EUR 500 million bond due in 2019, a USD 1 000 million bond due in 2019, a USD 500 million bond due in 2039 and EUR 196 million of other liabilities. Refer to Note 35, Risk management, of our consolidated financial statements included in this annual report on Form 20-F for further information regarding our interest-bearing liabilities.

In 2015, we exercised our option to redeem our EUR 750 million convertible bonds due in 2017. The redemption led to materially all convertible bonds being converted into Nokia shares. Additionally, we refinanced our undrawn EUR 1 500 million revolving credit facility maturing in March 2016 with a new similar size facility maturing in June 2018. The new facility has two one-year extension options, no financial covenants and it remains undrawn. We believe with EUR 9 849 million cash and other liquid assets, as well as a EUR 1 500 million revolving credit facility, we have sufficient funds available to satisfy our future working capital needs, capital expenditure, R&D, acquisitions and debt service requirements at least through 2016. We also believe that with our current credit ratings of BB+ by Standard & Poor’s and Ba2 by Moody’s, we have access to the capital markets should any funding needs arise in 2016. Nokia aims to re-establish its investment grade credit rating.

Off-balance sheet arrangements

There are no material off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Capital structure optimization program

In 2015, we announced plans for a two-year, EUR 7 billion program to optimize the efficiency of our capital structure. The program was subject to the closing of the Alcatel Lucent and HERE transactions, as well as the conversion of all Nokia and Alcatel Lucent convertible bonds. This comprehensive capital structure optimization program focuses on shareholder distributions and de-leveraging, while maintaining our financial strength.

The program consists of the following components:

nShareholder distributions of approximately EUR 4 billion, calculated assuming ownership of all outstanding shares of Alcatel Lucent and conversion of all Nokia and Alcatel Lucent convertible bonds:

–Planned ordinary dividend payments, as follows:

–A planned ordinary dividend for 2015 of at least EUR 0.15 per share, subject to shareholder approval in 2016; and

–A planned ordinary dividend for 2016 of at least EUR 0.15 per share, subject to shareholder approval in 2017;

–A planned special dividend of EUR 0.10 per share, subject to shareholder approval in 2016; and

–A planned two-year, EUR 1.5 billion share repurchase program, subject to shareholder approval in 2016.

nDe-leveraging of approximately EUR 3 billion:

–Planned reduction of interest-bearing liabilities of the combined company by approximately EUR 2 billion; and

–Planned reduction of debt-like items of the combined company by approximately EUR 1 billion in 2016.

Refer to “—Dividend” below for the Board of Director’s dividend proposal for 2015.

In January 2016, as part of the capital structure optimization program, Alcatel Lucent S.A., a company controlled by us, repaid its EUR 190 million 8.50% senior notes. In February, 2016, Alcatel Lucent USA Inc., a subsidiary of Alcatel Lucent S.A., redeemed its USD 650 million 4.625% notes due July 2017, USD 500 million 8.875% notes due January 2020 and USD 700 million 6.750% notes due November 2020 in accordance with their respective terms and conditions. In February 2016, Alcatel Lucent S.A. terminated its EUR 504 million revolving credit facility.

NOKIA ANNUAL REPORT ON FORM 20-F 201559

Liquidity and capital resourcescontinued

Structured finance

Structured finance includes customer financing and other third-party financing. Network operators occasionally require their suppliers, including us, to arrange, facilitate or provide long-term financing as a condition for obtaining infrastructure projects.

At December 31, 2015, our total customer financing, outstanding and committed equaled EUR 213 million, an increase of EUR 57 million, as compared to EUR 156 million in 2014. At December 31, 2013, our total customer financing, outstanding and committed ,equaled EUR 64 million. Customer financing primarily consisted of financing commitments to network operators.

Refer to Note 35, Risk management, of our consolidated financial statements included in this annual report on Form 20-F for further information relating to our committed and outstanding customer financing.

We expect our customer financing commitments to be financed mainly from cash and other liquid assets and through cash flow from operations.

At December 31, 2015, guarantees of our performance consisted of EUR 400 million of guarantees that are provided to certain Nokia Networks customers in the form of bank guarantees or corporate guarantees issued by Nokia Networks. These instruments entitle the customer to claim payments as compensation for non-performance by Nokia Networks of its obligations under network infrastructure supply agreements. Depending on the nature of the instrument, compensation is either payable on demand, or is subject to verification of non-performance.

Financial guarantees and securities pledged that we may give on behalf of customers, represent guarantees relating to payment by certain Nokia Networks customers and other third parties under specified loan facilities between such customers or other third parties and their creditors. Our obligations under such guarantees are released upon the earlier of expiration of the guarantee or early payment by the customer or other third party.

Refer to Note 30, Commitments and contingencies, of our consolidated financial statements included in this annual report on Form 20-F for further information regarding commitments and contingencies.

Venture fund investments and commitments

We make financing commitments to a number of unlisted venture funds that make technology-related investments. The majority of the investments are managed by Nokia Growth Partners that specializes in growth-stage investing, seeking companies that are changing the face of mobility and connectivity.

At December 31, 2015, our unlisted venture fund investments equaled EUR 953 million, as compared to EUR 778 million at December 31, 2014. Refer to Note 19, Fair value of financial instruments, of our consolidated financial statements included in this annual report on Form 20-F for further information regarding fair value of our unlisted venture fund investments.

At December 31, 2015, our venture fund commitments equaled EUR 230 million, as compared to EUR 274 million at December 31, 2014. As a limited partner in venture funds, we are committed to capital contributions and entitled to cash distributions according to the respective partnership agreements and underlying fund activities. Refer to Note 30, Commitments and contingencies, of our consolidated financial statements included in this annual report on Form 20-F for further information regarding commitments and contingencies.

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Material subsequent

events

“On February 10, 2016, the results of our reopened public exchange offer for all outstanding Alcatel Lucent securities were announced. The reopened offer period resulted in us holding 90.34% of the share capital of Alcatel Lucent.”

After December 31, 2015, the following material events have taken place.

nOn January 4, 2016, the results of our public exchange offer for all outstanding Alcatel Lucent securities were announced. We made an offer for all Alcatel Lucent securities in France and in the United States from November 18, 2015 until December 23, 2015 and the offer resulted in us holding 76.31% of the share capital and at least 76.01% of the voting rights of Alcatel Lucent, 89.14% of the OCEANEs 2018 outstanding, 24.34% of the OCEANEs 2019 outstanding, and 15.11% of the OCEANEs 2020 outstanding. This equated to us holding 70.52% of the Alcatel Lucent share capital on a fully diluted basis. Consequently, on January 6, 2016 Nokia issued 1 455 678 563 new shares in deviation from shareholders’ pre-emptive right to subscription based on an authorization by the Extraordinary General Meeting held on December 2, 2015 in exchange for the Alcatel Lucent securities. The registration of the shares and the settlement of the offer took place on January 7, 2016.

nOn January 14, 2016, we announced that we had reopened our public exchange offer in France and in the United States for all outstanding Alcatel Lucent securities in accordance with French law until February 3, 2016, which provided an opportunity for holders of Alcatel Lucent securities who did not tender into the initial exchange offer to participate in the reopened offer and exchange their securities for shares or American Depository Shares (“ADSs”) in Nokia. On February 10, 2016, the results of our reopened public exchange offer for all Alcatel Lucent securities were announced.

The reopened offer period resulted in us holding 90.34% of the share capital and at least 90.25% of the voting rights of Alcatel Lucent, 99.62% of the OCEANEs 2018, 37.18% of the OCEANEs 2019 and 68.17% of the OCEANEs 2020. This equated to us holding 87.33% of the share capital of Alcatel Lucent on a fully diluted basis. Consequently, we issued 320 701 193 new shares in deviation from shareholders’ pre-emptive right to subscription based on an authorization by the Extraordinary General Meeting held on December 2, 2015 in exchange for the Alcatel Lucent securities. The registration of the shares and the settlement of the reopened offer took place on February 12, 2016.

nOn February 1, 2016, we announced that we had received the decision in the patent licensing arbitration between Nokia and Samsung. The award covers five years from January 1, 2014 until December 31, 2018. The outcome of the arbitration was reflected in the 2015 financial statements as far as it relates to the years presented.

nOn February 21, 2016, Nokia Growth Partners (NGP) announced the closing of a new USD 350 million fund for investments in IoT companies. The fund is sponsored by Nokia and will serve to identify new opportunities to grow the ecosystem in IoT solutions. The fund IV commitment brings NGP’s total assets under management to over USD 1 billion, including USD 500 million available for new investments.

NOKIA ANNUAL REPORT ON FORM 20-F 201561

Sustainability and corporate

responsibility at Nokia

At Nokia, we want to be proud of what we achieve and how
we achieve it. We run our business in line with internationally
recognized ethical and responsible business practices, and
we work hard to create value for people and our planet.

To ensure our activities support sustainable development,
our performance reflects the following principles: Improving
people’s lives with technology, respecting people in
everything we do, protecting the environment and making
change happen together.

Percentage of employees who completed the 2015 Ethical Business Training

~98%

Savings from reduced sick leaves
in Finland in 2015

€2.5m+

Improving people’s lives with technology

Our biggest contribution to sustainable development comes through our core business—from offering network infrastructure and advanced technology for our customers around the world.

Our radio networks customers serve approximately 5 billion subscriptions worldwide. This provides tremendous opportunities: For instance, through connectivity, people gain improved access to information and education—also in developing and remote areas. These increases in productivity and economic growth are essential for lifting people out of poverty. Telecommunications technologies can also spearhead communications connectivity in real time to reduce the risk from natural disasters, thereby ensuring that communities are safe. In 2015, we worked with Save the Children to increase the resilience of villages in India. We also cooperated with Plan International to improve school governance in Uganda using technology and community media and we supported Plan International in increasing children’s literacy skills in Kenya through providing information and communications technology infrastructure to schools.

Our networks and technology also play a crucial part in connecting things as well as people. In the future, we expect that connected devices will converge into intelligent and programmable systems that will have the potential to improve lives in a vast number of ways including more sustainable use of scarce resources and more effective healthcare.

Our industry plays a major role in reaching many of the sustainable development goals agreed by the United Nations in 2015. It also plays a fundamental role in the improvement of education, the progress on gender equality and the battle against climate change. For example, according to Global e-Sustainability Initiative’s SMARTer2030 report, information and communications technology has the potential to enable a 20% reduction in global CO2e emissions by 2030, maintaining emissions at 2015 levels. Our main focus and effort in this area is concentrated on energy efficiency of networks and creating base station site offerings that enhance the use of renewable energy. In order to support gender equality, we are enhancing access to education and promoting technical literacy and confidence through our corporate social responsibility programs.

Respecting people in everything we do

The Nokia Code of Conduct details our high ethical standards and our commitment to ensuring that our technologies are not used to infringe human rights. Additionally, the Nokia Human Rights Policy reinforces this commitment, through our human rights due diligence, which aims to mitigate the potential misuse of our products. In 2015, Save the Children reviewed our relevant processes and policies from a children’s rights perspective. The review also included guidelines and processes related to mitigating the risk of having child labor in our supply chain. Based on their recommendations we implemented certain changes to these processes during the year and renewed the Nokia Child Labor Remediation Guideline, which is overall guidance on how to care for children in the event a child labor case is confirmed.

To ensure that all our employees understand and adhere to the Nokia Code of Conduct, we require that all our employees complete an Ethical Business training annually. In 2015, approximately 98% of our employees completed this training. We also require our employees and encourage other stakeholders to report any ethical misconduct, which can be done anonymously. In 2015, our Ethics & Compliance office received a total of 225 enquiries and concerns, out of which 124 alleged violations of our Code of Conduct were investigated. As a result of these investigations and previously initiated investigations we undertook corrective actions, including 62 dismissals, 18 written warnings and 32 verbal counsellings.

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Zero CO2 emission
base station

Our Zero CO2 emission
base station site offering
can reduce an operator’s
total cost of ownership
for a base station by up
to 30%.

The Nokia Code of Conduct also sets the standard for labor conditions and our comprehensive human resources policies and promotes fair employment. Good health and safety performance is a particular focus for us because we operate in some challenging environments. To address this, we run programs to improve our health and safety performance, and encourage open reporting of incidents and near misses by contractors and employees. In our supply chain, trained Nokia assessors conduct in-depth audits of suppliers on labor conditions. We prefer using internal assessors as we believe it’s important for us to see the factories or facilities ourselves. This makes it easier to understand possible challenges and further enables us to work directly with suppliers to drive improvements.

To ensure our employees feel valued, motivated and inspired to reach their full potential, we provide development and training opportunities, competitive reward packages, equal opportunities and flexible working. On average, our employees used approximately 37 hours for training

Nokia Technologies

For the year ended December 31, 2016 compared to the year ended December 31, 2015

The following table sets forth selective line items and the percentage of net sales for the years indicated.

For the year ended December 31  2016
               EURm		    % of net sales  2015
               EURm		    % of net sales     Year-on-year
change %		 

Net sales

   1 053   100.0   1 027   100.0   3 

Cost of sales

   (42)   (4.0)   (7)   (0.7)   – 

Gross profit

   1 011   96.0   1 020   99.3   (1) 

Research and development expenses

   (250)   (23.7)   (220)   (21.4)   14 

Selling, general and administrative expenses

   (183)   (17.4)   (109)   (10.6)   68 

Other income and expenses

   1   0.1   7   0.7   (86) 

Operating profit

   579   55.0   698   68.0   (17) 

Net sales

Nokia Technologies net sales in 2016 were EUR 1 053 million, an increase of EUR 26 million, or 3%, compared to EUR 1 027 million in 2015. The increase in Nokia Technologies net sales was primarily attributable to higher IPR licensing income and the inclusion of Withings’ net sales from June 2016 onwards, resulting from the acquisition of Withings, partially offset by the absence of non-recurring adjustments to accrued net sales from existing and new agreements, and lower licensing income from certain existing licensees.

Gross margin

Nokia Technologies gross margin in 2016 was 96.0%, compared to 99.3% in 2015. The decrease in Nokia Technologies gross margin in 2016 was primarily attributable to new, lower gross margin business in digital health from Withings, and to a lesser extent, digital media.

Operating expenses

Nokia Technologies R&D expenses in 2016 were EUR 250 million, an increase of EUR 30 million, or 14%, compared to EUR 220 million in 2015. The increase in R&D expenses in Nokia Technologies was primarily attributable to the inclusion of Bell Labs’ patent portfolio costs, resulting from the Acquisition of Alcatel Lucent, and higher investments in the areas of digital media and digital health.

The higher R&D expenses in Digital Health were primarily attributable to the inclusion of Withings’ R&D expenses from June 2016. This was partially offset by the focusing of general research investments towards more specific opportunities.

Nokia Technologies selling, general and administrative expenses in 2016 were EUR 183 million, an increase of EUR 74 million, or 68%, compared to EUR 109 million in 2015. The increase in Nokia Technologies selling, general and administrative expenses was primarily attributable to the ramp-up of Digital Health and Digital Media, higher business support costs and increased licensing activity. The higher selling, general and administrative expenses in Digital Health were primarily attributable to the inclusion of Withings’ selling, general and administrative expenses from June 2016.

Nokia Technologies other income and expense in 2016 was a net income of EUR 1 million, a decrease of EUR 6 million compared to a net income of EUR 7 million in 2015.

Operating profit

Nokia Technologies operating profit in 2016 was EUR 579 million, a decrease of EUR 119 million, or 17%, compared to an operating profit of EUR 698 million in 2015. The decrease in Nokia Technologies operating profit was primarily attributable to higher selling, general and administrative and R&D expenses. Nokia Technologies operating margin in 2016 was 55.0% compared to 68.0% in 2015. Additionally, 73% of our employees had a personal development plan in place.

To improve our understanding of the markets where we operate, and to provide a more inspiring workplace, we believe it is important to employ a diverse range of people from all backgrounds, experiences, levels of education, genders, ages and nationalities. In 2015, we employed approximately 143 different nationalities. Approximately 12% of senior management positions were held by women. The average age of our employees in 2015 was approximately 38 years.

Employee engagement is needed to achieve long-term success and is therefore an integral part of our culture. Each year, we run an employee engagement survey administered across the Group. In 2015, our annual employee engagement survey scored 87% favorable, which indicates a high level of engagement across Nokia. We also believe that organizing activities such as sports events, mindfulness exercises and change coaching increases wellbeing of our employees, and helps us get the very best of them. Improvements in employee wellbeing and health can also translate into cost savings for the Group. In Finland alone, reduced sick leaves resulted in over EUR 2.5 million of savings in 2015 as compared to the previous year.

Protecting the environment

Our products inevitably affect the environment because producing, distributing and operating these require energy and other resources.

Reducing energy consumption of our products is a priority for us, as the major environmental impact of base stations comes from electricity consumption in the use phase. Therefore, we feel that it is essential that we support our customers in maintaining energy consumption at a sustainable level. We also help our customers support circular economies and we promote the use of renewable energy.

In 2015, we launched the Zero CO2 emission base station site offering, which includes more than 20 products and services for our Single RAN Advanced portfolio. The offering helps achieve reductions up to 70% in a base station site’s energy consumption, creating a significant driver for modernizing base station sites. With the significantly lower energy consumption, the use of solar, wind and fuel cell renewable energy sources become a viable option for powering a base station site, making it possible to achieve even zero CO2 emissions. Zero CO2 emission base station sites can now be built for all electricity grids—from good grid to no grid. The solution can also reduce an operator’s total cost of ownership for a base station site by up to 30%.

 

 

NOKIA ANNUAL REPORT ON FORM 20-F 201563

For the year ended December 31, 2015 compared to the year ended December 31, 2014

The following table sets forth selective line items and the percentage of net sales for the years indicated.

For the year ended December 31  2015
               EURm		    % of net sales  2014
               EURm		    % of net sales     Year-on-year
change %		 

Net sales

   1 027   100.0   632   100.0   63 

Cost of sales

   (7)   (0.7)   (8)   (1.3)   (13) 

Gross profit

   1 020   99.3   624   98.7   63 

Research and development expenses

   (220)   (21.4)   (170)   (26.9)   29 

Selling, general and administrative expenses

   (109)   (10.6)   (64)   (10.1)   70 

Other income and expenses

   7   0.7   (1)   (0.2)   – 

Operating profit

   698   68.0   389   61.6   79 

Net sales

Nokia Technologies net sales in 2015 were EUR 1 027 million, an increase of EUR 395 million, or 63%, compared to EUR 632 million in 2014. The increase in Nokia Technologies net sales was primarily attributable to two factors. Firstly, approximately EUR 310 million of Nokia Technologies net sales in 2015 related to non-recurring net sales from existing and new agreements, and revenue share related to previously divested IPR and IPR divestments. Secondly, approximately

EUR 130 million of Nokia Technologies net sales in 2015 related to higher IPR licensing income from existing and new licensees, related to settled and ongoing arbitrations, as well as Microsoft becoming a more significant intellectual property licensee following the Sale of the D&S Business. The increase in net sales was partially offset by lower licensing income from certain existing licensees that experienced decreases in handset sales.

 

Sustainability and corporate

responsibility at Nokia
NOKIA ANNUAL REPORT ON FORM 20-F 201655

Results of segmentscontinued

    

    

    

To support circular economies, we continued offering our customers an asset recovery service, which covers Nokia Networks’ products as well as other vendors’ telecommunications equipment. Our customers can purchase a complete service from the collection and buyback or trade-in of pre-owned equipment to e-waste recycling and reporting, depending on their needs and requirements. In 2015, we sent around 1 600 metric tons of old telecommunications equipment for materials recovery and we refurbished approximately 24 100 units.

In our own business operations, we maintained certification to the international environmental management standard ISO 14001 for Nokia Networks. This means our environmental performance is audited regularly by external auditors and the audits cover processes, business activities, organizational units and regions.

Additionally, we continued improving energy efficiency, purchasing certified renewable energy from the grid and avoiding waste. In 2015, our overall energy consumption decreased by approximately 7% compared to previous year and as a result, our greenhouse gas emissions from offices and factories decreased by approximately 12%, including our renewable energy purchases.

We continued encouraging key suppliers to report their climate impacts and set carbon reduction targets through the CDP (formerly the Carbon Disclosure Project) Supply Chain Program, which helps us to plan improvement programs with our suppliers and improve reporting of our scope 3 emissions. In 2015, 180 of our key suppliers responded to the CDP’s request to disclose information regarding their climate performance and 92 disclosed emission reduction targets. Environmental management is also part of our supplier in-depth audits.

Making change happen together

By partnering with others, we can make an even greater contribution to a more sustainable and socially responsible world. We drive improvements by working together with suppliers, non-governmental organizations (“NGOs”) and industry peers.

Driving improvements with suppliers

We require all of our suppliers to meet the high ethical, labor and environmental requirements set out in our supplier requirement standards before contracting them. We ensure compliance through regular and robust assessments, and work with suppliers to improve performance where needed. Our in-depth audits of suppliers’ labor conditions and environmental management include document reviews, interviews with managers and employees, site visits, and inspections of facilities, production lines and warehouses. In 2015, we conducted 195 audits, of which 16 constituted in-depth audits of labor conditions and environmental management, 24 were audits against our supplier requirements, and 155 suppliers were audited using the EcoVadis scorecards. Additionally, we run training workshops for suppliers operating in high-risk countries. In 2015, we organized online training on climate change, conflict minerals and corporate responsibility, and we arranged face-to-face training workshops for 42 suppliers.

We also continued our efforts to ensure our products are conflict-free. In 2015, 83% of the smelters used in our supply chain were validated as conflict-free or were in a validation process at the time. As of 2014, we have published a separate conflict minerals report which provides further information on our due diligence activities in this area. These reports are available at
http://company.nokia.com/en/sustainability/
downloads.

Partnering with NGOs

Through our corporate social responsibility programs, we work with NGOs to improve people’s lives around the world. In 2015, our cooperation focused on promoting children’s rights, empowering young people and supporting those affected by drought and natural disasters. Our global partners continued to be Plan International, Save the Children and Oxfam. Additionally, we kicked off the WWF Green Office program at our headquarters and started cooperation with the Finnish Children and Youth Foundation to strengthen young people’s faith in the future.

In addition to our regular cooperation with NGOs, we made several donations during 2015. These include donations to various smaller charities through Global Giving and Plan where we targeted our support to projects that seek to realize human rights for all, to achieve gender equality and to mitigate the risk of being left behind in the rapidly evolving digital revolution. We also donated to Oxfam, in order to support Oxfam in its efforts in Syria, Jordan and Lebanon to provide life-saving aid to the people fleeing Syria. Together with Elisa, a Finnish operator, we announced our plan to donate a mobile network providing complete indoor coverage for the new Children’s Hospital in Helsinki, Finland, which is expected to be completed in 2017.

64NOKIA ANNUAL REPORT ON FORM 20-F 2015

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Cooperating with others in our industry

We regularly contribute to working groups and committees of various industry organizations that promote sustainability goals. In 2015, we were a member of United Nations Global Compact, Global e-Sustainability Initiative, CDP supply chain program, The Telecommunications Industry Dialogue, Climate Leadership Council, Digital Europe, Conflict-Free Sourcing Initiative and several standardization and university cooperation groups.

Reporting on our performance

We provide detailed reports on our progress and performance in sustainability and corporate responsibility matters annually, and for over a decade our reports have been available online. In our reports, we describe how we define the most material sustainability topics at Nokia, which have also been discussed in this section. To find out more about our activities around sustainability and corporate responsibility, go to www.nokia.com/people&planet.

Our efforts for sustainable development are also evaluated by a number of external parties. For instance, CDP gave us a top score for our performance and disclosure of climate change data, and kept us in the CDP A-list, as well as in the Nordic Climate Disclosure Leadership Index for 2015. Our economic, environmental and social responsibility was recognized when we were selected to be an index component of the Dow Jones Sustainability Indices. We also reconfirmed our position in the Ethibel Sustainability Index and FTSE4GOOD, and were included in the Corporate Knight’s Global 100 Most Sustainable Corporations list.

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Employees

The average number of employees in Continuing operations in 2015 was 56 690 (51 499 in 2014 and 53 436 in 2013). At December 31, 2015, Continuing operations had a total of 55 718 employees (55 399 employees on December 31, 2014 and 49 503 employees on December 31, 2013). The total amount of salaries and wages paid in Continuing operations in 2015 was EUR 3 075 million (EUR 2 797 million in 2014 and EUR 3 030 million in 2013). Refer to Note 7, Personnel expenses, in our consolidated financial statements of this annual report on Form 20-F.

The table below shows the average number of employees in 2015 divided according to their business and geographical location:

Business

Average number

of employees

Nokia Networks

55 509

Nokia Technologies

596

Group Common Functions

585

Total

56 690
RegionAverage number
of employees

Finland

6 942

Other European countries

15 382

Middle East & Africa

2 321

China

9 182

Asia-Pacific

16 569

North America

3 813

Latin America

2 481

Total

56 690

NOKIA ANNUAL REPORT ON FORM 20-F 201565

Shares and

share capital

Nokia has one class of shares. Each Nokia share entitles the holder to one vote at general meetings of Nokia.

On December 31, 2015, the total number of Nokia shares was 3 992 863 716 and our share capital equaled EUR 245 896 461.96. On December 31, 2015, Nokia and its subsidiary companies owned a total of 53 668 695 Nokia shares, representing approximately 1.3% of the total number of the shares and voting rights of the company.

On February 4, 2015, we cancelled 66 903 682 shares.

In 2015, under the authorization held by the Board and in line with the capital structure optimization program announced in 2014, Nokia repurchased a total of 24 516 089 shares, representing approximately 0.6% of the total number of shares and voting rights on December 31, 2015. The price paid for the shares was based on the current market price of the Nokia share on the securities market at the time of the repurchase.

On February 12, 2016, following the settlements of the initial and reopened public exchange offers for all outstanding Alcatel Lucent securities, the total number of Nokia shares was 5 769 443 837 shares.

Information on the authorizations held by the Board in 2015 to issue shares and special rights entitling to shares, transfer shares and repurchase own shares, as well as information on related party transactions, the shareholders, stock options, shareholders’ equity per share, dividend yield, price per earnings ratio, share prices, market capitalization, share turnover and average number of shares is available in the “Corporate Governance—Compensation”, “Financial Statements” and “General facts on Nokia—Shares and shareholders” sections.

Refer to Note 24, Shares of the Parent Company, of our consolidated financial statements included in this annual report on Form 20-F for further information regarding Nokia shares.

66NOKIA ANNUAL REPORT ON FORM 20-F 2015

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Board of Directors

and Management

    

    

    

 

 

Pursuant to the Articles of Association of Nokia Corporation, we have a Board of Directors (the “Board”) composed of a minimum of seven and a maximum of 12 members. The Board is elected at least annually at the Annual General Meeting of the shareholders for a term ending at the end of the next Annual General Meeting, which convenes annually by June 30.

Gross margin

Nokia Technologies gross margin in 2015 was 99.3%, compared to 98.7% in 2014. The increase in Nokia Technologies gross margin in 2015 was primarily attributable to higher net sales.

Operating expenses

Nokia Technologies R&D expenses in 2015 were EUR 220 million, an increase of EUR 50 million, or 29%, compared to EUR 170 million in 2014. The increase in R&D expenses was primarily attributable to higher investments in Digital Media and technology incubation, higher patent portfolio costs, and higher investments in digital health.

Nokia Technologies selling, general and administrative expenses in 2015 were EUR 109 million, an increase of EUR 45 million, or 70%, compared to EUR 64 million in 2014. The increase in selling, general and administrative expenses was primarily attributable to the ramp-up of new businesses, increased licensing activities, and higher business support costs.

Nokia Technologies other income and expense in 2015 was a net income of EUR 7 million, a change of EUR 8 million compared to a net expense of EUR 1 million in 2014.

Operating profit

Nokia Technologies operating profit in 2015 was EUR 698 million, an increase of EUR 309 million, or 79%, compared to an operating profit of EUR 389 million in 2014. The increase in operating profit was attributable to higher gross profit, partially offset by higher operating expenses. Nokia Technologies operating margin in 2015 was 68.0% compared to 61.6% in 2014.

Group Common and Other

For the year ended December 31, 2016 compared to the year ended December 31, 2015

The following table sets forth selective line items for the years indicated.

For the year ended December 31  2016
               EURm		  2015
               EURm		 

Net sales

   1 145   – 

Cost of sales

   (953)   – 

Gross profit

   192   – 

Research and development expenses

   (282)   (84) 

Selling, general and administrative expenses

   (231)   (97) 

Other income and expenses

   (21)   92 

Operating loss

   (342)   (89) 

Net sales

Group Common and Other net sales in 2016 were EUR 1 145 million, an increase of EUR 1 145 million, compared to approximately zero in 2015. The increase in Group Common and Other net sales was primarily due to ASN and RFS net sales, both of which related to the Acquisition of Alcatel Lucent.

Gross margin

Group Common and Other gross margin in 2016 was 16.8%. The Group Common and Other gross margin was attributable to gross margin in ASN and RFS, both of which related to the Acquisition of Alcatel Lucent.

Operating expenses

Group Common and Other R&D expenses in 2016 were EUR 282 million, an increase of EUR 198 million, compared to EUR 84 million in 2015. Group Common and Other R&D expenses increased, primarily attributable to Nokia Bell Labs, related to the Acquisition of Alcatel Lucent.

Group Common and Other selling, general and administrative expenses in 2016 were EUR 231 million, an increase of EUR 134 million compared to EUR 97 million in 2015. The increase in Group Common and Other selling, general and administrative expenses was primarily attributable to higher central function costs, related to the Acquisition of Alcatel Lucent.

Group Common and Other other income and expense in 2016 was a net expense of EUR 21 million, a change of EUR 113 million compared to a net income of EUR 92 million in 2015. The change was primarily attributable to the absence of realized gains related to certain investments made through venture funds and the non-cash impairment of certain financial assets.

Operating loss

Group Common and Other operating loss in 2016 was EUR 342 million, an increase of EUR 253 million, compared to an operating loss of EUR 89 million in 2015. The increase in Group Common and Other operating loss was primarily attributable to higher R&D and selling, general and administrative expenses and a net negative fluctuation in other income and expenses, partially offset by higher gross profit.

For the year ended December 31, 2015 compared to the year ended December 31, 2014

The following table sets forth selective line items for the years indicated.

For the year ended December 31  2015
               EURm		  2014
               EURm		 

Net sales

   –   1 

Cost of sales

   –   (27) 

Gross profit

   –   (26) 

Research and development expenses

   (84)   (73) 

Selling, general and administrative expenses

   (97)   (132) 

Other income and expenses

   92   5 

Operating loss

   (89)   (226) 

Group Common and Other operating loss in 2015 was EUR 89 million, a decrease of EUR 137 million, or 61%, compared to an operating loss of EUR 226 million in 2014. The decrease in Group Common and Other operating loss was primarily attributable to change in other income and expense and to a lesser extent to decrease in selling, general and administrative expenses, partially offset by an increase in R&D expenses. Other income and expense in 2015 included net income of approximately EUR 100 million related to investments made through unlisted venture funds, a significant portion of which resulted from Nokia Growth Partners selling its holdings in Ganji.com to 58.com for a combination of cash and shares.

 

The Board has the responsibility for appointing and discharging the President and CEO, Chief Financial Officer and other members of the Group Leadership Team.

For information on Nokia’s Articles of Association, refer to “General facts on Nokia—Memorandum and Articles of Association”. For information on remuneration, shares and stock options held by the members of the Board, the President and CEO and the other members of the Group Leadership Team, refer to “Corporate Governance—Compensation”. For more information regarding corporate governance at Nokia, refer to “Corporate Governance—Corporate Governance Statement” or to our website at company.nokia.com/en/about-us/corporate-governance.
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Liquidity and

capital resources

 LOGO

    

NOKIA ANNUAL REPORT ON FORM 20-F 201567

Financial position

As of December 31, 2016, our total cash and other liquid assets (defined as cash and cash equivalents; current available-for-sale investments, liquid assets; and investments at fair value through profit and loss, liquid assets) equaled EUR 9 326 million, a decrease of EUR 523 million, compared to EUR 9 849 million as of December 31, 2015. The decrease was attributable to EUR 1 454 million negative cash flow from operating activities, and shareholder distributions including payment of dividends of EUR 1 515 million and repurchases of shares of EUR 216 million. Total cash and other liquid assets also decreased by EUR 3 360 million comprising EUR 2 168 million cash used for repayment of long-term borrowings and EUR 1 192 million cash used for purchase of Alcatel Lucent shares and convertible bonds. Our total cash and other liquid assets also decreased due to capital expenditures of EUR 477 million and cash flows related to acquisitions of EUR 342 million, excluding the Acquisition of Alcatel Lucent. This decrease was partially offset by an increase of EUR 6 558 million related to the acquired cash and other liquid assets of Alcatel Lucent and other net cash inflows relating to investing and financing activities. As of December 31, 2014, our total cash and other liquid assets equaled EUR 7 715 million.

As of December 31, 2016, our net cash and other liquid assets (defined as total cash and other liquid assets less long-term interest-bearing liabilities and short-term borrowings) equaled EUR 5 299 million, a decrease of EUR 2 476 million, compared to EUR 7 775 million as of December 31, 2015. The decrease was primarily attributable to EUR 1 454 million negative cash flow from operating activities, shareholder distributions including payment of dividends of EUR 1 515 million and repurchases of shares of EUR 216 million and EUR 729 million net cash impact arising from the purchase of Alcatel Lucent shares and convertible bonds. The acquisition of Alcatel Lucent increased net cash by EUR 1 970 million comprised of EUR 6 558 million in acquired cash and other liquid assets and EUR 4 588 million related to long-term interest-bearing liabilities and short-term borrowings. As of December 31, 2014, our net cash and other liquid assets equaled EUR 5 023 million.

As of December 31, 2016, our cash and cash equivalents equaled EUR 7 497 million, an increase of EUR 502 million compared to EUR 6 995 million as of December 31, 2015. As of December 31, 2014, our cash and cash equivalents equaled EUR 5 170 million.

Cash flow

2016

Our cash outflow from operating activities in 2016 of EUR 1 454 million decreased by EUR 1 957 million compared to a cash inflow of EUR 503 million in 2015. The decrease was primarily attributable to a EUR 2 207 million increase in net working capital in 2016 compared to a EUR 1 377 million increase in 2015 and a decrease in net profit, adjusted for non-cash items of EUR 727 million. The primary driver for the increase in net working capital related to a decrease in liabilities of EUR 2 758 million in 2016 compared to a decrease of EUR 990 million in 2015, partially offset by a decrease in inventories of EUR 533 million in 2016 compared to a decrease of EUR 341 million in 2015. The decrease in liabilities mainly related to restructuring cash outflows, reductions in liabilities related to our actions to harmonize working capital processes and practices, termination of Alcatel Lucent’s license agreement with Qualcomm, the payment of incentives related to Alcatel Lucent’s and Nokia’s strong business performance in 2015 and the impact of foreign exchange fluctuations.

The decrease in cash flow from operating activities was also attributable to a EUR 400 million increase in cash outflows related to net interest and income taxes paid in 2016 and 2015 of EUR 727 million and EUR 327 million, respectively. Interest paid includes cash outflows from the premium paid for the redemption of Alcatel Lucent bonds and notes related to our capital structure optimization program. Income taxes paid include a non-recurring tax payment due to the integration of the former Alcatel Lucent and former Nokia operating models into one combined operating model.

In 2016, our cash inflow from investing activities equaled EUR 6 836 million, representing an increase of EUR 4 940 million compared to EUR 1 896 million cash inflow from investing activities in 2015. The increase in cash inflow from investing activities was primarily driven by cash and cash equivalents acquired as part of the Acquisition of Alcatel Lucent and an increase in proceeds from maturities and sale of current available-for-sale investments, liquid assets partially offset by purchase of current available-for-sale investments and liquid assets.

In 2016, our capital expenditure equaled EUR 477 million, an increase of EUR 163 million, as compared to EUR 314 million in 2015. Major items of capital expenditure in 2016 included investments in R&D equipment, test equipment, hardware for Telco and Cloud environment, plants, buildings and construction for transformation projects, repair or improvements of sites as well as intangible rights.

In 2016, our cash outflow from financing activities of EUR 4 923 million increased by EUR 4 343 million in comparison to our cash outflow of EUR 580 million in 2015. The increase in cash outflows was primarily driven by the repayment of long-term borrowings of EUR 2 599 million mainly including the redemption of Alcatel Lucent bonds and notes related to our capital structure optimization program, paid dividends of EUR 1 515 million primarily related to the payment of the ordinary and special dividends, purchase of equity instruments of subsidiaries of EUR 724 million related to the purchase of Alcatel Lucent shares and the equity component of the purchased Alcatel Lucent convertible bonds and EUR 216 million cash outflow related to the commencement of Nokia’s share repurchasing program.

NOKIA ANNUAL REPORT ON FORM 20-F 201657

    

Liquidity and capital resourcescontinued

2015

Our cash inflow from operating activities in 2015 of EUR 503 million decreased by EUR 772 million compared to the cash inflow of EUR 1 275 million in 2014. The decrease was primarily attributable to EUR 1 377 million cash being tied up in net working capital in 2015 compared to EUR 988 million cash release in 2014, partially offset by an increase in net profit, adjusted for non-cash items of EUR 993 million. The primary drivers of the increase in net working capital were higher accounts receivables, mainly relating to the Samsung patent license receivables and lower accounts payable.

In 2015, our cash inflow of operating activities also included cash outflows of EUR 327 million related to net interests and taxes paid, a decrease of EUR 600 million compared to EUR 927 million cash outflows in 2014. The decrease was primarily attributable to lower net income taxes paid. Paid taxes in 2014 included approximately EUR 300 million cash outflows relating to Discontinued operations.

In 2015, our cash flow from investing activities equaled EUR 1 896 million, an increase of EUR 1 010 million compared to EUR 886 million cash received from investing activities in 2014. Cash inflow from investing activities was primarily driven by gross proceeds attributable to the Sale of the HERE Business of approximately EUR 2 540 million, and the increase in proceeds from maturities and sale of current available-for-sale investments and liquid assets. The increase was partially offset by an increase in purchases of current available-for-sale investments, liquid assets, purchases of investments at fair value through profit and loss, liquid assets and cash outflows related to capital expenditure of EUR 314 million and acquisitions of EUR 98 million.

In 2015, our capital expenditure equaled EUR 314 million, an increase of EUR 3 million compared to EUR 311 million in 2014. Major items of capital expenditure in 2015 included investments in production lines, test equipment and computer hardware used primarily in R&D, office and manufacturing facilities as well as services and software-related intangible assets.

In 2015, our cash outflow from financing activities equaled EUR 580 million, a decrease of EUR 3 996 million compared to EUR 4 576 million cash outflow in 2014. Cash outflows from financing activities were primarily attributable to the payment of EUR 0.14 per share in dividends equaling EUR 507 million and EUR 173 million in cash outflows relating to share repurchases. Cash outflows from financing activities also included payments to non-controlling interest holders to acquire subsidiary shares and pay dividends equaling EUR 57 million.

Financial assets and debt

As of December 31, 2016, our net cash and other liquid assets equaled EUR 5 299 million and consisted of EUR 9 326 million in total cash and other liquid assets and EUR 4 027 million of long-term interest-bearing liabilities and short-term borrowings.

We hold our cash and other liquid assets predominantly in euro. Our liquid assets are mainly invested in high-quality money-market and fixed income instruments with strict maturity limits. We also have a EUR 1 579 million undrawn revolving credit facility available for liquidity purposes.

Our interest-bearing liabilities consisted of a EUR 500 million bond due in 2019, a USD 1 000 million bond due in 2019, a USD 300 million bond due in 2028, a USD 1 360 million bond due in 2029, a USD 500 million bond due in 2039 and EUR 464 million of other liabilities. The bonds maturing in 2019 and 2039 are issued by Nokia Corporation, while the bonds maturing in 2028 and 2029 are issued by Lucent Technologies Inc., (the predecessor to Alcatel-Lucent USA Inc., Nokia’s wholly-owned subsidiary). Refer to Note 23, Interest-bearing liabilities, of our consolidated financial statements included in this annual report on Form 20-F for further information regarding our interest-bearing liabilities.

In June 2016, we exercised our options to increase the size of our EUR 1 500 million revolving credit facility to EUR 1 579 million and to extend the maturity date from June 2018 to June 2019. The facility has a one-year extension option remaining, no financial covenants and it remains undrawn.

In January 2016, Alcatel Lucent SA repaid its EUR 190 million 8.50% senior notes. In February, 2016, Alcatel-Lucent USA Inc. redeemed its USD 650 million 4.625% notes due in July 2017, USD 500 million 8.875% notes due in January 2020 and USD 700 million 6.750% notes due in November 2020 in accordance with their respective terms and conditions. In February 2016, Alcatel Lucent SA terminated its EUR 504 million revolving credit facility. In March 2016, ASNs’ EUR 74 million credit facility was repaid.

As part of the public exchange offer to acquire Alcatel Lucent 2018 OCEANE, 2019 OCEANE and 2020 OCEANE convertible bonds with nominal amounts of EUR 381 million, EUR 238 million and EUR 293 million respectively, were tendered for exchange into Nokia shares. As a result, less than 15% of the 2018 OCEANE convertible bonds remained outstanding, and the Group caused Alcatel Lucent SA to redeem at par value plus accrued interest all of the outstanding 2018 OCEANE convertible bonds pursuant to the terms and conditions of the bonds. Subsequently during 2016 the remaining outstanding 2019 OCEANE and 2020 OCEANE convertible bonds with nominal amounts of EUR 402 million and EUR 136 million respectively, were either put back, acquired in privately negotiated transactions, or acquired through the public buy-out offer followed by a squeeze-out for an aggregate cash payment of EUR 562 million. Refer to Note 31, Notes to the consolidated statement of cash flows and Note 23, Interest-bearing liabilities, of our consolidated financial statements included in this annual report on Form 20-F for further information regarding these transactions.

58NOKIA ANNUAL REPORT ON FORM 20-F 2016

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We believe, with EUR 9 326 million of cash and other liquid assets as well as a EUR 1 579 million revolving credit facility, that we have sufficient funds available to satisfy our future working capital needs, capital expenditures, R&D investments, acquisitions and debt service requirements at least through 2017. We further believe, with our current credit ratings of BB+ by Standard & Poor’s and Ba1 by Moody’s, that we have access to the capital markets should any funding needs arise in 2017.

We aim to re-establish our investment grade credit rating.

Off-balance sheet arrangements

There are no material off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors, except for purchase obligations and leasing commitments, as well as guarantees and financing commitments as disclosed in Note 30, Commitments and contingencies, of our consolidated financial statements included in this annual report on Form 20-F.

Capital structure optimization program

In 2015, we announced a two-year, EUR 7 billion program to optimize the efficiency of our capital structure (our “capital structure optimization program”). The capital structure optimization program was initially subject to the closing of the Acquisition of Alcatel Lucent and the Sale of the HERE Business, as well as the conversion of all Nokia and Alcatel Lucent OCEANE convertible bonds. The Sale of the HERE business closed in December 2015. The result of the successful offer for Alcatel Lucent securities was announced on January 5, 2016 and 100% ownership was reached on November 2, 2016. However, not all convertible bonds were converted.

As of December 31, 2016, we have completed the following shareholder distributions as part of our capital structure optimization program:

∎ordinary dividend for 2015 of EUR 0.16 per share, totaling EUR 924 million, paid in July 2016;

∎special dividend of EUR 0.10 per share, totaling EUR 577 million, paid in July 2016;

∎on October 27, 2016, the originally intended EUR 1.5 billion share repurchase program was adjusted to EUR 1.0 billion, after we had used approximately EUR 560 million in cash during 2016 to acquire Alcatel Lucent securities in order to reach the 95% squeeze-out threshold. We consider these acquisitions as indirect share repurchases, and thus, part of the initially planned EUR 1.5 billion share repurchase program;

∎on November 16, 2016, we commenced our share repurchase program up to an equivalent amount of EUR 1.0 billion or a maximum of 575 million shares. Thereafter, in 2016, EUR 216 million was used for share repurchases under the program; and

∎between January 1, 2017 and March 10, 2017, EUR 159 million was used for share repurchases under the program.

Our capital structure optimization program further included a part to de-leverage by approximately EUR 3 billion. In 2016, we took the following actions to reach our target:

∎Alcatel Lucent SA repaid its EUR 190 million 8.50% senior notes and terminated its EUR 504 million revolving credit facility;

∎Alcatel-Lucent USA Inc., a subsidiary of Alcatel Lucent SA, redeemed its USD 650 million 4.625% notes due in July 2017, USD 500 million 8.875% notes due in January 2020 and USD 700 million 6.750% notes due in November 2020 in accordance with their respective terms and conditions; and

∎approximately EUR 1.0 billion reduction in the sale of receivables (debt-like items).

We intend to execute the following shareholder distributions during 2017 to complete the capital structure optimization program:

∎ordinary dividend for 2016 of EUR 0.17 per share, subject to shareholder approval at the Annual General Meeting on May 23, 2017; and

∎continue the share repurchase program until we have reached the threshold of EUR 1.0 billion, or acquired the maximum allowed 575 million shares.

Refer to “—Dividend” below for the Board’s dividend proposal for 2016.

NOKIA ANNUAL REPORT ON FORM 20-F 201659

Liquidity and capital resourcescontinued

Structured finance

Structured finance includes customer financing and other third-party financing. Network operators occasionally require their suppliers, including us, to arrange, facilitate or provide long-term financing as a condition for obtaining infrastructure projects.

As of December 31, 2016, our total customer financing, outstanding and committed, equaled EUR 352 million, an increase of EUR 139 million as compared to EUR 213 million in 2015. As of December 31, 2014, our total customer financing, outstanding and committed, equaled EUR 156 million. Customer financing primarily consisted of financing commitments to network operators.

Refer to Note 36, Risk management, of our consolidated financial statements included in this annual report on Form 20-F for further information relating to our committed and outstanding customer financing.

We expect our customer financing commitments to be financed mainly from cash and other liquid assets and through cash flow from operations.

As of December 31, 2016, guarantees of our performance consisted of bank guarantees given on behalf of Nokia to its customers for EUR 1 805 million (EUR 400 million as of December 31, 2015). In addition, Nokia Corporation issued corporate guarantees directly to Nokia customers with primary obligation for EUR 88 million (EUR 74 million as of December 31, 2015) and such corporate guarantees issued by certain Alcatel Lucent entities for EUR 1 520 million. These instruments entitle the customer to claim payments as compensation for non-performance by Nokia of its obligations under network infrastructure supply agreements. Depending on the nature of the instrument, compensation is either payable on demand, or is subject to verification of non-performance. Due to certain differences in the business and a less centralized guarantee process, bank guarantees as well as corporate guarantees with primary obligation were used to a larger extent by Alcatel Lucent.

Financial guarantees and securities pledged that we may give on behalf of customers, represent guarantees relating to payment by certain Nokia customers and other third parties under specified loan facilities between such customers or other third parties and their creditors. Our obligations under such guarantees are released upon the earlier of expiration of the guarantee or early payment by the customer or other third party.

Refer to Note 30, Commitments and contingencies, of our consolidated financial statements included in this annual report on Form 20-F for further information regarding commitments and contingencies.

Venture fund investments and commitments

We make financing commitments to a number of unlisted venture funds that make technology-related investments. The majority of the investments are managed by Nokia Growth Partners which specializes in growth-stage investing, seeking companies that are changing the face of mobility and connectivity.

As of December 31, 2016, our unlisted venture fund investments equaled EUR 819 million, as compared to EUR 953 million as of December 31, 2015. Refer to Note 24, Fair value of financial instruments, of our consolidated financial statements included in this annual report on Form 20-F for further information regarding fair value of our unlisted venture fund investments.

As of December 31, 2016, our venture fund commitments equaled EUR 525 million, as compared to EUR 230 million as of December 31, 2015. As a limited partner in venture funds, we are committed to capital contributions and entitled to cash distributions according to the respective partnership agreements and underlying fund activities. Refer to Note 30, Commitments and contingencies, of our consolidated financial statements included in this annual report on Form 20-F for further information regarding commitments and contingencies.

Treasury policy

Treasury activities are governed by the Nokia Treasury Policy approved by the President and CEO and supplemented by operating procedures approved by the CFO, covering specific areas such as foreign exchange risk, interest rate risk, credit and liquidity risk. The objective of treasury’s liquidity and capital structure management activities is to ensure that the Group has sufficient liquidity to go through unfavorable periods without being severely constrained by the availability of funds to execute its business plans and implement its long-term business strategy. We are risk-averse in our treasury activities.

60NOKIA ANNUAL REPORT ON FORM 20-F 2016

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DividendMaterial

subsequent events

After December 31, 2016, the following material events have taken place.

∎In January 2017, as part of continuing changes to our operating model, we transferred certain intellectual property between our operations in Finland and the United States, which is expected to result in an approximately EUR 250 million negative non-recurring impact on tax expense in the first quarter of 2017, but no material cash tax outflow.

∎On January 31, 2017, we acquired 100% ownership interest in Deepfield Networks Inc., a United States-based leader in real-time analytics for IP network performance management and security.

∎On February 8, 2017, we entered into a transaction agreement with Comptel Corporation (“Comptel”), a Finnish publicly listed company, whereby we undertake to make a voluntary public cash tender offer to purchase all of the issued and outstanding shares and option rights in Comptel that are not owned by Comptel or any of its subsidiaries. The price offered for each share validly tendered in the tender offer will be EUR 3.04 in cash. The tender offer values Comptel at approximately EUR 347 million, on a fully diluted basis.

∎On February 22, 2017, we announced that we had commenced a tender offer to purchase the outstanding EUR 500 million 6.75% notes due February 4, 2019 issued by Nokia Corporation (the “2019 Euro Notes”) and the outstanding USD 300 million 6.50% notes due January 15, 2028 (the “2028 Dollar Notes”) and USD 1 360 million 6.45% notes due March 15, 2029 (the “2029 Dollar Notes”) issued by Lucent Technologies Inc., (the predecessor to Alcatel-Lucent USA Inc., Nokia’s wholly-owned subsidiary) up to a maximum cash consideration of USD 1 000 million (the “Tender Offer”). The purpose of the Tender Offer is to manage our overall indebtedness. Following the settlement of the Tender Offer, we expect to cancel any euro-denominated notes purchased pursuant to the Tender Offer and to hold any U.S. dollar-denominated notes. On March 21, 2017, the Tender Offer expired. We received tenders for 53.76% (EUR 268.8 million) of the 2019 Euro Notes, 28.66% (USD 86.0 million) of the 2028 Dollar Notes and 29.48% (USD 400.9 million) of the 2029 Dollar Notes. We expect to settle the Tender Offer on March 23, 2017.

∎On March 15, 2017, we issued EUR 500 million 1.00% Senior Notes due 2021 and EUR 750 million 2.00% Senior Notes due 2024 under our 5 000 000 000 Euro Medium-Term Note Programme. The proceeds of the new notes are intended to fund the Tender Offer, and for general corporate purposes.

On March 17, 2017, we announced changes in our organizational structure and Group Leadership Team, effective from April 1, 2017.

The organizational changes include the separation of our current Mobile Networks business group into two distinct, but closely linked, organizations: (1) Mobile Networks, focused on products and solutions and (2) Global Services, focused on services. In addition, our Chief Innovation and Operating Officer (“CIOO”) organization will be split, with its current operating activities moved to a newly-appointed Chief Operating Officer (“COO”) organization, innovation activities to our Chief Technology Officer and incubation to our Chief Strategy Officer.

The leadership changes include the following:

∎Marc Rouanne, currently Chief Innovation and Operating Officer, will become President of the Mobile Networks business group.

∎Igor Leprince, currently Executive Vice President of Global Services, will join the Group Leadership Team and assume the role of President of Global Services, a new business group comprised of the Services organization that currently resides within the existing Mobile Networks business group.

∎Monika Maurer, currently Chief Operating Officer of Fixed Networks, will join the Group Leadership Team and assume the role of Group COO, responsible for Nokia’s operating model, Global Operations (manufacturing and supply chain), procurement, implementation of cost saving and ongoing transformation activities, information technology, real estate, and quality.

∎Marcus Weldon, currently President of Nokia Bell Labs and Chief Technology Officer, will join the Group Leadership Team and retain current responsibilities.

∎Kathrin Buvac, Chief Strategy Officer, will assume additional responsibilities for incubation of select new business opportunities, and Barry French, Chief Marketing Officer, will assume additional responsibilities for Health, Safety, Security and Environment.

∎Samih Elhage will continue in his current role and as a member of the Group Leadership Team until April 1, 2017, and will remain as an advisor to the company through May 31, 2017.

We will continue to report financial information for Ultra Broadband Networks, IP Networks and Applications and Nokia Technologies. Ultra Broadband Networks will be composed of the Mobile Networks, Global Services and Fixed Networks business groups. IP Networks and Applications is composed of the IP/Optical Networks and Applications & Analytics business groups.

NOKIA ANNUAL REPORT ON FORM 20-F 201661

Sustainability and

corporate responsibility

We are shaping the future of technology to transform the human experience and improve people’s lives and we aim to achieve that by conducting our business in a responsible manner. We align with globally recognized ethical and responsible business practices and frameworks, putting in place the processes, policies and programs to achieve our aim.

Managing sustainability

Our Sustainability vision and priorities

Our sustainability vision remained unchanged in 2016—to design technologies that enable the human possibilities of the connected world while making it more productive, healthy and sustainable. We drive this through the following renewed priorities: improving people’s lives with technology, protecting the environment, conducting our business with integrity and respecting our people.

Sustainability and corporate responsibility issues are reviewed regularly at all levels within Nokia, including by the Nokia Board of Directors (the “Board”). Our sustainability strategy and governance were realigned to our renewed strategy and business focus and new governance was implemented in 2016.

Sustainability performance and materiality assessment

In 2016, we reviewed and updated our materiality analysis whereby we systematically analyzed stakeholder requirements, our influence on sustainable development throughout the value chain, industry cooperation and the UN’s Sustainable Development Goals. In total, we evaluated more than 40 sustainability issues that affect our short, medium, and long-term corporate strategy. Each issue was carefully defined and weighed against its impact on our commercial success and sustainable development.

The results of the materiality assessment helped us identify key issues and to focus our efforts on the benefits of connectivity and sustainable products, environmental impact and climate change challenges, ethical business practices and the increasing need for data privacy and freedom of expression, supply chain responsibility, health & safety and employee engagement as well as diversity. Please refer to our forthcoming 2016 Sustainability Report at www.nokia.com/people&planet for further details of the materiality assessment.

In 2016, we published 25 targets reflecting our commitment to sustainable development. Our sustainability strategy and reporting framework conform to key regulatory, investor and customer requirements and globally recognized sustainability frameworks. Our Sustainability Report is prepared in accordance with the GRI sustainability reporting guidelines. In 2016, we incorporated information on our sustainability activities based on the 21 UN Global Compact advanced level assessment criteria.

EcoVadis is one of the evaluation platforms through which we provide annual sustainability information for evaluation which is then shared with customers as required. In 2016, we were judged “Outstanding”, the highest level in the gold category with a score of 85/100. We were in the top 1% of suppliers assessed, achieving excellent scores in environment, labor practices, and supply chain management. In 2016, we retained our listing in the Dow Jones Sustainability Index with a score of 83/100 and were ranked leader of the CMT communication equipment sector.

Other recognition included being ranked a leader in the CDP (formerly Carbon Disclosure Project) for our work on and disclosure of climate change data and being listed in the World and Europe 120 indices of Euronext Vigeo. We reconfirmed our position in the Ethibel Sustainability Indices and were awarded best-in-class in human rights and climate change reporting in the Sustainability Reporting Competition in Finland.

We have provided detailed reports on our progress and performance in sustainability and corporate responsibility matters annually, and online for over a decade. For further information, refer to our People and Planet report athttp://www.nokia.com/en_int/about-us/ sustainability.

Improving people’s lives through connectivity

The development of technologies such as 5G and IoT is expected to enable more people and billions of things to be connected, helping to realize smart innovations in cities and homes, access to digital health and greater public safety. We can have the greatest impact on sustainable development through our main business of delivering networks, technology solutions and services to operators, enterprises and organizations. Through our end-to-end portfolio, our technology can connect the unconnected, increase efficiency and productivity, and drive greater economic growth to improve the lives of people across the globe.

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The Board proposes an ordinary dividend of EUR 0.16 per share for 2015. Additionally, the Board proposes a special dividend of EUR 0.10 per share.

 

The proposed dividend is in line with our distribution policy.

We distribute retained earnings, if any, within the limits set by the Finnish Companies Act (as defined below). We make and calculate the distribution, if any, either in the form of cash dividends, share buy-backs, or in some other form or a combination of these. There is no specific formula by which the amount of a distribution is determined, although some limits set by law are discussed below. The timing and amount of future distributions of retained earnings, if any, will depend on our future results and financial conditions.

Under the Finnish Companies Act, we may distribute retained earnings on our shares only upon a shareholders’ resolution and subject to limited exceptions in the amount proposed by the Board. The amount of any distribution is limited to the amount of distributable earnings of the parent company pursuant to the last accounts approved by our shareholders, taking into account the material changes in the financial situation of the company after the end of the last financial period and a statutory requirement that the distribution of earnings must not result in insolvency of the company. Subject to exceptions relating to the right of minority shareholders to request a certain minimum distribution, the distribution may not exceed the amount proposed by the Board.

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43%

The networks we modernized brought on average energy savings of 43% for our customers

1 900

Over 1 900 of our leaders were trained on gender balance topics in 2016

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68NOKIA ANNUAL REPORT ON FORM 20-F

Our radio networks’ customers serve around 5.5 billion subscriptions worldwide. In May 2016, we introduced our ultra-compact network solution, providing a lightweight standalone LTE network, which can re-establish connectivity within minutes where existing communications are down. With satellite, microwave or cable link, it can connect rescue teams to emergency services, hospitals and other teams in any location. This technology is also part of our Nokia Saving Lives innovation initiative, in which we combine the capabilities of the ultra-compact LTE network with drone video applications for search and rescue missions.

Our digital health strategy, reinforced through our acquisition of Withings, centers on empowering people (i.e. by making health monitoring more accessible). Building on Nokia’s track record of innovation, we are now positioned to help people live healthier lives through a portfolio of smart health solutions that are reliable, easy to use and grounded in human-centered design—qualities Nokia customers have come to expect.

Through our corporate community investment programs we rolled out a new project in Myanmar in which technology plays a key role in improving early childhood care and development monitoring. We have, together with Save the Children, developed a web-based database and synchronized mobile application which is currently being deployed, intended to replace slow, non-real-time paper-based data collection used during care center monitoring visits.

During a visit, the application enables saving of data on your mobile phone when offline and uploading it when online again. This is particularly important in parts of Myanmar, and elsewhere, where there is limited network  coverage today.

Protecting the environment

We believe we can directly support the fight against climate change by reducing the energy usage of the products we deliver to our customers. We aim to minimize our own operations’ footprint while also creating and delivering solutions that help our customers and other industries minimize theirs. For example, we offer an Asset Recovery Service as part of product lifecycle management. In 2016, we sent around 2 450 metric tons of old telecommunications equipment for materials recovery and we refurbished approximately 85 800 units.

Our environmental management system helps us monitor our progress and identify ways to improve further. We manage our own footprint through continued certification to ISO 14001 environmental management standard and our performance is audited regularly by external auditors.

In 2016, we continued working towards improving our energy efficiency and controlling waste across our business. Our total energy consumption across our facilities decreased by approximately 9%, as compared to 2015, which, consequently, reflected a decrease of approximately 16% in our greenhouse gas emissions, including our renewable energy usage. We further reduced the carbon intensity (CO2 e/km) of our car fleet by 8%, as compared to 2015. Overall, the undertaken actions in our operations in 2016 reduced our total Scope 1 & 2 emissions by 10%, including emissions from our own marine fleet. (In this paragraph, we compare our 2016 results to our 2015 results which represent the combined amounts of Nokia and Alcatel Lucent in 2015.)

Our actions were further supported by customer deployment of AirScale base stations which feature new software that reduces radio module and system module energy consumption and even use zero energy in the absence of network traffic. In 2016, we modernized 27% more base stations than in 2015, achieving average energy savings of 43% for our customers compared to non-modernized networks. This reduces the environmental impact of electricity consumption and is directly reflected as increased financial benefits for our customers. We also acquired Eta Devices that specialize in power amplifier efficiency to support our goal of improved energy efficiency.

NOKIA ANNUAL REPORT ON FORM 20-F 201663

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Risk factors

Sustainability and

corporate responsibilitycontinued

    

Running our business with integrity

Ethical business

We conduct business based on defined high ethical standards and apply our Code of Conduct across our operations, which allows us to build and maintain personal integrity and protect our reputation. We emphasize the implementation and understanding of the Code of Conduct across our workforce, sales and supplier interactions. All our employees are expected to comply with our Code of Conduct.

Leadership involvement and oversight of ethics and compliance are provided by the Board via the Audit Committee, which convened eight times in 2016. Compliance management is further supported by both global and regional compliance committees.

Employees and external stakeholders are urged to report any ethical misconduct using our compliance hotline which allows for anonymous reporting. In 2016, our Ethics & Compliance office received 637 concerns, of which 228 were investigated by Ethics & Compliance Investigations as alleged violations of our Code of Conduct. We also implemented corrective actions including 17 dismissals and 40 written warnings following these and other investigations. We also track how our employees feel about raising concerns through a bi-monthly internal anonymous survey on whether our employees are comfortable raising concerns.

We also work hard to ensure the technology we provide is not used to infringe human rights, including the right to privacy, freedom of expression and assembly. We further work closely with our supply chain to encourage adherence to the same standards of ethical business to help ensure responsible sourcing and globally acceptable labor practices.

Human rights, freedom of expression and privacy

In 2016, in order to mitigate the risks of potential misuse of our products and increase transparency, we updated our Human Rights Policy and followed up with training to all relevant groups within Nokia. We run human rights due diligence processes as part of our global sales process, in order to further mitigate potential risks and cases of misuse. We are a founding member of the Telecommunications Industry Dialogue Group (“ID”) and, as of October 2016, Nokia chairs the group. Since February 2016, we have had official observer status with the Global Network Initiative (“GNI”), with an aim of becoming a full member in March 2017.

Responsible sourcing

We regularly run robust assessments with our supplier network to support them in meeting our ethical standards and improving performance where necessary. In 2016, we implemented 390 supply chain audits, which included 45 on-site audits on Corporate Responsibility topics; 39 were on-site audits against our supplier requirements and 306 suppliers were audited using the EcoVadis scorecards. Additionally, we run training workshops for suppliers operating in high-risk countries. In 2016, we organized online training on conflict-free sourcing and climate change, and we arranged face-to-face training workshops establishing improvement plans and actions for 238 suppliers.

We work closely with our supply chain to jointly create environmental improvement programs and better our upstream Scope 3 emissions reporting (overall Scope 3 means all indirect emissions that occur in our value chain, including upstream and downstream) through the CDP Supply Chain Program. In 2016, 243 of our key suppliers responded to the CDPs request to disclose their climate performance information and 127 also provided emission reduction targets.

The traceability of our materials and ensuring our products are conflict-free is a priority for us, which is also reflected in our updated Conflict Minerals Policy. In 2016, 84% of smelters identified as part of Nokia’s supply chain have been validated as conflict-free or are active in the validation process. Refer to our conflict minerals report available at http://www.nokia.com/en_int/ about-us/sustainability/downloads.

Respecting our people

In a year of integration, we emphasized a firm understanding of Nokia’s vision, values and culture through training, town hall meetings and communication. We measure cultural cohesion through our Cultural Cohesion Tracker survey five times a year, and in 2016 understanding of Nokia’s vision rose from 85% favorable to 88%. In addition, one building block of the Cultural Cohesion Tracker is “Understanding New Nokia Mindset”, which contains questions focused on behaviors, values, ethics and emotional connection and received 83% favorability at the end of 2016. We received over 70 000 responses covering a range of aspects of working for Nokia.

The Nokia Code of Conduct also underpins our own labor conditions, along with the human resources policies that underline our approach to fair employment.

We focus on ensuring that all our employees and contractors are aware of the risks related to their jobs and receive the necessary training and equipment to work safely—whether in the office or on site. We address job-related health and safety risks through training, analysis, assessments and consequence management. We have put in place a wide range of programs to improve our health and safety performance and encourage reporting of near misses and dangerous incidents by employees and contractors.

We realize that our employees must be positively engaged for our business to be successful. In 2016, our employee engagement index showed a 76% favorability towards the company. We offer training, development programs, comprehensive reward packages and flexible working as part of our effort to motivate and show that we value our employees and the work they do. In 2016, each employee spent an average of approximately 19 hours on training. Additionally, we arrange a one-hour dialog session every quarter between the line manager and each team member, which covers objective setting and review of results, individual development, employee well-being and engagement, coaching by the line manager, and mutual feedback.

64NOKIA ANNUAL REPORT ON FORM 20-F 2016

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The health, sports and activity programs we offer our employees contribute to cost savings in terms of reduced sick leave days.

Diversity, inclusion and anti-discrimination are key to our employee makeup. In 2016, approximately 14% of our senior management positions were held by women and over 1 900 leaders were trained on gender balance topics. In total, women accounted for 22% of Nokia’s workforce in 2016. Nokia’s employee-driven program, StrongHer, was selected by the ITU as an example of how to bridge the gender digital divide in corporations in 2016. The average age of our employees in 2016 was 40 years.

Making change happen together

To achieve our sustainability goals, we collaborate closely with suppliers, customers, non-governmental organizations (“NGOs”), authorities and industry peers, not only supporting them in achieving their sustainability goals but also driving the sustainability of our products and solutions.

Working with NGOs

As part of our ongoing work with NGOs, we have created a Group-wide corporate community investment approach with three key pillars—to connect the unconnected, to empower women, and to save lives. Our contribution focuses on how technology can improve access to better health, education and information, and ultimately drives social, environmental and economic progress.

Cooperating with others in our industry and beyond

We are a member of the United Nations Global Compact, Global e-Sustainability Initiative, CDP supply chain program, ID, Climate Leadership Council, Digital Europe, Conflict-Free Sourcing Initiative and several standardization and university cooperation groups. We have further structured engagement with the World Economic Forum, the Broadband Commission and ITU Telecom World, amongst others. In 2016, we became a member of the GSMA Humanitarian Connectivity Charter. Working with ID, we also made a submission to the UN Special Rapporteur on freedom of opinion and expression to support his forthcoming study.

We also collaborate with the public sector to further the use of technology in enhancing sustainable development and improving the day-to-day lives of citizens. In 2016, we joined the Bristol Is Open initiative, becoming the first major telecommunications vendor to participate in Bristol’s unique living laboratory, underlining our commitment to smart city solutions. In support of the UN’s Refugee agency, we provided a Nokia OZO VR camera and equipment to The Humanitarian Cooperative to enable the creation of a film to raise awareness of, and action on, the current refugee crisis.

Employees

In 2016, the average number of Nokia employees was 102 687 (56 690 in 2015 and 51 499 in 2014). The total amount of salaries and wages paid in 2016 was EUR 6 275 million (EUR 3 075 million in 2015 and EUR 2 797 million in 2014). Refer to Note 9, Personnel expenses, of our consolidated financial statements in this annual report on Form 20-F.

The table below shows the average number of employees in 2016, divided according to business and geographical location:

BusinessAverage number
of employees

Networks business

  99 243

Nokia Technologies

790

Group Common Functions

2 654

Total

102 687
RegionAverage number
of employees

Finland

6 564

Other European countries

31 550

Middle East & Africa

4 024

China

18 929

Asia-Pacific

22 007

North America

15 560

Latin America

4 053

Total

102 687
In addition to multi-year signature programs with Plan International, Save the Children and Oxfam, we have approved and planned new signature programs for launch in 2017 with e.g. UNICEF, Greenlight for Girls and Junior Achievement. We also work with smaller charities whose programs use technology to improve lives. In 2016, through Nokia Corporate Community Investment and the Alcatel-Lucent Foundation, we contributed corporate-level resources totaling EUR 3 million, which supported 42 community organizations.LOGO

 

NOKIA ANNUAL REPORT ON FORM 20-F 201665

Dividend

    

    

 

 

Set forth belowThe Board proposes a dividend of EUR 0.17 per share for 2016.

The proposed dividend is a descriptionin line with our distribution policy.

We distribute retained earnings, if any, within the limits set by the Finnish Companies Act (as defined below). We make and calculate the distribution, if any, in the form of risk factors that could affect us. Shareholders and potential investors should carefully review the following risk factors,cash dividends, share buy-backs, or in addition tosome other information contained in this annual report on Form 20-F. However, there may be, additional risks that are unknown to us and other risks currently believed to be immaterial that could turn out to be material.

These risks, either individually or together, could adversely affect for instance our business, sales, profitability, results of operations, financial condition, competitiveness, costs, expenses, liquidity, market share, brand, reputation and share price from time to time. Unless otherwise indicated or the context otherwise requires, references in these risk factors to “Nokia”, the “Nokia Group”, “Group”, “we”, “us” and “our” mean Nokia’s consolidated operating segments, including Alcatel Lucent. Certain risks or events as indicated may be more prevalent with respect to Nokiaform or a certain business group, business or partcombination of these. There is no specific formula by which the amount of a distribution is determined, although some limits set by law are discussed below. The timing and amount of future distributions of retained earnings, if any, will depend on our future results and financial conditions.

Under the Finnish Companies Act, we may distribute retained earnings on our shares only upon a shareholders’ resolution and subject to limited exceptions in the amount proposed by the Board. The amount of any distribution is limited to the amount of distributable earnings of the Group.

Additional risks and uncertainties not presently knownparent company pursuant to us, or that are currently believed to be immaterial, could impairthe last accounts approved by our business orshareholders, taking into account the value of an investment made in it. This annual report on Form 20-F also contains forward-looking statements that involve risks and uncertainties presented in “Forward-looking statements” above.

Our strategy is subject to various risks and uncertainties, including that we may be unable to successfully implement our strategic plans, sustain or improve the operational and financial performance of our business groups, correctly identify or successfully pursue business opportunities or otherwise grow our business.

In April 2014, we announced our strategy to become a technology leadermaterial changes in the Programmable World, which we have since

endeavored to implement as described in more detail under “Overview—Strategy”. In 2015 and 2016, we continued implementing our strategy and transformation through the acquisition of Alcatel Lucent and the Salefinancial situation of the HERE Business, for further information refercompany after the end of the last financial period and a statutory requirement that the distribution of earnings must not result in insolvency of the company. Subject to “Overview—2015: A yearexceptions relating to the right of transformation—Acquisition of Alcatel Lucent and divestment of our HERE business” and “General facts on Nokia—History of Nokia”. Our strategy, which includes continuedminority shareholders to request a certain minimum distribution, the distribution may not exceed the amount proposed by the Board.

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Risk factors

Set forth below is a description of risk factors that could affect our business. Shareholders and potential investors should carefully review the following risk factors, in addition to other information contained in this annual report on Form 20-F. The risk factors described below should not be construed as exhaustive. There may be additional risks that are unknown to us and other risks currently believed to be immaterial that could turn out to be material.

These risks, either individually or collectively, could adversely affect our business, sales, profitability, results of operations, financial condition, competitiveness, costs, expenses, liquidity, market share, brand, reputation and share price. Unless otherwise indicated or the context otherwise requires, references in these risk factors to “Nokia”, the “Nokia Group”, “Group”, “we”, “us” and “our” mean Nokia’s consolidated operating segments. Certain risks or events may be more prevalent with respect to Nokia or a certain business group, business or part of the Group.

Additional risks and uncertainties not presently known to us, or that are currently believed to be immaterial, could impair our business or the value of an investment made in it. This annual report on Form 20-F also contains forward-looking statements that involve risks and uncertainties presented in “Forward-looking statements” above.

Our strategy is subject to various risks and uncertainties and we may be unable to successfully implement our strategic plans, sustain or improve the operational and financial performance of our business groups, correctly identify or successfully pursue business opportunities or otherwise grow our business.

We announced our strategy to become a technology leader in the Programmable World in April 2014, which we have since endeavored to implement, most recently through the Acquisition of Alcatel Lucent and the Sale of the HERE Business. In November 2016, we announced key financial and strategic targets as well as our updated strategy at our Capital Markets Day event. For further information refer to “Business Overview—Our strategy” and “Operating and financial review and prospects—Principal industry trends affecting operations”.

We operate in rapidly changing and innovative industries and the opportunities we pursue may require significant investments in innovation in order to generate growth, profitability or other targeted benefits across our business groups. Our strategy, which includes targeted investments in our business and pursuing new business opportunities based on identified trends and opportunities, may not yield a return on our investment as planned or at all. Our ability to achieve strategic goals and targets is subject to a number of uncertainties and contingencies, certain of which are beyond our control, and there can be no assurance that we will correctly identify trends or opportunities to pursue or be able to achieve the goals or targets we have set. We continuously target various improvements in our operations and efficiencies through investing in R&D, entering into licensing arrangements, acquiring businesses and technologies, recruiting expert employees and partnering with third parties. There can be no assurance that our efforts will generate the expected results or improvements in our operations or that we will achieve our intended targets or financial objectives related to such efforts. Any failure to achieve our strategy may materially and adversely affect our business, financial condition and results of operations. Furthermore, there can be no assurance that our investments will result in technologies, products or services that achieve or retain broad or timely market acceptance, answers to the expanding needs or preferences of our customers or consumers, or break-through innovations that we could otherwise utilize for value creation.

As part of our strategy, we have and may continue to acquire or divest assets. For instance, we announced in February 2017 our intention to acquire Comptel to advance our software strategy. We may fail to complete planned acquisitions or divestments or to integrate acquired businesses or assets. Any such result could interfere with our ability to achieve our strategy, obtain intended benefits, retain and motivate acquired key employees, or timely discover all liabilities of acquired businesses or assets, which may have a material adverse effect on our business. In particular, failure to integrate Alcatel Lucent or to achieve the expected synergies or other benefits from the Acquisition of Alcatel Lucent could materially and adversely affect our business, financial condition and results of operations.

We may be unable to realize the anticipated benefits, including synergies, cost savings or efficiencies, from the Acquisition of Alcatel Lucent, and we may encounter issues or inefficiencies related to our new organizational and operational structure, including not being able to successfully implement our business plans and to integrate Alcatel Lucent’s business.

We have allocated, and will continue to allocate, significant resources to integrate Alcatel Lucent’s business and implement our business plans and strategy. Achieving the anticipated benefits, synergies and other efficiencies from the Acquisition of Alcatel Lucent will depend largely on the timely and efficient integration of the business operations of Nokia and Alcatel Lucent and the combined company’s ability to successfully implement our business plans. Despite our progress in the integration, there can be no assurance that the overall integration of Alcatel Lucent will be successful or yield expected benefits and results. The integration process involves certain risks and uncertainties, some of which are outside our control, and there can be no assurance that we will be able to realize the intended organizational and operational benefits related to our business plans in the manner or within the timeframe currently anticipated. Such risks and uncertainties include, among others, the distraction of our management’s attention from our business resulting in performance shortfalls, the disruption of our ongoing business, interference with our ability to maintain our relationships with customers, vendors, regulators and employees and inconsistencies in our services, standards, controls, procedures and policies, any of which could have a material adverse effect on our business, financial condition and results of

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Risk factorscontinued

operations. Potential challenges that we may encounter regarding the integration process and operation as a combined company include the following:

∎adverse contractual issues with respect to various agreements with third parties (including joint venture agreements, customers, vendors, licensees or other contractual parties), certain financing facilities, pension fund agreements, agreements for the performance of engineering and related work/services, IT agreements, technology, intellectual property rights and licenses, employment agreements, or pension and other post-retirement benefits-related liability issues;

∎inability to retain or motivate key employees and recruit employees;

∎disruptions caused, for instance, by reorganizations triggered by the Acquisition of Alcatel Lucent, which may result in inefficiency within the new organization through loss of key employees or delays in implementing our intended structural changes, among other issues;

∎inability to achieve the targeted organizational changes, efficiencies or synergies in the targeted time or to the extent targeted, for instance due to inability to streamline overlapping products and services, rationalize our organization and overheads, reduce overheads and costs or achieve targeted efficiencies, and the risk of new and additional costs associated with implementing such changes;

∎inability to rationalize or streamline our organization or product lines or to retire legacy products and related services as a result of pre-existing customer commitments;

∎loss of, or lower volume of, business from key customers, or the inability to renew agreements with existing customers or establish new customer relationships, including limitations linked to customer policies with respect to aggregate vendor share or supplier diversity policies or increased efforts from competitors aiming to capitalize on disruptions, for instance, in our integration processes;

∎conditions and burdens imposed by laws, regulators or industry standards on our business or adverse regulatory or industry developments or litigation affecting us, as a result of the Acquisition of Alcatel Lucent or otherwise;

∎potential unknown or larger than estimated liabilities of Alcatel Lucent (prior to the acquisition) or other adverse circumstances related to Alcatel Lucent that lead to larger than expected liabilities or have other adverse impacts on us;

∎claims, fines, investigations or assessments for conduct that we failed to or were unable to discover or identify in the course of performing our due diligence investigations of Alcatel Lucent prior to the acquisition, including unknown or unasserted liabilities and issues relating to fraud, non-compliance with applicable laws and regulations, improper accounting policies or other improper activities;

∎challenges relating to the consolidation of corporate, financial data and reporting, control and administrative functions, including cash management, foreign exchange/hedging operations, internal and other financing, insurance, financial control and reporting, IT, communications, legal and compliance and other administrative functions;

∎the coordination of R&D, marketing and other support functions may fail or cause inefficiencies or other administrative burdens caused by operating the combined business;

∎we may not be able to successfully maintain the Nokia Bell Labs research and innovation capabilities, or the Acquisition of Alcatel Lucent or the related integration could have an adverse effect on Nokia Bell Labs;

∎potential divestitures of certain businesses or operations, as desired, for which there can be no assurance that we willwould be able to achieve the goalssuccessful in executing such a transaction on favorable terms or targets we have set. We continuously target various improvements in our operationsat all; and efficiencies. There can be no assurances that our efforts will generate the expected results or improvements in our operations or that we will achieve our financial objectives related to such efforts.

We operate in fast-paced and innovative industries and the opportunities we seek may require significant investments in innovation in order to generate growth, profitably or other targeted benefits across our business groups. The actions we take may include investments in R&D (e.g., making significant targeted investments in developing 5G technologies and efforts in IoT), entering into licensing arrangements, acquiring businesses and technologies, recruiting specialized expertise and partnering with third parties. These investments, however, may not result in technologies, products or services that achieve or retain broad or timely market acceptance, answers to the expanding needs or preferences of our customers or consumers, or break-through innovations that we could otherwise utilize for value creation.

As such, our investments may not be profitable or achieve the targeted return on investment, or any return at all. If we are unable to anticipate and respond to these key market trends in a timely manner, or to actively drive future trends through our product and services development processes, we may not achieve the intended targets of our strategies and objectives, which may materially and adversely affect our business, financial condition and results of operations.

Additionally, we operate in intensely competitive business areas, which may limit
∎our ability to implement our strategy and grow efficiently. Certaineliminate the complexity of our competitorscorporate structure following the Acquisition of Alcatel Lucent.

Following the Acquisition of Alcatel Lucent, we have implemented a new leadership team and a new operational structure for our business. For more information on our structure, refer to “Business overview”. The new organizational and operational structure may not be appropriately suited to meet our business plans, could be more costly than anticipated, and could adversely affect our ability to achieve the business growth opportunities, cost savings benefits, increased profitability, targeted synergies or efficiencies, which could lead to material adverse effects on our business, financial condition and results of operations.

Additionally, the anticipated cost reductions and other benefits expected to arise from the Acquisition of Alcatel Lucent and the integration of Alcatel Lucent into our existing business, as well as related costs to implement such measures, are derived from our estimates, which are inherently uncertain. Our estimates are based on a number of assumptions made in reliance on the information available to us and management’s judgments based on such information, including, without limitation, information relating to the business operations, financial condition and results of operations of Alcatel Lucent. While we believe these estimated synergy benefits and related costs are reasonable, the underlying assumptions are inherently uncertain and subject to a variety of significant business, economic, and competitive factors, risks and uncertainties that could cause our actual results to differ materially from those contained in the expected synergy benefits and related cost estimates.

We may be materially and adversely affected by general economic and market conditions and other developments in the economies where we operate.

As we are a company with global operations and sales in many countries around the world, our sales and profitability are dependent on general economic conditions both globally and regionally, the global financial markets, as well as industry and market developments in numerous diverse markets. Adverse developments in, or the general weakness of, economic conditions, such as unemployment or consumer spending, may have an adverse impact on the spending patterns of end-users. This, in turn, may affect both the services they subscribe to and the usage levels of such services, which may lead mobile operators and service providers to invest less in related infrastructure and services or to invest in low-margin products and services, which could have a material adverse effect on our business, financial condition, and results of operations.

General uncertainty and adverse developments in the financial markets and the general economy could have a material adverse effect on our ability to obtain sufficient or affordable financing on satisfying terms. Uncertain market conditions may increase the price of financing or decrease its availability. We could encounter difficulties in raising funds or accessing liquidity, which may have a material adverse effect on our business, financial condition and results of operations.

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We face intense competition and may fail to effectively and profitably invest in new competitive high-quality products, services, upgrades and technologies or bring them to market in a timely manner.

Our business and the markets where we operate are characterized by rapidly evolving technologies, frequent new technological requirements, product feature introductions and evolving industry standards. Our business performance depends on the timely and successful introduction of new products, services and upgrades of current products to meet the evolving requirements of customers, comply with emerging industry standards and address competing technological and product developments carried out by competitors. The R&D of new and innovative, technologically advanced products, as well as upgrades to current products and new generations of technologies, is a complex and uncertain process requiring high levels of innovation and investment, in addition to accurate anticipation of technological, regulatory and market trends. We may focus our resources on products and technologies that do not become widely accepted or ultimately prove unviable. Additionally, many of our current and planned products are highly complex and may contain defects or errors that are, for instance, detected only after deployment in telecommunications networks. Our results of operations will depend to a significant extent on our ability to succeed in the following areas:

∎maintaining and developing a product portfolio and service capability that are attractive to investour customers, for instance by keeping pace with technological advances in our industry and pursuing the technologies that become commercially accepted;

∎continuing to introduce new products and product upgrades successfully and on a timely basis;

∎developing new or enhancing existing tools for our services offerings;

∎optimizing the amount of customer or market explorationspecific technology, product and may seek new monetization models or drive industry development and capture valuefeature variants in areas where we may not currently be competitive or do not have similar resources availableour product portfolio;

∎continuing to us. These areas may include monetization models linked to large amountsenhance the quality of consumer data, large connected communities, home or other entertainment services, digital media and virtual reality products, healthcareour products and services alternative payment mechanisms or marketing products. We also face competition from various companies that may be able to develop technologies or products that become preferred over those developed by us or result in adverse effects on us through, for instance, developing technological innovations that make our innovations less relevant.

We have in the past, and may in the future, acquire or divest assets. We may, however, fail to successfully complete planned acquisitions, divestments or integrate the acquired businesses (e.g. Alcatel Lucent) or assets in order to obtain intended benefits, retain and motivate acquired key employees, or timely discover all liabilities of the acquired business that we assume knowingly or unknowingly, which may have a material adverse effect on our business. In particular, failure to integrate Alcatel Lucent or to achieve the expected synergies or other benefits from the acquisition of Alcatel Lucent could materially and adversely affect our business, financial condition and results of operations. Additionally, we make investments to companies through certain investments funds, including Nokia Growth Partners, and there can be no assurance that such investments will result in new successful technologies that we will be able to monetize.

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Risk factorscontinued

We may be unable to realize the anticipated benefits from the acquisition of Alcatel Lucent or implement our organizational and operational structure efficiently or within the timeframe currently anticipated, including successfully implementing our business plans, successfully integrating Alcatel Lucent’s business or achieving the targeted synergies and other efficiencies.

We have allocated, and will continue to allocate, significant resources to integrating Alcatel Lucent’s business and implementing our post-acquisition business plans. Achieving the anticipated benefits, synergies and other efficiencies from the acquisition of Alcatel Lucent will depend largely on the timely and efficient integration of the business operations of Nokia and Alcatel Lucent and the combined company’s ability to successfully implement the post-acquisition business plans. The integration process involves certain risks and uncertainties, and there can be no assurance that we will be able to integrate Alcatel Lucent in the manner or within the timeframe currently anticipated. Such risks and uncertainties include, among others, the distraction of our management’s attention from our business resulting in performance shortfalls, the disruption of our ongoing business, interference with our ability to maintain our relationships with customers, vendors, regulators and employees and inconsistencies in our services, standards, controls, procedures and policies, any of which could have a material adverse effect on our business, financial conditions and/or results of operations. Potential challenges that we may encounter regarding the acquisition of Alcatel Lucent and the subsequent integration process include the following:

nadverse contractual issues with respect to various agreements with third parties (including joint venture agreements, customers, vendors, licensees or other contractual parties), certain financing facilities, pension fund agreements, agreements for the performance of engineering and related work/services, IT agreements, technology, intellectual property rights and licenses, employment agreements, or pension and other post-retirement benefits related liability issues;

ninability to retain or motivate key employees and recruit employees;

ndisruptions caused, for instance, by reorganizations triggered by the acquisition of Alcatel Lucent, which may result in inefficiency within the new organization through loss of key employees or delays in implementing our intended structural changes, among other issues;
ninability to achieve the targeted organizational changes, efficiencies or synergies in the targeted time or to the extent targeted, for instance due to inability to streamline overlapping products and services, rationalize our organization and overhead, reduce overhead and costs or achieve targeted efficiencies, and the risk of new and additional costs associated with implementing such changes;

ninability to rationalize or streamline our organization, product lines or retire legacy products and related services as a result of pre-existing customer commitments;

nloss of, or lower volume of, business from key customers, or the inability to renew agreements with existing customers or establish new customer relationships, including limitations linked to customer policies with respect to aggregate vendor share or supplier diversity policies or increased efforts from competitors aiming to capitalize on disruptions, for instance, in our integration processes;

nconditions and regulatory burdens imposed by laws, regulators or industry standards on our business or adverse regulatory or industry developments or litigation affecting us, as a result of the acquisition of Alcatel Lucent or otherwise;

npotential unknown or larger than estimated liabilities of Alcatel Lucent or other circumstances related to Alcatel Lucent, for instance, due to us not having had full access to Alcatel Lucent’s internal records, including, but not limited to, those related to compliance issues, pension and other post-retirement benefit liabilities, regulation relating to pension funds, unforeseen increased expenses, delays or regulatory conditions associated with the integration and our ability to mitigate anticipated and contingent liabilities;

nchallenges relating to the consolidation of corporate, financial data and reporting, control and administrative functions, including cash management, foreign exchange/hedging operations, internal and other financing, insurance, financial control and reporting, IT, communications, legal and compliance and other administrative functions;

nthe coordination of R&D, marketing and other support functions may fail or cause inefficiencies or other administrative burdens caused by operating the combined business;
nwe may not be able to successfully maintain the Bell Labs research and innovation capabilities, or the acquisition of Alcatel Lucent or the related integration could have an adverse effect on Bell Labs; and

npotential divestitures of certain businesses or operations, as desired, for which there can be no assurance that we would be successful in executing such a transaction at all or on favorable terms.

As a result of the acquisition of Alcatel Lucent, we have announced new leadership and a new operational structure for our business. For more information on our new structure, refer to “Business overview”. We may not be able to efficiently and smoothly implement our new organizational and operational structure, the structure may not be appropriately suited to meet our business plans, the implementation of such structural changes could be more costly than anticipated, and/or unforeseen issues could adversely affect our ability to achieve targeted synergies, leading to material adverse effects on our business, financial condition and/or results of operations.

There can be no assurance that we will achieve the targeted benefits of the acquisition of Alcatel Lucent, including business growth opportunities, cost synergy benefits, increased profitability and other efficiency-related benefits, within the timeframe currently estimated, or that any such benefits can be achieved at all. The anticipated benefits of the acquisition of Alcatel Lucent depend, in part, on the efficiency improvement measures that both Nokia and Alcatel Lucent have individually taken in recent years, and are expected to continue to undertake. While certain of these measures have already generated cost savings and operational efficiencies, the full intended benefits of these measures, or any additional initiatives that we may take in the future, may not be realized. Furthermore, there can be no assurance that adverse developments in general economic conditions or other unfavorable changes in our business environment or technological changes unfavorable to us will not limit, eliminate or delay our ability to realize anticipated benefits, which could have a material adverse effect on our business, financial condition and/or results of operations.

Additionally, the anticipated cost reductions and other benefits expected to arise from the acquisition of Alcatel Lucent and the integration of Alcatel Lucent into our existing business, as well as related costs to implement such measures, are derived

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from our estimates and such estimates are inherently uncertain. The estimates are based on a number of assumptions made in reliance on the information available to us and management’s judgements based on such information, including, without limitation, information relating to the business operations, financial condition and results of operations of Alcatel Lucent. In assessing the acquisition of Alcatel Lucent, we relied on Alcatel Lucent information from the public domain, as well as information provided by Alcatel Lucent and its and our advisers, where we were unable to verify the accuracy of such information. While we believe these estimated synergy benefits and related costs are reasonable, the underlying assumptions are inherently uncertain and are subject to a variety of significant business, economic, and competitive factors, risks and uncertainties that could cause the actual results to differ materially from those contained in the expected synergy benefits and related cost estimates.

Our failure to promptly complete the purchases of the remaining outstanding Alcatel Lucent securities could adversely affect the market value of our shares and ADSs, and we may be unable to fully realize the anticipated benefits of the public exchange offer for all outstanding Alcatel Lucent securities.

We must own (i) 95% or more of the share capital and voting rights of Alcatel Lucent to implement a squeeze-out of the remaining outstanding Alcatel Lucent shares, and (ii) 95% or more of the sum of the outstanding Alcatel Lucent shares and the Alcatel Lucent shares issuable upon conversion of all of the OCEANEs to implement a squeeze-out of the remaining outstanding OCEANEs (Alcatel Lucent shares held in treasury are considered as held by Nokia for the purpose of this calculation). Additionally, under French law, a squeeze-out must be implemented within three months after the expiration of a public offer period or the subsequent offering period, if any, for Alcatel Lucent securities, such as the public exchange offer for all outstanding Alcatel Lucent securities.

Any temporary or permanent delay in acquiring all Alcatel Lucent securities could adversely affect our ability to integrate Alcatel Lucent’s business, including achieving targeted business benefits and synergies, and the market value of our shares and ADSs, as well as our access to capital and other sources of funding on acceptable terms.

If the Alcatel Lucent shares remain listed on Euronext Paris for a significant period of time, the Autorité des Marchés Financiers may not allow a squeeze-out of the remaining outstanding Alcatel Lucent securities or Euronext Paris may refuse to delist Alcatel Lucent shares, which would adversely affect our ability to integrate Alcatel Lucent’s business into the Nokia Group. Furthermore, there may be additional administrative burdens and other costs related to not being able to complete the squeeze-out.

If we are unable to squeeze out the remaining Alcatel Lucent shareholders and achieve full ownership of Alcatel Lucent, we may be unable to return as much equity to our shareholders as intended.

We may be materially and adversely affected by general economic and market conditions and other developments in the economies where we operate.

As we are a company with global operations and sales in many countries around the world, our sales and profitability are dependent on general economic conditions both globally and regionally as well as industry and market developments in numerous diverse markets. Adverse developments in, or the general weakness of, the economy, for instance through increasing levels of unemployment in the markets in which our customers operate, may have an adverse impact on the spending patterns of end-users. This, in turn, may affect both the services they subscribe to and usage levels of such services, which may lead to mobile operators and service providers investing in related infrastructure and services less than anticipated or investing in low-marginintroducing products and services that have desired features and attributes, such as energy efficiency;

∎pricing products and services appropriately, which could have a material adverse effect on our business, financial condition, and/or results.

General uncertainty and adverse developmentsis crucial in the financial marketsnetworks infrastructure business due to the typical long-term nature and the general economy could have a material adverse effect on our ability to obtain sufficient financing. Uncertain market conditions may increase the price of financing or decrease our availability. We could encounter difficulties in raising funds or access to liquidity, which in turn may have a material adverse effect on our business, financial condition and/or results.

Continued difficulties, uncertainty or deterioration in global or regional economic conditions could have a material adverse effect on our business, financial condition and results of operations, as well as the future prospects for our business and operations. Moreover, adverse developments in the global financial markets could have a material adverse effect on our ability to access affordable financing on satisfactory terms, if at all.

We are dependent on the developmentcomplexity of the industries in which we operate, including the information technologyagreements; and communications industries and related services market. The telecommunications industry is cyclical

∎leveraging our technological strengths.

Certain of our competitors have significant resources to invest in market exploration and may seek new monetization models or drive industry development and capture value in areas where we may not currently be competitive or do not have similar resources available to us. These areas may include monetization models linked to large amounts of consumer data, large connected communities, home or other entertainment services, digital media and VR products, healthcare products and services, alternative payment mechanisms or marketing products. We also face competition from various companies that may be able to develop technologies or products that become preferred over those developed by us or result in adverse effects on us through, for instance, developing technological innovations that make our innovations less relevant.

The participants in the information technology, communications and related services market compete on the basis of product offerings, technical capabilities, quality, price and affordability through consumer financing arrangements. Any failure by us to effectively and profitably invest in new competitive products, services, upgrades or technologies and bring them to market in a timely manner could result in a loss of net sales and market share and have a material adverse effect on our results of operations, competitiveness, profitability and financial condition.

The competitive environment in this market continues to be intense and is characterized by maturing industry technologies, equipment price erosion and aggressive price competition. Moreover, mobile operators’ cost reductions and network sharing, and industry consolidation among operators have reduced the amount of available business, resulting in further competition and pressure on pricing and profitability. Consolidation of operators may result in vendors and service providers concentrating their business in certain service providers and increasing the possibility that agreements with us are terminated or not renewed. Furthermore, there are various incumbent and new players competing with Nokia in customer groups we strategically target, such as Webscales and customers in energy, transport, public sector

and TXLEs. With these types of customers, the nature of competition can be significantly different from the communication service provider markets, including competition based on access network, core network, Cloud infrastructure, platforms, applications and devices.

We compete with companies that have large overall scale, which affords such companies more flexibility (e.g., on pricing). We also continue to face intense competition globally, including from companies based in China which endeavor to gain further market share and broaden their presence in new areas of the network infrastructure and related services business (e.g., by providing lower-cost products and services). Competition for new customers, as well as for new infrastructure deployment, is particularly intense and focused on the favorability of price and agreement terms. Additionally, new competitors may enter the industry as a result of acquisitions or shifts in technology. For example, the virtualization of core and radio networks and the convergence of IT and telecommunications may lower the barriers to entry for IT companies entering the traditional telecommunications industry or build up tight strategic partnerships with our traditional competitors. These developments may enable more generic IT, software and hardware to be used in telecommunications networks leading to further pricing pressure. Additionally, Facebook launched the Telecom Infra Project in 2016 with the declared objective to drive a faster pace of innovation in telecommunication infrastructure through more collaborative approaches and open technologies across access, backhaul, core and management. Other Webscale players are and may be launching similar initiatives. While Nokia is actively participating in such initiatives, these developments may increase competition and reduce our market share. If we are unable to respond successfully to competitive challenges in the markets in which we operate, our business, financial condition and results of operations may be materially and adversely affected.

We must introduce high-quality products and services in a cost-efficient, timely manner and manage proactively the costs related to our portfolio of products and services, including component sourcing, manufacturing, logistics and other operations. If we fail to maintain or improve our market position, competitiveness or scale, or if we fail to leverage our scale to the fullest extent and keep prices and costs at competitive levels or provide high-quality products and services, this could materially and adversely affect our competitive position, business and results of operations, particularly our profitability.

NOKIA ANNUAL REPORT ON FORM 20-F 201669

Risk factorscontinued

We are dependent on the development of the industries in which we operate, including the information technology and communications industries and related services market, as well as the digital media and digital health markets. The information technology and communications industries and related services market are cyclical and are affected by many factors, including the general economic environment, purchase behavior, deployment, roll-out timing and spending by service providers, consumers and businesses. The digital media and digital health markets are rapidly evolving markets affected by numerous factors, including regulation and IPR.

Our sales and profitability are dependent on the development of the industries in which we operate, including the information technology and communications and related services market in numerous markets around the world. For instance, we are particularly dependent on the investments made by mobile operators and network service providers in network infrastructure and related services. The pace and size of such investments are in turn dependent on the ability of network service providers and mobile operators to increase their subscriber numbers, reduce churn and compete with business models eroding revenue from traditional voice, messaging and data transport services, as well as the financial condition of such network service providers and mobile operators. Additionally, market developments favoring new technological solutions, such as SDN, may reduce spending by our competitors who have, or may have, a stronger position in such technologies. The technological viability of standardized, low-margin hardware products in combination with the virtualization of functions can induce a change in purchase behavior, resulting in favoring other vendors or in higher bargaining power versus Nokia due to more alternative vendors. Both effects could have a material adverse effect on our business.

We expect to generate a significant share of our growth from new customers, including Webscales and vertical customers in energy, transport, public sector and TXLEs. Each of these sectors may face adverse industry developments which may significantly impact the size of investments addressable by us and our ability to address these investments, in terms of both having the right products available and being able to attain new customers.

The level of demand by service providers and other customers that purchase our products and services can change quickly and can vary over short periods of time. As a result of the uncertainty and variations in the telecommunications and vertical industries, accurately forecasting revenues, results and cash flow remains difficult.

Our success in the industries where we operate is subject to a number of risks and uncertainties, including:

∎the intensity of competition;

∎further consolidation of our customers or competitors;

∎our ability to develop products and services in a timely manner, or at all, that meet future technological or quality requirements and challenges at a competitive cost level;

∎our ability to maintain and build up strategic partnerships in our value creation chain (e.g., in product creation and in project delivery);

∎our ability to correctly estimate technological developments or adapt successfully to such developments;

∎the development of the relevant markets and/or industry standards in directions that leave us deficient in certain technologies and industry areas that impact our overall competitiveness;

∎the choice of our customers to turn to alternative vendors to maintain end-to-end services from such vendors;

∎our ability to successfully develop market recognition as a leading provider of software and services in the information technology and communications and related services market, in numerous diverse markets. For instance, we are particularly dependent on the investments made by mobile operatorsdigital media and network service providers in network infrastructure and related services. The pace and size of such investments is in turn dependent on the ability of network service providers and mobile operators to increase their subscriber numbers, reduce churn and compete with business models eroding revenue from the traditional voice, messaging and data transport services by stimulating increased use of voice, data and value-adding services with higher margins,digital health markets as well as the financial condition of the network service providerswith our vertical customers in energy, transport, public sector and mobile operators. Additionally, market developments favoring new technological solutions, such as SDN, may reduce spending by our customers or favor our competitors who have a stronger position in such technologies.

The level of demand by service providers and other customers that purchase our products and services can change quickly and can vary over short periods of time. As a result of the uncertainty and variations in the telecommunications industry, accurately forecasting revenues, results and cash flow remains difficult.

NOKIA ANNUAL REPORT ON FORM 20-F 201571TXLEs;

 

Risk factors∎continued

Our success in the industries where we operate is subject to a number of risks and uncertainties, including:

nthe intensity of competition;

nfurther consolidation of our customers or competitors;

nour ability to develop products and services in a timely manner, or at all, that meet future technological or quality requirements and challenges at a competitive cost level;

nour ability to maintain and build-up strategic partnerships in our value creation chain (e.g., in product creation and in project delivery);

nour ability to correctly estimate technological developments or adapt successfully to such developments;

nthe development of the relevant markets and/or industry standards in directions that leave us deficient in certain technologies and industry areas that impact our overall competitiveness;

nthe choice of our customers to turn to alternative vendors to maintain end-to-end services from such vendors;

nour ability to successfully develop market recognition as a leading provider of software and services in the information technology and communications and related services market;

nour ability to sustain or grow net sales in our business and areas of strategic focus, which could result in the loss of benefits related to economies of scale and reduced competitiveness;

nour ability to identify opportunities and enter into agreements that are commercially successful;

nour ability to continue utilizing current customer relations to advance our sales of related services, or pursue new service-led growth opportunities;

nour global presence that involves large projects that expose us to various business and operational risks including those related to market developments, political unrest (e.g., in the Ukraine and Russia), economic and trade sanctions and compliance and anti-corruption related risks, especially with respect to emerging markets; and

nour ability to maintain efficient and low-cost operations.

Our inability to overcome any of the above risks or uncertainties could have a material adverse effect on our results of operations or financial performance.

We conduct our business globally, exposing us to political and other regional developments, including in emerging market countries, which may have a higher degree of regulatory or political risk, including unfavorable or unpredictable treatment in relation to tax matters, exchange controls, and other restrictions.

We generate sales from, and have manufacturing and other facilities as well as suppliers located in, various countries around the world. Accordingly, regulatory developments, economic developments, political turmoil, military actions, labor unrest, civil unrest, public health, including disease outbreaks, environmental issues (including adverse effects resulting from climate change) and natural and man-made disasters in such countries could have a material adverse effect on our ability to sustain or grow net sales in our business and areas of strategic focus, which could result in the loss of benefits related to economies of scale and reduced competitiveness;

∎our ability to identify opportunities and enter into agreements that are commercially successful;

∎our ability to continue utilizing current customer relations to advance our sales of related services, or pursue new service-led growth opportunities;

∎our global presence that involves large projects that expose us to various business and operational risks including those related to market developments, political unrest or change in political atmosphere, economic and trade sanctions and compliance and anti-corruption-related risks, especially with respect to emerging markets; and

∎our ability to maintain efficient and low-cost operations.

Our inability to overcome any of the above risks or uncertainties could have a material adverse effect on our results of operations or financial performance.

We conduct our business globally, exposing us to political and regional risks, including unfavorable or unpredictable treatment in relation to tax matters, exchange controls, and other restrictions.

We generate sales from, and have manufacturing facilities and suppliers located in, various countries around the world. Regulatory developments, economic developments, political turmoil, military actions, labor unrest, civil unrest, public health and safety (including disease outbreaks), environmental issues (including adverse effects resulting from climate change) and natural and man-made disasters in such countries could have a material adverse effect on our ability to supply products and services, including network infrastructure equipment manufactured in such countries, and on our sales and results of operations. In recent years, we have witnessed political unrest in various markets in which we conduct business or in which we have operations, which in turn has adversely affected our sales, profitability or operations in these markets, and in certain cases affected us outside these countries or regions. Any reoccurrence or escalation of such unrest could have a further material adverse effect on our sales or results of operations. For instance, instability and conflict in regions such as the Middle East, parts of Africa and Ukraine have in the past adversely affected, and may in the future adversely affect, our business or operations in these or related markets (e.g., through increased economic uncertainty or a slowdown or downturn attributable to current or increased economic and trade sanctions).

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We have a significant presence in emerging markets in which the political, economic, legal and regulatory systems are less predictable than in countries with more developed institutions. These markets represent a significant portion of our total sales, and a significant portion of expected future industry growth. Most of our suppliers are located in, and our products are manufactured and assembled in, emerging markets, particularly in Asia. Our business and investments in emerging markets may also be subject to risks and uncertainties, including unfavorable or unpredictable treatment in relation to tax matters, exchange controls, restrictions affecting our ability to make cross-border transfers of funds, regulatory proceedings, unsound or unethical business practices, challenges in protecting our IPR, nationalization, inflation, currency fluctuations or the absence of or unexpected changes in regulation, as well as other unforeseeable operational risks. The purchasing power of our customers in developing markets depends to a greater extent on the price development of basic commodities and currency fluctuations, which may render our products or services unaffordable.

We continuously monitor international developments and assess the appropriateness of our presence and business in various markets. For instance, as a result of international developments, we have expanded our business in Iran in compliance with applicable economic sanctions and other regulations. While the international agreement on Iran’s nuclear activities has led to a relaxation of international sanctions, many jurisdictions continue to impose various restrictions on conducting business in Iran and the international regulatory framework remains complex. Adverse political or other developments could potentially lead to a reintroduction of sanctions which might necessitate a reassessment of our position there. Should we decide to exit or otherwise alter our presence in a particular market, this may have an adverse effect on us through, for example, triggering investigations, tax audits by authorities, claims by contracting parties or reputational damage. The results and costs of investigations or claims against our international operations may be difficult to predict and could lead to lengthy disputes, fines or fees, indemnities or costly settlements.

Our efforts aimed at managing and improving our financial or operational performance, cost savings, competitiveness and obtaining the targeted synergy benefits and cost savings, may not lead to targeted results, benefits, cost savings or improvements.

We need to manage our operating expenses and other internal costs to maintain cost efficiency and competitive pricing of our products and services. Failure by us to determine the appropriate prioritization of operating expenses and other costs, to identify and implement the appropriate measures to adjust our operating expenses and other costs on a timely basis, or to maintain achieved cost reduction levels, could have a material adverse effect on our business, results of operations and financial condition. For instance, we have announced targeted operating cost savings in relation to the Acquisition of Alcatel Lucent and achieving these operating cost savings is dependent partly on the continued efficient integration of the companies which may include certain uncertainties.

We operate in highly competitive industries and we are continuously targeting increased efficiency of our operations through various initiatives. We may, in the ordinary course of business, institute new plans for restructuring measures. Such restructuring measures may be costly, potentially disruptive to operations, and may not lead to sustainable improvements in our overall competitiveness and profitability and, thus, may have a material adverse effect on our business or results of operations, for instance, as a result of the loss of benefits related to economies of scale.

In addition to our efforts in operating cost savings, both Nokia and Alcatel Lucent have separately prior to the acquisition implemented various efficiency and other programs aimed at improving cost savings and financial performance. We may implement new similar programs going forward and there can be no assurance that such plans will be met as planned or result in sustainable improvements. Factors that may prevent a successful implementation or cause adverse effects on us include the following:

∎expectations with respect to market growth, customer demand and other trends in the industry in which we conduct business or in which we have operations, which in turn has adversely affected our sales, profitability or operations in these markets, and in certain cases affected us outside these countries or regions. Any reoccurrence or escalation of such unrest could have a further material adverse effect on our sales or results of operations. For instance, past events and continued instability in Ukraine and the subsequent international reaction have previously, and may in the future, adversely affect our business or operations in Ukraine, Russia and/or related markets (e.g., through increased economic uncertainty or a slowdown or downturn attributable to current or increased economic and trade sanctions). We are inherently subject to various issues including potential health and safety issues related to our operations, as well as the operations of our suppliers, and we are exposed to certain risks in relations to claims, disputes or adverse public perceptions caused by such issues.operate;

We have a significant presence in emerging market countries, which has further expanded following the acquisition of Alcatel Lucent, in which the political, economic and legal and regulatory systems are less predictable than in countries with more developed institutions.

These markets represent a significant portion of our total sales, and a significant portion of expected future industry growth. Most of our suppliers are located in, and our products are manufactured and assembled in, emerging markets, particularly in Asia. Our business and investments in emerging markets may also be subject to risks and uncertainties, including unfavorable or unpredictable treatment in relation to tax matters, exchange controls, and other restrictions affecting
∎our ability to make cross-border transfers of funds, regulatory proceedings, unsound or unethical business practices, challenges in protecting our IPR, nationalization, inflation, currency fluctuations or the absence of, or unexpectedbenefit from industry trends may prove to be inaccurate and changes in regulation, as well as other unforeseeable operational risks. The purchasing power of our customers in developing markets depends to a greater extent on the price development of basic commodities and currency fluctuations, which may render our productsgeneral economic conditions, whether globally, nationally or services unaffordable.

We continuously monitor international developments and assess the appropriateness of our presence and business in various markets, and may increase or reduce our presence or may completely exit certain markets. For instance, as a result of ongoing international developments, we have continued to re-assess our position on doing business in Iran and expanded our activities in a controlled manner in the country in compliance with applicable trade sanctions and regulations. While the international agreement on Iran’s nuclear activities has led to a relaxation of international sanctions, many jurisdictions continue to impose various restrictions on conducting business in Iran and the international regulatory framework remains complex. The actions described in this paragraph may have adverse effects on us ,for instance through triggering additional investigations, including tax audits by authorities, claims by contracting parties or reputational damage resulting, for instance, in adverse effects to our business relationships. The results and costs of investigations or claims against our international operations may be difficult to predict and could lead to lengthy disputes, fines or fees, indemnities or costly settlements.

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We face intense competition and may fail to effectively and profitably invest in new competitive high-quality products, services, upgrades and technologies or bring them to market in a timely manner.

Our business and the markets where we operate are characterized by rapidly evolving technologies, frequent new solutions requirements, product feature introductions and evolving industry standards. Our business performance depends, to a significant extent, on the timely and successful introduction of new products, services and upgrades of current products to meet the evolving requirements of customers, comply with emerging industry standards and address competing technological and product developments carried out by competitors. The R&D of new and innovative, technologically advanced products, as well as upgrades to current products and new generations of technologies, is a complex and uncertain process requiring high levels of innovation and investment, in addition to accurate anticipation of technological and market trends. We may focus our resources on products and technologies that do not become widely accepted or ultimately prove unviable. Our results of operations will depend to a significant extent on our ability to succeed in the following areas:

nmaintaining and developing a product portfolio and service capability that is attractive to our customers;

ncontinuing to introduce new products and product upgrades successfully and on a timely basis;

ndeveloping new or enhancing existing tools for our services offerings;

noptimizing the amount of customer or market specific technology, product and feature variants in our product portfolio;

ncontinuing to enhance the quality of our products and services;

npricing products and services appropriately, which is crucial in the networks infrastructure business due to the typical long-term nature and complexity of the agreements; and

nleveraging our technological strengths.

The participants in the information technology and communications and related services market compete on the basis of product offerings, technical capabilities, quality and price, as well as available financing arrangements. The competitive environment in this market continues to be intense and

is characterized by maturing industry technologies, equipment price erosion and fierce price competition. Moreover, mobile operators’ cost reductions, network sharing and industry consolidation among operators has reduced the amount of available business, resulting in further increasing competition and pressure on pricing and profitability. Consolidation of operators may result in a revised selection of vendors and service providers concentrating their business in selected service providers and increasing the possibility that agreements with us are terminated or not renewed.

We compete with companies that have large overall scale, or within certain businesses or fields where our competitors may operate in a more efficient matter, affording such companies more flexibility on e.g., pricing. We also continue to face intense competition, including companies based in China, which endeavor to gain further market share and broaden their presence in new areas of the network infrastructure and related-services business by providing lower cost products and services. Competition for new customers, as well as for new infrastructure deployment is particularly intense and focused on price and agreement terms in favor of customers. Additionally, new competitors may enter the industry as a result of acquisitions or shifts in technology. For example, the virtualization of core and radio networks and the convergence of IT and telecommunications may lower the barriers to entry for IT companies entering the traditional telecommunications industry or build-up tight strategic partnerships with our traditional competitors. Additionally, Ericsson and Cisco announced in 2015 a multi-faceted partnership, which aims to compete with companies including us in advanced networks and end-to-end solutions, among other areas. Further, these developments may enable more generic IT, software and hardware to be used in telecommunications networks leading to further pricing pressure. If we are unable to respond successfully to competitive challenges in the markets in which we operate, our business and results of operations, particularly profitability and financial condition, may be materially and adversely affected.

Failure by us to effectively and profitably invest in new competitive products, services, upgrades and technologies and bring them to market in a timely manner could result in a loss of net sales and market share and have a material adverse effect, for instance, on our results of operations, competitiveness, profitability and financial condition.

We must introduce products and services in a cost-efficient, timely manner and manage proactively the costs related to our portfolio of products and services, including component sourcing, manufacturing, logistics and other operations. If we fail to maintain or improve our market position, competitiveness and scale compared to our competitors across the range of our products and services, as well as leverage our scale to the fullest extent, or if we are unable to develop or otherwise acquire software, keep prices at competitive levels, or if our costs increase relative to those of our competitors due to currency fluctuations, among other factors, this could materially and adversely affect our competitive position, business and results of operations, particularly our profitability.

We are dependent on a limited number of customers and large multi-year agreements. Accordingly, a loss of a single customer, operator consolidation or issues related to a single agreement may have a material adverse effect on our business.

A large proportion of the net sales that we generate, especially from the Mobile Networks business group, have historically been derived from a limited number of customers. As consolidation among existing customers continues, it is possible that an even greater portion of our net sales will be attributable to a smaller number of large service providers operating in multiple markets. As part of our focus on certain markets, the proportion of the sales to certain key customers in such markets has also grown. These developments are also likely to increase the impact on our net sales based on the outcome of certain individual agreement tenders.

Mobile operators are increasingly entering into network sharing arrangements, as well as joint procurement agreements, which may reduce their investments and the number of networks available for us to service. Further, procurement organizations of certain large mobile operators sell consulting services to enhance the negotiating position of smaller operators towards their vendors. As a result of these trends and the intense competition in the industry, we may be required to provide increasingly less favorable agreement terms in order to remain competitive. Any unfavorable developments in relation to, or any change in the agreement terms applicable to a major customer may have a material adverse effect on our business, results of operations and financial condition.

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Risk factorscontinued

Following the acquisition of Alcatel Lucent, we may lose certain existing agreements, or be unable to renew or gain new agreements due to customer diversity policies that limit the ability of customers to have one network provider exceeding a certain threshold of business in a given market. Policies or practices in certain countries may also limit the possibility for foreign vendors to participate in the provision of networks business over a certain threshold.

Large multi-year agreements, which are typical in the mobile infrastructure and related services business, include a risk that the timing of sales and results of operations associated with such agreements will differ from expectations. Moreover, such agreements often require dedication of substantial amounts of working capital and other resources, which may adversely affect our cash flow, particularly in the early stages of an agreement term, or may require us to continue to sell certain products and services, or to certain markets, that would otherwise be discontinued, thereby diverting resources from developing more profitable or strategically important products and services, or focusing on more profitable or strategically important markets. Any suspension, termination or non-performance by us under the agreement terms may have a material adverse effect on us (e.g., due to penalties for agreement breaches).

The Nokia Technologies business group’s patent licensing income and other intellectual property-related revenues are subject to risks and uncertainties such as our ability to maintain our existing sources of intellectual property-related revenueimplement such plans;

∎a down-turn in global or establish new sources for revenue. A proportionally significant share of the current patent licensing income is generated from the smartphone market which has proven to be rather dynamic and features a limited number of large vendors.

We have historically invested significantly in R&D to develop new relevant technologies, products and services for our business. This has led to the Nokia Technologies business group having one of the industry’s strongest intellectual property portfolios, including numerous standardized or proprietary patented technologies. We now have two further, distinct and industry leading portfolios: the Nokia Networks and Alcatel Lucent portfolios. Many of our products and services depend on patents in these portfolios, and we also generate revenue by licensing or through selling patents. We seek to renew existing license agreements and negotiate new license agreements especially

with mobile device manufacturers, while also seeking to expand the scope of our licensing activities to other industries, in particular those that implement mobile communication technologies. In addition to licensing our SEPs, we may seek to increase the licensing of implementation patents. The continued strength of our portfolios depends on our ability to create new relevant technologies, products and services through our R&D activities and to protect those with IPR. If those technologies, products and services do not become relevant and therefore attractive to licensees, the strength of our intellectual property portfolios could be reduced, which could adversely affect our ability to use our intellectual property portfolios for revenue generation. Our intellectual property-related revenue can vary considerably from time to time and there is no assurance that past levels are indicative of future levels of intellectual property-related revenue. Additionally, there can be no assurance that we will be able to maintain or increase the income generated by the portfolio acquired as part of the acquisition of Alcatel Lucent.

Despite the steps that we have taken to protect our technology investments with IPR, we cannot be certain that any rights or pending applications will be granted or that the rights granted in connection with any future patents or other IPR will be sufficiently broad to protect our innovations. Third parties may infringe our intellectual property relating to our proprietary technologies or disregard their obligation to seek a license under our SEPs or seek to pay less than reasonable license fees.

The Nokia Technologies business group’s sales and profitability are currently derived largely from patent licensing. Patent licensing income may be adversely affected by generalregional economic conditions or adverse market developments, as well as regulatory and other developments with respect to protection awarded to technology innovations or compensation trends with respect to licensing. For example, our patent licensing business may be adversely affected if licensees’ ability to pay is reduced or they become insolvent or bankrupt. Additionally, poor performance of potential or current licensees may limit their motivation to seek new or renew existing licensing arrangements with Nokia. In certain cases, patent licensing income is dependent on the sales of the licensee, where the reduced sales of the licensee have a direct effect on the patent licensing income received by the Nokia Technologies business group. With respect to fixed fee agreements, potential licensee

bankruptcies would have adverse effects on the patent licensing income attributable to the Nokia Technologies business group.

We retained our entire patent portfolio after the Sale of the D&S Business. Following the Sale of the D&S Business, Nokia Technologies has no longer accepted payments in the form of grant-back licenses, which has contributed to growing licensing revenue. While this has been our practice, there can be no guarantee that this can be continued in future. In the past, parts of our intellectual property development were driven by innovation stemming from the Devices & Services business. As we no longer own this business, the relevance of our future intellectual property to the technology sector may lessen and our ability to influence industry trends and technology selections may reduce.

We enforce our patents against unlawful infringement and generate revenue through realizing the value of our intellectual property by entering into license agreements and through patent divestment transactions. Patent license agreements can cover both licensees’ past and future sales. The portion of the income that relates to licensees’ past sales is not expected to have a recurring benefit and ongoing patent income from licensing is generally subject to various factors that we have little or no control over, for instance sales by the licensees. There are no assurances that our actions to generate intellectual property-related revenue will lead to favorable outcomes, such as patent license agreements on favorable terms to us, or that we would be able to use our patent portfolio for revenue generation to a similar extent going forward. Issues related to agreement renewal, licensee business performance or bankruptcies affecting our licensees could have a significant impact on our revenue. We have mainly focused on licensing our SEPs, but also seek to monetize other IPR, including implementation patents and other forms of intellectual property. However, there can be no assurances that we will be successful in our effort to broaden the scope of our intellectual property licensing programs.

In certain cases, we have initiated arbitration proceedings to establish the terms of compensation between the parties. Due to the nature of arbitration proceedings, there can be no assurances as to the final outcome or timing of a resolution.

Regulatory developments, actions by authorities, or applications of regulations may adversely affect our ability to protect our intellectual property or create intellectual property-related revenue. Any patents or

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other IPR that may be challenged, invalidated or circumvented, and any right granted under our patents may not provide competitive advantages for us. Our ability to protect and monetize our intellectual property may depend on regulatory developments in various jurisdictions and the implementation of the regulations by administrative bodies. Our ability to protect, license or divest our patented innovations may vary by region. In the technology sector generally, certain licensees are actively avoiding license payments, while some licensors are using aggressive methods to collect license payments, with both behaviors attracting regulatory attention. Authorities in various countries have increasingly monitored patent monetization and may aim to influence terms on which patent licensing arrangements or patent divestments may be executed. Such terms may be limited to a certain country or region; however, authorities could potentially seek to widen the scope and even impose global terms, potentially resulting in an adverse effect on us or limiting our ability to monetize our patent portfolios.

Intellectual property-related disputes and litigation are common in the technology industry and are often used to enforce patents and seek licensing fees. Other companies have commenced and may continue to commence actions seeking to establish the invalidity of our intellectual property, including our patents. In the event that one or more of our patents is challenged, a court may invalidate the patent or determine that the patent is not enforceable, which could have an impact on our competitive position. The outcome of court proceedings is difficult to predict and, consequently, our ability to use intellectual property for revenue generation may from time to time depend on favorable court rulings. Additionally, if any of our patents is invalidated, or if the scope of the claims in any patents is limited by a court decision, we could be prevented from using such patents as a basis for product differentiation or from licensing the invalidated or limited portion of our IPR. Even if such a patent challenge is not successful, the related proceedings could be expensive and time-consuming, divert the attention of our management and technical experts from our business and have an adverse effect on our reputation. Any diminutionability to achieve the cost savings contemplated;

∎unfavorable changes in legislation in the markets in which we operate may influence timing, costs and expected savings of the protection that certain initiatives contemplated;

∎our own IPR enjoy could cause usability to lose certain benefits of our investments in R&D.

Wesuccessfully develop new or improve existing products, market products to new or existing customers, enter into business agreements separately withinnew markets and otherwise grow our business groups which may grant certain licenses to our patents. Some of these agreements may inadvertently grant licenses to our patents within a broader scope than intended, or they may otherwise make the enforcement of our patents more difficult.highly competitive market;

Our products, services and business models depend on IPR technologies that we have developed as well as technologies that are licensed to us by certain third parties. As a result, evaluating the rights
∎organizational changes related to the technologies we use or intend to use is increasingly challenging,implementation plans require the alignment and we expect to continue to face claims that we have allegedly infringed third parties’ IPR. The useadjustment of these technologies may also resultresources, systems and tools, which if not completed in increased licensing costs for us, restrictions ona structured manner could impact our ability to use certain technologies inachieve our products and/or costlygoals, projected cost savings and time consuming litigation.

Our products and services include, and our business models depend on, utilization of numerous patented standardized or proprietary technologies. We invest significantly in R&D through our business to develop new relevant technologies, products and services. Our R&D activities have resulted in us having one of the industry’s strongest intellectual property portfolios, which our products and services and future cash generation and income depend on. We believe our innovations that are protected by IPR are a strong competitive advantage for our business. The continued strength of our portfolios depends on our ability to create new relevant technologies, products and services through our R&D activities.achieve the efficiencies contemplated;

Our products and services include increasingly complex technologies that we have developed or that have been licensed
∎the costs to us by certain third parties. The amount of such proprietary technologies andeffect the number of parties claiming IPR continue to increase, even within individual products, as the range of our products becomes more diversified and as the complexity of the technology increases. Additionally, we may enter into new business areas involving complex technologies. As such we continue to face the possibility of alleged infringement and related intellectual property claims against these going forward. The holders of patents and other IPR potentially relevant to our products may be unknown to us, may have different business models, may refuse to grant licenses to their proprietary rights, or may otherwise make it difficult for us to acquire a license on commercially acceptable terms. There may also be technologies licensed to and relied on by us that are subject to alleged infringement or

other corresponding allegations or claims by others which could impair our ability to rely on such technologies. Additionally, although we endeavor to ensure that companies collaborating with us possess appropriate IPR or licenses, we cannot fully avoid the risks of IPR infringement created by suppliers of components and various layers in our products, or by companies with which we collaborate in R&D activities. Similarly, we and our customers may face claims of infringement in connection with their use of our products.

In line with standard industry practice, we generally indemnify our customers for certain intellectual property-related infringement claims related to products or services purchased from us. Such claims are generally made directly to our customer and we may have limited possibilities to control the processes or evaluate the outcomes advance. As such, indemnifications can result in significant payment obligations for us that may be difficult to predict in advance.

The business models for many areas in advanced IT, including mobile services, may not be clearly established. The lack of availability of licenses for copyrighted content, delayed negotiations or restrictive licensing terms may have a material adverse effect on the cost or timing of content-related services offered by us, mobile network operators or third-party service providers.

Since all technology standards that we use and rely on, include certain IPR, we cannot fully avoid risks of a claim for infringement of such rights due to our reliance on such standards. We believe the number of third parties declaring their intellectual property to be potentially relevant to these standards; for example, the standards related to so-called 3G and LTE mobile communication technologies, as well as other advanced mobile communications standards including the forthcoming 5G standard, is increasing, which may increase the likelihood that we will be subject to such claims in the future. As the number of market entrants and the complexity of technology increases, it remains likely that we will need to obtain licenses with respect to existing and new standards from other licensors. While we believe most such IPR declared or actually found to be essential to a particular standard carries an obligation to be licensed on fair, reasonable and non-discriminatory terms, not all intellectual property owners agree. As a result, we have experienced costly and time-consuming litigation over such issues and we may continue to experience such litigation in the future.

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Risk factorscontinued

From time to time, certain existing patent licenses may expire or otherwise become subject to renegotiation. The inability to renew or finalize such arrangements or renew licenses with acceptable commercial terms may result in costly and time-consuming litigation, and any adverse result in any such litigation may lead to restrictions on our ability to sell certain products and could result in payments that could potentially have a material adverse effect on our operating results and financial condition. These legal proceedings may continue to be expensive and time-consuming and divert the efforts of our management and technical experts from our business, and, if decided against us, could result in restrictions on our ability to sell our products, require us to pay increased licensing fees, unfavorable judgments, costly settlements, fines or other penalties and expenses.

Our patent license agreements may not cover all the future businesses that we may enter, our existing business may not necessarily be coveredinitiatives contemplated by our patent license agreements if there are changes inplans may exceed our corporate structure or our subsidiaries, or our newly-acquired businesses may already have patent license agreements with terms that differ from similar terms in our patent license agreements. This may result in increased costs, restrictions in the use of certain technologies or time-consumingestimates and costly disputes whenever there are changes in our corporate structure or our subsidiaries, or whenever we enter into new business areas or acquire new businesses.

We make accruals and provisions to cover our estimated total direct IPR costs for our products. The total direct IPR costs consist of actual payments to licensors, accrued expenses under existing agreements and provisions for potential liabilities. We believe our accruals and provisions are appropriate for all technologies owned by third parties. The ultimate outcome, however, may differ from the provided level, which could have a positive or adverse impact on our results of operations and financial condition.

Any restrictions on our ability to sell our products due to expected or alleged infringements of third-party IPR and any IPR claims, regardless of merit, could result in a material loss of profits, costly litigation, the obligation to pay damages and other compensation, the diversion of the attention of our key employees, product shipment delays or the need for us to develop non-infringing technology or to enter into a licensing agreement on unfavorable

commercial terms. If licensing agreements are not available on commercially acceptable terms, we could be precluded from making and selling the affected products, or could face increased licensing costs. As new features are added to our products, we may need to acquire further licenses, including from new and sometimes unidentified owners of intellectual property. The cumulative costs of obtaining any necessary licenses are difficult to predict and may over time have a material adverse effect on our operating results.

Our business is subject to direct and indirect regulation. As a result, changes in various types of regulations or their application, as well as economic and trade policies applicable to current or new technologies or products, may adversely affect our business and results of operations. Our governance, internal controls and compliance processes could also fail to prevent regulatory penalties, both at operating subsidiaries and in joint ventures.

Our business is subject to direct and indirect regulation in each of the countries and regions where we, the companies with which we collaborate and our customers operate. We develop many of our products based on existing regulations and technical standards, our interpretation of unfinished technical standards or in certain cases in the absence of applicable regulations and standards. As a result, changes in various types of regulations or their application, as well as economic and trade policies applicable to current or new technologies or products, may adversely affect our business and results of operations. For example, changes in regulation affecting the construction of base stations and other network infrastructure could adversely affect the timing and costs of new network constructions or the expansion and commercial launch and ultimate commercial success of such networks. Also, changes in applicable privacy-related regulatory frameworks or their application may adversely affect our business, including possible changes that increase costs, limit or restrict possibilities to offer products or services, or reduce or could be seen to reduce the privacy aspects of our offerings, including if further governmental interception capabilities or regulations aimed at allowing governmental access to data are required for the products and services that we offer. Additionally, countries could require governmental interception capabilities or regulations aimed at allowing governmental access to data that could adversely affect us by reducing our sales to such markets or limiting our ability to use components or software that we have developed or sourced

from other companies. Further, our business and results of operations may be adversely affected by regulation, as well as economic and trade policies favoring the local industry participants, as well as other measures with potentially protectionist objectives that host governments in various countries may take, particularly in response to challenging global economic conditions or following changes in political regimes. The impact of changes in or uncertainties related to regulation and trade policies could affect our business and results of operations adversely or indirectly in certain cases where the specific regulations do not directly apply to us or our products and services.

The regulatory, exports and sanctions legal environment can also be difficult to navigate for companies with global operations. Our ability to protect our intellectual property and generate intellectual property-related net sales is dependent on regulatory developments in various jurisdictions, as well as the application of the regulations, for instance through administrative bodies. Export control, tariffs or other fees or levies imposed on our products and environmental, health, product safety and data protection, security, consumer protection, money laundering and other regulations that adversely affect the export, import, technical design, pricing or costs of our products could also adversely affect our sales and results of operations. Additionally, changes in various types of regulations or their application with respect to taxation or other fees collected by governments or governmental agencies may result in unexpected payment obligations, and in response to prevailing difficult global economic conditions there may be an increased aggressiveness in collecting such fees. We may be subject to new, existing or tightened export control regulations, sanctions, embargoes or other forms of economic and trade restrictions imposed on certain countries. Such actions may trigger additional investigations, including tax audits by authorities or claims by contracting parties. The results and costs of such investigations or claims may be difficult to predict and could lead to lengthy disputes, fines or fees, indemnities or a costly settlement.

Our provision of services and adaptation of Cloud-based solutions has resulted in us being exposed to a variety of new regulatory issues (e.g., data privacy) and makes us subject to increased regulatory scrutiny. Our current business models rely on certain centralized data processing solutions and Cloud or remote delivery-based services for distribution of services and software or data

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storage. The Cloud or remote delivery-based business models and operations have certain inherent risks, including those stemming from the potential security breaches, and applicable regulatory regimes may cause limitations in implementing such business models or expose us to regulatory or contractual actions. Moreover, our competitors have employed and will likely continue to employ significant resources to shape the legal and regulatory regimes in countries where we have significant operations. Governments and regulators may make legal and regulatory changes or interpret and apply existing laws in ways that make our products and services less appealing to end users or require us to incur substantial costs, change our business practices or prevent us from offering our products and services.

We operate on a global scale and our business and activities cover multiple jurisdictions and are subject to complex regulatory frameworks. Current international trends show increased enforcement activity and enforcement initiatives in areas such as competition law and anti-corruption. Despite our Group-wide annual ethical business training and other efforts including a compliance risk assessment, which aims to ensure knowledge of best practices related to governance and compliance processes, we may not be able to prevent breaches of lawrealize the targeted cash inflows or governance standards within yield other expected proceeds;

∎our business, subsidiariescost saving initiatives, including R&D, may negatively affect our ability to develop new or improve existing products and joint ventures.

Nokiacompete effectively in certain markets, and there is a publicly listed company. As such, it is subject to various securities and accounting rules and regulations. While Nokia has determinedno guarantee that its internal control over financial reporting was effective as of December 31, 2015 it mustwe will continue to monitor and assess its internal control over financial reporting and its compliance withbe able to successfully innovate or remain technologically competitive;

∎disruptions to regular business operations caused by the applicable securities regulation and accounting rules and regulations. Our operating subsidiaries or our joint ventures’ failureplans, including to maintain effective internal controls over financial reporting or to comply withunaffected parts of Nokia; the applicable securities and accounting rules and regulations, could adversely affect the accuracy and timelinessbenefits of our financial reporting, which could result, for instance, in loss of confidence in us or in the accuracy and completeness of our financial reports, or otherwise in the imposition of fines or other regulatory measures, which could have a material adverse effect on us.

Our business model relies on solutions for distribution of services and software or data storage, which entail inherent risks relating to applicable regulatory regimes, cybersecurity breaches and other unauthorized access to network data or other potential security risks that may adversely affect our business.

Our current business models rely on certain centralized data processing solutions and Cloud or remote delivery-based services for distribution of services and software or data storage. The Cloud or remote delivery-based business models and operations have certain inherent risks, including those stemming from potential security breaches and applicable regulatory regimes, which may cause limitations in implementing Cloud or remote delivery-based models or expose us to regulatory or contractual actions.

Although we endeavor to develop products and services that meet with the appropriate security standards, including effective data protection, we or our products and online services, marketing and developer sites may be subject to cybersecurity breaches, including hacking, viruses, worms and other malicious software, unauthorized modifications or illegal activities that may cause potential security risks and other harm to us, our customers or consumers and other end-users of our products and services. Events or allegations of cybersecurity breaches may have a material adverse effect on our business. IT is rapidly evolving, the techniques used to obtain unauthorized access or sabotage systems change frequently and the parties behind cyber-attacks and other industrial espionage are believed to be sophisticated and have extensive resources, and it is not commercially or technically feasible to mitigate all known vulnerabilities in a timely manner or to eliminate all risk of cyber-attacks and data breaches. Additionally, we contract with multiple third parties in various jurisdictions who collect and use certain data on our behalf. Although we have processes in place designed to ensure appropriate collection, handling and use of such data, third parties may use the data inappropriately or breach laws and agreements in collecting, handling or using or leaking such data. This could lead to lengthy legal proceedings or fines imposed on us, as well as adverse effects to our reputation and brand value.

In connection with providing products and services to our customers and consumers, certain customer feedback, information on consumer usage patterns and other personal and consumer data are collected and stored through us, either by us or our business partners or subcontractors. Loss, improper disclosure or leakage of any personal or consumer data collected by us or which is available to our partners or subcontractors, made available to us or stored in or through our products could have a material adverse effect on us and harm our reputation and brand. We have outsourced a significant portion of our IT operations, as well as through the network and information systems that we sell to third parties or for whose security and reliability we may otherwise be accountable. Additionally, governmental authorities may use our networks products to access the personal data of individuals without our involvement; for example, through the so-called lawful intercept capabilities of network infrastructure. Even the perception that our products do not adequately protect personal or consumer data collected by us, made available to us or stored in or through our products or that they are being used by third parties to access personal or consumer data could impair our sales, results of operations, reputation and brand value.

Unauthorized third parties have targeted Alcatel Lucent’s information systems, using sophisticated attempts, referred to as advanced persistent threats, “phishing” and other attacks. Such attempts to access Alcatel Lucent’s information systems have been successful on one occasion in 2013, on two occasions in 2014 and on one occasion in 2015, partially reflecting the overall increase in the number of attacks around the world and more specifically in Alcatel Lucent’s industry. Alcatel Lucent investigated the impact of these attacks and, with respect to the attacks in 2013 and 2014, although Alcatel Lucent has no reason to believe that sensitive information was actually compromised, Alcatel Lucent is not in a position to be certain, as the investigations showed that some data was extracted. Alcatel Lucent continues to take corrective actions that Alcatel Lucent believes will substantially mitigate the risk that such attacks will materially impact its business or operations, or those of its customers. However, as cyber-attacks can be difficult to detect, we cannot rule out that there may have been other cyber-attacks that have been successful and/or evaded detection.

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Risk factorscontinued

Our business is also vulnerable to theft, fraud or other forms of deception, sabotage and intentional acts of vandalism by third parties, as well as our employees. Unauthorized access to or modification, misappropriation or loss of, our intellectual property and confidential information could result in litigation and potential liability to customers, suppliers and other third parties, harm our competitive position, reduce the value of our investment in R&D and other strategic initiatives or damage our brand and reputation, which could have a material adverse effect on our business, results of operations or financial condition. Additionally, the cost and operational consequences of implementing further information system protection measures could be significant. Weplans may not be successfulrealized in implementingcontemplated timeframes or at all;

∎intended business plans may require us to inform or consult with employees and labor representatives, and such measures, which could cause business disruptionsprocesses may influence the timing, costs and be more expensive, time consumingextent of expected savings and resource-intensive. Such disruptions could adversely impact our business.

As our business operations, including those we have outsourced, rely on complex IT systems and networks (and related services), our reliance on the precautions taken by external companies to insurefeasibility of certain of the reliabilityinitiatives contemplated;

∎bargaining power of our and their IT systems, networks and related services is increasing. Consequently, certain disruptions in IT systems and networks affecting our external providers could have a material adverse effect on our business due to disruptions, breachessuppliers may prevent us from achieving targeted procurement savings;

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Risk factorscontinued

∎skilled employees may leave or the like.

Our Nokia Technologies business group aims to generate net sales and profitability through licensing of the Nokia brand, the development and sales of products and services in the areas of virtual reality, digital media and digital health, as well as other business ventures including technology innovation and incubation, which may not materialize as planned or at all.

Our Nokia Technologies business group pursues various business opportunities building on our innovations and the Nokia brand. In addition to patent licensing, the Nokia Technologies business group is focused on generating net sales and profits through business ventures related to licensing the Nokia brand, virtual reality, digital media and digital health as well as other business ventures including technology innovation and incubation, focused on developing new ideas and prototypes.

There can be no assurance that we will successfully reach brand licensing arrangements at all or on terms that prove satisfactory to us. Additionally, licensing the Nokia brand to device manufacturers could—in cases where the licensee acts inconsistently

with our ethical, compliance or quality standards—negatively affect our reputation and the value of our brand, thus diminishing the business potential with respect to utilizing our brand for licensing opportunities or otherwise having a negative effect on our business. The Nokia Technologies business group develops and licenses various innovations as well as develops its own products, including the OZO virtual reality camera in 2015. The contract manufacturing and selling of devices can expose us to risks, including product liability claims or claims from contract manufacturers.

The industries in which we operate, or may operate in the future, are generally fast-paced, rapidly evolving and innovative. Such industries are at different levels of maturity, and there can be no assurances that any investment we make will yield an expected return or result in the intended benefits. Our business will likely require significant well-placed investments to innovate and grow successfully. Such investments may include R&D, licensing arrangements, acquiring businesses and technologies, recruiting specialized expertise and partnering with third parties. Such investments may not, however, result in technologies, products or services that achieve or retain broad or timely market acceptance or are preferred by our customers and consumers. Additionally, we are entering into new business areas based on our technology assets and may explore new business ventures. Such business areas or plans may be adversely affected by adverse industry and market developments in the numerous diverse markets in which we operate, as well as by general economic conditions globally and regionally. As such, the investments may not be profitable or achieve the targeted rates of return. There can be no assurances that we will be able to identify and understand the key market trends and user segments enabling us to address customers’ and consumers’ expanding needs in order to bring new innovative and competitive products and services to market in a timely manner.

There can be no assurances that our Nokia Technologies business group will be successful in innovation and incubation or in generating net sales and profits through its business plans, for instance in technology and brand licensing, products in the areas of virtual reality, digital media and health. Additionally, entering into new business areas may expose us to additional liabilities or claims, for instance through product liability or other regulatory frameworks and related government investigations, litigation, penalties or fines.

We are subject to various legislative frameworks and jurisdictions that regulate fraud as well as economic and trade sanctions and policies, and as such, the extent and outcome of possible proceedings is difficult to estimate with any certainty. Our subsidiary Alcatel Lucent has been, and continues to be, involved in investigations concerning alleged violations of anti-corruption laws, and has been, and could again be, subject to material fines, penalties and other sanctionsrecruit employees as a result of such investigations.

As a global company, we are subject to various legislative frameworks and jurisdictions that regulate fraud committed in the course of business operations, as well as economic and trade sanctions and, as such, the extent and outcome of possible proceedings is difficult to estimate with any certainty. Anti-corruption laws in effect in many countries prohibit companies and their intermediaries from making improper payments to public officials for the purpose of obtaining new business or maintaining existing business relationships. Certain anti-corruption laws such as the U.S. Foreign Corrupt Practices Act (“FCPA”) also require the maintenance of proper books and records, and the implementation of controls and procedures in order to ensure that a company’s operations do not involve corrupt payments. Since we operate throughout the world, and given that some of our clients are government-owned entities and that our projects and agreements often require approvals from public officials, there is a risk that our employees, consultants or agents may take actions that are in violation of our policies and of anti-corruption laws. In many parts of the world where we currently operate or seek to expand our business, local practices and customs may be in contradiction to our policies, including the Nokia Code of Conduct, and could violate anti-corruption laws, including the FCPA and the UK Bribery Act 2010, and applicable European Union regulations, as well as applicable economic and trade sanctions and embargoes. Our employees, or other parties acting on our behalf, could violate policies and procedures intended to promote compliance with anti-corruption laws or economic and trade sanctions. Violations of these laws by our employees or other parties acting on our behalf, regardless of whether we had participated in such acts or had knowledge of such acts at certain levels within our organization, could result in us or our employees becoming subject to criminal or civil enforcement actions, including fines or penalties, disgorgement of profits and suspension or disqualification of sales.

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Additionally, violations of law or allegations of violations may result in reputational harmplanned initiatives, and loss of their expertise may cause adverse effects on our business and adversely affector limit our brandability to achieve our goals; and reputation. Detecting, investigating and resolving such situations may also result in significant costs, including the need to engage external advisers, and consume significant time, attention and resources from our management and other key employees. The result and costs of such investigations or claims may be difficult to predict and could lead to, for instance, lengthy disputes, fines, fees or indemnities, costly settlement or the

∎overall deterioration of the Nokia brand.

In the past, Alcatel Lucent has experienced both actualbrand value among potential and alleged violations of anti-corruption laws, including of the FCPA. Ascurrent employees or as a result, Alcatel Lucent has had to pay substantial amounts to the US Securities and Exchange Commission in disgorgement of profits and interest, and to the U.S. Department of Justice (the “DOJ”) in criminal fines. In 2010, Alcatel Lucent signed a deferred prosecution agreement (the “DPA”) with the DOJ, pursuant to which the prosecution for violations of the internal controls and books and records provisions of the FCPA would be deferred for the term of the DPA. Among other things, the DPA contained provisions requiring the engagement of a French anti-corruption compliance monitor (the “Monitor”). Alcatel Lucent worked with the Monitor to implement its recommendations, most of which were focused on strengthening the resources dedicated to the compliance organization of Alcatel Lucent Group, and on enhancing and expanding its policies and procedures, including those Alcatel Lucent use when Alcatel Lucent retains third parties (such as distributors and suppliers).

On December 8, 2014, the Monitor submitted a final report and certified that Alcatel Lucent’s compliance program, including its policies and procedures, is reasonably designed and implemented to prevent and detect violations of anti-corruption laws within Alcatel Lucent as defined in and required by the DPA. Following receipt of the Monitor’s final report, the DOJ filed a motion to dismiss with prejudice the FCPA charges underlying the DPA, which the court granted on February 9, 2015.

Alcatel Lucent had to make certain payments to the Costa RicanAttorney Generalpreferred employer.

While we are implementing and have implemented various cost savings and other initiatives in the past, and may implement such initiatives in the future, there can be no assurance that we will be able to complete those successfully or that we will realize the projected benefits. Our plans may be altered in the future, including adjusting any projected financial or other targets. The anticipated costs or the level of disruption expected from implementing such plans or restructurings may be higher than expected.

If we are unable to realize the projected benefits or contemplated cost savings by efforts aimed at managing and improving financial performance, operational performance, cost savings, competitiveness, targeted results or improvements, we may experience negative impacts on our reputation or a material adverse effect on our business, financial condition, results of operations and cash flows. Efforts to plan and implement cost saving initiatives may divert management attention from the rest of the business and adversely affect our business.

We are dependent on a limited number of customers and large multi-year agreements. The loss of a single customer, operator consolidation, unfavorable contract terms or other issues related to a single agreement may have a material adverse effect on our business and financial condition.

A significant proportion of the net sales that we generate have historically been derived from a limited number of customers. As consolidation among existing customers continues, it is possible that an even greater portion of our net sales will be attributable to a smaller number of large service providers operating in multiple markets. These developments are also likely to increase the impact on our net sales based on the outcome of certain individual agreement tenders.

Mobile operators are increasingly entering into network sharing arrangements, as well as joint procurement agreements, which may reduce their investments and the number of networks available for us to service. Furthermore, procurement organizations of certain large mobile operators sell consulting services to enhance the negotiating position of small operators

with their vendors. As a result of these trends and the intense competition in the industry, we may be required to agree to increasingly less favorable terms in order to remain competitive. Any unfavorable developments in relation to, or any change in the agreement terms applicable to, a major customer may have a material adverse effect on our business, results of operations and financial condition. Also, due to the long-term nature of the agreements, it is possible that the contract terms of the agreement may prove less favorable to us than originally expected, for instance due to changes in costs and product portfolio decisions.

As a result of the Acquisition of Alcatel Lucent, we may lose certain existing agreements, or be unable to renew or gain new agreements due to customer diversity policies that limit the ability of customers to have one network provider exceeding a certain threshold of business in a given market. Policies or practices in certain countries may also limit the possibility for foreign vendors to participate in certain business areas over a certain threshold.

Furthermore, there is a risk that the timing of sales and results of operations associated with large multi-year agreements, which are typical in the mobile infrastructure and related services business, will differ from expectations. Moreover, such agreements often require dedication of substantial amounts of working capital and other resources, which may adversely affect our cash flow, particularly in the early stages of an agreement’s term, or may require us to continue to sell certain products and services, or to sell in certain markets, that would otherwise be discontinued or exited, thereby diverting resources from developing more profitable or strategically important products and services, or focusing on more profitable or strategically important markets. Any suspension, termination or non-performance by us under an agreement’s terms may have a material adverse effect on us (e.g., due to penalties for breaches or early termination).

Due to our global operations, our net sales, costs and results of operations, as well as the U.S. dollar value of our dividends and market price of our ADSs, are affected by exchange rate fluctuations.

We operate globally and are therefore exposed to foreign exchange risks in the form of both transaction risks and translation risks. Our policy is to monitor and hedge exchange rate exposure, and we manage our operations to mitigate, but not to eliminate, the impacts of exchange rate fluctuations. There can be no assurance, however, that our hedging

activities will prove successful in mitigating the potentially negative impact of exchange rate fluctuations. Additionally, significant volatility in the relevant exchange rates may increase our hedging costs, as well as limit our ability to hedge our exchange rate exposure. In particular, we may not adequately hedge against unfavorable exchange rate movements, including those of certain emerging market currencies, which could have an adverse effect on our financial condition and results of operations. Furthermore, exchange rate fluctuations may have an adverse effect on our net sales, costs and results of operations, as well as our competitive position, through their impact on our customers and competitors. Additionally, exchange rate fluctuations may materially affect the U.S. dollar value of any dividends or other distributions that are paid in euro, as well as the market price of our ADSs.

We also experience other financial market-related risks, including changes in interest rates and in prices of marketable securities that we own. We may use derivative financial instruments to reduce certain of these risks. If our strategies to reduce such risks are not successful, our financial condition and results of operation may be harmed.

The Nokia Technologies business group’s patent licensing income and other intellectual property-related revenues are subject to risks and uncertainties such as our ability to maintain our existing sources of intellectual property-related revenue, establish new sources of revenue and protect our intellectual property from infringement. A proportionally significant share of the current patent licensing income is generated from the smartphone market which is rapidly changing and features a limited number of large vendors.

We have historically invested significantly in R&D to develop new relevant technologies, products and services for our business. This has led to the Nokia Technologies business group possessing one of the industry’s strongest intellectual property portfolios, including numerous standardized or proprietary patented technologies. We now have two further, distinct and industry-leading portfolios: the Nokia Networks and Alcatel Lucent portfolios. Many of our products and services use or are protected by patents in these portfolios. We also generate revenue by licensing, and we seek to renew existing license agreements and negotiate new license agreements. We also seek to expand the scope of our licensing activities to other industries, in particular those that implement mobile communication technologies.

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The continued strength of our portfolios depends on our ability to create new relevant technologies, products and services through our R&D activities and to protect our IPR. If those technologies, products and services do not become relevant, and therefore attractive to licensees, the strength of our intellectual property portfolios could be reduced, which could adversely affect our ability to use our intellectual property portfolios for revenue generation. Our intellectual property-related revenue can vary considerably from time to time based on factors such as the terms of agreements we enter into with licensees, and there is no assurance that past levels are indicative of future levels of intellectual property-related revenue.

Despite the steps that we have taken to protect our technology investments with IPR, we cannot be certain that any rights or pending applications will be granted or that the rights granted in connection with any future patents or other IPR will be sufficiently broad to protect our innovations. Third parties may infringe our intellectual property relating to our proprietary technologies or disregard their obligation to seek a license under our SEPs or seek to pay less than reasonable license fees. If we are unable to continue to develop or protect our intellectual property-related revenue or establish new sources of revenue, this may materially and adversely affect our business, financial position and results of operations.

The Nokia Technologies business group’s sales and profitability are currently largely derived from patent licensing. Patent licensing income may be adversely affected by general economic conditions or adverse market developments, as well as regulatory and other developments with respect to protection awarded to technology innovations or compensation trends with respect to licensing. For example, our patent licensing business may be adversely affected if a licensee’s ability to pay is reduced or they become insolvent or bankrupt. Additionally, poor performance of potential or current licensees may limit a licensee’s motivation to seek new or renew existing licensing arrangements with us. In certain cases, patent licensing income is dependent on the sales of the licensee, where the reduced sales of the licensee have a direct effect on the patent licensing income received by the Nokia Technologies business group.

We enforce our patents against unlawful infringement and generate revenue through realizing the value of our intellectual property by entering into license agreements and occasionally through business transactions. Patent license agreements can cover both licensees’ past and future sales. The portion of the income that relates to licensees’ past sales is not expected to have a recurring benefit and ongoing patent income from licensing is generally subject to various factors that we have little or no control over, for instance sales by the licensees.

In certain cases, we have initiated litigation to enforce our patents and seek licensing fees or utilized arbitration proceedings to establish the terms of compensation between the parties. For instance, in December 2016, we initiated litigation against Apple in several jurisdictions for infringement of Nokia patents. Due to the nature of any litigation or arbitration proceedings, there can be no assurances as to the final outcome or timing of any outcome of litigation, arbitration or other resolution.

Regulatory developments, actions by authorities, or applications of regulations may adversely affect our ability to protect our intellectual property or create intellectual property-related revenue. Any patents or other IPR may be challenged, invalidated or circumvented, and any right granted under our patents may not provide competitive advantages for us. Our ability to protect and monetize our intellectual property may depend on regulatory developments in various jurisdictions and the implementation of the regulations by administrative bodies. Our ability to protect, license or divest our patented innovations may vary by region. In the technology sector generally, certain licensees are actively avoiding license payments, while some licensors are using aggressive methods to collect license payments, with both behaviors attracting regulatory attention. Authorities in various countries have increasingly monitored patent monetization and may aim to influence the terms on which patent licensing arrangements or patent divestments may be executed. Such terms may be limited to a certain country or region; however, authorities could potentially seek to widen the scope and even impose global terms, potentially resulting in an adverse effect on us or limiting our ability to monetize our patent portfolios.

Intellectual property-related disputes and litigation are common in the technology industry and are often used to enforce patents and seek licensing fees. Other companies have commenced and may continue to commence actions seeking to establish the invalidity of our intellectual property, including our patents. In the event that one or more of our patents is challenged, a court may invalidate the patent or determine that the patent is not enforceable, which could have an impact on our competitive position. The outcome of court proceedings is difficult to predict and, consequently, our ability to use intellectual property for revenue generation may from time to time depend on favorable court rulings. Additionally, if any of our patents is invalidated, or if the scope of the claims in any patents is limited by a court decision, we could be prevented from using such patents as a basis for product differentiation or from licensing the invalidated or limited portion of our IPR. Even if such a patent challenge is not successful, the related proceedings could be expensive and time-consuming, divert the attention of our management and technical experts from our business and have an adverse effect on our reputation. Any diminution in the protection of our IPR could cause us to lose certain benefits of our R&D investments.

We retained our entire patent portfolio after the Sale of the D&S Business in 2014. Following the Sale of the D&S Business, Nokia Technologies is no longer required to agree cross-licenses to cover its handset business, which has contributed to growing our licensing revenue. While this has been our practice, there can be no guarantee that this can be continued in future. In the past, parts of our intellectual property development were driven by innovation from the D&S Business. As we no longer own this business, our future intellectual property relating to the mobile phone sector may lessen and our ability to influence industry trends and technology selections may reduce.

We also enter into business agreements separately within our business groups which may grant certain licenses to our patents. Some of these agreements may inadvertently grant licenses to our patents with a broader scope than intended, or they may otherwise make the enforcement of our patents more difficult.

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Risk factorscontinued

Our products, services and business models depend on technologies that we have developed as well as technologies that are licensed to us by certain third parties. As a result, evaluating the rights related to the technologies we use or intend to use is increasingly challenging, and we expect to continue to face claims that we have allegedly infringed third parties’ IPR. The use of these technologies may also result in increased licensing costs for us, restrictions on our ability to use certain technologies in our products and/or costly and time-consuming litigation.

Our products and services include, and our business models depend on, utilization of numerous patented standardized or proprietary technologies. We invest significantly in R&D through our business to develop new relevant technologies, products and services. Our R&D activities have resulted in us having one of the industry’s strongest intellectual property portfolios, on which our products and services and future cash generation and income depend. We believe our innovations that are protected by IPR are a strong competitive advantage for our business. The continued strength of our IPR portfolios depends on our ability to create new relevant technologies, products and services through our R&D activities.

Our products and services include increasingly complex technologies that we have developed or that have been licensed to us by certain third parties. The amount of such proprietary technologies and the number of parties claiming IPR continue to increase, even within individual products, as the range of our products becomes more diversified and as the complexity of the technology increases. We continue to face the possibility of alleged infringement and related intellectual property claims going forward. The holders of patents and other IPR potentially relevant to our existing and future products may be unknown to us, may have different business models, may refuse to grant licenses to their proprietary rights or may otherwise make it difficult for us to acquire a license on commercially acceptable terms. There may also be technologies licensed to and relied on by us that are subject to alleged infringement or other corresponding allegations or claims by others which could impair our ability to rely on such technologies. Additionally, although we endeavor to ensure that companies collaborating with us possess appropriate IPR or licenses, we cannot fully avoid the risks of IPR infringement by suppliers of components, processes and other various layers in our

products, or by companies with which we collaborate. Similarly, we and our customers may face claims of infringement in connection with the use of our products.

In line with standard industry practice, we generally indemnify our customers for certain intellectual property-related infringement claims related to products or services purchased from us. Such claims are generally made directly to our customer and we may have limited possibilities to control the processes or evaluate the outcomes in advance. As such, indemnifications can result in significant payment obligations for us that may be difficult to predict in advance.

The business models for many areas in advanced IT, including mobile services, may not be clearly established. The lack of availability of licenses for copyrighted content, delayed negotiations or restrictive licensing terms may have a material adverse effect on the cost or timing of content-related services offered by us, mobile network operators or third-party service providers.

Since all technology standards that we use, and rely on, including 3G, LTE mobile communication technologies and 5G, include certain IPR, we cannot fully avoid risks of a claim for infringement of such rights due to our reliance on such standards. We believe the number of third parties declaring their intellectual property to be potentially relevant to these standards is increasing, which may increase the likelihood that we will be subject to such claims in the future. As the number of market entrants and the complexity of technology increases, it remains likely that we will need to obtain licenses with respect to existing and new standards from other licensors. While we believe most such IPR declared or actually found to be essential to a particular standard carries an obligation to be licensed on fair, reasonable and non-discriminatory terms, not all intellectual property owners agree. As a result, we have experienced costly and time-consuming litigation over such issues and we may continue to experience such litigation in the future.

From time to time, certain existing patent licenses may expire or otherwise become subject to renegotiation. The inability to renew or finalize such arrangements or renew licenses with acceptable commercial terms may result in costly and time-consuming litigation, and any adverse result in any such litigation may lead to restrictions on our ability to sell certain products and could result in payments that could potentially have a material adverse effect on our operating results and financial condition.

These legal proceedings may continue to be expensive and time-consuming and divert the efforts of our management and technical experts from our business and, if decided against us, could result in restrictions on our ability to sell our products, require us to pay increased licensing fees, unfavorable judgments, costly settlements, fines or other penalties and expenses.

Our patent license agreements may not cover all the future businesses that we may enter, our existing business may not necessarily be covered by our patent license agreements if there are changes in our corporate structure or our subsidiaries, or our newly-acquired businesses may already have patent license agreements with terms that differ from similar terms in our patent license agreements. This may result in increased costs, restrictions in the use of certain technologies or time-consuming and costly disputes whenever there are changes in our corporate structure or our subsidiaries, or whenever we enter into new business areas or acquire new businesses.

We make accruals and provisions to cover our estimated total direct IPR costs for our products. The total direct IPR costs consist of actual payments to licensors, accrued expenses under existing agreements and provisions for potential liabilities. We believe our accruals and provisions are appropriate for all technologies owned by third parties. The ultimate outcome, however, may differ from the provided level, which could have a positive or adverse impact on our results of operations and financial condition.

Any restrictions on our ability to sell our products due to expected or alleged infringements of third-party IPR and any IPR claims, regardless of merit, could result in a material loss of profits, costly litigation, the obligation to pay damages and other compensation, the diversion of the attention of our key employees, product shipment delays or the need for us to develop non-infringing technology or to enter into a licensing agreement on unfavorable commercial terms. If licensing agreements are not available on commercially acceptable terms, we could be precluded from making and selling the affected products, or could face increased licensing costs. As new features are added to our products, we may need to acquire further licenses, including from new and sometimes unidentified owners of intellectual property. The cumulative costs of obtaining any necessary licenses are difficult to predict and may over time have a material adverse effect on our operating results.

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Our business is subject to direct and indirect regulation. As a result, changes in various types of regulations or their application, as well as economic and trade policies applicable to current or new technologies or products, may adversely affect our business and results of operations. Our governance, internal controls and compliance processes could also fail to prevent regulatory penalties, both at operating subsidiaries and in joint ventures.

Our business is subject to direct and indirect regulation in each of the countries and regions where we, the companies with which we collaborate and our customers operate. We develop many of our products based on existing regulations and technical standards, our interpretation of unfinished technical standards or, in certain cases, in the absence of applicable regulations and standards. As a result, changes in various types of regulations or their application, as well as economic and trade policies applicable to current or new technologies or products, may adversely affect our business and results of operations. For example, changes in regulation affecting the construction of base stations and other network infrastructure could adversely affect the timing and costs of new network constructions or the expansion and commercial launch and ultimate commercial success of such networks. Also, changes in applicable privacy-related regulatory frameworks or their application may adversely affect our business, including possible changes that increase costs, limit or restrict possibilities to offer products or services, or reduce or could be seen to reduce the privacy aspects of our offerings, including if further governmental interception capabilities or regulations aimed at allowing governmental access to data are required for the products and services that we offer. An increase in the protectionist stances of governments around the world, which impact the free flow of data across borders, is already affecting our global service delivery model and, due to the increase in terrorism (including cyber terrorism), we expect that the adoption of data localization, national sourcing and national hiring regulations and policies will increase. An increase in regulation of digital telecommunications, especially in the European Union, might impose additional costs or burdens on our customers and on Nokia itself. Our operations and employee recruitment and retention depend on our ability to obtain the necessary visas and work permits for our employees to travel and work in the jurisdictions in which we operate. Restrictive government policies, such as

limitations on visas, may make it difficult for us to move our employees into and out of these jurisdictions. Changes in political regimes will also likely impact the way Nokia does business, due to potential changes in trade, cybersecurity, telecommunications, immigration and environmental policies.

Moreover, countries could require governmental interception capabilities or regulations aimed at allowing governmental access to data that could adversely affect us by reducing our sales to such markets or limiting our ability to use components or software that we have developed or sourced from other companies. Furthermore, our business and results of operations may be adversely affected by regulation, as well as economic and trade policies favoring the local industry participants, as well as other measures with potentially protectionist objectives that host governments in various countries may take, particularly in response to challenging global economic conditions or following changes in political regimes. The impact of changes in or uncertainties related to regulation and trade policies could affect our business and results of operations adversely or indirectly in certain cases where the specific regulations do not directly apply to us or our products and services.

The regulatory, exports and sanctions legal environment can also be difficult to navigate for companies with global operations. Our ability to protect our intellectual property and generate intellectual property-related net sales is dependent on regulatory developments in various jurisdictions, as well as the application of the regulations, for instance through administrative bodies. Export control, tariffs or other fees or levies imposed on our products and environmental, health, product safety and data protection, security, consumer protection, money laundering and other regulations that adversely affect the export, import, technical design, pricing or costs of our products could also adversely affect our sales and results of operations. Additionally, changes in various types of regulations or their application with respect to taxation or other fees collected by governments or governmental agencies may result in unexpected payment obligations, and in response to prevailing difficult global economic conditions there may be an increased aggressiveness in collecting such fees. We may be subject to new, existing or tightened export control regulations, sanctions, embargoes or other forms of economic and trade restrictions imposed on certain countries. Such actions may trigger additional investigations, including tax audits

by authorities or claims by contracting parties. The results and costs of such investigations or claims may be difficult to predict and could lead to lengthy disputes, fines or fees, indemnities or a costly settlement.

Our provision of services and adaptation of Cloud-based solutions has resulted in us being exposed to a variety of new regulatory issues or different exposure to regulatory issues (e.g., related to data privacy) and makes us subject to increased regulatory scrutiny. Our current business models rely on certain centralized data processing solutions and Cloud or remote delivery-based services for distribution of services and software or data storage. Cloud and remote delivery-based business models and operations have certain inherent risks, including those stemming from potential security breaches, and applicable regulatory regimes may cause limitations in implementing such business models or expose us to adverse effects stemming for instance from regulatory or contractual issues, including penalties, fines, sanctions and limitations on conducting business. Moreover, our competitors have employed and will likely continue to employ significant resources to shape the legal and regulatory regimes in countries where we have significant operations. Governments and regulators may make legal and regulatory changes or interpret and apply existing laws in ways that make our products and services less appealing to end users or require us to incur substantial costs, change our business practices or prevent us from offering our products and services.

We operate on a global scale and our business and activities cover multiple jurisdictions and are subject to complex regulatory frameworks. Current international trends show increased enforcement activity and enforcement initiatives in areas such as competition law, privacy, cybersecurity and anti-corruption. Despite our Group-wide annual ethical business training and other measures, we may not be able to prevent breaches of law or governance standards within our business, subsidiaries and joint ventures.

Nokia is a publicly listed company and, as such, subject to various securities and accounting rules and regulations. Improper accounting practices, accounting errors or misjudgment by management could have a material adverse effect on us. Accordingly, Nokia must continue to monitor and assess its internal control over financial reporting and its compliance with the applicable rules and regulations. We have identified two material

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Risk factorscontinued

weaknesses in our internal controls over financial reporting. Refer to “—We have identified material weaknesses in our internal control over financial reporting following the Acquisition of Alcatel Lucent which, if not remediated, could have a material adverse effect on us” for more information on the identified material weakness.

We have identified material weaknesses in our internal control over financial reporting following the Acquisition of Alcatel Lucent which, if not remediated, could have a material adverse effect on us.

Our integration activities in connection with the Acquisition of Alcatel Lucent are ongoing. In connection with the preparation of our consolidated financial statements for the year ended December 31, 2016, our management identified two material weaknesses in the effectiveness of our internal control over financial reporting related to (1) the accounting for income taxes at a former Alcatel Lucent entity in the United States and (2) the accounting and control functions at a former Alcatel Lucent subsidiary in China.

As permitted by applicable regulations and accounting rules, Nokia’s internal controls effectiveness assessment in 2016 did not include Alcatel Lucent’s legacy operations. Our operating subsidiaries or our joint ventures’ failure, or a failure to integrate the Alcatel Lucent legacy operations into our internal controls framework, could adversely affect the accuracy and timeliness of our financial reporting, which could result, for instance, in loss of confidence in us or in the accuracy and completeness of our financial reports, or otherwise in the imposition of fines or other regulatory measures, which could have a material adverse effect on us. Moreover, we may identify further control deficiencies that are material weaknesses in the future.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. We may be unable to establish and implement a plan to remediate these material weaknesses within the anticipated timeframe. If we are unable to remediate the material weaknesses described above, or any other subsequently identified material weaknesses, our ability to record, process and report financial information accurately could be adversely affected. The occurrence of or failure to remediate the material weaknesses, or any other subsequently identified material weaknesses, could have a material adverse effect on our financial position or business.

We are exposed to risks related to information security. Our business model relies on solutions for distribution of services and software or data storage, which entail inherent risks relating to applicable regulatory regimes, cybersecurity breaches and other unauthorized access to network data or other potential security risks that may adversely affect our business.

We are exposed to information security-related risk, for instance as our business and operations rely on confidentiality of proprietary information as well as sensitive information, for instance related to our employees. Also, our business models rely on certain centralized data processing solutions and Cloud or remote delivery-based services for distribution of services and software or data storage. The Cloud or remote delivery-based business models and operations have certain inherent risks, including those stemming from potential security breaches and applicable regulatory regimes, which may cause limitations in implementing Cloud or remote delivery-based models or expose us to regulatory or contractual sanctions.

Although we endeavor to develop products and services that meet the appropriate security standards, including effective data protection, we or our products and online services, marketing and developer sites may be subject to cybersecurity breaches, including hacking, viruses, worms and other malicious software, unauthorized modifications, or illegal activities that may cause potential security risks and other harm to us, our customers or consumers and other end-users of our products and services. IT is rapidly evolving, the techniques used to obtain unauthorized access or sabotage systems change frequently and the parties behind cyber-attacks and other industrial espionage are believed to be sophisticated and have extensive resources, and it is not commercially or technically feasible to mitigate all known vulnerabilities in a timely manner or to eliminate all risk of cyber-attacks and data breaches. Additionally, we contract with multiple third parties in various jurisdictions who collect and use certain data on our behalf. Although we have processes in place designed to ensure appropriate collection, handling and use of such data, third parties may use the data inappropriately or breach laws and agreements in collecting, handling or using or leaking such data. This could lead to lengthy legal proceedings or fines imposed on us, as well as adverse effects to our reputation and brand value.

In connection with providing products and services to our customers and consumers, certain customer feedback, information on consumer usage patterns and other personal and consumer data are collected, stored and processed through us, either by us or by our business partners or subcontractors. Loss, improper disclosure or leakage of any personal or consumer data collected by us or which is available to our partners or subcontractors, made available to us or stored in or through our products, could have a material adverse effect on us and harm our reputation and brand. We have outsourced a significant portion of our IT operations, as well as the network and information systems that we sell to third parties or for whose security and reliability we may otherwise be accountable. Additionally, governmental authorities may use our networks products to access the personal data of individuals without our involvement; for example, through the so-called lawful intercept capabilities of network infrastructure. Even the perception that our products do not adequately protect personal or consumer data collected by us, made available to us or stored in or through our products or that they are being used by third parties to access personal or consumer data could impair our sales, results of operations, reputation and brand value.

Additionally, cyber-attacks can be difficult to prevent, detect or contain. We cannot rule out the possibility that there may have been cyber-attacks that have been successful and/or evaded our detection. We continue to invest in risk mitigating actions; however, there can be no assurance that such investments and actions will prevent or detect future cyber-attacks.

Our business is also vulnerable to theft, fraud or other forms of deception, sabotage and intentional acts of vandalism by third parties and employees. Unauthorized access to or modification, misappropriation or loss of our intellectual property and confidential information could result in litigation and potential liability to customers, suppliers and other third parties, harm our competitive position, reduce the value of our investment in R&D and other strategic initiatives or damage our brand and reputation, which could have a material adverse effect on our business, results of operations or financial condition. Additionally, the cost and operational consequences of implementing further information system protection measures (especially if prescribed by national authorities) could be significant.

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We may not be successful in implementing such measures in due time, which could cause business disruptions and be more expensive, time consuming and resource-intensive. Such disruptions could adversely impact our business.

As our business operations, including those we have outsourced, rely on complex IT systems and networks (and related services), our reliance on the precautions taken by external companies to ensure the reliability of our and their IT systems, networks and related services is increasing. Consequently, certain disruptions in IT systems and networks affecting our external providers could have a material adverse effect on our business.

Inefficiencies, breaches, malfunctions or disruptions of information technology systems and processes could have a material adverse effect on our business and results of operations.

Our operations rely on the efficient and uninterrupted operation of complex and centralized IT systems, networks and processes, which are integrated with those of third parties. Additionally, certain personal, consumer and customer data is stored and processed on our IT service provider’s equipment as part of our business operations. All IT systems, networks and processes are potentially vulnerable to damage, breaches, malfunction or interruption from a variety of sources. We are, to a significant extent, relying on third parties for the provision of IT services. We may experience disruptions if our partners do not deliver as expected or if we are unable to successfully manage systems and processes together with our business partners. The ongoing trend to Cloud-based architectures and network function virtualization has introduced further complexity and associated risk.

We are constantly seeking to improve the quality and security of our IT systems. For instance, we have introduced new significant IT solutions in recent years and outsourced certain functions, increasing our dependence on the reliability of external providers as well as the security of communication with them. We will often need to use new service providers and may, due to technical developments or choices regarding technology, increase our reliance on certain new technologies, such as Cloud or remote delivery on demand-based services and certain other services that are used over the internet rather than using a traditional licensing model. Switching to new service providers and introducing new technologies is inherently risky and may expose us to an

increased risk of disruptions in our operations, for instance, due to network inefficiency, a cybersecurity breach, malfunctions or other disruptions resulting from IT systems and processes. Our integration of Alcatel Lucent and the resulting homogenization of our IT landscapes and processes may also result in potential security, business continuity and efficiency risks.

We pursue various measures in order to manage our risks related to system and network malfunctions and disruptions, including the use of multiple suppliers and their strong technical and contractual engagements in IT security. However, despite precautions taken by us, any malfunction or disruption of our current or future systems or networks, such as an outage in a telecommunications network used by any of our IT systems, or a breach of our cybersecurity, such as an attack, malware or other event that leads to an unanticipated interruption or malfunction of our IT systems, processes, networks or data leakages, could have a material adverse effect on our business, results of operations and brand value. Additionally, if we fail to successfully secure our IT, this may have a material adverse effect on our business and results of operations. A disruption of services relying on our IT, for instance, could cause significant discontent among users resulting in claims, contractual penalties or deterioration of our brand value.

Our products are also highly complex and defects in their design, manufacture and associated hardware, software and content have occurred in the past and may continue to occur in the future. Defects and other quality issues may result from, among other things, failure in our own product manufacturing and service creation and delivery, as well as failure of our suppliers to comply with our requirements, or failures in products and services created jointly with business partners or other third parties where the development and manufacturing process is not fully within our control. Quality issues may cause, for instance, delays in deliveries, loss of intellectual property, liabilities for network outages, court fees and fines due to breaches of significantly increasing regulatory privacy requirements and related negative publicity, and additional repair, product replacement or warranty costs to us, and harm our reputation and our ability to sustain or obtain business with our current and potential customers. With respect to our services, quality issues may relate to the challenges of having the services fully operational at the time they are made available to our customers and maintaining them on an ongoing basis.

We make provisions to cover our estimated warranty costs for our products. We believe our provisions are appropriate, although the ultimate outcome may differ from the provisions that are provided for, which could have a material adverse effect on our results of operations, particularly profitability and financial condition.

Our Nokia Technologies business group aims to generate net sales and profitability through licensing of the Nokia brand and technologies, the development and sales of products and services, especially in the areas of digital media and digital health, as well as other business ventures including technology innovation and incubation, which may not materialize as planned or at all.

Our Nokia Technologies business group pursues various business opportunities building on our innovations and the Nokia brand. In addition to patent licensing, the Nokia Technologies business group is focused on generating net sales and profits through business ventures related to Nokia brand licensing, digital media and digital health, as well as other business ventures including technology innovation and incubation, focused on developing new ideas and prototypes.

In 2016, Nokia Technologies continued to implement its strategy, for instance in the digital health area, through the acquisition of Withings to combine the expertise from Withings with that of Nokia Technologies. Refer to “Overview—Strategy” and “Business Overview—Our businesses—Nokia Technologies” for more information. However, there can be no assurance that we will receive the intended benefits from the Withings acquisition; for instance, we may not be able to maintain or increase the sales of the business acquired though the Withings acquisition. Competition in the consumer health market is intensifying, and Nokia Technologies needs to continue innovating, building differentiating technologies, and creating competitive health products that respond to consumer needs and deliver on brand promise. There can be no assurances that we are able to reach our targets with respect to growing the business, including being able to successfully make the right strategic bets and investments, including choices for the growth segments, product categories, product portfolio, target consumer segments, sales and marketing expansion, scaling up the supply chain and manufacturing, and strategic partnerships.

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Nokia Technologies also announced in 2016 a strategic agreement covering branding rights and intellectual property licensing with HMD Global. Refer to “Overview—Strategy” and “Business Overview—Our businesses—Nokia Technologies” for more information. Under the agreement, Nokia will receive royalty payments from HMD Global for sales of Nokia branded mobile phones and tablets, covering both brand and intellectual property rights. As such, the amount of income for Nokia is dependent on the business and success of HMD Global. There can be no assurance that we will successfully reach additional new brand licensing arrangements at all or on terms that prove satisfactory to us. The agreement with HMD Global limits Nokia’s possibilities to license the Nokia brand for certain types of devices over an agreed time and as such limiting Nokia’s licensing possibilities with respect to such devices.

Additionally, licensing the Nokia brand to HMD Global or licensing the Nokia brand to other manufacturers could—in cases where the licensee acts inconsistently with our ethical, compliance or quality standards— negatively affect our reputation and the value of our brand, thus diminishing the business potential with respect to utilizing our brand for licensing opportunities or otherwise having a negative effect on our business. Nokia is not an investor or shareholder of HMD Global and Nokia has limitations in its ability to influence HMD Global in its business and other operations, exposing Nokia to potential adverse effects from the use of the Nokia brand by HMD Global or other adverse developments encountered by HMD Global that become attributable to Nokia though association and HMD Global being a licensee of the Nokia brand.

The Nokia Technologies business group develops and licenses various innovations as well as developing its own products and services, including the OZO VR camera and Digital Health-related products. The manufacturing and selling of devices and services can expose us to risks, including product liability claims, claims from contract manufacturers and negative consumer feedback. The Digital Health device portfolio encompasses connected health devices, such as scales, watches, trackers, blood pressure monitors and thermometers, as well as sleep and home products. Even though the quality control and customer service of the devices follow industry best practices and the devices are certified per the markets they are sold, there is a possibility of actual or claimed

device or software malfunctions resulting, for instance, in recalls, negative consumer feedback, leakage of consumer data and brand deterioration, as well as litigation or claims for compensation.

The industries in which we operate, or may operate in the future, are generally fast-paced, rapidly evolving and innovative. Such industries are at different levels of maturity, and there can be no assurances that any investment we make will yield an expected return or result in the intended benefits. Our business will likely require significant well-placed investments to innovate and grow successfully. Such investments may include R&D, licensing arrangements, acquiring businesses and technologies, recruiting specialized expertise and partnering with third parties. Such investments may not, however, result in technologies, products or services that achieve or retain broad or timely market acceptance or are preferred by our customers and consumers. Additionally, we are entering into new business areas based on our technology assets and may explore new business ventures. Such business areas or plans may be adversely affected by adverse industry and market developments in the numerous diverse markets in which we operate, as well as by general economic conditions globally and regionally. As such, the investments may not be profitable or achieve the targeted rates of return. There can be no assurances that we will be able to identify and understand the key market trends and user segments enabling us to address customers’ and consumers’ expanding needs in order to bring new innovative and competitive products and services to market in a timely manner.

There can be no assurances that our Nokia Technologies business group will be successful in innovation and incubation or in generating net sales and profits through its business plans, for instance in technology and brand licensing, or products in the areas of digital media and digital health. Additionally, entering into new business areas may expose us to additional liabilities or claims, for instance through product liability or other regulatory frameworks and related government investigations, litigation, penalties or fines.

We are subject to various legislative frameworks and jurisdictions that regulate fraud, as well as economic sanctions and trade policies and, as such, the extent and outcome of possible proceedings concerning such issues are difficult to estimate with any certainty and we may be subject to material fines, penalties and other sanctions as a result of such investigations.

As a global company, we are subject to various legislative frameworks and jurisdictions that regulate fraud committed in the course of business operations, as well as economic sanctions and, as such, the extent and outcome of possible proceedings are difficult to estimate with any certainty. Anti-corruption laws in effect in many countries prohibit companies and their intermediaries from making improper payments to public officials for the purpose of obtaining new business or maintaining existing business relationships. Certain anti-corruption laws such as the United States Foreign Corrupt Practices Act (“FCPA”) also require the maintenance of proper books and records, and the implementation of controls and procedures in order to ensure that a company’s operations do not involve corrupt payments. Since we operate throughout the world, and given that some of our clients are government-owned entities and that our projects and agreements often require approvals from public officials, there is a risk that our employees, consultants or agents may take actions that are in violation of our policies and of anti-corruption laws. In many parts of the world where we currently operate or seek to expand our business, local practices and customs may be in contradiction to our policies, including the Nokia Code of Conduct, and could violate anti-corruption laws, including the FCPA and the UK Bribery Act 2010, and applicable European Union regulations, as well as applicable economic sanctions and embargoes. Our employees, or other parties acting on our behalf, could violate policies and procedures intended to promote compliance with anti-corruption laws or economic sanctions. Violations of these laws by our employees or other parties acting on our behalf, regardless of whether we had participated in such acts or had knowledge of such acts at certain levels within our organization, could result in us or our employees becoming subject to criminal or civil enforcement actions, including fines or penalties, disgorgement of profits and suspension or disqualification of sales. Additionally, violations of law or allegations of violations may result in reputational harm and loss of business and adversely affect our brand and reputation. Detecting, investigating

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and resolving such situations may also result in significant costs, including the need to engage external advisers, and consume significant time, attention and resources from our management and other key employees. The results and costs of such investigations or claims may be difficult to predict and could lead to, for instance, lengthy disputes, fines, fees or indemnities, costly settlement or the deterioration of the Nokia brand.

As Nokia acquired Alcatel Lucent, any issues with its operations may be attributed to Nokia. In the past, Alcatel Lucent has experienced both actual and alleged violations of anti-corruption laws. As a result of FCPA violations in the past, Alcatel Lucent had to pay substantial amounts to the United States Securities and Exchange Commission in disgorgement of profits and interest, and to the United States Department of Justice in criminal fines. Additionally, Alcatel Lucent had to make certain payments to the Costa Rican Attorney General and theInstituto Costarricense de Electricidad in settlement ofto settle anti-corruption claims in Costa Rica. With respect to the French authorities’ investigation into corruption activities by Alcatel Lucent and certain of its subsidiaries in Costa Rica (dating back to 2004 and that gave rise to criminal procedures and settlements in Costa Rica and the United States, and which were made public in prior Alcatel Lucent disclosures), the French investigating magistrate on May 24, 2016 ordered that Alcatel Lucent be indicted for violation of the French Criminal Code. The indictment alleges that payments were made on behalf of Alcatel Lucent to Costa Rican officials and executives in order to obtain fixed and mobile telecommunications contracts. If ultimately Alcatel Lucent was found guilty, the maximum penalty to be incurred is expected to be EUR 750 000 and the exclusion of this non-commercial legal entity from bidding for French public procurement contracts.

We may also be subject to claims, fines, investigations or assessments for conduct that we failed to or were unable to discover or identify in the course of performing our due diligence investigations of Alcatel Lucent prior to the acquisition, including unknown or unasserted liabilities and issues relating to fraud, non-compliance with applicable laws and regulations, improper accounting policies or other improper activities. For example, after the Acquisition of Alcatel Lucent, we identified improper conduct and related materialweakness in the control environment at an Alcatel Lucent subsidiary in China; if we fail to remediate the material weakness in the accounting and control functions at this subsidiary, the conduct may have an adverse impact on our business, results of operations and financial condition.

Alcatel Lucent is also subject to certain other ongoing investigations and proceedings in France and Nigeria,other countries, which may result in further material damages, fines, penalties

and other sanctions, and in its inability to participate in certain public procurement agreements in those countries.

There can be no assurance that we would not be subject to material fines, penalties and other sanctions as a result of similar events outlined in this risk factor. Any damages, fines, penalties or other sanctions attributable to Alcatel Lucentus could have a material adverse effect on our brand, reputation or financial position.

We may be adversely affected by developments with respect to the customer financing or extended payment terms that we provide our customers.

Mobile operators in certain markets may require their suppliers, including us, to arrange, facilitate or provide financing in order to obtain sales or business. They may also require extended payment terms. In certain cases, the amounts and duration of these financings and trade credits, and the associated impact on our working capital, may be significant. Requests for customer financing and extended payment terms are typical for our industry.

Uncertainty in the financial markets may result in increased customer financing requests. As a strategic marketing requirement, we arrange and facilitate financing or provide extended payment terms to a number of our customers, typically supported by export credit or guarantee agencies or through the sale of related receivables. In the event that export credit agencies face future constraints on their ability or willingness to provide financing to our customers, or there is insufficient demand to purchase their receivables, such events could have a material adverse effect on our business and financial condition. We have agreed to extended payment terms for a number of our customers, and may continue to do so in the future. Extended payment terms may continue to result in a material aggregate amount of trade credits. Even when the associated risk is mitigated by a diversified customer portfolio, defaults in the aggregate could have a material adverse effect on us.

We cannot guarantee that we will be successful in arranging, facilitating or providing required financing, including extended payment terms to our customers, particularly in difficult financial conditions on the market. Additionally, certain of our

competitors may have greater access to credit financing, which could adversely affect our ability to compete successfully for business opportunities in the markets in which we operate. Our ability to manage our total customer financing and trade credit exposure depends on a number of factors, including capital structure, market conditions affecting our customers, the levels and terms of credit available to us and to our customers, the cooperation of export credit or guarantee agencies and our ability to mitigate exposure on acceptable terms. We may be unsuccessful in managing the challenges associated with the customer financing and trade credit exposure that we may face from time to time. While defaults under financings, guarantees and trade credits to our customers resulting in impairment charges and credit losses have not been significant for us in the past, these may increase in the future, and commercial banks may not continue to be able or willing to provide sufficient long-term financing, even if backed by export credit agency guarantees, due to their own liquidity constraints.

We have sold certain receivables to banks or other financial institutions to mitigate the payment risk and improve our liquidity, and any significant change in our ability to continue this practice could impair our capability to mitigate such payment risk and to manage our liquidity.

We may not be able to collect outstanding guarantees and bonds that could limit our possibilities to issue new guarantees and/or bonds, which are required in customer agreements or practices. We also face risks that such commercial guarantees and bonds may be unfairly called.

We have operations in a number of countries and, consequently, risk facing complex tax issues and disputes and could be obligated to pay additional taxes in various jurisdictions.

We operate in a number of jurisdictions, which involve different tax regimes and application of rules related to taxation. Applicable taxes such as income taxes, as well as indirect taxes and social taxes, for which we make provisions, could increase significantly as a result of changes in applicable tax laws in the countries in which we operate, the interpretation of such laws by local tax authorities could drastically change or tax audits may be performed by local tax authorities. The impact of these factors is dependent on the types of revenue and mix of profit we generate in various countries, for instance, income from sales of products or services may have different tax treatments.

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While we have made provisions for certain tax issues, the provisions we have made may not be adequate to cover such increases.

We are subject to income taxes in multiple jurisdictions. Our business and the investments we make globally, especially in emerging markets, are subject to uncertainties, including unfavorable or unpredictable changes in tax laws (possibly with retroactive effect in certain cases), taxation treatment and regulatory proceedings, including tax audits. For instance, during early 2013 we were subject to a tax investigation in India, focusing on Indian tax consequences of payments made within Nokia for the supply of operating software from our parent company in Finland. Such proceedings can be lengthy, involve actions that can hinder local operations and affect unrelated parts of our business, and the outcome of such proceedings is difficult to predict.

Our acquisitionAcquisition of Alcatel Lucent may still result in adverse tax consequences arising from a change of ownership of Alcatel Lucent, including, but not limited to, stamp duties, land transfer taxes, franchise taxes and other levies. Additionally, there may be other potential tax consequences related to the Acquisition of Alcatel Lucent of which we are not currently aware, which may result in significant tax consequences now or in the future.

Adverse developments or outcomes of such proceedings could have a material adverse effect on our cash flow and financial position. We are required to indemnify Microsoft for certain tax liabilities, including (i) tax liabilities for the Nokia entities acquired by Microsoft in connection with the closing of the Sale of the D&S Business, (ii) the assets acquired by Microsoft attributable to tax periods ending on or prior to the closing date of the closing of the Sale of the D&S Business, (iii) a certain pre-closing portion of any taxable period that includes the closing date of the Sale of the D&S Business and (iv) taxes imposed with respect to any asset not acquired by Microsoft in connection with the Sale of the D&S Business. We are also required to indemnify the Consortium for certain tax liabilities, including tax liabilities for the acquired HERE entities acquired by the Consortium in connection with the closing of the Sale of the HERE Business attributable to (i) tax periods ending on or prior to the closing date of the closing of the Sale of the HERE Business, and (ii) a certain pre-closing portion of any taxable period that includes the closing date of the Sale of the HERE Business.

There may also be unforeseen tax expenses that may turn out to have an unfavorable impact on us. As a result, and given the inherent unpredictable nature of taxation, there can be no assurance that our tax rate will remain at the current level or that cash flows regarding taxes will be stable.

Our actual or anticipated performance, among other factors, could reduce our ability to utilize our deferred tax assets.

Deferred tax assets recognized on tax losses, unused tax credits and tax deductible temporary differences are dependent on our ability to offset such items against future taxable income within the relevant tax jurisdiction. Such deferred tax assets are also based on our assumptions on future taxable earnings and these may not be realized as expected, which may cause the deferred tax assets to be materially reduced. There can be no assurances that an unexpected reduction in deferred tax assets will not occur. Any such reduction could have a material adverse effect on us. Additionally, our earnings have in the past been and may in the future continue to be unfavorably affected in the event that no tax benefits are recognized for certain deferred tax items.

It is also possible that the acquisitionAcquisition of Alcatel Lucent resultswill result in adverse tax consequences arising from afollowing the change of ownership of Alcatel Lucent. The tax consequences of a change of ownership of a corporation can lead to an

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Risk factorscontinued

inability to carry-over certain tax attributes, including, but not limited to, tax losses, tax credits and/orand tax basis of assets.

We may be unable to retain, motivate, develop and recruit appropriately skilled employees.

Our success is dependent on our ability to retain, motivate, develop (through periodic competence training) and recruit appropriately skilled employees. The market for skilled employees and leaders in our business is extremely competitive.

We aim to create a corporate culture that is motivational, based on equal opportunities and encourages creativity and continuous learning, as competition for skilled employees remains intense. Our workforce has fluctuated significantly over recent years as we have introduced changes in our strategy to respond to our business targets and endeavors. Such changes and uncertainty have caused and may in the future cause disruption and dissatisfaction among employees, as well as

fatigue due to the cumulative effect of several reorganizations over the past years and our efforts to implement the new operational structure forof our business following the acquisitionAcquisition of Alcatel Lucent. As a result, employee motivation, energy, focus, morale and productivity may be reduced, causing inefficiencies and other problems across the organization resulting in the loss of key employees and increased costs in resolving and addressing such matters. Reorganizations and strategic changes may also result in key employees leaving us or resource gaps, certain of which may only be noticed after a certain period of time or which negatively impact the relationship towith customers, vendors or other business partners. If the strategic direction or our business is perceived adversely by our employees, this may result in a heightened risk of being ableunable to retain or recruit employees. Moreover, our employees may be targeted aggressively by our competitors, particularly due to changes in our strategy or to the acquisitionAcquisition of Alcatel Lucent, and certain employees may be more receptive to such offers, resulting in the loss of key individuals. Accordingly, we may need to adjust our compensation and benefit policies and take other measures to attract, retain and motivate skilled employees to align with the changes to our culture and business in order to implement our new strategies successfully.

Implementing new organizational structures may entail plans to relocate or lay-offlay off employees, close or consolidate sites or outsource parts of the business operations.

Such strategy relatedstrategy-related changes may result in implementation costs, as well as displacement or insecurity among employees resulting in the inability to retain required skills and key employees, resulting in resource gaps and which could have a material adverse effect on our operations. Also, planned efforts to rebalance our workforce may not be completed as planned and may result in larger than expected costs, or we may not be able to complete such efforts as planned, for instance, due to legal restrictions, resulting in a non-optimal workforce that could hinder our ability to reach targeted cost savings. Additionally, successionSuccession planning, especially with respect to key employees and leaders, is crucial to avoid business disruptions and to ensure the appropriate transfer of knowledge. We have, through the acquisition of Alcatel Lucent, and may from time to time, acquire businesses or complete other transactions where retaining key employees may be crucial to obtain the intended benefits of such transactions. We must ensure that key

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employees of such acquired businesses are retained and appropriately motivated. However, there can be no assurances that we will be able to implement measures successfully to retain or hire the required employees. We believe this will require significant time, attention and resources from our senior management and other key employees within our organization and may result in increased costs. We have encountered, and may in the future encounter, shortages of appropriately skilled employees or lose key employees or senior management, which may hamper our ability to implement our strategies and may have a material adverse effect on our business and results of operations.

Relationships with employee representatives are generally managed at the site level in accordance with country-specific legislation and most collective bargaining agreements have been in place for several years. Our inability to negotiate successfully with employee representatives or failures in our relationships with such representatives could result in strikes by the employees, increased operating costs as a result of higher wages or benefits paid to employees as the result of such strike or other industrial action and/or inability to implement changes to our organization and operational structure in the planned timeframe or expense level, or at all. If our employees were to engage in a strike or other work stoppage, we could experience a significant disruption in our day-to-day operations and/orand higher ongoing labor costs, which could have a material adverse effect on our business and results of operations.

We may face problems or disruptions especially withinin our Mobile Networks business groups’ manufacturing, service creation, delivery, logistics or supply chain. Additionally, adverse events may have a profound impact on production sites or the production sites of our suppliers, which are geographically concentrated.

Our product manufacturing, service creation and delivery, as well as our logistics, are complex, require advanced and costly equipment and include outsourcingor the components of such activities that we have outsourced to third parties.parties, expose us to various risks and potential liabilities, including those related to compliance with laws and regulations and exposure to environmental liabilities or other claims. Additionally, if we are subjected to negative publicity with respect to the activities that we manage or that are managed by third parties, we may experience an adverse impact to our reputation that can have a negative effect, for instance, on our brand and sales. These operations are continuously modified

in an effort to improve the efficiency and flexibility of our manufacturing, service creation and delivery, as well as our logistics function and ability to produce, create and distribute continuously changing volumes. We, or third parties that we outsource services to, may experience difficulties in adapting our supply to meet the changing demand for our products and services, ramping up and down production at our facilities, adjusting our network implementation capabilities as needed on a timely basis, maintaining an optimal inventory level, adopting new manufacturing processes, finding the most timely way to develop the best technical solutions for new products, managing the increasingly complex manufacturing process, service creation and delivery process or achieving required efficiencies and flexibility.

Our manufacturing operations depend on obtaining sufficient quantities of fully functional products, components, sub-assemblies, software and services on a timely basis. Our principal supply requirements for our products are for electronic components, mechanical components and software, which all have a wide range of applications in our products.

In certain cases, a particular component or service may be available only from a limited number of suppliers or from a single supplier in the supply chain. Our product manufacturing, service creation and delivery, as well as our logistics, or the components of such activities that we have outsourced to third parties may also be adversely affected by various developments, including adverse changes in trade policies or laws or regulations, geopolitical disturbances, pandemic outbreaks or other similar events. Additionally, our dependence on third-party suppliers has increased as a result of our strategic decisions to outsource certain activities. Suppliers may from time to time extend lead times, limit supplies, change their partner preferences, increase prices, provide poor quality supplies or be unable to adapt to changes in demand due to capacity constraints or other factors, which could adversely affect our ability to deliver our products and services on a timely basis. For example, our efforts to meet our customer needs during major network roll-outs in certain markets may require sourcing large volumes of components

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and services from suppliers and vendors at short notice and simultaneously with our competitors. If we fail to properly anticipate customer demand, properly,

an over-supply or under-supply of components and production or services delivery capacity could occur. In many cases, some of our competitors utilize the same contract manufacturers, component suppliers and service vendors. If they have purchased capacity or components ahead of us, this could prevent us from acquiring the required components or services, which could limit our ability to supply our customers or increase our costs.

We may not be able to secure components on attractive terms from our suppliers or a supplier may fail to meet our supplier requirements, such as our and our customers’ product quality, safety, security and other standards. Consequently, some of our products may be unacceptable to us following failure to meet our quality controls or unacceptable to our customers. We may also be subject to damages due to product liability claims arising from defective products and components or services that may need to be replaced. Also, certain suppliers may not comply with local laws, including, among others, local labor laws. Additionally, a component supplier may experience delays or disruptions to our manufacturing processes or financial difficulties or even insolvency, bankruptcy or closure of our business, in particular due to difficult economic conditions. We may also experience challenges caused by third parties, or other external difficulties in connection with our efforts to modify our operations to improve the efficiency and flexibility of our manufacturing, service creation and delivery, as well as our logistics, including, but not limited to, strikes, purchasing boycotts, public harm to our brand and claims for compensation resulting from our decisions on where to place and how to utilize our manufacturing facilities. Such difficulties may result from, among other things, delays in adjusting production at our facilities, delays in expanding production capacity, failures in our manufacturing, service creation and delivery, as well as logistics processes, failures in the activities we have outsourced, and interruptions in the data communication systems that run our operations. Any of these events could delay our successful and timely delivery of products that meet our and our customers’ quality, safety, security and other requirements, cause delivery of insufficient or excess volumes compared to our own

estimates or customer requirements, or otherwise have a material adverse effect on our sales and results of operations or our reputation and brand value.

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Risk factorscontinued

Many of our production sites or the production sites of our suppliers are geographically concentrated, with a majority of our suppliers based in Asia. Also we rely on efficient logistic chain elements, e.g. regional distribution hubs or transport chain elements (main ports, streets, and airways), which may be affected by various events, including natural disasters, civil unrest, political instability or public health-related issues (e.g., pandemic outbreaks).issues. In the event that any of these geographic areas are affected by any adverse conditions, such as natural disasters, geopolitical disruptions, or civil unrest or health crises that disrupt production and/or deliveries from our suppliers, our ability to deliver our products on a timely basis could be adversely affected, which may have a material adverse effect on our business and results of operations.

An unfavorable outcome of litigation, arbitrations, agreement-related disputes or product liability-related allegations withagainst our business could have a material adverse effect on us.

We are a party to lawsuits, arbitrations, agreement-related disputes and product liability-related allegations in the normal course of our business. Litigation, arbitration or agreement-related disputes can be expensive, lengthy and disruptive to normal business operations and divert the efforts of our management. Moreover, the outcomes of complex legal proceedings or agreement-related disputes are difficult to predict. An unfavorable resolution of a particular lawsuit, arbitration or agreement-related dispute could have a material adverse effect on our business, results of operations, financial condition and reputation. We face additional exposure to lawsuits, arbitrations and agreement-related disputes following the acquisitionAcquisition of Alcatel Lucent as a result of the increased scope of our business and operations. The acquisitionAcquisition of Alcatel Lucent, as well as any other transactions, could entail related adverse effects or result in organizational and other changes following the transactions, which could have a material adverse effect on our business and operations.

The investment or acquisition decisions we make including our acquisition of Alcatel Lucent and our attempts to squeeze out the remaining shareholders, may subject us to

litigation arising from minority shareholders’ actions and investor dissatisfaction with the activities of our business. Minority shareholderShareholder disputes, if resolved against us, could have a material adverse effect on our financial condition and results of operations. For more information on the minority shareholders of Alcatel Lucent, referoperations as well as expose us to “—Our failure to promptly complete the purchases of the remaining outstanding Alcatel Lucent securities could adversely affect the market value of our shares and ADSs, and we may be unable to fully realize the anticipated benefits of the public exchange offer for all outstanding Alcatel Lucent securities”.disputes or litigation.

We record provisions for pending claims when we determine that an unfavorable outcome is likely and the loss can reasonably be estimated. Due to the inherent uncertain nature of legal proceedings, the ultimate outcome or actual cost of settlement may materially differ from estimates. We believe our provisions for pending claims are appropriate. The ultimate outcome, however, may differ from the provided estimate, which could have either a positive or an adverse impact on our results of operations and financial condition.

Although our products are designed to meet all relevant safety standards and recommendations globally, we cannot guarantee we will not become subject to product liability claims or be held liable for such claims or be required to comply with future regulatory changes in this area, which could have a material adverse effect on our business and financial condition. We have been involved in several lawsuits alleging adverse health effects associated with our products, including those caused by electromagnetic fields, and the outcome of such procedures is difficult to predict, including potentially significant fines or settlements. Even a perceived risk of adverse health effects of mobile devices or base stations could have a material adverse effect on us through a reduction in the demand for mobile devices having an adverse effect, for instance, through a decreased demand for mobile networks or increased difficulty in obtaining sites for base stations.

For a more detailed discussion onof litigation to which we are a party, refer to Note 28,29, Provisions, of our consolidated financial statements included in this annual report on Form 20-F.

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Risk factorscontinued

Our net sales, costs and results of operations, as well as the US dollar value of our dividends and market price of our ADSs, are affected by exchange rate fluctuations.

We operate globally and are therefore exposed to foreign exchange risks in the form of both transaction risks and translation risks. Our policy is to monitor and hedge exchange rate exposure, and we manage our operations to mitigate, but not to eliminate, the impacts of exchange rate fluctuations. There can be no assurance, however, that our hedging activities will prove successful in mitigating the potentially negative impact of exchange rate fluctuations. Additionally, significant volatility in the relevant exchange rates may increase our hedging costs, as well as limit our ability to hedge our exchange rate exposure in particular against unfavorable exchange rate movements, particularly in the exchange rates of certain emerging market currencies, which could have an adverse effect on our results of operations, particularly our profitability. Furthermore, exchange rate fluctuations may have an adverse effect on our net sales, costs and results of operations, as well as our competitive position through their impact on our competitors and customers. Additionally, exchange rate fluctuations may also materially affect the US dollar value of any dividends or other distributions that are paid in euro, as well as the market price of our ADSs.

We also experience other financial market-related risks, including changes in interest rates and in prices of marketable securities that we own. We may use derivative financial instruments to reduce certain of these risks. If our strategies to reduce such risks are not successful, our financial condition and operating results may be harmed.

Inefficiencies, breaches, malfunctions or disruptions of information technology systems could have a material adverse effect on our business and results of operations.

Our operations rely on the efficient and uninterrupted operation of complex and centralized IT systems and networks, which are integrated with those of third parties. Additionally, certain personal and consumer data is stored by us or our customers as part of our business operations. All IT systems are potentially vulnerable to damage, breaches, malfunction or interruption from a variety of sources. We are, to a significant extent, relying on third parties for the provision of IT systems and networks. We may experience disruptions if our partners do not deliver as expected or if we are unable to successfully manage systems together with our business partners.

The ongoing trend to Cloud-based architectures and network function virtualization is introducing further complexity and associated risk.

We are constantly seeking to improve our IT systems. For instance, we have introduced new significant IT solutions during 2015 and Alcatel Lucent has outsourced prior to closing a significant portion of its finance and human resources processes and services, increasing our dependence on the reliability of external providers. We will often need to use new service providers and may, due to technical developments or choices regarding technology, increase our reliance on certain new technologies, such as Cloud or remote delivery-based services and certain other services that are used over the internet rather than using a traditional licensing model. Switching to new service providers and introducing new technologies is inherently risky and may expose us to an increased risk of disruptions in our operations, for instance due to network inefficiency, a cybersecurity breach, malfunctions or other disruptions resulting from IT systems. Our current integration of Alcatel Lucent and the resulting homogenization of our IT landscapes and processes may also result in potential security, business continuity and efficiency risks.

We pursue various measures in order to manage our risks related to system and network malfunctions and disruptions, including the use of multiple suppliers and IT security. However, despite precautions taken by us, any malfunction or disruption of our current or future systems, or networks such as an outage in a telecommunications network used by any of our IT systems, or a breach of our cybersecurity, such as an attack, malware or other event that leads to an unanticipated interruption or malfunction of our IT systems or networks or data leakages, could have a material adverse effect on our business, results of operations and brand value. Additionally, if we fail to successfully secure our IT, this may have a material adverse effect on our business and results of operations. A disruption of services relying on our IT, for instance, could cause significant discontent among users resulting in claims, contractual penalties or deterioration of our brand value.

Our products are also highly complex and defects in their design, manufacture and associated hardware, software and content have occurred in the past and may continue to occur in the future. Defects and other quality issues may result from, among other things, failures in our own product manufacturing

and service creation and delivery, as well as failures of our suppliers to comply with our supplier requirements, or failures in products and services created jointly with business partners or other third parties where the development and manufacturing process is not fully within our control. Quality issues may cause, for instance, delays in deliveries, liabilities for network outages and related negative publicity, and additional repair, product replacement or warranty costs to us, and harm our reputation and our ability to sustain or obtain business with our current and potential customers. With respect to our services, quality issues may relate to the challenges of having the services fully operational at the time they are made available to our customers and maintaining them on an ongoing basis. We make provisions to cover our estimated warranty costs for our products. We believe our provisions are appropriate, although the ultimate outcome may differ from the provisions that are provided for, which could have a material adverse effect on our results of operations, particularly profitability and financial condition.

We may not be able to optimize our capital structure as planned and re-establish our investment grade credit rating or otherwise improve our credit ratings.

Moody’s, Standard & Poor’s and other credit rating agencies have assigned credit ratings to us. A credit rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time. In the event that our credit rating is downgraded, financial costs to us could increase and thereby have a material adverse effect, for instance, on our business, financial condition and/or results of operations. We also face risks that our bonds are unfairly called.

We have announced a capital structure optimization program and set a goal of re-establishing our investment grade credit rating. There can be no assurances that we will be able to optimize our capital structure as planned or achieve an investment grade credit rating at the targeted time, or at all, or reduce our interest expenses.

Additionally, returning capital to shareholders reduces our capital available for operations and financing, which could expose us to financial difficulties or require us to incur additional indebtedness under certain circumstances, which in turn could have a material adverse effect on our financial condition.

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The amount of dividend and equity return distributed to shareholders for each financial period is uncertain.

We cannot assure you that we will pay dividends or deliver return on equity on the shares issued by us, nor is there any assurance as to the amount of any dividend or return of equity we may pay. The payment and the amount of any dividend or return of equity is subject to the discretion of our Board and, ultimately, the general meeting of our shareholders and will depend on available cash balances, retained earnings, anticipated cash needs, the results of our operations and our financial condition and terms of outstanding indebtedness, as well as other relevant factors such as restrictions, prohibitions or limitations imposed by applicable law.

We may be unable to achieve targeted benefits from, or successfully implement, planned transactions or transactions may result in liabilities.

From time to time, we may consider possible transactions that could complement our existing operations and enable us to grow our business or divest our existing businesses or operations. We have made a number of acquisitions and divestments, in addition to the Sale of the D&S Business, the acquisitionrecent Acquisition of Alcatel Lucent and the Sale of the HERE Business.Business as well as the intended acquisition of Comptel. We have, for instance, divested certain businesses and may engage in further transactions, such as acquisitions, divestments, mergers or joint ventures in the future. Additionally, we make investments to companies through certain investment funds, including Nokia Growth Partners, and there can be no assurance that such investments will result in new successful technologies that we will be able to monetize.

We cannot provide assuranceany assurances that any transactiontransactions we initiate, such as acquisitions, divestments, mergers or joint ventures, will ultimately be completed on favorable terms or provide the benefits or a return on investment that we havehad originally anticipated. After reaching an agreement for a transaction, we may need to satisfy pre-closing conditions on acceptable terms, which may prevent us from completing the transaction or result in changes to the scope of the transaction.

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Furthermore, we may not succeed in integrating acquired operations with our existing business.

In February 2017, we announced our intention to acquire Comptel through a recommended public cash tender offer. We may not be able to complete the acquisition of Comptel in a timely manner, or at all, or obtain full ownership of Comptel for a number of reasons including competition for the acquisition.

Transactions, including acquisitions, divestments, mergers or joint ventures, involve inherent risks, and the assumptions may be incorrect in evaluating a transaction. Therefore, we may be exposed to unknown or contingent liabilities of acquired businesses, such as those related to contractual obligations, taxes, pensions, environmental liabilities, disputes and compliance matters. Additionally, there are multiple risks that can hamper or delay our

ability to integrate acquired businesses and/orand to achieve identified and anticipated operating and financial synergies, including;

 

n∎unanticipated delays or inability to proceed with transactions as planned, for instance, due to issues in obtaining regulatory or shareholder approvals, (for instance, in certain cases regulatory bodies could imposecompleting public offers or proposals, the imposition of conditions on the acquirer of a business to divest certain assets or impose other obligations due to competition laws or other regulations);regulations;

 

n∎unanticipated costs or changes in scope, for instance, due to issues with regulators or courts imposing terms on a transaction or obstacles that result in changes required in the scope of the transaction;

 

n∎the diversion of management attention from the existing business;

 

n∎the potential loss of key employees, customers and suppliers;

 

n∎unanticipated changes in business, industry or general economic conditions that affect the assumptions underlying the acquisition;

 

n∎potential disputes with sellers, purchasers or other counterparties;

 

n∎impairments related to goodwill and other intangible assets, for instance, due to business performance after an acquisition or differences in evaluating the goodwill with respect to the acquired businesses;

 

n∎potential limitations on our ability to control any joint ventures, andventures; accordingly such transactions may result in increased exposure to operational, compliance, legal or financial risks;

 

n∎unexpected costs associated with the separation of the business which is to be divested or with the integration of the business which is acquired;

 

n∎additional payment obligations and higher costs resulting from non-performance by divested businesses;

 

n∎exposure to contingent liabilities in connection with any indemnity we provide to the purchaser in connection with such divestment;

 

n∎potential post-closing claims for indemnification and disputes with purchasers or sellers;

 

n∎our dependencydependence on some of the divested businesses as our suppliers in the future; and

 

n∎high transaction costs.

We sold our HERE business in a transaction that closed in late 2015. In connection with the Sale of the HERE Business, we have committed to indemnify the buyers for the breach or violation of certain representations and warranties and covenants made by us in the HERE purchase agreement, subject to certain limitations. Significant indemnification claims by the buyers with respect to the Sale of the HERE Business could have a material adverse effect on our financial condition. Furthermore, in connection with the Sale of the HERE Business, the intellectual property portfolio of HERE was transferred to the buyers and, therefore, we no longer benefit from use of such intellectual property.

The Sale of the D&S Business may expose us to contingent liabilities, and the agreements we have entered into with Microsoft may have terms that prove to be unfavorable to us. Under the Devices & Services purchase agreement, we are required to indemnify Microsoft for the breach or violation of certain representations and warranties and covenants made by us in the Devices & Services purchase agreement and for losses arising from assets not acquired by Microsoft, liabilities retained by us and liabilities that are not primarily related to the Devices & Services business, subject to certain limitations. Additionally, we are required to indemnify Microsoft for certain tax liabilities, including tax liabilities of the Nokia entities acquired by Microsoft, the Devices & Services business or the assets to be acquired by Microsoft attributable to tax periods ending on or prior to the closing date of the transaction or a certain pre-closing portion of any taxable period that includes the closing date of the transaction or taxes imposed with respect to any asset not being acquired by Microsoft. Significant indemnification claims by Microsoft with respect to the Devices & Services purchase agreement and the Sale of the D&S Business could have a material adverse effect on our financial condition.

Significant transactions may result in claims between the parties, which can consume time and management attention, and the outcome of disputes related to significant transactions may be difficult to predict.

NOKIA ANNUAL REPORT ON FORM 20-F 201583

Risk factorscontinued

We are involved in joint ventures and are exposed to risks inherent to companies under joint management.

We have certain joint ventures, including a significant joint venture in China, Alcatel LucentAlcatel-Lucent Shanghai Bell Co., Ltd, which is a consolidated subsidiary and which has certain requirements and associated risks. We own 50% plus one share of Alcatel LucentAlcatel-Lucent Shanghai Bell Co., Ltd, the remainder being owned by the China Huaxin, Post & Telecommunication Economy Development Center, an entity controlled

by the Chinese government. The agreements related to our joint ventures may require unanimous consent or the affirmative vote of a qualified majority of the shareholders to take certain actions, thereby possibly slowing down the decision-making process. In addition, joint venture companies involve inherent risks such as those associated with a complex corporate governance structure, including lack of transparency and consequent risks of compliance breaches or other similar issues, or issues in dissolving such entities or divesting their shareholdings, assets and liabilities, and also may involve negative public perceptions caused by the joint venture partner that are adverse to us.

Performance failures of our partners, as well as failures to agree to partnering arrangements with third parties could adversely affect us.

If any of the companies we partner and collaborate with were to fail to perform as expected, or if we fail to achieve the collaboration or partnering arrangements needed to succeed, we may be unable to bring our products, services or technologies to market successfully or in a timely manner, which could have a material adverse effect on our operations. We are increasingly collaborating and partnering with third parties to develop technologies, products and services, as well as seeking new revenue streams through partnering arrangements. We also depend on third-party partners in our efforts to monetize our brands, including the Nokia and Nokia Bell Labs brands and technologies, for instance, through arrangements where the brands are licensed to third-party products and the product development and distribution are handled partly or in full by third parties. Additionally, we have outsourced various functions to third parties and are relying on them to provide certain services to us. These arrangements involve the commitment of certain resources, including technology, R&D, services and employees. Although the objective of the collaborative and partnering arrangements is a mutually beneficial outcome for each party, our ability to introduce and provide products and services that are commercially viable and meet our, our customers’ and consumers’ quality, safety, security and other standards in a timely manner could be hampered from performance or other failures.

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Risk factorscontinued

For instance, in many areas, including finance and human resources-related arrangements, a failure to maintain an efficient relationship with the selected partner may lead to ongoing operational problems or even to severe business disruptions, and we cannot give assurances that the availability of the processes and services upon which we rely will not be interrupted, which could have a material adverse effect on our business operations, in particular duringrelated to the integration of Alcatel Lucent. Recurring performancePerformance problems may result in missed reporting deadlines, financial losses, missed business opportunities and reputational harm. In addition, as management’s focus shifts from a direct to an indirect operational control in these areas, there is a risk that without active management and monitoring of the relationship, the services provided may be below appropriate quality standards. Partners may not meet the agreed service levels, in which case, depending on the impacted service, theour contractual remedies may not fully cure all of the damages we may suffer. This is particularly true for any deficiencies that would impact the reporting requirements applicable to us as a company listed on multiple stock exchanges.

In order to implement outsourcing arrangements, we may be required to implement changes in our business practices and processes, for instance, to capture economies of scale and operational efficiencies, and to reflect a different way of doing business. Consequently, business processes that were customized for individual business groups or for us generally may be converted to a more standardized format. During a transition to outsourcing, our employees may need to train the partner’s staff or be trained onin the partners’ systems, potentially resulting in the distraction of our employees. Adjustments to staff size and transfer of employees to the partner’s companies could have an adverse effect on us, for instance, through impacting the morale of our employees and raising complex labor law issues and resulting in the loss of key personnel.

There is also a risk that we may not be able to determine whether controls have been effectively implemented, and whether the partner company’s performance monitoring reports are accurate. Concerns could equally arise from giving third parties access to confidential data, strategic technology applications and books and records.

Additionally, we announced in 2016 a brand licensing partnership with HMD Global. HMD Global is responsible for following our brand and quality guidelines. If HMD Global or other partners act inconsistently with our ethical, sustainability, compliance, brand, or quality standards, this can negatively affect our reputation, the value of our brand, and the business outcome of our partnerships.

Additionally, partnering and outsourcing arrangements can create a dependency on the outsourcing company, causing issues in our ability to learn from day-to-day responsibilities, gain hands-on experience and adapt to changing business needs.

Our efforts aimed at managing and improving financial or operational performance, cost savings, competitiveness and obtaining the targeted synergy benefits associated with the acquisition of Alcatel Lucent, may not lead to targeted results, benefits or improvements.

We need to manage our operating expenses and other internal costs to maintain cost efficiency and competitive pricing of our products and services. Failure by us to determine the appropriate prioritization of operating expenses and other costs, to identify and implement the appropriate measures to adjust our operating expenses on a timely basis and other costs accordingly, or to maintain achieved cost reduction levels, could have a material adverse effect on our business, results of operations and financial condition. For instance, we have announced targeted operating cost synergies in conjunction with the acquisition of Alcatel Lucent.

We operate in highly competitive industries and we are continuously targeting increased efficiency of our operations through various initiatives. We may, in the ordinary course of business, institute new plans for restructuring measures. Such restructuring measures may be costly, potentially disruptive to operations, and may not lead to sustainable improvements in our overall competitiveness and profitability and, thus, may have a material adverse effect on our business or results of operations, for instance, as a result of the loss of benefits related to economies of scale.

In addition to our efforts in operating cost savings, both Nokia and Alcatel Lucent have separately prior to the acquisition implemented various efficiency and other programs aimed at improving cost

savings and financial performance. We may implement new similar programs going forward and there can be no assurance that such plans will be met as planned or result in sustainable improvements. Factors that may prevent a successful implementation or cause adverse effects on us include the following:

nexpectations with respect to market growth, customer demand and other trends in the industry in which we operate;

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nour ability to benefit from industry trends may prove to be inaccurate and changes in the global economy may impact our ability to implement such plans;

nin a highly competitive market, our ability to successfully develop new or improve existing products, market products to new or existing customers, enter new markets and otherwise grow our business as contemplated may fall short of targets;

norganizational changes related to the implementation plans require the alignment and adjustment of resources, systems and tools, which if not completed in a structured manner could impact our ability to achieve our goals, projected cost savings and ability to achieve the efficiencies contemplated;

nthe costs to effect the initiatives contemplated by our plans may exceed our estimates and we may not be able to realize the targeted cash inflows or yield other expected proceeds;

nour cost saving initiatives, including R&D, may negatively affect our ability to develop new or improve existing products and compete effectively in certain markets, and there is no guarantee that we will continue to be able to successfully innovate or remain technologically competitive;

ndisruptions to regular business operations caused by the plans, including to unaffected parts of Nokia; the benefits of our plans may not realize in contemplated timeframes or at all;

nintended business plans may require us to inform or consult with employees and labor representatives, and such processes may influence the timing, costs and extent of expected savings and the feasibility of certain of the initiatives contemplated;

nskilled employees may leave or we may not be able to recruit employees as a result of planned initiatives, and loss of their expertise may cause adverse effects on our business or limit our ability to achieve our goals; and

noverall deterioration of brand value among potential and current employees or as a preferred employer.

While we are implementing and have implemented various cost savings and other initiatives in the past, and may implement such initiatives in the future, there can be no assurance that we will be able to complete those successfully or that we will realize the projected benefits. Additionally, the plans may be altered in the future, including adjusting any projected financial or other targets. Additionally, the anticipated costs or the level of disruption expected from implementing such plans or restructurings may be higher than expected.

If we are unable to realize the projected benefits or cost savings contemplated by efforts aimed at managing and improving financial performance, operational performance, cost savings, competitiveness, targeted results or improvements, we may experience negative impacts on our reputation or a material adverse effect on our business, financial condition, results of operations and cash flows. Efforts to plan and implement cost saving initiatives may divert management attention from the rest of the business and adversely affect our business.

We may be adversely affected by developments with respect to the customer financing or extended payment terms that we provide our customers.

Mobile operators in certain markets may require their suppliers, including us, to arrange, facilitate or provide financing in order to obtain sales or business. They may also require extended payment terms. In certain cases, the amounts and duration of these financings and trade credits, and the associated impact on our working capital, may be significant. Requests for customer financing and extended payment terms are typical for our industry.

Uncertainty in the financial markets may result in increased customer financing requests. As a strategic marketing requirement, we arrange and facilitate financing or provide extended payment terms to a number of our customers, typically supported by export credit or guarantee agencies or through the sale of related receivables. In the event that export credit agencies face future constraints on their ability or willingness to provide financing to our customers, or there is insufficient demand to purchase their receivables, such events could have a material adverse effect on our business and financial condition. We have agreed to extended payment terms for a number of our customers, and may continue

to do so in the future. Extended payment terms may continue to result in a material aggregate amount of trade credits. Even when the associated risk is mitigated by a diversified customer portfolio, defaults in the aggregate could have a material adverse effect on us.

We cannot guarantee that we will be successful in arranging, facilitating or providing required financing, including extended payment terms to our customers, particularly in difficult financial conditions on the market. Additionally, certain of our competitors may have greater access to credit financing, which could adversely affect our ability to compete successfully for business opportunities in the markets in which we operate. Our ability to manage our total customer financing and trade credit exposure depends on a number of factors, including capital structure, market conditions affecting our customers, the levels and terms of credit available to us and to our customers, the cooperation of export credit or guarantee agencies and our ability to mitigate exposure on acceptable terms. We may be unsuccessful in managing the challenges associated with the customer financing and trade credit exposure that we may face from time to time. While defaults under financings, guarantees and trade credits to our customers resulting in impairment charges and credit losses have not been significant for us in the past, these may increase in the future, and commercial banks may not continue to be able or willing to provide sufficient long-term financing, even if backed by export credit agency guarantees, due to their own liquidity constraints.

We have used sale of receivables to banks or other financial institutions to improve our liquidity, and any significant change in our ability to continue this practice could impair our liquidity.

We may not be able to collect outstanding guarantees and bonds that could limit our possibilities to issue new guarantees and/or bonds, which are required in customer agreements or practices.

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Risk factorscontinued

The carrying amount of our goodwill may not be recoverable.

We assess the carrying amount of goodwill annually, or more frequently if events or changes in circumstances indicate that such carrying amount may not be recoverable. Additionally, weWe assess the carrying amount of other identifiable assets if events or changes in circumstances indicate that their carrying amounts may not be recoverable. If revenuewe do not generate revenues from our business does not developbusinesses as anticipated, or new sources of revenue do not materialize as expected, or at all, our businessbusinesses may not generate sufficient positive operating cash flow.flows. This, or other factors, may lead to a decrease in the value of our assets, leadingincluding intangible assets and the goodwill attributed to furtherour businesses, resulting in impairment charges that may adversely affect us, includingour net profit for the goodwill for our business.year. While we believe the estimated recoverable values are reasonable, actual performance in the shortshort- and long termlong-term and our assumptions on which we base our calculations could materially differ from our forecasts, which could impact future estimates of theour businesses’ recoverable value for our businessvalues, and may result in further impairment charges.

The amount of dividend and equity return distributed to shareholders for each financial period is uncertain.

We cannot assure you that we will pay dividends or deliver return on equity on the shares issued by us, nor is there any assurance as to the amount of any dividend or return of equity we may pay. The payment and the amount of any dividend or return of equity is subject to the discretion of our Board and, ultimately, the general meeting of our shareholders and will depend on available cash balances, retained earnings, anticipated cash needs, the results of our operations and our financial condition and terms of outstanding indebtedness, as well as other relevant factors such as restrictions, prohibitions or limitations imposed by applicable law.

We are exposed to pension, employee fund-related and employee healthcare-related risks and we may be unsuccessful in our ability to avoid or control costs resulting from a need for increased funding.

We are exposed to certainvarious employee cost-related risks, including those related to pension, employee fund-related obligations and employee fund-relatedhealthcare-related risks. Alcatel Lucent Group’s U.S.In the United States, we maintain significant employee pension benefit plans and a significant retiree benefit plan (providing post-retirement healthcare benefits and post-retirement benefit plans arelife insurance cover). Outside the United States, we contribute to pension schemes for large numbers of current and former employees. These plans/ schemes have funding requirements that fluctuate baseddepend on, among other things, various legal requirements, how their assets set aside to pay for those obligations are invested, the performance of financial markets, worldwide, interest rates, assumptions regarding the life expectancy of covered employees and retirees, and medical cost increases,inflation and changes in legal requirements. Even if these plans are currently fully funded, they are costly, and our efforts to satisfy further funding requirements or control these costs may be ineffective.

Many former and current employees and retirees of the Alcatel Lucent Group in the United States participate in one or more of its major defined benefit pension and post-retirement welfare benefit plans that provide pension, healthcare, and group life insurance benefits. Such defined benefit pension and post-retirement welfare benefit plans have funding requirements based on a variety of criteria, including asset allocation, performance of financial markets, interest rates, assumptions regarding life expectancy, medical costs and changes in legal requirements.care utilization. To the extent that any of the aforementioned criteria or other criteriathose variables change, the funding requirements of Alcatel Lucent’s major defined benefit pensionrequired for those plans/schemes may increase, and post-retirement plans may increase.

Alcatel Lucentwe may be unsuccessful in itsour ability to avoid or control costs resulting from thesuch increased funding requirements, and suchrequirements. Our inability to avoid or control such costs could have a material adverse effect on Alcatel Lucent’sour results of operations orand our financial position.

Volatility in discount rates and asset values will affect the funded status of our pension plans.

The U.S. Internal Revenue Code provides a number of methods to use for measuring plan assets and for determining the discount rate to be applied for measuring defined benefit pension plan liabilities for regulatory funding purposes. For measuring plan assets, Alcatel Lucent can choose between the fair market value at the valuation date or a smoothed fair value of assets (based on a prior period of time not to exceed two years, with the valuation date as the last date in the prior period). For determining the discount rate, Alcatel Lucent can opt for the spot discount rate at the valuation date (effectively, the average yield curve of the daily rates for the month preceding the valuation date) or a 24-month average of the rates for each time segment (any 24-month period as long as the 24-month period ends no later than five months before the valuation date). To measure the 2014 funding valuation, Alcatel Lucent selected the two-year asset fair value smoothing method for the U.S. management pension plan and its U.S. occupational pension plans (active and inactive). Alcatel Lucent is generally required to use this same asset valuation method to measure the 2015 funding valuation. With respect to the discount rate to be applied for measuring plan liabilities, the Moving Ahead for Progress in the 21st Century Act, enacted on July 6, 2012our employee costs and thereafter modified and extended by The Highway and Transportation Funding Act, enacted on August 8, 2014, and the Bipartisan Budget Act of 2015, enacted on November 2, 2015 (collectively, “MAP-21/HATFA/BBA”), affects U.S. tax-qualified pension plan funding requirements for plans that use time segment interest rates for measuring plan liabilities for regulatory funding purposes. For such plans, MAP-21/HATFA/BBA stabilizes such interest rates by establishing “corridors” around a 25-year average rate. MAP-21/HATFA/BBA is applicable to the Alcatel Lucent Group’s U.S. management and active occupational pension plans, which use time segment interest rates for purposes of determining regulatory funding requirements, but not to the U.S. inactive occupational pension plan which uses a full yield curve for such purposes.

For the U.S. management and active occupational pension plans, MAP-21/HATFA/BBA increases the interest rates used for regulatory funding purposes. A preliminary assessment of those plans under MAP-21/HATFA/BBA suggests no required funding contribution through at least 2017. Although MAP-21/HATFA/BBA is currently not applicable to the Alcatel Lucent Group’s U.S. inactive occupational pension plan, the Group does not foresee any required funding contribution for that plan, given the level of assets compared to liabilities for regulatory funding purposes.

Pension and post-retirement health plan participants may live longer than has been assumed, which would result in an increase in our benefit obligation.

If Alcatel Lucent’s pension and retiree healthcare plan participants live longer than assumed, pension and retiree healthcare benefitsother post-retirement obligations, would likely increase. Alcatel Lucent cannot be certain thatwe face the longevity of the participants in its pension plans or retiree healthcare planfollowing risks, among others:

will not exceed that indicated by the mortality tables it currently uses or that future updates to those tables will not reflect materially longer life expectancies.

∎financial market performance and volatility in asset values and discount rates affect the funded status of our pension obligations and could increase funding requirements, including legally required minimum contributions;

For pension funding purposes, Alcatel Lucent uses the mortality table issued by the Internal Revenue Service (IRS), which includes fifteen years of projected improvements in life span for active and former employees not yet receiving pension payments, and seven years for retirees receiving payments. For accounting purposes, until September 30, 2014, Alcatel Lucent used the RP-2000 Combined Health Mortality table with Generational Projection based on the U.S. Society of Actuaries (“SOA”) Scale AA. Starting December 31, 2014, Alcatel Lucent changed these assumptions to the RP-2014 White Collar table with MP-2014 mortality improvement scale for management records and the RP-2014 Blue Collar table with MP-2014 mortality improvement scale for occupational records. These tables determine the period of time over which Alcatel Lucent assumes that benefit payments will be made. The longer the period, the larger the benefit obligation and the amount of assets required to cover that obligation. On October 8, 2015, the SOA released an updated set of mortality improvement assumptions: scale MP-2015. This new mortality improvement scale reflects two additional years of data that the U.S. Social Security Administration has released since the development of the MP-2014 mortality improvement. These two additional years of data show a lower degree of mortality improvement than in previous years.

∎our pension plan participants and post-retirement health plan participants may live longer than has been assumed, which would result in an increase in our benefit obligations. We cannot be certain that the longevity of the participants in our pension plans or retiree healthcare plan will not exceed that indicated by the mortality tables we currently use or that future updates to those tables will not reflect materially longer life expectancies;
 

 

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∎we may not be able to fund our United States post-retirement healthcare and group life insurance costs for our formerly represented retirees with excess pension assets. In accordance with Section 420 of the United States Internal Revenue Code, we currently fund, and expect to be able to continue to fund, our healthcare and group life insurance costs for retirees who, when actively employed, were represented by certain unions with transfers of excess pension assets from our United States inactive occupational pension plan. Based on current actuarial assumptions and based on the present level and structure of benefits and of our benefit plans, we believe that we can continue to fund this obligation. However, deterioration in the funded status of that pension plan could negatively affect our ability to make future Section 420 transfers. Section 420 is currently set to expire in 2025; and

For pension accounting purposes, starting December 31, 2015, Alcatel Lucent changed the MP-2014 mortality improvement scale by the MP-2015 mortality improvement scale for both management and occupational records.

To estimate Alcatel Lucent’s future U.S. retiree healthcare plan obligations, until September 30, 2014, Alcatel Lucent used the same RP-2000 Combined Health Mortality table with Generational Projection based on the SOA Scale AA that it used for pension funding purposes. Starting December 31, 2014, Alcatel Lucent similarly changed these assumptions to the RP-2014 White Collar table with MP-2014 mortality improvement scale for management records and the RP-2014 Blue Collar table with MP-2014 mortality improvement scale for occupational records. For U.S. retiree healthcare plan obligations, starting December 31, 2015, Alcatel Lucent changed the MP-2014 mortality improvement scale by the MP-2015 mortality improvement scale for both management and occupational records. As with pension benefits, longer lives of our participants would likely increase our retiree healthcare benefit obligation. Alcatel Lucent cannot be certain that the longevity of its participants in its retiree healthcare plans or pension plans will not exceed that indicated by the mortality tables it currently uses, or that future updates to these tables will not reflect materially longer life expectancies.

The new mortality rates (RP-2014 White Collar and Blue Collar) were published on October 27, 2014 and new mortality improvement scale (MP-2015) was published by the SOA on October 8, 2015. The new assumptions are not expected to become effective for regulatory (pension) funding purposes before at least the 2017 plan year.

Alcatel Lucent may not be able to fund the healthcare and group life insurance costs of its formerly represented retirees with excess pension assets.

In accordance with Section 420 of the U.S. Internal Revenue Code, Alcatel Lucent currently funds, and expects to continue to fund, its healthcare and group life insurance costs for retirees who were represented by the Communications Workers of America and the International Brotherhood of Electrical Workers with transfers of excess pension assets from its U.S. inactive occupational pension plan. Excess assets are defined by Section 420 as those assets in excess of either 120% or 125% of the plan’s funding obligation (without the application of MAP-21/HATFA/BBA), depending on the type

∎increases in healthcare costs and an increase in the utilization of healthcare services may significantly increase our United States retiree healthcare costs. We may take steps in the future to reduce the overall cost of our current retiree healthcare plans, and the share of the cost borne by the company, consistent with legal requirements and any collective bargaining obligations. However, cost increases may exceed the company’s ability to reduce these costs. Additionally, in the past, the reduction or elimination of United States retiree healthcare benefits by Alcatel Lucent resulted in lawsuits against Alcatel Lucent. Any initiatives that we might undertake to control these costs could similarly result in claims against the company.

of transfer selected. Based on current actuarial assumptions and based on the present level and structure of benefits and of its benefit plans, Alcatel Lucent believes that it can continue to fund healthcare and group life insurance for retirees who were represented by the Communications Workers of America and the International Brotherhood of Electrical Workers through Section 420 transfers from its U.S. inactive occupational pension plan. However, deteriorationWe engage in the funded status of that plan could negatively affect Alcatel Lucent’s ability to make future Section 420 transfers. Section 420 is currently set to expire on December 31, 2025.

Healthcare cost increases and an increase in the use of services may significantly increase Alcatel Lucent’s retiree healthcare costs.

Alcatel Lucent’s current healthcare plans cap the subsidy that Alcatel Lucent provides to those persons who retired after February 1990 and all future retirees, representing almost half of the retiree healthcare obligation, on a per capita basis. Alcatel Lucent may take steps in the future to reduce the overall cost of its current retiree healthcare plans, and the share of the cost borne by the company, consistent with legal requirements and any collective bargaining obligations. However, cost increases may exceed the company’s ability to reduce these costs. Additionally, the reduction or elimination of U.S. retiree healthcare benefits by Alcatel Lucent has, in the past, led to lawsuits against Alcatel Lucent. Any initiatives that Alcatel Lucent might undertake to control these costs may lead to additional claims against Alcatel Lucent.

Alcatel Lucent’s business includes the installation and maintenance of undersea telecommunications cable networks, and in the course of this activity itwe may cause damage to existing undersea infrastructure, for which itwe may ultimately be held responsible.

Alcatel Lucent’s business includes, through a subsidiary, an industry leaderWe engage in the supply of submarine optical fiber cable networks linking mainland to islands, island to island or several points along a coast, with activities also expanding to the supply of broadband infrastructure to oil and gas platforms and other offshore installations. Although thorough surveys, permit processes and safety procedures are implemented during the planning and deployment phases of all of these activities, there is a risk that previously-laid infrastructure, such as electric cables or oil pipelines, may go undetected

despite such precautions, and be damaged during the process of installing the telecommunications cable, potentially causing business interruption to third parties operating in the same area and/and accidental pollution or accidental pollution.other disturbances or damage to the environment. While Alcatel Lucent haswe have contractual limitations in place and it maintainsmaintain insurance coverage to limit itsour exposure, Alcatel Lucentwe cannot provide any assurance that these protections will be sufficient to cover such exposure entirely.

 

 

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Shares and

share capital

Nokia has one class of shares. Each Nokia share entitles the holder to one vote at General Meetings of Nokia.

As of December 31, 2016, the total number of Nokia shares was 5 836 055 012 and our share capital equaled EUR 245 896 461.96. As of December 31, 2016, Nokia and its subsidiary companies owned a total of 115 551 878 Nokia shares, representing approximately 2% of the total number of the shares and voting rights of the company.

In 2016, under an authorization held by the Board, we issued in deviation from shareholders’ pre-emptive rights to subscription 1 842 158 031 shares in exchange for the Alcatel Lucent ordinary shares, ADSs and OCEANE convertible bonds to effect the business combination with Alcatel Lucent. The number of shares issued consisted of 1 831 136 063 new shares and 11 021 968 treasury shares.

In 2016, under the authorization held by the Board, we issued a total of 3 408 437 treasury shares to our employees, including certain members of the Group Leadership Team, as settlement under Nokia’s equity-based incentive plans. The shares were issued without consideration and in accordance with the plan rules. Additionally, we issued a total of 40 451 treasury shares to employees of former Alcatel Lucent in order to fulfill Nokia’s obligations under the liquidity agreements entered into by Nokia and some beneficiaries of Alcatel Lucent employee equity compensation arrangements. The total number of treasury shares issued represented 5.9% of the total number of shares and the total voting rights as of December 31, 2016. The issuances did not have a significant effect on the relative holdings of the other Nokia shareholders, or on their voting power.

In 2016, we issued 1 033 265 new shares following the holders of stock options issued in 2011 and 2012 exercising their option rights.

On November 15, 2016, in line with the previously announced EUR 7 billion capital structure optimization program, the Board resolved to commence a share repurchase program under the authorization granted by the Nokia Annual General Meeting on June 16, 2016. The Board resolved to repurchase a maximum of 575 million Nokia shares up to an equivalent of EUR 1 billion. The program and the authorization granted by the Nokia Annual General Meeting on June 16, 2016 are valid until December 16, 2017. Refer to “—Liquidity and capital resources—Capital structure optimization program”.

In 2016, we repurchased a total of 54 296 182 shares, representing 0.9% of the total number of shares and voting rights. The price paid for the shares was based on the current market price of the Nokia share on the securities market at the time of the repurchase.

Information on the authorizations held by the Board in 2016 to issue shares and special rights entitling to shares, to transfer shares and repurchase own shares, as well as information on related party transactions, the shareholders, stock options, shareholders’ equity per share, dividend yield, price per earnings ratio, share prices, market capitalization, share turnover and average number of shares is available in the “Corporate Governance—Compensation”, “Financial Statements”, “General facts on Nokia—Shares and shareholders” and “General facts on Nokia—Related party transactions” sections.

Refer to Note 20, Shares of the Parent Company, of our consolidated financial statements included in this annual report on Form 20-F for further information regarding Nokia shares.

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Board of Directors

and management

Pursuant to the Articles of Association of Nokia Corporation, our Board is composed of a minimum of seven and a maximum of 12 members. The Board is elected at least annually at the Annual General Meeting of the shareholders for a term ending at the end of the next Annual General Meeting, which convenes annually by June 30.

The Board has responsibility for appointing and discharging the President and CEO, the Chief Financial Officer and other members of the Group Leadership Team.

For information on remuneration, shares and stock options held by the members of the Board, the President and CEO and the other members of the Group Leadership Team, refer to “Corporate governance—Compensation”. For more information regarding corporate governance at Nokia, refer to “Corporate governance—Corporate governance statement” or to our website at http://www.nokia.com/en_int/investors/ corporate-governance.

Articles of

Association

Our Articles of Association are available on our website www.nokia.com/en_int/investors/ corporate-governance. Amendment of the Articles of Association requires a resolution of the general meeting of shareholders, supported by two-thirds of the votes cast and two-thirds of the shares represented at the meeting. For information on our Articles of Association, refer to “General facts on Nokia—Memorandum and Articles of Association”.

Our Articles of Association include provisions for obligation to redeem. Amendment of the provisions of Article 13 of the Articles of Association, “Obligation to purchase shares”, requires a resolution supported by three-quarters of the votes cast and three-quarters of the shares represented at the meeting.

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Contents

  
 

Corporate governance statement

 90 
 

Regulatory framework

 90 
 

Main corporate governance bodies of Nokia

 90 
 

MembersGeneral meeting of the Board of Directorsshareholders

 9290 
 

Nokia Group Leadership Team and the President and CEOBoard of Directors

 9891 
 

Members of the Nokia Group Leadership Team and President and CEO

 9897                
 

Risk management, internal control and internal audit functions at Nokia

 102 
 

Main procedures relating to insider administrationfeatures of risk management systems

 103102 
 

Auditor fees and servicesDescription of internal control procedures in relation to the financial reporting process

 103102 
 

Audit Committee pre-approval policies and proceduresDescription of the organization of the internal audit function

 103102 
 

CompensationMain procedures relating to insider administration

 104103 
 

Board of DirectorsAuditor fees and services

 104103 
 

Compensation of the Board of Directors in 2015Audit Committee pre-approval policies and procedures

 104103 
 

Changes to the composition of the Board of Directors as of January 8, 2016Compensation

 104 
 

Executive compensationRemuneration governance

 105104 
 

President and Chief Executive OfficerRemuneration policy

 107106 
 

The Nokia Group Leadership TeamRemuneration Report

 110

Compensation governance practices

112

Equity compensation

112

Performance of previous equity programs

115

Legacy equity compensation programs

115

Share ownership of the Board of Directors, the President and Chief Executive Officer and the Nokia Group Leadership Team

116114 

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 89

Corporate governance statement

 

 

This corporate governance statement is prepared in accordance with Chapter 7, Section 7 of the Finnish Securities Markets Act (2012/746, as amended) and the Finnish Corporate Governance Code 2015 which entered into force on January 1, 2016 (the “Finnish Corporate Governance Code”).

“The Board has also adopted Corporate Governance Guidelines to reflect our commitment to good corporate governance.”

Regulatory framework

Our corporate governance practices comply with Finnish laws and regulations as well as with our Articles of Association. We also comply with the Finnish Corporate Governance Code, available at www.cgfinland.fi, with the following exception:

In 2015,2016, we complied with the old Finnish Corporate Governance Code, 2010, with the exception that we were not in full compliance with recommendation 39,24, because our restricted share plans did not include performance criteria but were time-based only. The restricted shares vest in three equal tranches on the first, second and the third anniversary of the award subject to continued employment with Nokia. Restricted shares were to be granted on a highly limited basis and only in exceptional retention and recruitment circumstances, primarily in the United States, to ensure our ability able to retain and recruit talent vital to the future success of the company. The restricted share plan 2016for 2017 is designed in a similar manner, to be used on a limited basis for exceptional purposes related to retention and recruitment, primarily in the United States. The Board approves, upon recommendation from the Board’s Personnel Committee, any long-term incentive compensation and all equity plans, programs or similar arrangements of significance that the company establishes for its employees.

We comply with the corporate governance standards of Nasdaq Helsinki, which are applicable due to the listing of our shares on the exchange. Furthermore, as a result of the listing of our American Depositary Shares on the New York Stock Exchange (the “NYSE”) and our registration under the USU.S. Securities Exchange Act of 1934, we must comply with the USU.S. federal securities laws and regulations, including the Sarbanes-Oxley Act of 2002 as well as the rules of the NYSE, in particular the corporate governance standards under Section 303A of the NYSE Listed Company Manual, which is available at http://nysemanual.nyse.com/lcm/. We comply with these standards to the extent such provisions are applicable to foreign private issuers.

To the extent any non-domestic rules would require a violation of the laws of Finland, we are obliged to comply with Finnish law.

There are no significant differences in the corporate governance practices applied by Nokia compared to those applied by USUnited States companies under the NYSE corporate governance standards, with the exception that Nokia complies with Finnish law with respect to the approval of equity

compensation plans. Under Finnish law, stock option plans require shareholder approval at the time of their launch. All other plans that include the delivery of company stock in the form of newly issued shares or treasury shares require shareholder approval at the time of the delivery of the shares, unless shareholder approval has been granted through an authorization to the Board, a maximum of five years earlier. The NYSE corporate governance standards require that the equity compensation plans be approved by a company’s shareholders. Nokia aims to minimize the necessity for, or consequences of, conflicts between the laws of Finland and applicable non-domestic corporate governance standards.

The Board has also adopted corporate governance guidelines (“Corporate Governance Guidelines”) to reflect our commitment to good corporate governance. Our Corporate Governance Guidelines are available on our website at company.nokia. com/en/about-us/http://www.nokia.com/en_int/investors/
corporate-governance.

Main corporate governance bodies of Nokia

Pursuant to the provisions of the Finnish Limited Liability Companies Act (2006/624, as amended) (the “Finnish Companies Act”) and Nokia’s Articles of Association, the control and management of Nokia isare divided among the shareholders at a general meeting, the Board, the President and CEO and the Group Leadership Team, chaired by the President and CEO.

General meeting of shareholders

The shareholders may exercise their decision-making power and their right to speak and ask questions at the general meeting of shareholders. Each Nokia share entitles a shareholder to one vote at general meetings of Nokia. Pursuant to the Finnish Companies Act, an Annual General Meeting must convene annually by June 30 annually.30. The Annual General Meeting decides, among other things, on the election and remuneration of the Board, the adoption of the annual accounts, the distribution of profit shown on the balance sheet, and discharging the members of the Board and the President and CEO from liability, as well as on the election and fees of the external auditor.

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Corporate governance framework

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In addition to the Annual General Meeting, an Extraordinary General Meeting shall be convened when the Board considers such meeting to be necessary, or when the provisions of the Finnish Companies Act mandate that such a meeting must be held.

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Board of Directors

The operations of Nokia are managed under the direction of the Board, within the framework set by the Finnish Companies Act and Nokia’s Articles of Association as well as any complementary rules of procedure as defined by the Board, such as the Corporate Governance Guidelines and the charters of the Board’s committees.

Election and composition of the Board of Directors

Pursuant to the Articles of Association of Nokia Corporation, haswe have a Board of Directorsthat is composed of a minimum of seven and a maximum of 12 members. The Board is elected at least annually at each Annual General Meeting with a simple majority of the shareholders’ votes cast at the meeting. The term of a Board member shall begin at the closing of the general meeting at which he or she was elected, or later as resolved by the general meeting, and expire at the closing of the following Annual General Meeting. The Annual General Meeting convenes by June 30 annually.

The Annual General Meeting held on May 5, 2015June 16, 2016 elected the following eightnine members to the Board: Vivek Badrinath, Bruce Brown, Elizabeth Doherty, Simon Jiang, Jouko

Karvinen, Elizabeth Nelson, Risto Siilasmaa and Kari Stadigh. Further changes to the composition of the Board took place at the Extraordinary General Meeting held on December 2, 2015 due to the transaction between Nokia and Alcatel Lucent. Elizabeth Doherty had informed that she would step down from the Board following the completion of the initial public exchange offer for all outstanding Alcatel Lucent securities and the Extraordinary General Meeting elected, based on the proposal of the Board’s Corporate Governance and Nomination Committee that, following the completion of the initial public exchange offer for all outstanding Alcatel Lucent securities, Louis R. Hughes, Jean C. Monty, andElizabeth Nelson, Olivier Piou, be elected as new members of the Board. The changes resolved at the Extraordinary General Meeting became effective as of January 8,Risto Siilasmaa, Carla Smits-Nusteling and Kari Stadigh. Vivek Badrinath subsequently resigned on July 29, 2016 after whichsince when the Board has consisted of teneight members.

Our Board’s leadership structure consists of a Chair and Vice Chair elected annually by the Board, and confirmed by the independent directors of the Board, from among the Board members upon the recommendation of the Corporate Governance and Nomination Committee. On May 5, 2015,June 16, 2016, the Board elected Risto Siilasmaa to continue to serve as the Chair and Jouko Karvinen as the Vice Chair of the Board. On January 8, 2016, following the changes to the Board composition as resolved by the Extraordinary General Meeting on December 2, 2016 and the completion of the initial public exchange offer for all

outstanding Alcatel Lucent securities, the Board elected Risto Siilasmaa to continue as the Chair of the Board and Olivier Piou as the new Vice Chair of the Board. The Chair of the Board has certain specific duties as stipulated by Finnish law and our Corporate Governance Guidelines. The Vice Chair of the Board assumes the duties of the Chair of the Board in the event he or she is prevented from performing his or her duties.

We do not have a policy concerning the combination or separation of the roles of the Chair of the Board and the President and CEO, but the leadership structure is dependent on the companyour needs, shareholder value and other relevant factors applicable from time to time, while respecting the highest corporate governance standards. In 2015,2016, Rajeev Suri served as the President and CEO, while Risto Siilasmaa served as the Chair of the Board.

The current members of the Board are all non-executive. For the term of the Board that began at the Annual General Meeting in 2015,on June 16, 2016, all Board member candidates were determined to be independent under the Finnish corporate governance standards and the rules of the NYSE. Further, the new members elected at the Extraordinary General Meeting on December 2, 2015 were determined to be independent under the Finnish corporate governance standards and the rules of the NYSE.

The Board has adopted principles concerning Board diversity describing (a) our commitment to promotepromoting diverse Board composition and (b) how diversity is embedded into our processes and practices when identifying and proposing new Board candidates as well as re-election of current Board members.

At Nokia, boardBoard diversity consists of a number of individual elements, including gender, age, nationality, cultural and educational backgrounds, skills and experience. For usAt Nokia diversity is not a static concept, but rather a relevant mix of required elements for the Board as a whole that evolves with time based on, among others,other things, the relevant business objectives and future needs of Nokia. We treat boardBoard diversity is treated as a means forof improvement and development rather than an end in itself.

Nokia acknowledges and supports the resolution adopted by the Finnish Government on February 17, 2015 on gender equality inon the boards of directors of Finnish large and mid-cap listed companies. Accordingly, we aim to have representation of 40 percent40% of both genders in our Board of Directors by January 1, 2020 by proposing a corresponding Board composition for shareholder approval in the Annual General Meeting of 2019, at the latest. At the Annual General Meeting on June 16, 2016, Carla Smits-Nusteling was elected to the Board after which the gender balance of the Board was 78% male and 22% female. After Vivek Badrinath’s resignation from the Board on July 29, 2016, the gender balance of the Board has been 75% male and 25% female. We will report annually theour objectives relating to both genders being represented inon our Board, the means to achieve the objectives,them, and the progress we have made in achieving the objectives.them.

 

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 91

    

Corporate governance statementcontinued

    

    

    

    

    

    

 

Members of the Board of Directors

Set forth below are the current members and the biographical details of the members of the Board as elected atand their biographical details. Information about the Annual General Meeting on May 5, 2015 and atshare ownership of the Extraordinary General Meeting on December 2, 2015.Board members is disclosed in the Remuneration Statement, refer to “—Compensation” below.

 

 

Chair Risto Siilasmaa

b. 1966

Chair of the Nokia Board. Board member since 2008. Chair since 2012. Chair of the Corporate Governance and Nomination Committee.

Master of Science (Eng.), Helsinki University of Technology, Finland.

President and CEO of F-Secure Corporation

1988–2006.

Chairman of the Board of Directors of F-Secure Corporation. Chairman of the Board of Directors of the Federation of Finnish Technology Industries. Member of the Board of Directors of the Confederation of Finnish Industries (EK). Member of European Roundtable of Industrialists. Member of the Board of Directors of Alcatel Lucent SA.

Chairman of the Board of Directors of Elisa Corporation 2008–2012. Member of the Board of Directors of Alcatel Lucent SA 2016.

 

Vice Chair Olivier Piou

b. 1958

Chief Executive Officer of Gemalto N.V. Vice Chair of the Nokia Board. Board member and Vice Chair since 2016. Member of the Personnel Committee and the Corporate Governance and Nomination Committee.

Degree in Engineering, École Centrale de Lyon, France.

Chief Executive Officer of Gemalto N.V. since 2006.2006–2016. Chief Executive Officer of Axalto N.V. 2004–2006. With Schlumberger 1981–2004, including numerous management positions in the areas of technology, marketing and operations, in France and the United States.

Member of the Board of Directors of Gemalto N.V.

Member of the Board of Directors of ErYoch SARL. Member of the Board of Directors of Alcatel Lucent SA 2008–2016.

Vivek Badrinath

b. 1969

Deputy Chief Executive Officer, Accor Group. Nokia Board member since 2014. Member of the Audit Committee.

École Polytechnique and ENST, France.

Deputy Chief Executive Officer of Orange 2013–2014. Head of Business Services of Orange 2010–2013. Member of Group’s Executive Committee, Head of networks and operators division 2009–2010. CTO of mobile activities of Orange 2004–2009. CEO of Thomson India in 2000–2004. Various technical positions with the long-distance networks division of Orange Group 1996–2000.

Member of the Board of Directors of ACCPC India.

 

 

Bruce Brown

b. 1958

Nokia Board member since 2012. Chair of the Personnel Committee. Member of the Corporate Governance and Nomination Committee.

M.B.A.MBA (Marketing and Finance), Xavier University, the United States. B.S.BS (Chemical Engineering), Polytechnic Institute of New York University, the United States.

Retired from The Procter & Gamble Company in 2014. Chief Technology Officer of the Procter & Gamble Company 2008–2014. Various executive and managerial positions in Baby Care, Feminine Care, and Beauty Care units of The Procter & Gamble Company since 1980 in the United States, Germany and Japan.

Member of the Board of Directors of Agency for Science, Technology & Research (A*STAR) in Singapore. Member of the Board of Trustees of Xavier University. Member of the Board of Directors, the Audit Committee and the Nominating and Corporate Governance Committee of P. H. Glatfelter Company. Member of the Board of Directors, the Audit Committee and the Compensation Committee of Medpace, Inc.

 

Louis R. Hughes

b. 1949

Nokia Board member since 2016. Member of the Audit Committee.

Master’s Degree in Business Administration, Harvard University, Graduate School of Business, the United States. Bachelor of Mechanical Engineering, General Motors Institute, now Kettering University, the United States.

President & Chief Operating Officer of Lockheed Martin in 2000. Executive Vice President of General Motors Corporation 1992–2000. President of General Motors International Operations 1992–1998. President of General Motors Europe 1992–1994.

Chairman of InZero Systems (formerly GBS Laboratories) (USA)(the United States). Independent director and member of the Audit Committee of AkzoNobel. Independent director and chairman of the Audit, Finance and Compliance Committee of ABB. Executive advisor partner of Wind Point Partners.

Member of the Board of Directors of Alcatel Lucent SA 2008–2016.

 

 

Simon JiangJean Monty

b. 19531947

Founder and Chairman of CyberCity International Limited (CCI). Nokia Board member since 2015.2016. Member of the Personnel Committee.

B.A., Beijing Foreign Studies University, China. M.A., Australian National University, Australia. MPhil and PhD (Economics),Bachelor of Arts, Collège Sainte-Marie de Montréal, Canada. Master of Arts in Economics, University of Cambridge,Western Ontario, Canada. Master of Business Administration, University of Chicago, the United Kingdom.

Chairman of Vision Century Corporation Ltd 2002–2008. Founder of CyberCity Group of Companies 1997–2002. Deputy Chief and Fund Manager of United Nations Joint Staff Pension Fund 1992–1997.States.

Non-executive director of China Petroleum Chemical Corp (Sinopec). Non-executive director of COSCO International Holdings Ltd. Trustee of Cambridge China Development Trust. Director of China Disabled Persons Federation. Committee member of Chinese People’s Political Consultative Conference. Senior Fellow of Judge Business School, Cambridge University. Member of United Nations Pension Fund Investments Committee.

Jouko Karvinen

b. 1957

Nokia Board member since 2011. Chair of the Audit Committee. Member of the Corporate Governance and Nomination Committee.

Master of Science (Eng.), Tampere University of Technology, Finland.

CEO of Stora Enso Oyj 2007–2014. CEO of Philips Medical Systems Division 2002–2006. Member of Board of Management of Royal Philips Electronics 2006 and Group Management Committee 2002–2006. Holder of executive and managerial positions at ABB Group Limited from 1987, including Executive Vice President, Head of Automation Technology Products Division and Member of Group Executive Committee 2000–2002.

Vice Chairman of the Board and Chief Executive Officer of Bell Canada Enterprises until 2002. President and Chief Executive Officer of Nortel Networks Corporation beginning in 1993.

Member of the Boards of Directors of Bombardier and member of the Audit Committee of Finnair. Fiera Capital Inc.

Member of the Board of Directors of Valmet Corporation. Member of the Foundation Board and the Supervisory Board of International Institute for Management Development. Member of the International Advisory Board of Komatsu Corporation of Japan.Alcatel Lucent SA 2008–2016.

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Elizabeth Nelson

b. 1960

Nokia Board member since 2012. MemberChair of the Audit Committee.

M.B.A.MBA (Finance), the Wharton School, University of Pennsylvania, the United States. B.S.BS (Foreign Service), Georgetown University, the United States.

Executive Vice President and Chief Financial Officer, Macromedia, Inc. 1997–2005. Vice President, Corporate Development, Macromedia, Inc. 1996–1997. Various roles in Corporate Development and International Finance, Hewlett-Packard Company 1988–1996.

Chairman of the Board of Directors of DAI. Independent Lead Director and Chair of the Audit Committee of Zendesk Inc. Member of the Board of Directors and Chair of the Audit Committee of Pandora Media.

Member of the Boards of Directors of Brightcove, Inc. 2010–2014, SuccessFactors, Inc. 2007–2012 and Ancestry.com, Inc.

2009–2012.

 

 

Jean C. MontyCarla Smits-Nusteling

b. 19471966

Nokia Board member since 2016. Member of the Audit Committee.

Bachelor of Arts, Collège Sainte-Marie de Montréal, Canada.Master’s Degree in Business Economics, Erasmus University Rotterdam, the Netherlands. Executive Master of Arts in Economics,Finance and Control, Vrije University of Western Ontario, Canada. Master of Business Administration, University of Chicago,Amsterdam, the United States.

Chairman of the Board and Chief Executive Officer of Bell Canada Enterprises until 2002. President and Chief Executive Officer of Nortel Networks Corporation beginning in 1993.

Member of the Boards of Directors of Bombardier and Fiera Capital Inc.Netherlands.

Member of the Board of Directors and Chief Financial Officer of Alcatel Lucent SA 2008–2016.KPN 2009–2012. Various financial positions in KPN 2000–2009. Various financial and operational positions in TNT/PTT Post 1990–2000.

Member of the Supervisory Board since 2013 and Chair of the Audit Committee of ASML. Member of the Board of Directors since 2013 and Chair of the Audit Committee of TELE2 AB. Member of the Management Board of the Unilever Trust Office since 2015. Lay Judge in the Enterprise Court of the Amsterdam Court of Appeal since 2015.

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Kari Stadigh

b. 1955

Group CEO and President of Sampo plc. Nokia Board member since 2011. Member of the Personnel Committee. Member ofCommittee and the Corporate Governance and Nomination Committee.

Master of Science (Eng.), Helsinki University of Technology, Finland. Bachelor of Business Administration, SwedishHanken School of Economics, and Business Administration, Helsinki, Finland.

Deputy CEO of Sampo plc 2001–2009. President of Sampo Life Insurance Company Limited 1999–2000. President of Nova Life Insurance Company Ltd

1996–1998. President and COO of Jaakko Pöyry Group

1991–1996.

Member of the Board of Directors and Chair of the Board’s Risk Committee of Nordea Bank AB (publ). Chairman of the Board of Directors of If P&C Insurance Holding Ltd (publ) and Mandatum Life Insurance Company Limited. Member of the Board of Directors of the Federation of Finnish Financial Services. Member of the Board of Directors of Waypoint Capital Group Holdings Ltd. Member of the Board of Directors of Niilo Helanderin Säätiö.

Chairman of the Board of Directors of Alma Media Corporation 2005–2011.

The following individuals served on the Board until the close of the Annual General Meeting held on May 5, 2015

Mårten Mickos

b. 1962

Board member 2012–2015.June 16, 2016, or later if indicated.

 

 

Dennis F. StriglSimon Jiang

b. 19461953

Board member 2014–2015.2015–2016. Served as a member of the Personnel Committee until May 5, 2015.June 16, 2016.

Jouko Karvinen

b. 1957

Board member 2011–2016. Served as a member of the Audit Committee and the Corporate Governance and Nomination Committee until June 16, 2016.

Vivek Badrinath

until July 29, 2016

b. 1969

Board member 2014–2016. Served as a member of the Audit Committee until July 29, 2016.

    

Risto Siilasmaa

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Vivek BadrinathChair Risto Siilasmaa

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Louis R. Hughes

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Jouko Karvinen

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Jean C. Monty

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Vice Chair Olivier Piou

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Bruce Brown

Louis Hughes

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Simon JiangJean Monty

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Elizabeth Nelson

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Carla Smits-Nusteling

 

Kari Stadigh

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Operations of the Board of Directors

The Board represents and is accountable to the shareholders of Nokia. The Board’s responsibilities are active, not passive, and include the responsibility to evaluate the strategic direction of Nokia, its management policies and the effectiveness of the implementation of such by the management on a regular basis. It is the responsibility of the members of the Board to act in good faith and with due care, so as to exercise their business judgment on an informed basis, in a manner which they reasonably and honestly believe to be in the best interests of Nokia and its shareholders. In discharging that obligation, the members of the Board must inform themselves of all relevant information reasonably available to them. The Board and each Board committee also have the power to appoint independent legal, financial or other advisers as they deem necessary from time to time.

The Board is ultimately responsible for monitoring and reviewing Nokia’s financial reporting process, effectiveness of related control and audit functions and the independence of Nokia’s external auditor, as well as for monitoring the statutory audit of the annual and consolidated financial statements. The Board’s responsibilities also include overseeing the structure and composition of our top management and monitoring legal compliance and the management of risks related to our operations. In doing so, the Board may set annual ranges and/or individual limits for capital expenditures, investments and divestitures and financial commitments that may not be exceeded without separate Board approval.

In risk management policies and processes, the Board’s role includes risk analysis and assessment in connection with financial, strategy and business reviews, updates and decision-making proposals. Risk management policies and processes are integral parts of Board deliberations and risk relatedrisk-related updates are provided to the Board on a recurring basis. For a more detailed description of our risk management policies and processes, refer to “—Risk management, internal control and internal audit functions at Nokia—Main features of risk management systems” below.

The Board has the responsibility for appointing and discharging the President and CEO and the other members of the Group Leadership Team. Since May 2014, Rajeev Suri has served as the President and CEO. His rights and responsibilities include those allotted to the President under Finnish law and he also chairs the Group Leadership Team.

Subject to the requirements of Finnish law, the independent directors of the Board confirm the compensation and terms of employment of the President and CEO upon the recommendation of the Personnel Committee of the Board. The compensation and employment conditions of the other members of the Group Leadership Team are approved by the Personnel Committee upon the recommendation of the President and CEO.

The Board has three committees: the Audit Committee, the Corporate Governance and Nomination Committee and the Personnel Committee. These committees assist the Board in its duties pursuant to their respective committee charters. The independent directors of the Board elect the members and chairs of the Board’s committees from among the Board’s independent directors based on the recommendation of the Corporate Governance and Nomination Committee and based on each committee’s member qualification standards. The Board may also establish ad hoc committees for detailed reviews or consideration of particular topics to be proposed for the approval of the Board.

In line with our Corporate Governance Guidelines, the Board conducts annual performance evaluations, which also include evaluations of the Board committees’ work.work as well as the Board and Committee Chairs and individual Board members. In 2015,2016, the Board conducted an evaluation process consisting of self-evaluations and peer evaluations, as well as interviews. The evaluation process included both numeric assessments and the possibility to provide more detailed written comments. The feedback from selected members of management was also requested as part of this evaluation process. The results of the evaluation are discussed and analyzed by the entire Board.Board and improvement actions are agreed based on such discussion.

 

 

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Meetings of the Board of Directors

The Board held 2527 meetings excluding committee meetings during 2015,2016, of which approximately 40%30% were regularly scheduled meetings held in person, complemented by meetings via video or conference calls or by other means. Additionally, in 2015,2016, the non-executive directors held meetings regularly without management in connection with Board meetings. Also, the independent directors held one separate meeting in 2015.2016.

Directors’ attendance at the Board meetings, including committee meetings but excluding meetings among the non-executive directors or independent directors only, in 20152016 is set forth in the table below:

 

    

Board meetings

%

   

Audit

            Committee

meetings

%

   

Corporate

Governance

        and Nomination

Committee

meetings

%

  

Personnel

                Committee

meetings

%

 

Vivek Badrinath

   100     100     –    –  

Bruce Brown

   96     –     100    100  

Elizabeth Doherty

   92     71     –    –  

Simon Jiang (as of May 5, 2015)

   93     –     –    75  

Jouko Karvinen

   100     100     100    –  

Mårten Mickos (until May 5, 2015)

   100     –     –    –  

Elizabeth Nelson

   88     85     –    –  

Risto Siilasmaa

   100     –     100(1)   –  

Kari Stadigh

   100     –     86    86  

Dennis F. Strigl (until May 5, 2015)

   80     –     –    66  
    

Board

meetings

%

     

Audit

Committee

meetings

%

   

Corporate

Governance

and Nomination

Committee

meetings

%

     

Personnel

Committee

meetings

%

 

Vivek Badrinath (until July 29, 2016)

   100      100       

Bruce Brown

   100        100      100 

Elizabeth Doherty (until January 8, 2016)

   100           

Louis Hughes (from January 8, 2016)

   96      100       

Simon Jiang (until June 16, 2016)

   71            75 

Jouko Karvinen (until June 16, 2016)

   85      80       

Jean Monty (from January 8, 2016)

   96      100(1)        100(2) 

Elizabeth Nelson

   93      100       

Olivier Piou (from January 8, 2016)

   96        85      88 

Risto Siilasmaa

   100        100     

Carla Smits-Nusteling (from June 16, 2016)

   100      100       

Kari Stadigh

   96           85      100 

(1) Until June 16, 2016

(1)As at May 5, 2015.

(2) From June 16, 2016

 

Additionally, many of the directors attended, as non-voting observers, in meetings of a committee of which they were not a member.

According to the Board practices, the non-executive directors meet without management in connection with each regularly scheduled meeting. Such sessions are chaired by the non-executive Chair of the Board. If the non-executive Chair of the Board is unable to chair these meetings, the non-executive Vice Chair of the Board chairs the meeting. Additionally, the independent directors meet separately at least once annually.

All the directors who served on the Board for the term until the close of the Annual General Meeting in 2015,2016, except Dennis F. Strigl,Jouko Karvinen and Simon Jiang, attended Nokia’s Annual General Meeting held on May 5, 2015. All the directors elected at the Annual General Meeting 2015, except for Simon Jiang and Kari Stadigh, attended the Extraordinary General Meeting held on December 2, 2015.June 16, 2016. The Finnish Corporate Governance Code 2010 recommendedrecommends that the Chair and members of the Board and a sufficient number of directors attendthe President shall be present at the general meeting of shareholders to ensure the possibility for the shareholders to exercise their right to present questions to both the Board and management.

Committees of the Board of Directors

The Audit Committee consists of a minimum of three members of the Board who meet all applicable independence, financial literacy and other requirements as stipulated by Finnish law, and the rules of Nasdaq Helsinki and the NYSE. As of May 5, 2015,From June 16, 2016, the Audit Committee consisted of the following four members of the Board: Jouko KarvinenElizabeth Nelson (Chair), Vivek Badrinath, Elizabeth DohertyLouis Hughes and Elizabeth Nelson. As of January 8,Carla Smits-Nusteling. Since Vivek Badrinath’s resignation from the Board on July 29, 2016, following the completion of the initial offer period of the public exchange offer for all outstanding Alcatel Lucent securities, the Audit Committee has consisted of the following five members of the Board: Jouko Karvinenthree members: Elizabeth Nelson (Chair), Vivek Badrinath, Louis R. Hughes Jean C. Monty and Elizabeth Nelson.Carla Smits-Nusteling.

The Audit Committee is established by the Board primarily for the purpose of oversight of the accounting and financial reporting processes of Nokia and the audits of its financial statements. The Committee is responsible for assisting the Board in the oversight of:

(1) the quality and integrity of company’s financial statements and related disclosures;

∎the quality and integrity of the company’s financial statements and related disclosures;

(2) the statutory audit of the company’s financial statements;

∎the statutory audit of the company’s financial statements;

(3) 

∎the external auditor’s qualifications and independence;

∎the performance of the external auditor subject to the requirements of Finnish law;

∎the performance of the company’s internal controls and risk management and assurance function;

(4) the performance of the external auditor subject to the requirements of Finnish law;

∎the performance of the internal audit function; and

(5) the performance of the company’s internal controls and risk management and assurance function;

(6) the performance of the internal audit function; and

(7) the company’s compliance with legal and regulatory requirements, including the performance of its ethics and compliance program. The Committee also maintains procedures for the receipt, retention and treatment of complaints received by the company regarding accounting, internal controls, or auditing matters and for the confidential, anonymous submission by our employees of concerns relating to accounting or auditing matters. Nokia’s disclosure controls and procedures, which are reviewed by the Audit Committee and approved by the President and CEO and the Chief Financial Officer, as well as the internal controls over financial reporting, are designed to provide reasonable assurance regarding the quality and integrity of the company’s financial statements and related disclosures.

∎the company’s compliance with legal and regulatory requirements, including the performance of its ethics and compliance program. The Committee also maintains procedures for the receipt, retention and treatment of complaints received by the company regarding accounting, internal controls, or auditing matters and for the confidential, anonymous submission by our employees of concerns relating to accounting or auditing matters. Nokia’s disclosure controls and procedures, which are reviewed by the Audit Committee and approved by the President and CEO and the Chief Financial Officer, as well as the internal controls over financial reporting, are designed to provide reasonable assurance regarding the quality and integrity of the company’s financial statements and related disclosures.

For further information on internal control over financial reporting, refer to “—Risk management, internal control and internal audit functions at Nokia—Description of internal control procedures in relation to the financial reporting process” below.

 

 

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Under Finnish law, an external auditor is elected by shareholders by a simple majority vote at the Annual General Meeting for one fiscal year at a time. The Audit Committee prepares the proposal to the shareholders, upon its evaluation of the qualifications and independence of the external auditor, of the nominee for election or re-election. Under Finnish law, the fees of the external auditor are also approved by the shareholders by a simple majority vote at the Annual General Meeting. The Committee prepares the proposal to the shareholders in respect of the fees of the external auditor, and approves the external auditor’s annual audit fees under the guidance given by the Annual General Meeting. For information about the fees paid to Nokia’s external auditor, PricewaterhouseCoopers Oy, during 2015,2016, refer to the “—Auditor fees and services” below.

In discharging its oversight role, the Audit Committee has full access to all company books, records, facilities and personnel. The Committee may appoint counsel, auditors or other advisers in its sole discretion, and must receive appropriate funding, as determined by the Audit Committee, from Nokia for the payment of compensation to such outside advisers.

The Board has determined that all members of the Audit Committee, including its Chair, Jouko Karvinen,Elizabeth Nelson, are “audit committee financial experts” as defined in the requirements of Item 16A of the annual report on Form 20-F filed with the U.S. Securities and Exchange Commission (“SEC”). Mr. KarvinenMs. Nelson and each of the other members of the Audit Committee are “independent directors” as defined by Finnish law and Finnish Corporate Governance Code and in Section 303A.02 of the NYSE Listed Company Manual.

The Audit Committee meets a minimum of four times a year based upon a schedule established at the first meeting following the appointment of the Committee. The Committee meets separately with the representatives of Nokia’s management, heads of the internal audit, and ethics and compliance functions, and the external auditor in connection with each regularly scheduled meeting. The head of the internal audit function has, at all times, direct access to the Audit Committee, without the involvement of management.

The Audit Committee held seveneight (8) meetings in 2015.2016. The average attendance at the meetings was 100%97%. Additionally, any director who so wishes may attend meetings of the Audit Committee as a non-voting observer.

The Corporate Governance and Nomination Committeeconsists of three to five members of the Board who meet all applicable independence requirements as stipulated by Finnish law, and the rules of Nasdaq Helsinki and the NYSE. As of May 5, 2015,From June 16, 2016, the Corporate Governance and Nomination Committee has consisted of the following four members of the Board: Risto Siilasmaa (Chair), Bruce Brown, Jouko Karvinen and Kari Stadigh. As of January 8, 2016, following the completion of the initial offer period of the public exchange offer for all outstanding Alcatel Lucent securities, the Corporate Governance and Nomination Committee has consisted of the following five members of the Board: Risto Siilasmaa (Chair), Bruce Brown, Jouko Karvinen, Olivier Piou and Kari Stadigh.

The Corporate Governance and Nomination Committee’s purpose is: (1)is to prepare the proposals for the general meetings in respect of the composition of the Board and the director remuneration to be approved by the shareholders;shareholders, and (2) to monitor issues and practices related to corporate governance and to propose necessary actions in respect thereof.

The Committee fulfills its responsibilities by:

(1) 

∎actively identifying individuals qualified to be elected members of the Board as well as considering and evaluating the appropriate level and structure of director remuneration;

∎preparing the proposal to the shareholders on the director nominees for election at the general meetings as well as director remuneration;

∎monitoring significant developments in the law and practice of corporate governance and of the duties and responsibilities of directors of public companies;

∎assisting the Board and each Committee of the Board in its annual performance evaluations, including establishing criteria to be applied in connection with such evaluations;

∎developing and recommending to the Board and administering Nokia’s Corporate Governance Guidelines; and

∎reviewing Nokia’s disclosure in the corporate governance statement.

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(2) proposing the director nominees to the shareholders for election at the general meetings as well as the director remuneration;

(3) monitoring significant regulatory and legal developments as well as in the practice of corporate governance and of the duties and responsibilities of directors of public companies;

(4) assisting the Board and each Committee of the Board in its annual performance evaluations, including establishing criteria to be applied in connection with such evaluations;

(5) developing and recommending to the Board and administering Nokia’s Corporate Governance Guidelines; and

(6) reviewing Nokia’s disclosure in the corporate governance statement.

The Committee has the power to appoint recruitment firms or advisers to identify appropriate candidates. The Committee may also appoint counsel or other advisers, as it deems appropriate from time to time. The Committee has the sole authority to appoint or terminate the services of such firms or advisers and to review and approve such firm’s or adviser’s fees and other retention terms. It is the Committee’s practice to appoint a recruitment firm to identify new director candidates.

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The Corporate Governance and Nomination Committee held seven (7) meetings in 2015.2016. The average attendance at the meetings was 96.3%93%. Additionally, any director who so wishes may attend meetings of the Corporate Governance and Nomination Committee as a non-voting observer.

The Personnel Committee consists of a minimum of three members of the Board who meet all applicable independence requirements as stipulated by Finnish law, and the rules of Nasdaq Helsinki and the NYSE. As of May 5, 2015, the Personnel Committee consisted of the following three members of the Board: Bruce Brown (Chair), Simon Jiang and Kari Stadigh. As of January 8,From June 16, 2016, following the completion of the initial offer period of the public exchange offer for all outstanding Alcatel Lucent securities, the Personnel Committee has consisted of the following four members of the Board: Bruce Brown (Chair), Simon Jiang,Jean Monty, Olivier Piou and Kari Stadigh.

The primary purpose of the Personnel Committee is to oversee the personnel-related policies and practices at Nokia, as described in the Committee charter. It assists the Board in discharging its responsibilities in relation to all compensation, including equity compensation, of the company’s executives and their terms of employment. The Committee has overall responsibility for evaluating, resolving and making recommendations to the Board regarding:

∎compensation of the company’s top executives and their terms of employment;

∎all equity-based plans;

∎incentive compensation plans, policies and programs of the company affecting executives; and

∎other significant incentive plans.

(1) compensation of the company’s top executives and their terms of employment;

(2) all equity-based plans;

(3) incentive compensation plans, policies and programs of the company affecting executives; and

(4) other significant incentive plans. The Committee is responsible for overseeing compensation philosophy and principles and ensuring the above compensation programs are performance-based, and designed to contribute to the long-term shareholder value creation and alignment to shareholders’ interests, properly motivate management, and support overall corporate strategies. The Committee is responsible for the review of senior management development and succession plans.

The Personnel Committee held sevennine (9) meetings in 2015.2016. The average attendance at the meetings was 81.5%93%. Additionally, any director who so wishes may attend meetings of the Personnel Committee as a non-voting observer.

Further information

The Corporate Governance Guidelines concerning the directors’ responsibilities, the composition and election of the members of the Board, its committees and certain other matters relating to corporate governance are available on our website at http://www.nokia.com/en_int/investors/
corporate-governance. We have a Code of Conduct that is applicable to all of our employees, directors and management and, in addition, we have a Code of Ethics applicable to the President and CEO, Chief Financial Officer and Corporate Controller. These documents and the charters of the Audit Committee, the Corporate Governance and Nomination Committee and the Personnel Committee are available on our website at http://www.nokia.com/en_int/ investors/corporate-governance.

Nokia Group Leadership Team and the President and CEO

Nokia hasWe have a Group Leadership Team that is responsible for the operative management of Nokia. The Chair and members of the Group Leadership Team are appointed by the Board. The Group Leadership Team is chaired by the President and CEO. The President and CEO’s rights and responsibilities include those allotted to the President under Finnish law.

 

 

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Members of the Nokia Group Leadership Team

Set forth below are the current and appointed members of the Group Leadership Team and their biographical details. Information about the shares and share-based rights of the members of the Group Leadership Team is disclosed in the Remuneration Statement,Statement; refer to
“— “—Compensation” below.

During 20152016 and thereafter, the following new appointments were made to the Group Leadership Team:

 

n∎Federico Guillén was appointed the President of Fixed Networks and member of the Group Leadership Team as of January 8, 2016;

 

n∎Basil Alwan was appointed the President of IP/Optical Networks and member of the Group Leadership Team as of January 8, 2016;

 

n∎Bhaskar Gorti was appointed the President of Applications & Analytics and member of the Group Leadership Team as of January 8, 2016;

n∎Hans-Jürgen Bill was appointed the Chief Human Resources Officer and member of the Group Leadership Team as of January 8, 2016;

 

n∎Kathrin Buvac was appointed the Chief Strategy Officer and member of the Group Leadership Team as of January 8, 2016;

 

n∎Ashish Chowdhary was appointed the Chief Customer Operations Officer and member of the Group Leadership Team as of January 8, 2016;

 

n∎Barry French was appointed the Chief Marketing Officer and member of the Group Leadership Team as of January 8, 2016;
n∎Marc Rouanne was appointed the Chief Innovation & Operating Officer and member of the Group Leadership Team as of January 8, 2016;2016 and President of Mobile Networks as of April, 1 2017;

 

n∎Maria Varsellona was appointed the Chief Legal Officer and member of the Group Leadership Team as of January 8, 2016.2016;

∎Kristian Pullola was appointed the Chief Financial Officer and member of the Group Leadership Team as of January 1, 2017;

∎Igor Leprince was appointed the President of Global Services and member of the Group Leadership Team as of April 1, 2017;

∎Monika Maurer was appointed Chief Operating Officer and member of the Group Leadership Team as of April 1, 2017; and

∎Marcus Weldon was appointed Chief Technology Officer and President of Nokia Bell Labs, and member of the Group Leadership Team as of April 1, 2017.

Further, during 20152016 and thereafter, the following members of the Group Leadership Team member resigned:

 

n∎Sean Fernback,Ramzi Haidamus, formerly President HEREof Nokia Technologies, stepped down from the Group Leadership Team as of August 31, 2016;

∎Timo Ihamuotila, formerly Chief Financial Officer, stepped down from the Group Leadership Team as of December 5, 2015.31, 2016; and

 

∎
98NOKIA ANNUAL REPORT ON FORM 20-F 2015Samih Elhage, President of Mobile Networks, will step down from the Group Leadership Team as of March 31, 2017.

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Rajeev Suri

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Rajeev Suri

b. 1967

President and Chief Executive Officer of Nokia Corporation. Chair and member of the Nokia Group Leadership Team since 2014. Joined Nokia in 1995.

Bachelor of Engineering (Electronics and Communications), Manipal Institute of Technology, Karnataka, India.

CEO, Nokia Solutions and Networks 2009–2014. Head of Services, Nokia Siemens Networks 2007–2009. Head of Asia Pacific, Nokia Siemens Networks April 2007. Senior Vice President, Nokia Networks Asia Pacific 2005–2007. Vice President, Hutchison Customer Business Team, Nokia Networks 2004-2005.2004–2005. General Manager, Business Development, Nokia Networks Asia Pacific 2003. Sales Director–BT, O2 and Hutchison Global Customers, Nokia Networks 2002. Director, Technology and Applications, BT Global Customer, Nokia Networks 2000–2001. Head of Global Competitive Intelligence, Nokia Networks 1999–2000. Head of Product Competence Center, Nokia Networks South Asia 1997-1999.1997–1999. System Marketing Manager, Cellular Transmission, Nokia Networks India 1995–1997. Head of Group Procurement, imports and special projects, Churchgate Group, Nigeria 1993–1995. National Account Manager–Transmission/
Manager–Strategic Planning, ICL India (ICIM) 1990–1993. Production Engineer, Calcom Electronics 1989.

Member of the Board of Directors of Alcatel Lucent SA.SA 2016.

Rajeev Suri

 

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Basil Alwan

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Hans-Jürgen Bill

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Kathrin Buvac

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Ashish Chowdhary

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Basil Alwan

b. 1962

President of IP/Optical Networks. Group Leadership Team member since 2016. Joined Nokia in 2016.

Bachelor in Computer Engineering, University of Illinois at Urbana-Champaign, the United States.

Previously President of IP Routing and Transport, Alcatel Lucent 2012–2016. President of IP Division, Alcatel Lucent 2003–2012. Founder, President and CEO, TiMetra Networks 2000–2003. Vice President and General Manager, Bay Networks (acquired by Nortel) Enterprise Products Division (EPD) 1997–2000. Vice President of Product Management and Marketing, Rapid City Communications 1996–1997.

 

 

Hans-Jürgen Bill

b. 1960

Chief Human Resources Officer. Group Leadership Team member since 2016. Joined Nokia Siemens Networks in 2007.

Diploma in Telecommunications from the University of Deutsche Bundespost, Dieburg/Darmstadt, Germany. Diploma in Economics from the University of Applied Sciences, Pforzheim, Germany.

Executive Vice President, Human Resources, Nokia Corporation 2014–2016. Head of Human Resources, NSN 2009–2014. Head of West South Europe region, NSN 2007–2009. Head of Asia Pacific for Mobile Networks, Siemens 2003–2007. Head of Operations for Mobile Networks, Siemens 2001–2003. Head of Region Central-East and North Europe for Mobile Networks, Siemens 1998–2001. Head of Mobile Networks in Indonesia, Siemens 1994–1998. Various management positions, Siemens 1983–1994.

 

Kathrin Buvac

b. 1980

Chief Strategy Officer. Group Leadership Team member since 2016. Joined Nokia Siemens Networks in 2007.

Degree in Business Information Systems from University of Cooperative Education, Germany. Bachelor Degree in Business Administration from Open University, London, the United Kingdom.

Vice President, Corporate Strategy, Nokia Networks 2014–2016. Chief of staff to the CEO, Nokia Solutions and Networks 2011–2013. Head of Strategic Projects, Business Solutions, Nokia Siemens Networks 2009–2011. General Manager, Integration Programme, Nokia Siemens Networks 2007–2009. General Manager, Corporate Audit, Siemens Holding S.p.A. 2006–2007. Head of Controlling International Businesses, Siemens Communications 2003–2006. Head of Performance Controlling USA, Siemens Communications 2002–2003. Business Process Manager Global IT Strategy, Siemens Communications 2001–2002. Business Analyst, EADS Aerospace and Defence

1999–2000.

 

Ashish Chowdhary

b. 1965

Chief Customer Operations Officer. Group Leadership Team member since 2016. Joined Nokia in 2003.

MBA, Wharton School, University of Pennsylvania, Philadelphia, the United States. MS Computer Science, Emory University, Atlanta, the United States. BA Mathematics from University of Delhi, India.

Executive Vice President and Chief Business Officer at Nokia Networks 2015-2016.2015–2016. Head of Customer Operations Asia, Middle East & Africa (AMEA), Nokia Networks 2011–2015. Head of Global Services, Nokia Siemens Networks 2009–2010. Head of Managed Services, Nokia Siemens Networks 2007–2009. Country Head India, Nokia Networks 2003–2007. Vice President for Enterprise Business, Hughes Communications Ltd 2000–2003 and 1994–1998. Software and Project Engineer, Hughes Network Systems 1989–1993. Teaching Assistant, Computer Science, Emory University 1987–1989.

 

 

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Samih Elhage

b. 1961

President of Mobile Networks.Networks until March 31, 2017. Group Leadership Team member since 2014. Joined Nokia Siemens Networks in 2012.

Bachelor of Electrical Engineering (telecommunications), University of Ottawa, Canada. Bachelor of Economics, University of Ottawa, Canada. Master of Electrical Engineering (telecommunications), École Polytechnique de Montréal, Canada.

Chief Financial and Operating Officer, Nokia Networks 2013–2016. Chief Operating Officer, NSN 2012–2013. Senior Advisor, leading private equity and global management consulting firms 2011–2012. President, Carrier Voice over IP and Applications Solutions (CVAS) division, Nortel 2008–2010. Leadership positions in Operations, Business Transformation, Broadband Networks, Optical Networks, and Core Data Networks, Nortel 1998–2008. Multiple leadership and management roles related to network development at Bell Canada 1990–1998.

Vice Chairman of the Board of Directors of Alcatel-Lucent Shanghai Bell.

Member of the Board of Directors of Alcatel Lucent SA. Vice Chairman of the Board of Directors of Alcatel Lucent Shanghai Bell. Member of the Board of Directors of Quickplay Media Inc.SA 2016.

 

Barry French

b. 1963

Chief Marketing Officer. Group Leadership Team member since 2016. Joined Nokia in 2006.

Master’s Degree in International Affairs from Columbia University’s School of International and Public Affairs, New York, the United States. Bachelor of Arts degree in Political Science, Bates Colleges, Lewiston, Maine, the United States.

Chief Marketing Officer and Executive Vice President, Marketing and Corporate Affairs, Nokia 2014–2016. Head of Marketing and Corporate Affairs, Nokia Siemens Networks 2010–2014. Head of Communications, Nokia Siemens Networks 2006–2010. Vice President, Corporate Communications, United Airlines 2004–2006. Director, Corporate Communications, Dell 2000–2004. Additional roles included communications, government relations and management positions, Engineering Animation, Raytheon, KRC Research and the Sawyer/Miller Group.

 

 

Bhaskar Gorti

b. 1966

President of Applications & Analytics. Group Leadership Team member since 2016. Joined Nokia in 2016.

Master’s degree in Electrical Engineering from Virginia Polytechnic Institute and State University, Blacksburg, the United States. Bachelor’s degree in Technology and Electrical Engineering from National Institute of Technology, Warangal, India.

Previously President of IP Platforms, Alcatel Lucent 2015–2016. Senior Vice President and General Manager, Communications Global Business Unit, Oracle 2006–2015. Senior Vice President, Portal Software 2002–2006.

 

Federico Guillén

b. 1963

President of Fixed Networks. Group Leadership Team member since 2016. Joined Nokia in 2016.

Degree in Telecommunications Engineering, ETSIT at Universidad Politécnica de Madrid, Spain. Master’s degree in Switching & Communication Architectures, ETSIT at Universidad Politécnica de Madrid, Spain. Master’s Degree in International Management, ESC Lyon and Alcatel, France.

President of Fixed Networks, Alcatel Lucent 2013–2016. President and CEO of Alcatel Lucent Spain & Global Account Manager Telefonica, Alcatel Lucent 2009–2013. Vice President Sales of Vertical Market Sales in Western Europe, Alcatel Lucent 2009. Head of Regional Support Centre within Alcatel Lucent’s Fixed Access Division for South Europe, MEA, India and CALA 2007–2009. CEO, Alcatel Mexico & Global Account Manager, Telmex 2003–2007. Various R&D, Portfolio and Sales Management Positions, Telettra and then Alcatel in Spain, Belgium and U.S.

1989–2003.

 

 

Ramzi HaidamusIgor Leprince

b. 19641971

President of Nokia Technologies.the Global Services. Group Leadership Team member since 2014.as of April 1, 2017. Joined Nokia Siemens Networks in 2014.2007.

Master ofMaster’s degree in Telecommunications and Network Engineering, E.N.S.T. Paris, France. Bachelor’s and Master’s degree in Computer Science (electrical engineering),and Systems and Networks, University of the Pacific, California, the United States.Paris 7, Paris, France.

Executive Vice President, Marketing and Business Development, Dolby Laboratories, Inc. 2012–Global Services, Nokia since 2014. Executive Vice President, Sales and Marketing, Dolby Laboratories, Inc. 2007–2012. Senior Vice President and General Manager, Dolby Labs Licensing Corporation, 2006–Head of Middle East & Africa, Nokia Networks 2011–2014. Vice President, Head of Care, Global Services, Nokia Siemens Networks 2010–2011. Vice President, Head of Network Planning & Optimization, Global Services, Nokia Siemens Networks 2007–2010. Senior Vice president, LCC International 2007. Managing Director Business Development, Dolby Laboratories, Inc. 2002–2006. Technology Business Strategist, Dolby Laboratories, Inc. 2000. Manager, Digital Technologies Licensing, Dolby Laboratories, Inc. 1997. Senior Licensing Engineer, Digital Technologies, Dolby Laboratories, Inc. 1996. Design Engineer, Stanford Research Systems, 1989.EMEA, WFI
2005–2007.

 

Samih Elhage

 

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Barry French

 

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Bhaskar Gorti

 

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Federico Guillén

 

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Ramzi HaidamusIgor Leprince

 

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Timo IhamuotilaMonika Maurer

 

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Kristian Pullola

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Marc Rouanne

 

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Maria Varsellona

 

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Marcus Weldon

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Timo IhamuotilaMonika Maurer

b. 19661956

Senior Vice President, Chief Operating Officer. Group Leadership Team member as of April 1, 2017. Joined Nokia in 2016.

Diploma in Physics and Chemistry, the University of Stuttgart, Germany. Diploma in Pedagogy, State University for Pedagogic, Stuttgart, Germany.

Chief Operating Officer, Fixed Networks Business Group, Nokia 2016–2017. Chief Operating Officer, Fixed Networks Business Line, Alcatel Lucent 2012–2016. Vice President Presales Europe, Middle East & Africa, Alcatel Lucent 2010–2012. President, Product Attached Services Division, Alcatel Lucent 2009–2010. Executive Vice President Supply Chain and Procurement, Alcatel Shanghai Bell

2006– 2008.

Kristian Pullola

b. 1973

Chief Financial Officer. Group Leadership Team member since 2007. With2017. Joined Nokia 1993–1996, re-joined in 1999.

Master of Science (Economics), Helsinkithe Hanken School of Economics, Helsinki, Finland. Licentiate of Science (Finance), HelsinkiFinance diploma, the Stockholm School of Economics, Finland.Stockholm, Sweden.

Executive Vice President, Sales, Markets, Nokia 2008–2009. Executive Vice President, Sales and Portfolio Management, Mobile Phones, Nokia 2007. Senior Vice President, CDMA Business Unit, Mobile Phones,Corporate Controller, Nokia 2004–2007.2011–2016. Vice President, Finance,Treasury & Investor Relations, Nokia 2009–2011. Vice President, Corporate Treasurer, Nokia 2000–2004.2006–2008. Director, CorporateTreasury Finance & Control, Nokia 2003–2006. Various roles in Nokia Treasury 1999–2000. Vice President of Nordic Derivatives Sales,2003. Associate, Citibank plc. 1996–International 1998–1999. Manager, Dealing & Risk Management, Nokia 1993–1996. Analyst, Assets and Liability Management, Kansallis Bank 1990–1993.

Member of Board of Directors and chairman of the Audit Committee of Uponor Corporation. Member of the Board of Directors of Alcatel Lucent SA.Ilmarinen Mutual Pension Insurance Company.

 

Marc Rouanne

b. 1963

Chief Innovation & Operating Officer.Officer until March 31, 2017 and President of Mobile Networks as of April 1, 2017. Group Leadership Team member since 2016. Joined Nokia Siemens Networks in 2008.

Ph.D. in Information Theory from University of Notre Dame, Indiana, the United States. Engineering degree in Signal Processing from Supélec, France. Degree in Computer Science from Université d’Orsay, France.

Executive Vice President, Mobile Broadband, Nokia Networks 2011–2016. Head of Network Systems, Nokia Siemens Networks 2010–2011. Head of Radio Access, Nokia Siemens Networks 2008–2009. Executive Vice President of Alcatel, President of Convergence Business Group, Alcatel Lucent 2006–2008. Chief Operating Officer, then President Wireless Business Group, then Executive Vice President, Alcatel 2003–2006. VP positions, then Chief Operating Officer, then President Wireless Business Division, Alcatel 1997–2003. R&D and Engineering Director positions, Matra and Nortel Matra Cellular 1988–1997.

Chairman of the Board of Directors of Alcatel Lucent SA 2016.

 

Maria Varsellona

b. 1970

Chief Legal Officer. Group Leadership Team member since 2016. Joined Nokia Siemens Networks (NSN)in 2013.

Law Degree from University of Palermo (Juris Doctor), Italy.

Executive Vice President and Chief Legal Officer, Nokia 2014–2016. General Counsel, NSN 2013–2014. Tetra Pak Group General Counsel, Tetra Laval Group 2011–2013. Sidel Group General Counsel, Tetra Laval Group 2009–2011. Senior Counsel Commercial Operations and Global Services, GE Oil & Gas 2006–2009. Senior Counsel Europe, Hertz Europe 2005–2006. Senior Counsel Global Services, GE Oil & Gas 2001–2005. Lawyer, Pini Birmingham & Partners 1998–2001. Lawyer, Greco Law Firm 1994–1998.

Member of the Board of Directors of Alcatel Lucent SA.

Further informationNordea Bank AB.

The Corporate Governance Guidelines concerning the directors’ responsibilities, the composition and election of the membersMember of the Board its committees and certain other matters relating to corporate governance are available on our website at company.nokia. com/en/about-us/corporate-governance. Furthermore, we have a Code of Conduct which is equally applicable to all our employees, directors and management and, in addition, we have a CodeDirectors of Ethics applicable to theAlcatel Lucent SA 2016.

Marcus Weldon

b. 1968

Senior Vice President, and CEO,Corporate Chief FinancialTechnology Officer and President of Nokia Bell Labs. Group Leadership Team member as of April 1, 2017. Joined Nokia in 2016.

Ph.D (Physical Chemistry) degree, Harvard University, Cambridge, Massachusetts, United States. Bachelor of Science (Computer Science and Chemistry) joint degree, King’s College, London, United Kingdom.

Corporate Controller. These documentsChief Technology Officer and the chartersPresident of the Audit Committee, theBell Labs, Alcatel Lucent (then Nokia) 2013–2016. Corporate Governance and Nomination Committee and the Personnel Committee are available on our website atcompany.nokia.com/en/about-us/corporate-governance.Chief Technology Officer, Alcatel Lucent 2009–2013. Chief Technology Officer, Broadband Networks & Solutions, Alcatel Lucent 2006–2009. Member of Technical Staff, Bell Labs, Lucent Technologies 1997–2006.

 

 

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Risk management, internal control and internal audit functions at Nokia

Main features of risk management systems

We have a systematic and structured approach to risk management across business operations and processes. Key risks and opportunities are primarily identified against business targets either in business operations or as an integral part of long- and short-termfinancial planning. Key risks and opportunities are analyzed, managed, monitored and identified as part of business performance management with the support of risk management personnel. Our overall risk management concept is based on managing the key risks that would prevent us from meeting our objectives, rather than solely focusing on eliminating risks. The principles documented in the Nokia Enterprise Risk Management Policy, which is approved by the Audit Committee of the Board, require risk management and its elements to be integrated into key processes. One of the main principles is that the business or function head is also the risk owner, although all employees are responsible for identifying, analyzing and managing risks, as appropriate, given their roles and duties. Risk management covers strategic, operational, financial and hazard risks. Key risks and opportunities are reviewed by the Group Leadership Team and the Board in order to create visibility onof business risks as well as to enable prioritization of risk management activities. In addition to the principles defined in the Nokia Enterprise Risk Management Policy, specific risk management implementation is reflected in other key policies.

The Board’s Audit Committee is responsible for, among other matters, risk management relating to the financial reporting process and assisting the Board’s oversight of the risk management function. Overseeing risk is an integral part of Board deliberations. The Board’s role in overseeing risk includes risk analysis and assessment in connection with financial, strategy and business reviews, updates and decision-making proposals. Additionally, certain significant risks are selected as priority risks that are monitored by the Board regularly. We have an Enterprise Risk Management (“ERM”) function within the CFOChief Financial Officer organization. ERM regularly reviews risk evaluations with the internal controls function, and the internal controls function utilized the ERM analysis in planning its priority areas.

Description of internal control procedures in relation to the financial reporting process

The management is responsible for establishing and maintaining adequate internal control over financial reporting for Nokia. Our internal control over financial reporting is designed to provide reasonable assurance to the management and the Board regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements.

The management conducts a yearly assessment of Nokia’s internal controls over financial reporting in accordance with the Committee of Sponsoring Organizations framework (the “COSO framework”, 2013) and the Control Objectives for Information and related technology of internal controls. In 2015, theThe assessment wasis performed based on a top-down risk assessment of our financial statements covering significant accounts, processes and locations, corporate levelcorporate-level controls and information systems’ general controls.

As part of its assessment the management has documented:

 

n∎the corporate-level controls, which create the “tone from the top” containing the Nokia values and Code of Conduct and which provide discipline and structure to decision makingdecision-making processes and ways of working. Selected items from our operational mode and governance principles are separately documented as corporate levelcorporate-level controls;

n∎the significant processes, including eightstructured under so-called financial cycles and underlying IT cycle, identified by us to address control activities implementing the top down risk based approach. These cycles include revenue cycle, inventory cycle, purchase cycle, treasury cycle, human resources cycle, accounting and reporting cycle, tax cycle and IT cycle.cycles. Financial cycles have been designed to: (i) give a complete end-to-end view of all financial processes; (ii) identify key control points; (iii) identify involved organizations; (iv) ensure coverage for important accounts and financial statement assertions; and (v) enable internal control management within Nokia;

 

n∎the control activities, which consist of policies and procedures to ensure the management’s directives are carried out and the related documentation is stored according to our document retention practices and local statutory requirements; and

 

n∎the information systems’ general controls to ensure that sufficient IT general controls, including change management, system development and computer operations, as well as access and authorizations, are in place.

Further, the management has also:

 

n∎assessed the design of the controls in place aimed at mitigating the financial reporting risks;

 

n∎tested operating effectiveness of all key controls; and

 

n∎evaluated all noted deficiencies in internal controls over financial reporting in the interim and as of year-end; and

nperformed a quality review on assessment documentation and provided feedback for improvement.year end.

In conclusion,2016, Nokia has followed the procedures as described above and has reported on the progress and assessments to the management has assessedand to the Audit Committee of the Board on a quarterly basis. However, our assessment of the operating effectiveness of our internal control over financial reporting, at December 31, 2015,controls as of year end has excluded the business acquired through the Acquisition of Alcatel Lucent, on January 4, 2016 and concludedcontinue to integrate into the company. This exclusion is in accordance with the SEC’s guidance that such internal control over financial reporting is effective.a recently acquired business may be omitted from the scope of the assessment in the year of acquisition. Refer to “General facts on Nokia—Controls and Procedures”.

Description of the organization of the internal audit function

We also have an internal audit function that acts as an independent appraisal function by examining and evaluating the adequacy and effectiveness of our system of internal control. Internal audit resides within the Chief Financial Officer’s organization and reports to the Audit Committee of the Board. The head of the internal audit function has direct access to the Audit Committee, without involvement of the management. Internal Audit staffing levels and annual budget are approved by the Audit Committee. All authority of the internal audit function is derived from the Board of Directors.Board. Internal audit aligns to the business regionally and by business and function.

Annually, an internal audit plan is developed with input from the management, including key business risks and external factors. This plan is approved by the Audit Committee of the Board. Audits are completed across the business focused on country level, customer level, IT system implementation, IT security, operations activities or at a Group function level. The results of each audit are reported to the management identifying issues, financial impact, if any, and the correcting actions to be completed. Quarterly, internal audit communicatedcommunicates the progress of the internal audit plan completion, including the results of the closed audits.

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Internal audit also works closely with our Ethics and Compliance office to review any financial concerns brought to light from various channels.channels and, where possible, works with Enterprise Risk Management to ensure priority risk areas are reviewed through audits.

In 2015,2016, the internal audit plan was completed and all results of these  reviews were reported to the management and to the Audit Committee of the Board.

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Main procedures relating to insider administration

Our insider administration is organized according to the applicable European Union and Finnish laws and regulations as well as the Nokia Insider Policy which sets out Group-wide rules and practices. The policy is applicable to all Nokia insiders as well as to all Nokia Groupour employees.

Our insider administration’s responsibilities include internal communications related to insider matters and arrangement of related trainings; organizing and maintaining our insider registers; and overseeing the compliance with the insider rules.

Auditor fees and services

PricewaterhouseCoopers Oy has served as Nokia’sour auditor for each of the fiscal years in the three-year period ended December 31, 2015.2016. The auditor is elected annually by Nokiaour shareholders at the Annual General Meeting for the fiscal year in question. The Audit Committee of the Board prepares the proposal to the shareholders in respect of the appointment of the auditor based upon its evaluation of the qualifications and independence of the auditor to be proposed for election or re-election on an annual basis.

The following table presents fees by type paid to PricewaterhouseCoopers for the years ended December 31:

 

EURm            2015             2014                    2016                    2015 

Audit fees(1)

   13.5     14.8     31.3    13.5 

Audit-related fees(2)

   3.1     0.6     1.8    3.1 

Tax fees(3)

   1.2     0.8     3.4    1.2 

All other fees(4)

   0.6     2.9     –    0.6 

Total

   18.4     19.1     36.5    18.4 

 

(1)Audit fees consist of fees billedincurred for the annual audit of the Group’s consolidated financial statements and the statutory financial statements of the Group’s subsidiaries.
(2)Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Group’s financial statements or that are traditionally performed by the independent auditor, and include consultations concerning financial accounting and reporting standards; advice on tax accounting matters; advice and assistance in connection with local statutory accounting requirements; due diligence related to acquisitions or divestitures; financial due diligence in connection with provision of funding to customers, reports in relation to covenants in loan agreements;mergers and acquisitions; employee benefit plan audits and reviews; and audit procedures in connection with investigations in the pre-litigation phase and compliance programs. They also include fees billed for other audit services, which are those services that only the independent auditor can reasonably can provide, and include the provision of comfort letters and consents in connection with statutory and regulatory filings and the review of documents filed with the SEC and other capital markets or local financial reporting regulatory bodies.
(3)Tax fees include fees billed for: (i) corporate and indirectservices related to tax compliance including preparation and/or review of tax returns, preparation, review and/or filing of various certificates and forms and consultation regarding tax returns and assistance with revenue authority queries; (ii) transfer pricing advice and assistance with tax clearances; (iii) customs duties reviews and advice; (iv) consultationscompliance reviews, advice and assistance on other indirect taxes; and transaction cost analysis; (ii) service related to tax audits (assistance with technical tax queries and tax audits and appeals and advice on mergers, acquisitions and restructurings); (v) personalaudits; (iii) services related to individual compliance (preparation of individual tax returns and registrations for employees (non-executives), assistance with applying visa, residency, work permits and tax status for expatriates); (iv) services related to technical guidance on tax matters; (v) services related to transfer pricing advice and assistance with tax clearances; and (vi) tax consultation and planning (advice on stock-based remuneration, local employer tax laws, social security laws, employment laws and compensation programs and tax implications on short-term international transfers).
(4)Other fees include fees billed for company establishment,establishments; liquidations; forensic accounting, data security, investigations and reviews of licensing arrangements with customers, other consulting services and occasional training or reference materials and services.

Audit Committee pre-approval policies and procedures

The Audit Committee of the Board is responsible, among other matters, for the oversight of the external auditor subject to the requirements of Finnish law. The Audit Committee has adopted a policy regarding pre-approval of audit services performed by the external auditors of Nokia Group (including the principal auditor as well as any other auditor of a Nokia Group Company)company) and permissible non-audit services performed by the principal external auditor of the Nokia Group (the “Pre-approval Policy”).

Under the Pre-approval Policy, proposed services either: (i) may be pre-approved by the Audit Committee in accordance with certain service categories described in appendices to the Pre-approval Policy (“general pre-approval”); or (ii) require the specific pre-approval of the Audit Committee (“specific pre-approval”). The Audit Committee may delegate either type of pre-approval authority to one or more of its members. The appendices to the Pre-approval Policy set out the audit, audit-related, tax and other services that have received the general pre-approval of the Audit Committee. All other audit, audit-related (including services related to internal controls and significant M&Amergers and acquisitions projects), tax and other services are subject to a specific pre-approval fromby the Audit Committee. All service requests concerning generally pre-approved services will be submitted to the Corporate Controller,an appointed Audit Committee delegate within management, who will determine whether the services are within the services generally pre-approved. The Pre-approval Policy and its appendices are subject to annual review by the Audit Committee.

The Audit Committee establishes budgeted fee levels annually for each of the four categories of audit and non-audit services that are pre-approved under the Pre-approval Policy, namely, audit, audit-related, tax and other services. Requests or applications to provide services that require specific approval by the Audit Committee are submitted to the Audit Committee by both the external auditor and the Corporate Controller.appointed Audit Committee delegate within management. At each regular meeting of the Audit Committee, the auditor provides a report in order for the Audit Committee to review the services that the auditor is providing, as well as the status and cost of those services.

 

 

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Compensation

    

    

 

Board of Directors

The table below outlines the annual compensation payable to the membersThis section sets out our remuneration policies, how they have been implemented within Nokia, and includes our Remuneration Report where we provide disclosure of the compensation of our Board, the President and CEO and aggregated compensation information for their servicesthe Group Leadership Team. We report information related to executive compensation in accordance with Finnish regulatory requirements and with requirements set forth by the U.S. Securities and Exchange Commission.

Following the Acquisition of Alcatel Lucent, we focused on the Boardfollowing management and its committees, as resolved at the respective Annual General Meetings in 2015, 2014, and 2013.personnel-related objectives:

EUR  2015   2014   2013 

Chair

   440 000     440 000     440 000  

Vice Chair

   150 000     150 000     150 000  

Member

   130 000     130 000     130 000  

Chair of Audit Committee

   25 000     25 000     25 000  

Member of Audit Committee

   10 000     10 000     10 000  

Chair of Personnel Committee

   25 000     25 000     25 000  

Total(1)

   1 450 000     1 580 000     1 570 000  

 

(1)∎The changescreation of the new Group Leadership Team;

∎alignment of compensation practices and legacy arrangements with Nokia’s needs;

∎business continuity during integration; and

∎culture integration as we combined the two companies, aiming to keep the “best of both” companies.

Separately, we took the opportunity to further enhance our compensation disclosures with the intention of simplifying and further increasing transparency. To achieve this and to make the information more useful for our stakeholders, we separated our report into three sections:

(1) remuneration governance;

(2) remuneration policies; and

(3) Remuneration Report.

In 2016, our Group Leadership Team grew larger following the Acquisition of Alcatel Lucent and we witnessed the impact of our remuneration policies aligning with the performance of the company:

∎annual bonuses were down at 40% compared to 2015, reflecting tough market conditions; and

∎the Chair of the Board of Directors and the President and CEO reinforced their commitment to Nokia and the share ownership policy by investing directly in the aggregate Board compensation year on year are attributable to changes in the number of Board members and their committee memberships. The compensation paid for services rendered remained the same over the relevant periods.Nokia shares.

In accordance with our policy, directors’ remuneration consists of an annual fee only with no additional fees paid for meeting attendance. Approximately 40%2016, the President and CEO received EUR 7.5 million, which was triggered by the vesting of the director remuneration is paid inremaining 2012 Nokia Networks equity incentive plan awards, representing reward for the form of Nokia shares that are purchased from the market, or alternatively, by using treasury shares held by the Company. The remaindertransformation of the remuneration, approximately 60%, is paid in cash, most of which is typically usedformer Nokia Siemens Networks to cover related taxes. Additionally, directors shall retain untilwhat today forms the end of their directorship, the net after-tax number of shares that they have received as remuneration for their duties as members of the Board during their first three years of service. Non-executive directors do not participate in anyfoundation of our equity programs and do not receive performance shares, restricted shares or any other equity based or variable compensation for their duties as Board members.

The compensation payable to the Board is resolved annually by the shareholders of Nokia represented at the general meeting. The compensation is resolved by a majority vote of the shareholders represented at the general meeting, upon the proposal of the Corporate Governance and Nomination Committee of the Board. The compensation is determined as of the date of the general meeting, until the close of the next annual general meeting.

When preparing the proposal for Board compensation for the general meeting, the Corporate Governance and Nomination Committee reviews and compares total compensation levels and their criteria to other global peer group companies that have corresponding net sales and complexity of business as that of Nokia. The Corporate Governance and Nomination Committee’s aim is to ensure that Nokia has an efficient Board consisting of international professionals representing a diverse mix of skills and experience. Competitive Board remuneration contributes to the achievement of this target.business.

CompensationRemuneration governance

We manage our remuneration through clearly defined processes, with well-defined governance principles, ensuring that no individual is involved in the decision-making process related to their own remuneration and that there is appropriate oversight of any compensation decision. Remuneration of the Board of Directors in 2015

In 2015, the aggregate amount of compensation paidis annually presented to the members of the Boardshareholders for their services on the Board and its committees equaled EUR 1 450 000.

The following table outlines the total annual compensation paid to the members of the Board for their services in 2015, as resolved by shareholdersapproval at the Annual General Meeting on May 5, 2015. For more details on Nokia shares held byand the membersremuneration of the Board, refer to “—Share ownership of the Board of Directors , the President and Chief Executive Officer andCEO is approved by the Nokia Group Leadership Team” below.Board.

Compensation earned or paid in 2015(1):The General Meeting of shareholders

 

EUR∎

Risto Siilasmaa, Chair

440 000

Jouko Karvinen, Vice Chair(2)

175 000

Vivek Badrinath(3)

140 000

Bruce Brown(4)

155 000

Elizabeth Doherty(5)

140 000

Simon Jiang

130 000

Mårten Mickos (Board member until May 5, 2015)(6)

–

Elizabeth Nelson(7)

140 000

Kari Stadigh

130 000

Dennis Strigl (Board member until May 5, 2015)(6)

–

Total

1 450 000

(1)Approximately 40% of each Board member’s annual compensation was paid in Nokia shares purchased fromShareholders approve the market and the remaining approximately 60% in cash.
(2)Represents compensation paid to Jouko Karvinen, consisting of EUR 150 000 for services as Vice Chair of the Board until January 8, 2016 and EUR 25 000 for services as the Chair of the Audit Committee.
(3)Represents compensation paid to Vivek Badrinath, consisting of EUR 130 000 for services as a membercomposition of the Board and EUR 10 000 for services as a memberthe director remuneration based on proposals of the Audit Committee.
(4)Represents compensation paid to Bruce Brown, consistingBoard’s Corporate Governance and Nomination Committee, which actively considers and evaluates the appropriate level and structure of EUR 130 000 for services as a memberdirector remuneration. The composition of the Board and EUR 25 000 for services as the Chairdirector remuneration are resolved by a majority vote of the Personnel Committee.
(5)Represents compensation paid to Elizabeth Doherty, consisting of EUR 130 000 for servicesshareholders represented at the General Meeting and determined as a member of the Board and EUR 10 000 for services as a memberdate of the Audit Committee, both until January 8, 2016.
(6)Mårten Mickos and Dennis Strigl served as members of the BoardGeneral Meeting, until the close of the next Annual General Meeting in 2015. Neither of them was paid any compensation during fiscal year 2015, but received compensationMeeting.

∎Shareholders authorize the Board to resolve to issue shares, for example, to settle the term untilcompany’s equity-based incentive plans based on the closeproposal of the Annual General Meeting in 2015 inBoard.

The Board of Directors

∎Approves, and the fiscal year 2014.
(7)Represents compensation paid to Elizabeth Nelson, consisting of EUR 130 000 for services as a memberindependent members of the Board and EUR 10 000 for services as a memberconfirm, the compensation of the Audit Committee.President and CEO, upon recommendation of the Personnel Committee;

Changes

∎Approves, upon recommendation of the Personnel Committee, any long-term incentive compensation and all equity plans, programs or similar arrangements of significance that the company establishes for its employees; and

∎Decides on the issuance of shares (under authorization by shareholders) to fulfill the company’s obligations under equity plans in respect of vested awards to be settled.

The Personnel Committee

The Personnel Committee assists the Board in discharging its responsibilities relating to the compositionall compensation, including equity compensation, of the Boardcompany’s executives and the terms of Directors as of January 8, 2016

On January 8, 2016, we confirmed the new compositionemployment of the Board following the successful public exchange offer for all outstanding Alcatel Lucent securities. In accordance with the resolutions passed at the Extraordinary General Meeting on December 2, 2015, and following the successful public exchange offer for all Alcatel Lucent securities, our Board consists of ten members. The new members of the Board are Louis R. Hughes, Jean C. Monty and Olivier Piou. Elizabeth Doherty, who was a member of the Board until the successful closing of the exchange offer for all Alcatel Lucent securities, stepped down from the Board.executives.

∎In respect of the President and CEO, the Committee is accountable to the Board for:

–reviewing and recommending to the Board the goals and objectives relevant to compensation;

–evaluating and presenting to the Board the assessment of performance in light of those goals and objectives; and

–proposing to the Board the total compensation based on this evaluation.
 

 

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Additionally,

∎In respect of the other members of the Group Leadership Team (other than the President and CEO) and the direct reports to the President and CEO in Vice President-level positions and above, the Committee:

–reviews and approves the goals and objectives relevant to the compensation, upon recommendation of the President and CEO;

–reviews the results of the evaluation of the performance in relation to the approved goals and objectives. The Committee approves the incentive compensation based on such evaluation;

–approves and oversees the total compensation recommendations made by the President and CEO; and

–reviews and approves compensation proposals made by the President and CEO in the event of termination of employment of a member of the Group Leadership Team.

∎The Committee reviews periodically and makes recommendations to the Board regarding any equity programs, plans and other long-term incentive compensation arrangements, or similar arrangements of significance that the company establishes for, or makes available to, its employees, the appropriateness of the allocation of benefits under the plans and the extent to which the plans are meeting their intended objectives.

∎The Committee reviews and resolves, at their discretion, any other significant compensation arrangements applicable to the wider executive population in the Nokia Group.

∎The Committee will report to the Board at least annually on its views as to whether the President and CEO is providing the necessary leadership for the company in the long and short term.

∎The Committee reviews and discusses with management on compensation philosophy, strategy, principles, and management compensation to be included in our Remuneration Report.

∎The Committee reviews annually the company’s share ownership policy to determine the appropriateness of the policy against its stated objectives.

∎The Committee has the power, in its sole discretion, to retain compensation consultants having special competence to assist the Personnel Committee in evaluating director and executive compensation.

∎The Committee reviews and approves changes to the company’s peer group for the assessment of the competitiveness of our compensation from time to time.

The committee consults regularly with the Extraordinary General Meeting resolvedPresident and CEO and the Chief Human Resources Officer though they are not present when their own compensation is reviewed or discussed.

Work of the Personnel Committee

The Personnel Committee convened five (5) times during 2016 with a general theme for each meeting. The discussion and timing of certain remuneration-related elements was unique in 2016, given the specific needs following the Acquisition of Alcatel Lucent and any associated integration-related matters, as required:

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January:

∎Achievement review

∎Budget approval for 2016 Nokia equity program and performance review for 2014 performance share plan

∎Employee engagement and organizational health review

March:

∎Review of 2015 short-term incentive program achievement and performance

∎Target setting for 2016 short-term incentive program

∎Review of 2015 annual report

May:

Setting the long-term incentive target

Review of:

∎succession;

∎diversity;

∎policy; and

∎annual compensation.

September:

Compensation strategy and philosophy review

Update on:

∎market and legal environment; and

∎adviser market practices.

Talent summit outcomes

November:

Review of:

∎framework for short-term incentive program for 2017;

∎framework for long-term incentive program for 2017;

∎risks;

∎annual report for 2016; and

∎peer group for 2017.

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Compensationcontinued

The President and CEO

The President and CEO has an active role in the compensation governance and performance management processes for the Group Leadership Team and the wider employee population at Nokia.

The President and CEO is not a member of the Personnel Committee and does not vote at Personnel Committee meetings, nor does he participate in any conversations regarding his own compensation.

Advisers

The Personnel Committee retains the use of Aon, an independent external consultant appointed in 2015, to assist in the review and determination of executive compensation and program design and provide insight into market trends and regulatory developments. The Personnel Committee has reviewed and established that the new membersAon is independent of Nokia and does not have any other business relationships with Nokia.

Authorizations and resolutions of the Board elected at the meeting will receive the same annualconcerning remuneration as is paid

Valid authorizations

The Annual General Meeting held on June 16, 2016 resolved to the members ofauthorize the Board electedto resolve to issue a maximum of 1 150 million shares through one or more issuances of shares or special rights entitling to shares. The authorization may be used to develop the company’s capital structure, diversify the shareholder base, finance or carry out acquisitions or other arrangements, to settle the company’s equity-based incentive plans or for other purposes resolved by the Board.

The authorization is effective until December 16, 2017 and the authorization terminated the earlier shareholder authorization for the Board to issue shares and special rights entitling to shares resolved at the Annual General Meeting on May 5, 2015, prorated2015. The authorization did not terminate the authorization granted by the newExtraordinary General Meeting held on December 2, 2015 to the Board members’ timefor issuance of shares in service untilorder to implement the closingAcquisition of Alcatel Lucent.

Board resolutions

On February 1, 2017, the Board approved the Nokia equity program for 2017 and the issuance, without consideration, of a maximum of 9.75 million Nokia shares held by the company in 2017 to settle its commitments to Nokia’s equity plan participants. The Nokia equity program for 2017 is explained in more detail below.

Remuneration policy

This section of our statement describes our remuneration policy and the considerations taken into account when setting the policy.

Board of Directors

The objective of the Board’s Corporate Governance and Nomination Committee is to ensure that Nokia is able to compete for top-of-class Board competence when determining director remuneration in order to maximize shareholder value. Therefore, it is the practice of the Corporate Governance and Nomination Committee to review and compare the total remuneration levels and their criteria paid in other global companies with net sales, geographical coverage and complexity of business comparable to that of Nokia’s. The Corporate Governance and Nomination Committee’s aim is to ensure that the company has an efficient Board consisting of international professionals representing a diverse and relevant mix of skills and experience. Nokia believes that a competitive Board remuneration contributes to the achievement of this target.

Director remuneration at Nokia consists of an annual fee and a meeting fee. Director remuneration for the term that began at the Annual General Meeting held on June 16, 2016 and ends at the close of the Annual General Meeting in 2016.

For more details on the composition2017 consists of the Board, refer to “Corporate Governance Statement—Main corporate governance bodies of Nokia” above. The new members of the Board were not paid any compensation during the fiscal year 2015. The following table outlines the total annual compensation paid to the new members of the Board for their services in 2016, as resolved by shareholders of Nokia at the Extraordinary General Meeting on December 2, 2015.fees:

 

Annual fee  EUR(EUR)(1)

Olivier Piou, Vice Chair as of January 8, 2016(2)

   70 082440 000 

Louis Hughes, Board member as of January 8, 2016(3)Vice Chair

   65 410185 000 

Jean Monty, Board member as of January 8, 2016(4)Member

   65 410160 000

Chair of Audit Committee

30 000

Member of Audit Committee

15 000

Chair of Personnel Committee

30 000
Meeting fee/meeting(1)EUR

Meeting requiring intercontinental travel

5 000

Meeting requiring continental travel

2 000 

 

(1)The new Board members have received the same annual remuneration as wasPaid for a maximum of seven meetings per term. Not paid to the members of the Board elected at the Annual General Meeting on May 5, 2015, prorated by the new Board members’ time in service until the closing of the Annual General Meeting in 2016. Approximately 40% of each Board member’s annual compensation was paid in Nokia shares purchased from the market and the remaining approximately 60% in cash.
(2)Represents compensation paid to Olivier Piou, consisting of EUR 70 082 for services as the Vice Chair of the Board.
(3)Represents compensation paid to Louis Hughes, consisting of EUR 60 738 for services as a member of the Board and EUR 4 672 for services as a member of the Audit Committee.
(4)Represents compensation paid to Jean Monty, consisting of EUR 60 738 for services as a member of the Board and EUR 4 672 for services as a member of the Audit Committee.

Executive compensation

Introduction

The year 2015 was the first full year following the SaleApproximately 40% of the D&S Business andannual fee is paid in Nokia shares purchased from the integrationmarket or by using treasury shares. According to the company’s policy, the directors shall retain until the end of their directorship such number of shares that corresponds to the Nokia Networks business. With a stable leadership team in place and certain changes innumber of shares they have received as Board remuneration during their first three years of service on the compensation structure introduced in 2014, 2015 was about executing change in the business, preparing forBoard (the net amount received after deducting those shares needed to offset any costs relating to the acquisition of Alcatel Lucentthe shares, including taxes). The shares shall be purchased from the market on behalf of the directors, or, if treasury shares are used, transferred to the directors, as soon as practicable after the Annual General Meeting. The remainder of the annual fee is payable in cash, most of which is typically used to cover taxes arising from the paid remuneration.

A meeting fee for Board and Committee meetings is paid to all other members of the Board except the Chair of the Board based on travel required between the home location of the member of the Board and the Salelocation of a meeting. Only one meeting fee is payable for multiple Board and Committee meetings per eligible travel. The meeting fee is paid for a maximum of seven meetings per term. The meeting fee is paid in cash.

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According to the company’s policy, non-executive directors do not participate in any of Nokia’s equity programs and do not receive performance shares, restricted shares or any other equity-based or other form of variable compensation for their duties as members of the HERE Business.Board.

Group Leadership Team

Our focus for executive compensationwhen considering policies related to remuneration of the Group Leadership Team and other senior executives is to:

 

n∎Attractattract, retain and retainmotivate the right talent;people to lead Nokia;

 

n∎Drive performance;drive performance and appropriate behaviors; and

 

n∎Alignalign the interests of the executives and results of our compensation programs with shareholder interests.the interests and returns of our shareholders.

We have undergone significant structural changes over the past three years and continue to do so following our acquisition of Alcatel Lucent. Additionally, the corporate reporting environment is expected to evolve further e.g., as a result of the pending shareholder rights directive in Europe, which would further change disclosure requirements. To simplify reporting, we have decided to report information related to executive compensation in accordance with Finnish regulatory requirements (and in compliance with SEC requirements) and to provide disclosure of compensation of our President and CEO and aggregated information for our Group Leadership Team, as well as to provide a clear explanation of our policies and practices that relate to the President and CEO and to our executives and employees more broadly.

Variable compensation plans have paid out in a manner consistent with the 2015 business results. Short-term incentive plans paid out above target for 2015 in line with the performance on all three key metrics we use as a basis for calculating variable compensation—non-IFRS revenue, non-IFRS operating profit and net cash flow.

Our long-term incentive plan performance condition achievement is also tied to our business results. In recent years, our performance shares have not paid out as the required business performance was not met. It is satisfying to see that the 2013 performance share plan that vested on January 1, 2016 has delivered value to participants as they have participated in delivering value to shareholders. The 2013 performance share plan vested at 86.25% of target during which time we saw an increase in diluted EPS for Continuing operations from a negative EUR (0.16) for the fiscal year 2012 to positive EUR 0.67 per share for the fiscal year 2014 and the share price increase from EUR 3.49 before the plan was approved to EUR 6.60 at December 31, 2015. The 2014 performance share plan will vest on January 1, 2017 and is expected to vest at 125.72% of the target award.

Compensation philosophy, design and strategy

Our compensation programs are designed to attract, incentivize and retain the talent necessary to deliver strong financial results to the ultimate benefit of our shareholders. Rewards are tied to the execution of our strategy by adopting an appropriate mix of fixed and variable compensation to engage and motivate employees in the performance of the business and ensure alignment with shareholder interests.

A single compensation framework is used across the Nokia Group with a varying mix of fixed and variable compensation for each level of responsibility. Higher levels of performance-based compensation and equity compensation are used to reward executives for delivering long-term sustainable growth and creating value for our shareholders.

We aim to provide a globally competitive compensation offering, which is comparable to that of our peer group companies, taking into account industry, geography, size and complexity. The peer group is reviewed annually and external advice is sought to confirm the appropriateness of the peer group and also the quantum and the relative mix of compensation packages. The peer group for 2016 is presented in the “—Remuneration Report” below.

In designing our variable compensation programs key consideration is given to:

 

n∎incorporating specific performance measures that align directly with the execution of our strategy and driving long-term sustainable success;

 

n∎delivering an appropriate amount of performance-related variable compensation for the achievement of strategic goals and financial targets in both the short-short and long-term;long term;

 

n∎appropriately balancing rewards between company and individual performance; and

 

n∎fostering an ownership culture that promotes sustainability and long-term value creation that aligns the interests of participants with those of our shareholders.
 

 

NOKIA ANNUAL REPORT ON FORM 20-F 2015105

Compensationcontinued

Compensation structure and goaltarget setting

In line with our overall compensation philosophy, our executives are rewarded using a mix of fixed and variable pay.

Targets for the short- and long-term incentive plans are set by the Board. The Board reviews business plans, external analysts’ expectations, previous year’s performance and the overall macro-economic environment to arrive at suitable targets for the plans. The goal of target-setting is equally to set achievable targets while also ensuring those targets are sufficiently demanding to create shareholder value.

The elements of the compensation structure for the President and CEO and the Group Leadership Team including the President and CEO are further detailed below:

 

Element PrinciplesPurpose PurposePhilosophyOperation
Base salaryTo attract and retain the best executives with the requisite level of knowledge, skills and experience to lead our businesses and provide a degree of financial certainty and stability to executives. Fixed cash component targeted at our peer group median; basemedian. Base salary can vary from the market average due to individual performance, experience, time in position and internal comparability considerations.comparison. Base salaries are reviewed annually taking into account market conditions, our financial condition and individual performance. To compensate

Changes in base pay are determined based on consideration of a variety of factors, including, for example, the relevant knowledge, skillsfollowing:

∎  performance by the member of the Group Leadership Team;

∎  changes in the market;

∎  market positioning;

∎  changes in individual responsibilities; and experience

∎  average employee salary increases across Nokia and in the individual brings to the role and the responsibility of their position. Provides a degree of financial certainty and stability that helps us retain talent.local market.

Short-term incentiveincentives AnTo incentivize and reward performance against delivery of the annual cash awardbusiness plan.All members of the Group Leadership Team are eligible to receive a short-term incentive, based on a set of pre-determined targets linked to key metrics that drive sustainable business performance and are designed to reward a mix of corporate, business unit,group and individual performance comparedgoals.

Achievement is assessed at the end of the year to pre-established performance goals. The on targetdetermine payout.

Target short-term incentive award,awards, when taken together with base salary, isare designed to provide a mediantarget annual total cash compensation comparable to that provided by our peer group.

NOKIA ANNUAL REPORT ON FORM 20-F 2016 Reward for the achievement of key business metrics by meeting financial and strategic targets during the fiscal year.107

Compensationcontinued

Long-term incentiveElement 

Performance shares:Purpose

The equity-based portion

PhilosophyOperation
Long-term incentivesTo reward for delivery of compensation that is tied to oursustainable long-term successperformance, align the executives’ interests with those of shareholders and delivered primarily through performance shares.

aid retention.

Long-term incentive awards are intended to provide competitive incentive compensation compared withto our peer group when combined with base salary and target short-term incentive.

 

Performance share awards are made annually. They have a two-year performance period and a one-year restriction period. The ultimate value of an award depends on our share price and business performance against predetermined performance measures.criteria.

 

Restricted shares:

Restricted shares are also used on a limited basis or infor exceptional purposes related to retention and recruitment circumstances, predominantly in the United States, as is consistent with market practice.recruitment. The number of shares vesting is predetermined but the ultimate value will rise or fall in line with movements in theour share price.

 

There are also certain legacy equity compensation programs in force as described in “—Legacy equity compensation programs” below.

 To reward

The value of performance share awards is determined by performance against preset strategic targets of

∎ net sales; and

∎ earnings per share.

Targets are set in the context of the Nokia long-term plans which are validated against analyst forecasts ensuring that they are considered both demanding of recipients and motivational to them.

The target value of a long-term incentive award depends on the recipient’s role in the company and is set in the context of award levels for delivery of sustainable long-term performance, aligncomparable roles in the executives’ interests with those of shareholders and aid retention.wider market.

Benefits & perquisites ExecutivesTo attract, retain and protect executives.

Members of the Group Leadership Team are provided with the same benefits as are made available to employees more broadly in the relevant country, with additional security provisions, as appropriate. Executives

Members of the Group Leadership Team may also be provided with certain other benefits from time to time, which are not material in value.

Benefits are provided with the intention of maintaining the health and wellness of our executives.

 Benefits are determined by country of employment and perquisites are offered as part of the core compensation package to enable us to attract, retainalign with local practices and protect employees and executives.regulatory requirements.
Relocation & mobility To facilitatesupport the international mobility by providing relevant benefitsof executives and ensure the right people are in the right location to assist executives inmeet business needs.Members of the Group Leadership Team may be offered support to cover additional costs related to relocation. Mobility policies support the relocation of an executive and their dependents or the reasonable costs of commuting. Benefits are market specificmarket-specific and are not compensation for performing the role but rather provided to defray costs or additional burdens of a relocation or residence outside the home country. To assist with mobility across the Group to ensure the appropriate talent is available to execute our strategy at the right locations.
Retirement plans To allow executives to provide for their retirement with a level of certainty.Taking into account our global executive population, we provide retirement funding in line with local market and legalregulatory requirements, typically through defined contribution or locally mandated pension plans. No supplemental pension arrangements are provided.provided in Finland.
Change of control arrangements To giveensure the continuity of management in connection with a market competitive level of provision for post-retirement income.
Changepossible change of control arrangementsevent. Change of control arrangements are offered on a very limited basis only and are based on a double trigger structure, which means that both a specified change of control event and termination of the individual’s employment must take place for any change of control basedcontrol-based severance payment to materialize. For further information referRefer to “—Termination provisions forof the President and Chief Executive Officer”CEO” and “—NokiaTermination provisions of the Group Leadership Team members”Team”. To ensure the continuity of management in connection with possible change of control event.

 

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President and Chief Executive OfficerPayments to departing executives

Overview

TheIn the event of a termination of employment, any payable compensation structure for the President and CEO is determined in line with our philosophy of pay for performance, such that 80%legal advice regarding local legislation, country policies, contractual obligations and the rules of the targetapplicable incentive and benefit plans. Refer to “—Termination provisions of the President and CEO” and “—Termination provisions of the Group Leadership Team”.

Recruitment

Our policy on recruitment is to offer a compensation package which is delivered based on performance. The charts opposite showsufficient to attract, retain and motivate individuals with the right skills for the required role. On occasion, we may offer compensation to buy out awards which the candidate held prior to joining Nokia, but which lapsed upon the candidate leaving their previous employer. Due consideration is given to the potential value and timing of each elementsuch awards, taking into account any conditions attached to the awards and the overalllikely performance against such conditions.

Clawback

Our executives are subject to a clawback policy where any restatement of financial results may result in the reclaiming of amounts previously paid which had been based on numbers which have since been materially restated. Any such reclaimed amount, and the period over which payments can be reclaimed, will take into account the circumstances and duration of any misstatement.

Share ownership requirement

Nokia believes that it is desirable for its executives to own shares in the company to align their interests with those of shareholders and to ensure that their decisions are in the long-term interest of the company. The President and CEO and members of the Group Leadership Team are given a period of five years from their appointment in a designated role to achieve the required level of share ownership as follows:

Role

Share ownership

requirement

President and CEO

3 x base salary            

Member of the Group Leadership Team

2 x base salary            

President and CEO

Compensation mix of compensation. Of the variable compensation, 31.25% comprises short-term incentives, earned during the year for delivery of annual targets and 68.75% is earned over a three-year period for delivery of sustainable growth in terms of revenue and EPS, thus ensuring alignment of

To align the interests of the President and CEO with those of the company’s shareholders, through long-term incentives.

Thethe compensation mix for the President and CEO is also required to hold a minimumheavily geared toward performance-based pay with only 16.5% of three times his base salarycore target compensation in Nokia shares in order to ensure alignment with shareholders over the long term. He has five years from his appointment as2016 consisting of fixed pay. Additionally, the President and CEO to meet this requirementreceives incidental benefits and Mr. Suri is expected to do so before the fifth year through the vesting of long-term incentive awards. To further ensure alignmentmobility support and pension contributions are made in line with our pay for performance philosophyhis participation in the event that therestatutory Finnish pension system, as regulated by the Finnish Employees’ Pension Act (395/2006, as amended) (the “Finnish TyEL”).

The total remuneration of the President and CEO is any material restatementthus dependent on performance, as detailed opposite:

Variable pay of financial results both short-termthe President and long-termCEO

The variable compensationpay of the President and CEO is subject to a clawback policy.

Overall compensation for 2015 was set in relation to the market as opposite:

For 2016, the Board has approved the increase of Mr. Suri‘s salary by 5%, thus increasing his base salary to EUR 1 050 000 annually (from EUR 1 000 000 in 2015) reflecting a combination of Mr. Suri’s performance and the enlarged role he takesdetermined based on in 2016 following the acquisition of Alcatel Lucent. The on target incentive will remain at 125% of base salary and will increase to EUR 1 312 500 effective January 8, 2016. Mr. Suri will receive an award of performance shares in 2016 with a present value of EUR 3 025 000; the ultimate value will be determined by Nokia’s performance against a mix of targets, andeither short- or long-term in nature, depending on the share price instrategic impact for the next three years.business.

Variable pay

The Board believes thatBased on the Board’s assessment, the most appropriate metrics for driving sustainable business performance at Nokia are:

 

n∎non-IFRS revenue;

 

n∎non-IFRS operating profit;

∎non-IFRS earnings per share; and

 

n∎netoperating cash flow.

The variable compensation plans focus on these measures with an element on a personal strategic objective to support the strategic development of Nokia, which is not necessarily measurable in financial terms in the short term.

A summary of the weighting of incentive based on each metric is shown opposite:

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2015 Pay mix

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Incentive opportunity by metric (%)

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To ensure alignment with shareholders’ interests andThe variable compensation focuses on these measures as well as personal strategic objectives to support the culturestrategic development of developing long-term sustainable success, we have two policiesNokia, which is not necessarily measurable or easily measured in place which apply to variable compensation:

Clawback policy: In the event that there is any error or misstatement ofpurely financial results which, had it been known at the time of the determination of the incentive, would have resulted in a lower payment, the Board has an option to claw back any excessive payment within three years from such event. In a bad faith event, the Board has discretion to claw back remuneration from previous years, if it is deemed appropriate.terms.

Share ownership policy: To align the interestsShort-term incentives of the President and CEO and the Group Leadership Team with shareholders’ interests, we have a shareholding policy requiring that a minimum number of shares must be held by the executive. For the President and CEO, the requirement is to hold shares to a value equaling three times

his base salary. For the current Group Leadership Team members, the requirement is to hold shares to a value equaling two times the member’s base salary. The share ownership policy, which is effective from January 1, 2015, requires these executives to amass the requisite shareholding within five years of becoming subject to the policy. They are not permitted to sell any vesting equity awards, other than for the purposes of meeting associated tax and social security liabilities, until the shareholding requirement is satisfied.

Short-term incentives

The 2015 short-term incentiveincentives for the President and CEO is determined byare based on the achievement againstof key financial targets and other strategic objectives, as defined below. Performance against these defined targets areis then multiplied by a business results multiplier, which acts as a funding factor for the incentive plan for most employees, to determine the final payment.

 

 

% of base salary% of base salary  

Minimum

performance

  Target
performance        		  Maximum
performance        		  Measurement criteria

0%

  125%  281.25%  80% of the incentive is based on performance against the Nokia scorecard:
  % of base salary        

∎    non-IFRS revenue ( 1⁄3);

Minimum
performance		  Target
performance		  Maximum
performance		  Measurement criteria  
0%  125%  281.25%  

80% of the incentive is based on performance against the Nokia scorecard:

 

n   Non-IFRS revenue (1/3);

 

n   Non-IFRS operating profit (1/3); and

 

n   Net cash flow (1/3).

 

The final 20% of the incentive is based on the achievement of personal strategic objectives given to the President and CEO by the Board.

      

∎    non-IFRS operating profit ( 1⁄3); and

      

∎    operating cash flow ( 1⁄3).

        The final 20% of the incentive is determined based on the achievement of personal strategic objectives set for President and CEO by the Board.

 

2015 Short-term incentive

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The 2015 short-term incentive for Mr. Suri will be paid at 153.77%Long-term incentives of the target incentive amount, which reflects the performance of Nokia across the metrics used in the plan, including Nokia’s continued progress and transformation, as reflected in his personal strategic objectives. Mr. Suri’s short-term incentive in 2014 was at a similar achievement level, albeit with a lower target incentive for the period between January and April 2014 before he became President and CEO.

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Long-term incentivesCEO

Long-term incentive awards are determined by reference to the market and as a percentage of salary. The President and CEO participates in the same long-term incentive arrangements as other Nokia executives and senior managers. Additionally, Mr. Suri also participates in the executives. Long-term incentive programs are described under “—Nokia Networks equity incentive plan (“Nokia Networks EIP”), which was set up in 2012 by the board of directors of Nokia Siemens Networks, prior to the acquisition by Nokia of the remaining 50% of the business and our full ownership of the Networks business, to incentivize its turnaround. The targets of the plan were set at a demanding level and payments from the plan represent the outstanding achievement of the Networks team. In 2015, 30% of the options awarded to Mr. Suri vested and were exercisable in cash under the plan rules. Mr. Suri exercised these options and realized a gain of EUR 3.24 million. The remaining 70% of the options will vest in June 2016 and Mr. Suri will have until 2018 to exercise these options. Under the plan rules, any exercise of these options will be in cash. The maximum payment under these remaining options is EUR 7.56 million, unless certain defined corporate events take place.Equity Program”.

Pension arrangements forof the President and Chief Executive OfficerCEO

The President and CEO participates in the statutory Finnish pension system, as regulated by the Finnish Employees’ Pension Act (395/2006, as amended) (the “Finnish TyEL”),TyEL, which provides for a retirement benefit based on years of service and earnings according to prescribed rules.rules and regulations. No supplemental pension arrangements are provided. Under the Finnish TyEL pension system, base pay, incentives and other taxable fringe benefits are included in the definition of earnings, while gains realized from equity are not. Retirement benefits are available fromThe retirement age 63 to 68, according to an increasing scale.for the President and CEO is 65.

Termination provisions of the President and CEO

Termination provisions for the President and Chief Executive Officer

Mr. Suri’sCEO’s service agreement specifies the different ways the agreement can be terminatedspecify alternatives for termination and associated compensation as follows:in accordance with the following table:

 

n
Termination by  Termination by ReasonNoticeCompensation
Nokia for cause: In the event of a termination by Nokia for cause, Mr. SuriCauseNoneThe President and CEO is entitled to no additional compensation and all his unvested equity awards would be forfeited;forfeited.

nNokia  Termination by Nokia for reasonsReasons other than cause: In the event of a termination by Nokia for reasons other than cause, Mr. SuriUp to 18 monthsThe President and CEO is entitled to a severance payment equaling up to 18 months of compensation (including annual base salary, benefits, and target incentive) and his unvested equity awards would be forfeited;forfeited.

nPresident and CEO  Termination by Mr. Suri for anyAny reason: Mr. SuriSix (6) monthsThe President and CEO may terminate his service agreement at any time with six months’ prior notice. Mr. SuriThe President and CEO would continue to receive either salary and benefits during the notice period or, at Nokia’s discretion, a lump sum of equivalent value. Additionally, Mr. Surithe President and CEO would be entitled to any short- or long-term incentives that would normally vest during the notice period. Any unvested equity awards would be forfeited;forfeited.
nPresident and CEO  Termination by Mr. Suri for Nokia’s material breach of the service agreement: Up to 18 monthsIn the event that Mr. Surithe President and CEO terminates his service agreement based on a final arbitration award demonstrating Nokia’s material breach of the service agreement, he is entitled to a severance payment equaling to up to 18 months of compensation (including annual base salary, benefits and target incentive). Any unvested equity awards would be forfeited; orforfeited.

 

n
110 Termination based on specified events: Mr. Suri’s service agreement includes special severance provisions onNOKIA ANNUAL REPORT ON FORM 20-F 2016

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The President and CEO’s service agreement includes special severance provisions in the event of a termination of employment following a change of control event. Such change of control provisions are based on a double trigger structure, which means that both a change of control event and the termination of the individual’s employment within a defined period of time must take place in order for any change of control based on a double trigger structure, which means that both a change of control event and the termination of the President and CEO’s employment within a defined period of time must take place in order for any change of control-based severance payment to become payable. More specifically, if a change of control event has occurred, as defined in the service agreement, and Mr. Suri’s service with Nokia is terminated either by Nokia or its successor without cause, or by Mr. Suri for “good reason”, in either case within 18 months from such change of control event, Mr. Suri would be entitled to a severance payment equaling up to 18 months of compensation (including annual base salary, benefits, and target incentive) and cash payment (or payments) for the pro-rated value of his outstanding unvested equity awards, including equity awards under the Nokia Networks EIP, restricted shares, performance shares and stock options (if any), payable pursuant to the terms of the service agreement. “Good reason” referred to above includes a material reduction of Mr. Suri’s compensation and a material reduction of his duties and responsibilities, as defined in the service agreement and as determined by the Board.

Additionally, the service agreement, defines a specific, limited termination event that applies until June 30, 2016. Upon this event, if Mr. Suri’sand the President and CEO’s service with Nokia is terminated aseither by Nokia or its successor without cause, or by the President and CEO for “good reason”, in either case within 18 months from such change of control event, the President and CEO would be entitled to a resultseverance payment equaling up to 18 months of compensation (including annual base salary, benefits, and target incentive) and cash payment (or payments) for the pro-rated value of his outstanding unvested equity awards, restricted shares, performance shares and stock options (if any), payable pursuant to the terms of the circumstances specifiedservice agreement. “Good reason” referred to above includes a material reduction of the President and CEO’s compensation and a material reduction of his duties and responsibilities, as defined in the service agreement he is entitled to, in addition to normal severance payment payable upon his terminationand as determined by Nokia for reasons other than cause, to a pro-rated value of unvested equity awards under the Nokia Networks EIP, provided that the termination of his service takes place within six months from the defined termination event (and at or prior to June 30, 2016). Subject to this limited time treatment of unvested equity awards under the Nokia Networks EIP, all of Mr. Suri’s other unvested equity would be forfeited.Board.

Mr. SuriThe President and CEO is subject to a 12-month non-competition obligation that applies after the termination of the service agreement or the date when he is released from his obligations and responsibilities, whichever occurs earlier.

NOKIA ANNUAL REPORT ON FORM 20-F 2015109

Compensationcontinued

Compensation of the President and Chief Executive Officer in 2015 and 2014

EUR  2015   2014 

Salary

   1 000 000     932 666  

Short-term variable compensation(1)

   1 922 125     1 778 105  

Stock awards(2)

   2 843 711     3 759 936  

Payments to defined contribution retirement plans(3)

   491 641     686 206  

All other compensation(4)

   145 658     168 645  

Total(5)

       6 403 135         7 325 558  

(1)Short-term variable compensation payments are part of Nokia’s short-term cash incentive plan. The amount consists of the annual incentive cash payment and/or other short-term variable compensation earned and paid or payable by Nokia for the respective fiscal year.
(2)Amounts shown represent the total grant date fair value of equity grants awarded for the respective fiscal year. The fair value of performance shares equals the estimated fair value on grant date. The estimated fair value is based on the grant date market price of a Nokia share less the present value of dividends expected to be paid during the vesting period. The value of the performance shares is presented on the basis of granted number of shares, which is two times the number of shares at threshold. The value of the 2015 stock awards with performance shares valued at maximum is (four times the number of shares at threshold) EUR 5 687 422.
(3)Pension arrangements in Finland are characterized as defined contribution pension arrangements under IAS 19, Employee benefits. Mr. Suri is a participant in the Finnish state mandated TyEL pension arrangements.
(4)All other compensation for Mr. Suri in 2015 includes: housing of EUR 47 950 (2014: EUR 63 708); EUR 48 510 for travel assistance (2014: EUR 31 576); EUR 0 for tuition of minor children (2014: EUR 34 055); tax services EUR 17 834 (2014: EUR 17 038) and EUR 31 363 for premiums paid under supplemental medical and disability insurance and for mobile phone and driver (2014: EUR 22 268).
(5)A significant portion of equity grants are tied to the performance of the company and aligned with the value delivered to shareholders. The amounts shown are representative of the value of the award at grant but are not representative of the amount that will ultimately be received when the plan vests. The ultimate value of the award will be known when the awards vest.

Equity awards to the President and Chief Executive Officer, grant date April 22, 2015:

Performance shares at threshold number

198 500

Performance shares at maximum number

794 000

Grant date fair value EUR(1)

2 843 711

(1)The fair value of performance shares equals the estimated fair value of the grant date. The estimated value is based on the grant date market price of Nokia shares less the present value of dividends expected to be paid during the vesting. The value of performance shares is presented on the basis of a number of shares, which is two times the number at threshold.

The Nokia Group Leadership Team

Remuneration of the Nokia Group Leadership Team members

The remuneration of otherthe members of the Group Leadership Team (excluding the President and CEO) consists of base salary, fringe benefits short-termand short- and long-term incentives. The other members of the Group Leadership Team participate in the same reward programs, including short-term incentiveshort- and long-term incentive programs and under the same terms and conditions, as other eligible employees, although the quantum and mix of their compensation variesvary by role and individual. Short-term incentive plans are based on rewarding the delivery of business performance and somecertain or all of the following metrics areas appropriate for their role;in light of the member’s role: non-IFRS revenue, non-IFRS operating profit, netoperating cash flow and defined strategic objectives. Long-term incentive programs are described under “— Nokia Equity Compensation”Program”.

All membersEach member of the Group Leadership Team will have 20%a mix of their short-term incentive based on personal strategic objectives, at least 30% of their short-term incentive is based on the Nokia scorecard of the Nokia Group’s non-IFRS revenue, non-IFRS operating profitlevel and net cash flow and, depending on their role, they may also have business unitgroup targets in addition based on a mix of non-IFRS revenue, non-IFRS operating profit and netoperating cash flow.

On average,flow depending on their role. Personal strategic objectives of the members of the Group Leadership Team earned 140%account for up to 20% of their targetshort-term incentive amount in 2015.awards.

Pension arrangements forof the Nokia Group Leadership Team

The members of the Group Leadership Team participate in the local retirement plans applicable to employees in the country of residence. Executives based in Finland participate in the statutory Finnish pension system, as regulated by the Finnish TyEL. Refer to “—Pension arrangements forof the President and Chief Executive Officer”CEO” above.

Executives based in the United Statesoutside Finland participate in our USarrangements relevant to their location. Retirement plans vary by country and include defined benefit, defined contribution and cash balance plans. The retirement savings and investment plan. Under this 401(k) plan, participants elect to make voluntary pre-tax contributions that are 100% matched by Nokia up to 8% of eligible earnings. 25% of the employer’s match vestsage for the participants annually during the first four yearsmembers of their employment. Executives based in Germany participated in the 100% company funded HERE pension plan. Contributions were based on pensionable earnings, the pension table and retirement age.

Termination provisions for the Nokia Group Leadership Team membersvaries between 60 and 65.

Termination provisions of the Group Leadership Team

In all cases, if an executive is dismissed for cause, no compensation will be payable and no outstanding equity will vest.

In the event of termination by the company for any other reason than cause, where the company pays compensation in lieu of notice period’speriod salary, the benefits and target short-term incentive amounts are taken into account.

Additionally, the Board believes that maintaining a stable and effective leadership team is considered essential for protecting and enhancing the best interests of Nokia and its shareholders. In order to encourage the continued focus, dedication and continuity of the members of the Group Leadership Team to their assigned duties without the distraction that may arise from the possibility of termination of employment as a result of a specified change of control event in Nokia, certain provisions have been made available to them.them as appropriate when certain change of control events occur.

As a result someCertain members of the Group Leadership Team havereceived change of control agreements related to the Acquisition of Alcatel Lucent that expired on January 8, 2017, one year after the transaction completion. These change of control agreements have not been renewed.

Certain members of the Group Leadership Team received change of control agreements at the time of the integration of Nokia and Nokia Siemens Networks which serve as an addendum to their executive agreementagreements and provide for the pro-rata settlement of outstanding equity awards as follows. The change of control agreements are based on a double trigger structure, which means that both thea change of control event and the termination of the individual’sGroup Leadership Team member’s employment must take place for any change of control basedcontrol-based severance payment to materialize. More specifically, if a change of control event, as defined in the agreement, has occurred in the company, and the individual’s employment with the company is terminated either by Nokia or its successor without cause, or by the individual for “good reason” (for example,(e.g., material reduction of duties and responsibilities), in either case within 18 months from such change of control event, the individual will be entitled to his or her notice period compensation (including base salary, benefits and target incentive) and cash payment (or payments) for the pro-rated value of the individual’s outstanding unvested equity, including restricted shares and performance shares, stock options and equity awards under Nokia Networks EIP, payable pursuant to the terms of the agreement. The Board has full discretion to terminate or amend the change of control agreements at any time. Under inherited

No new change of control agreements for former Alcatel Lucent executives, compensation of 18 months’ salary plus target incentive is payableclauses have been included in the eventservice agreements of an involuntary termination or “good reason” event should either occur within 12 months of Nokia gaining control of Alcatel Lucent. Additionally, any remaining Alcatel Lucent equity awards not already accelerated as part of the transaction would also be settled.

110NOKIA ANNUAL REPORT ON FORM 20-F 2015

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The Group Leadership Team in 2015:

NamePosition held in 2015Appointment date
Rajeev SuriPresident and Chief Executive OfficerMay 1, 2014
Timo IhamuotilaEVP, Group Chief Financial OfficerSeptember 1, 2011                                 
Samih ElhageEVP, Chief Financial and Operating Officer, Nokia NetworksMay 1, 2014
Ramzi HaidamusPresident, Nokia TechnologiesSeptember 3, 2014
Sean Fernback(1)President, HERENovember 1, 2014

(1)Until December 5, 2015.

The following compensation was paid toexecutives who joined the Group Leadership Team (excluding the President and CEO) in 2015 and 2014, in aggregate. Compensation paid to the President and CEO is presented under “—Compensation of the President and Chief Executive Officer” above.since January 1, 2016.

Compensation paid to Group Leadership Team:

EUR  2015   2014 

Salary

   2 149 029     3 461 250  

Short-term variable compensation(1)

   2 801 131     1 880 115  

Stock awards(2)

   3 295 955     3 679 383  

Change in pension value and nonqualified deferred compensation earnings(3)

   111 203     73 967  

Payments to defined contribution retirement plans(4)

   493 027     311 494  

All other compensation(5)

   773 718     278 720  

Total(6)

               9 624 063                 9 684 929  

(1)Short-term variable compensation payments are part of Nokia’s short-term cash incentive plan. The amount consists of the annual incentive cash payment and/or other short-term variable compensation earned and paid or payable by Nokia for the respective fiscal year.
(2)Amounts shown represent the total grant date fair value of equity grants awarded for the respective fiscal year. The fair value of performance shares and restricted shares equals the estimated fair value on grant date. The estimated fair value is based on the grant date market price of a Nokia share less the present value of dividends expected to be paid during the vesting period. The value of the performance shares is presented on the basis of granted number of shares, which is two times the number of shares at threshold. The aggregate value of the 2015 stock awards with performance shares valued at maximum is (four times the number of shares at threshold) EUR 6 591 910.
(3)Pension arrangements in Germany are considered to be payments to a defined benefit plan where the pension is determined by reference to executive’s base salary, age and years of service.
(4)Pension arrangements in Finland are characterized as defined contribution pension arrangements under IAS 19, Contributions are made to the state mandated TyEL plan and there are no supplementary pension arrangements. Contributions made in the US to the company 401k plan are also considered payments to defined contribution pension plans.
(5)All other compensation refers to mobility related payments or benefit programs under which executives are eligible. Additionally, in 2015, a special one-time retention arrangement related to the Sale of the HERE Business is also included under all other compensation.
(6)A significant portion of equity grants are tied to the performance of the company and aligned with the value delivered to shareholders. The amounts shown are representative of the value of the award at grant but are not representative of the amount that will ultimately be received when the plan vests. The ultimate value of the award will be known when the awards vest.

Equity awards to the other members of the Nokia Group Leadership Team during 2015

The following equity awards were made to the Group Leadership Team members (excluding the President and CEO) in 2015. Equity awards to the President and CEO are presented under “—Equity awards to the President and CEO during 2015” above.

Equity awards to Group Leadership Team, in aggregate(1):

Grant dateApril 22,  2015(2)            July 7,  2015

Performance shares at threshold number

212 500–

Performance shares at maximum number

850 000–

Restricted shares number

–44 000

Grant date fair value EUR

3 044 275251 680

(1)Excluding equity awards made to Rajeev Suri.
(2)The fair value of performance shares equals the estimated fair value of the grant date. The estimated value is based on the grant date market price of Nokia share less the present value of dividends expected to be paid during the vesting. The value of performance shares is presented on the basis of a number of shares, which is two times the number at threshold.

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 111

    

Compensationcontinued

    

    

    

    

    

    

 

Compensation governance practices

The Board of Directors:

napproves and the independent members of the Board confirm the compensation of the President and CEO upon recommendation of the Personnel Committee;

napproves, upon recommendation from the Personnel Committee, any long-term incentive compensation, and all equity plans, programs or similar arrangements of significance that the company establishes for its employees; and

ndecides on the issuance of shares (under authorization from shareholders) to fulfill the company’s obligations under equity plans in respect of vested awards to be settled.

The Personnel Committee

As part of its responsibilities the Personnel Committee assists the Board in discharging its responsibilities relating to all compensation, including equity compensation, of the Company’s executives and the terms of employment of the same, making recommendations to the Board:

nrecommends to the Board the corporate goals and objectives relevant to the compensation of the President and CEO, and evaluates the performance of the President and CEO against previously established goals and objectives as well as proposes to the Board the compensation level of the President and CEO;

nreviews and approves changes to the peer group for assessment of the competitiveness of our compensation from time to time;

napproves and oversees recommendations from the President and CEO for compensation for other members of the Group Leadership Team and any other executive-level direct reports to the President and CEO;

nreviews and approves goals and objectives relevant to the compensation for other members of the Group Leadership Team and any other executive-level direct reports to the President and CEO, and reviews the results of the evaluation of their performance in relation to the approved goals and objectives;

nreviews and periodically makes recommendations to the Board regarding the operation and amendment of any long-term incentive arrangements and all equity plans;

nreviews the content of and ensuring compliance with the share ownership policy;

nrecommends to the board equity grants for the President and CEO; and

nreviews and approves equity grant nominations to direct reports of the President and CEO.

Independent consultant

The Personnel Committee retains the use of Aon, an independent external consultant, to assist in the review and determination of executive compensation. The consultant works directly with the Personnel Committee and meets at least annually with the committee, without management present to provide advice on:

nmarket data and appropriateness of compensation information compiled by management;

nthe appropriateness and competitiveness of our compensation program relative to market levels and practice; and

nexecutive compensation trends and developments.

The Committee has reviewed and established that the consultant that works for the Personnel Committee is independent of Nokia and does not have any other business relationships with Nokia.

President and CEO

The President and CEO plays an active role in compensation governance and performance management processes for the Group Leadership Team and the wider employee population at Nokia.

The President and CEO is not a member of the Personnel Committee and does not vote at Personnel Committee meetings nor does he participate in any conversations regarding his own compensation.

Equity compensation

Equity compensation programProgram

A key component of executives’Group Leadership Team members’ and senior managers’other executives’ compensation is equity-based long-term incentives with the purpose of aligning the participants’ interests with those of shareholders. The amount of equity as a percentage of the compensation package increases with the seniority of the role. Awards fromAs in previous years, the annual grant process are linked toNokia equity program 2017 includes the company’s performance management framework and the performance of Nokia against our long-term revenue and EPS targets. Additionally, we have a restricted share plan in place, which is targeted at retention of key employees and new hires in countries where such awards are common and where we need to match local market practice to retain or hire such people.

The activefollowing equity plans in 2015 and 2016 are as follows:instruments:

 

  

Equity plan

Details  Performance shares  Restricted shares  Employee share purchase plan
Eligible employees  Grade based eligibility  Grade basedGrade-based eligibility  All employeesEmployees in participating countries
Purpose  Annual long-term incentive awards, to reward for delivery of sustainable long-term performance, align with the interests of shareholders and aid retention of key employees  Exceptional recruitment and retention  Encourage share ownership within the Nokia employee population, increasing engagement and sense of ownership in the company
Vesting schedule  Three year vestingTwo-year performance period based on financial targets for two yearsand one-year restriction period  Vest equally in three tranches on the 1stst, 2nd and 3rdanniversary of grant  Matching shares vest at the end of the 12-month savings period

112NOKIA ANNUAL REPORT ON FORM 20-F 2015

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Additionally in 2015, we also had outstanding awards underIn accordance with the 2007previous years’ practice, the primary equity instruments granted to executive employees and 2011 stock option plans and the Nokia Networks EIP. Stock options under the 2007 option plan lapsed on January 1, 2016. No new awards have been made under these plans since 2013. Theseother eligible employees are described in the section on legacy equity compensation programs “—Legacy equity compensation programs” below.

As of February 12, 2016, when new Nokia shares were issued as consideration for the Alcatel Lucent securities tendered into the subsequent French and/or U.S. offers, and consequently, included in the aggregate amount of Nokia shares, the aggregate maximum dilution effect of our currently outstanding equity programs, assuming that the performance shares would be delivered at maximum level and including the aggregate amount of Nokia shares, was approximately 0.86%. The potential maximum dilution effect of the equity program 2016 would approximately be an additional 1.04%, assuming delivery at maximum level for performance shares and the delivery of matching shares against the maximum amount of contributions of approximately EUR 60 million under the employee share purchase plan. Employees of Alcatel Lucent that have transferred as part of the acquisition of Alcatel Lucent are only included in equity plans under the equity program 2016.

Performance shares

shares. The performance shares represent a commitment by usNokia to deliver Nokia shares to employees at a future point in time, subject to our fulfillment of pre-defined performance criteria. TheyPerformance shares vest to participants after three years following a two-year performance period based on the performance of the company against itsfinancial targets for the first two financial years. and a subsequent one-year restriction period.

The Board believeshas continued with the practice of athe two-year performance period which gives greater predictability in a fast changing environment and supports greater alignment of underlying achievement with payments, is appropriate in the current business context.payments. Targets are set in the context of the Board’s view of the future business plans for Nokia, investor expectations and analyst forecasts and the Board will continue to review the suitability of the two-year performance period for future years. The table below illustrates the performance criteria of the performance share plans for 20132014 through to 2016. Targets are set by reference to the company’s long-term plans and in the context of investment analysts’ forecasts for the business.2017.

 

Performance criteria (non-IFRS)(1)                   2016                    2015                  2014                    2013     2017     2016     2015     2014 

Average annual net sales Nokia Group

   Yes     Yes(2)   Yes     Yes(3) 

Average annual EPS Nokia Group

   Yes     Yes(2)   Yes     Yes  

Annual net sales Nokia Group(2)

     Yes      Yes      Yes      Yes 

Average annual earnings per share, Nokia Group (diluted)

     Yes                  Yes                  Yes                  Yes 

Minimum settlement at below threshold performance(4)(3)

   25%     25%    25%     0%       –      25%      25%      25% 

 

(1)Non-IFRS measures exclude all material special items for all periods. Additionally, non-IFRS results excludecosts related to the Acquisition of Alcatel Lucent and related integration, goodwill impairment charges, intangible asset amortization and other purchase price accounting-related items arising from business acquisitions.fair value adjustments, restructuring and associated charges and certain other items.
(2)The Board is expected to approve an amendment to the performance conditioncriteria of the performance share plan 2015 were restated in conjunction with the publication of Nokia’s Q1/May 2016 results announcement to reflect the new organizational structure and scope of the Nokia Group. The amendment would adjustrestatement adjusts the net sales and EPSearnings per share performance targets to remove the impact related to the Sale of the HERE related impactBusiness for the 4thfourth quarter of 2015 following the sale of HERE in 2015 and restaterestates the 2016 targets based on the combined Nokia Group following the acquisitionAcquisition of Alcatel Lucent in January 2016.
(3)The performance condition was amended at the time Net sales metric is weighted equally each year, instead of the Sale of the D&S Business to reflect the new profile of the business and different annual revenue levels of the new business. The amendment introduced a metric set on the basis of the Average Net Sales Indexcalculating average over the two-year performance period due to significant difference between the metrics for Nokia in replacement of2015 and the metric set oncombined Group in 2016. For other years’ performance share plans, the basis of the Average Annual Net Sales Revenue. The ‘Net Sales Index’ relates to the final non-IFRScriterion has been average annual net sales achieved through the business operations offor Nokia Group (excluding Nokia Networks) in relation to 2013 and for Nokia Networks, HERE and Nokia Technologies in relation to 2014, expressed as a percentage ofduring the annual target set for each year. A separate Annual Net Sales Index will be calculated for 2013 and 2014, and the average of the two will be calculated following the close of 2014 and used, in part, to determine the final payout under the Plan, which will occur after the one-year restriction period in 2016.performance period.
(4)(3)In 2014, a minimum payout level was introduced to reinforce the retentive impact of the plan by giving some certainty to remaining employees during the transformation of Nokia following the Sale of the D&S Business and integration of the Nokia Networks business. The 2017 plan removes the minimum payout of 25% of the grant amount for executive employees. Employees who are not executives at the time the awards are granted to them will continue to benefit from a minimum payout of 25% with the intention of this continuing to provide a retention effect.

Until theThe 2017 performance share plan has a two-year performance period (2017-2018) and a subsequent one-year restriction period. The shares have vested and been delivered to the participants, they carry no voting or dividend rights.will vest on January 1, 2020. The performance criteria for the 2017 performance share grants are generally forfeited if the employment relationship terminates with Nokia prior to vesting.plan are:

Performance criteria (non-IFRS)(1)  Weighting   Threshold
    performance (EUR)		   Maximum
    performance (EUR)		   Potential range of settlement(2)

Nokia average annual net sales January 1, 2017—December 31, 2018

   50%    22 842 million    26 280 million   

Threshold number up to maximum

level (4 x Threshold number)

Nokia average annual earnings per share (diluted) January 1, 2017—December 31, 2018

   50%    0.26    0.38   

Threshold number up to maximum

level (4 x Threshold number)

(1)Non-IFRS measures exclude costs related to the Acquisition of Alcatel Lucent and related integration, goodwill impairment charges, intangible asset amortization and other purchase price fair value adjustments, restructuring and associated charges and certain other items.
(2)The minimum payout of 25% of the grant amount will be payable to all participants except executives only in the event that the calculated payout (based on Nokia’s performance against the performance criteria) is beneath 25% achievement against the performance criteria.

 

112NOKIA ANNUAL REPORT ON FORM 20-F 20151132016

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Compensationcontinued

    

    

    

    

    

    

 

Performance share plan 2016

In accordance withBased on a resolution by the previous year’s practice,Board, the primary equity instruments granted to executive employees and employees below the executive level are performance shares. Themaximum number of performance shares tothat can be settled after the restriction period will start at 25% of the grant amount of 25 500 000 Nokia shares and any pay-out beyond this will be determined with reference to the financial performance against the established performance criteria during the two-year performance period. The grantgranted under the performance share plan could result in an aggregatefor 2017 is 37 million. The maximum payout can be 200%. Accordingly, achievement of 51 000 000 Nokia shares, in the event that maximum performance against all the performance criteria is achieved.

The performance share plan 2016 has a three year vesting period and the performance of the plan is based on a two-year performance period (2016 and 2017). The shares will vest on January 1, 2019. The Board have continued with the practice of the two-year performance period which gives greater predictability in a fast changing environment and supports greater alignment of underlying achievement with payments. Targets are set in the context of the Board’s view of the future business plans for Nokia and investor expectations and analyst forecasts and the Board will continue to review the suitability of the two-year performance period for future years. The Board is expected to approve the performance criteria targets of the performance share plan 2016 in conjunction with the publication of its Q1/2016 results announcement. The approval of the targets will be made later this year than in previous years in order to be able to consider all relevant financial information available for the new combined Nokia group so that targets are set appropriately.

The remuneration statement required by the Finnish Corporate Governance Code will be updated to include the performance targets once the targets have been approved.

Performance criterionWeighting        Threshold performance(2)            Maximum  performance(2)Potential range of settlement
Nokia average annual non-IFRS(1) net sales during January 1, 2016—December 31, 201750%                *                *

Threshold number up to maximum

level (4 x Threshold number)

Nokia average annual non-IFRS(1) EPS during January 1, 2016—December 31, 201750%                *                *

Threshold number up to maximum

level (4 x Threshold number)

(1)Non-IFRS measures exclude all material special items for all periods. In addition, non-IFRS results exclude intangible asset amortization and other purchase price accounting-related items arising from business acquisitions.
(2)The Board is expected to approve the performance criteria targets of the performance share plan 2016 in conjunction with the publication of itsQ1/2016results announcement.

Achievement of the maximum performance for all criteria would result in the vesting and an aggregate maximum payout of a maximum of 51 000 00074 million Nokia shares. Achievements beyond the maximum performance level will not cause any further shares to vest. AchievementFor employees who are not executives at the time the awards are granted to them, 25% of the threshold performance shares granted in 2017 will settle after the restriction period, regardless of the satisfaction of the applicable performance criteria. In case the applicable performance criteria are not satisfied, employees who are executives on the grant date for all criteriatheir 2017 performance shares will result innot receive any settlement.

Until the vesting of approximately 12 750 000 shares. Minimum payout under the plan, even if threshold performance is not achieved, is 6 375 000 shares attributable to the 25% minimum payout. Until Nokia shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights associated with these performance shares.

Restricted sharesShare Plan

In 2015, restrictedRestricted shares wereare used on a selective basis to ensure retention and recruitment of individuals deemed critical to our future success. The restricted shares vest in three equal tranches on the first, second and the third anniversary of the award subject to continued employment with Nokia.

In 2016,2017, restricted shares arewill be granted on a limited basis orfor exceptional purposes related to retention and recruitment, primarily in the United States, to ensure we are able to retain and recruit vital talent for the future success of Nokia. Restricted share awards made prior to 2015 vested in one tranche on

Until the third anniversary of the date of grant. Until theNokia shares are delivered, the participants will not have any shareholder rights, such as voting or dividend rights, associated with the restricted shares.

Employee share purchase planShare in Success

Under our employee share purchase plan “Share in Success”, eligible employees can elect to make monthly contributions from their salary to purchase Nokia shares. The contribution per employee cannot exceed EUR 1 200800 per year. The share purchases are made at market value on predetermined dates on a monthly basis during a 12-month savings period. Nokia will offerintends to deliver one matching share for every two purchased shares the employee still holds after the last monthly purchase has been made followingat the end of the 12-month savings period.Plan cycle. Participation in the plan is voluntary tofor all employees in countries where the plan is offered. In addition, to welcome employees of Alcatel Lucent who have transferred to Nokia as part of the acquisition of Alcatel Lucent and to mark the beginning of the new Nokia Group, Nokia intends to offer 20 free shares for every participant making the first three consecutive share purchases in 2016.

114NOKIA ANNUAL REPORT ON FORM 20-F 2015

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Performance of previous equity programs

The recently vested performance share plan 2013 is the first to achieve above-threshold performance for some years, such that 86.25% of the target award granted to participants vesting on January 1, 2016, with diluted EPS for Continuing operations increasing from negative EUR (0.16) to EUR 0.67 from the fiscal year 2012 to 2014, including the two year performance period (2013–2014) of the plan.

The new strategy for Nokia delivered in 2014 with the focus on networks and the IoT has seen an increase in value for shareholders and a corresponding change inMonitoring the performance of long-term incentive plans. In addition toour equity plans

Each year Nokia monitors the performance share plan 2013 achieving 86.25% of its target,equity plans against the 2014targets for the plan, has achieved 125.72%total shareholder return and will vestthe impact that the plans have on total compensation compared to participantsmarket peers. For further discussion on January 1, 2017. In the same periodperformance of the share price of Nokia has increased from EUR 3.49 per share on January 1, 2013plans refer to EUR 6.60 on December 31, 2015 representing an increase of 89% and we have restored dividend payments.“—Remuneration Report” below.

Share price and Total Shareholder Return vs long-term incentive performance

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Legacy equity compensation programs

Stock optionsOptions

Although theThe granting of stock options ceased at the end of 2013,2013; however, awards granted under the 2011 stock option plansplan remain in force. Stock options under the 2007 stock option plan lapsed on January 1, 2016 and no new Nokia shares can be subscribed for with the stock options awarded under the 2007 stock option plan.

Under the plans,plan, each stock option entitles the holder to subscribe for one new Nokia share and theshare. The stock options are non-transferable and may be exercised for shares only. The difference between the two plans is in the vesting schedule of the 2011 stock option plan is as follows:

Plan

Vesting schedule

2011 stock

option plan

  

Vesting schedule

2007 stock option plan  

n   25% 12 months after grant

n   6.25% each quarter thereafter

n   Lapsed on January 1, 2016

2011 stock option plan

n50% on third anniversary of grant

n

50% on fourth anniversary of grant

n

Term is approximately six years

The final subscription periods end on December 27, 2019

Shares will be eligible for dividends in respect of the financial year in which the share subscription takes place. Other shareholder rights will commence on the date on which the subscribed shares are entered in the trade register. The stock option grants are generally forfeited if the employment relationship terminatesis terminated with Nokia.

2012 Nokia Networks Equity Incentive Plan

The 2012 Nokia Networks EIPequity incentive plan was established in 2012 by the board of Nokia Siemens Networks prior to Nokia’s acquisition of full ownership of the Nokia Networks business. Under this Planplan options over Nokia Solutions and Networks B.V. shares were granted to Mr. Suri and approximately 65 other Nokia Networks employees.

At that time, both Nokia and Siemens were considering a potential exit from Nokia Siemens Networks. The plan had two objectives:

(1) to increase the value of Nokia Networks; and

(2) to create an exit option for its parent companies.

With the significantly improved performance of Nokia Networks, the first objective has been met. The second objective has not occurred and, given the change in our strategy, the likelihood of a sale or an initial public offering (“IPO”) has diminished.

The exercise price of the options is based on a Nokia Networks share value on grant, as determined for the purposes of the 2012 Nokia Networks EIP.equity incentive plan. The options will be cash-settled at exercise, unless an IPO has taken place, at which point they would be converted into equity-settled options.

The targets of the plan were set at a demanding level and payments from the plan represent the outstanding achievement of the Networks team. The actual payments if any, under the 2012 Nokia Networks EIP will beequity incentive plan were determined based on the value of the Nokia Networks business and could ultimately decline to zero if the value of the business falls below a certain level. There is also a cap that limits potential gain for all plan participants.

If the second objective of the plan is not achieved and there is no exit event, options are cash-settled and the holder will be entitled to half of the share appreciation based on the exercise price and the estimated value of shares on the exercise date.business. In the unlikely event of an IPO or exit event the holder is entitled to the full value of the share appreciation. As the likelihood of a sale or IPO has reduced, the value of any payouts under the Nokia Networks EIP is expected to be reduced by 50%.

In the event that a sale or an IPO has not occurred, the maximum total payment to Mr. Suri pursuant to the plan would be limited to EUR 10.8 million. In the unlikely event of an IPO or exit event, the value of the options could exceed this maximum.

2015, 30% of the options became exercisable onand the third anniversaryremaining 70% became exercisable in 2016.

Alcatel Lucent liquidity agreements

In 2016, Nokia and Alcatel Lucent entered into liquidity agreements with beneficiaries of the grant date2015 Alcatel Lucent performance share plan. Pursuant to the agreements, the 2015 Alcatel Lucent performance shares (as well as other unvested performance share plans, where the employee elected to enter into a liquidity agreement rather than accelerate their equity), would be exchanged for Nokia shares, or for the cash equivalent of the market value of such Nokia shares, shortly after expiration of the vesting period. The exchange ratio would be aligned with the remainder vesting onexchange ratio of Nokia’s exchange offer for all outstanding Alcatel Lucent securities, subject to certain adjustments in the fourth anniversaryevent of financial transactions by either Nokia or if earlier, all the options will vest on the occurrence of certain corporate transactions such as an initial public offering (ReferAlcatel Lucent. Accordingly, these agreements apply to “Corporate Transaction” above).

If a Corporate Transaction has not taken place by the sixth anniversaryany member of the grant date, the options will be cashed out. If an IPOGroup Leadership Team who has taken place, equity-settled options remain exercisable until the tenth anniversary of the grant date.entered into such liquidity agreement.

 

 

NOKIA ANNUAL REPORT ON FORM 20-F 2016113

Compensationcontinued

Remuneration Report

The Remuneration Report provides information on the remuneration earned between January 1, 2016 and December 31, 2016. We provide disclosure of the compensation of our Board, the President and CEO and aggregated compensation information for the Group Leadership Team.

Board of Directors

In 2016, the aggregate amount of compensation paid to the members of the Board for their services on the Board and its committees equaled EUR 2 050 902.

In accordance with the resolutions passed at the Extraordinary General Meeting on December 2, 2015, and following the successful public exchange offer for all Alcatel Lucent securities, we confirmed the new composition of the Board on January 8, 2016. The newly elected members of the Board were Louis R. Hughes, Jean C. Monty and Olivier Piou. Elizabeth Doherty, who was a member of the Board until the successful closing of the exchange offer for all Alcatel Lucent securities, stepped down from the Board.

Additionally, the Extraordinary General Meeting resolved that the newly elected members of the Board would receive the same annual remuneration as was paid to the members of the Board elected at the Annual General Meeting on May 5, 2015, prorated for the new Board members’ time in service from January 8, 2016 until the closing of the Annual General Meeting held on June 16, 2016.

The Annual General Meeting held on June 16, 2016 resolved to elect nine members to the Board. The following members of the Board were re-elected for a term ending at the close of the Annual General Meeting in 2017: Vivek Badrinath, Bruce Brown, Louis R. Hughes, Jean C. Monty, Elizabeth Nelson, Olivier Piou, Risto Siilasmaa and Kari Stadigh. Carla Smits-Nusteling was elected as new member of the Board for the same term. For director remuneration resolved by the Annual General Meeting for the current term refer to “Remuneration Policy—Board of Directors” above.

On July 29, 2016, Nokia announced that Vivek Badrinath had stepped down from the Board.

The following table outlines the total annual compensation paid in 2016 to the members of the Board for their services, as resolved by shareholders at the Extraordinary General Meeting on December 2, 2015 and the Annual General Meeting on June 16, 2016. The table does not include the meeting fees as resolved by the Annual General Meeting in June 2016. The meeting fees for applicable Board and Committee meetings held in 2016 will be paid in 2017. For details of Nokia shares held by the members of the Board, refer to “—Share ownership—Share ownership of the Board of Directors” below.

Compensation paid in 2016(1):

EUR

Risto Siilasmaa, Chair

440 000

Olivier Piou, Vice Chair(2)

255 082

Vivek Badrinath(3)

175 000

Bruce Brown(4)

190 000

Elizabeth Doherty(5)

–

Louis R. Hughes(6)

240 410

Simon Jiang(7)

–

Jouko Karvinen(8)

–

Jean C. Monty(9)

225 410

Elizabeth Nelson(10)

190 000

Carla Smits-Nusteling(11)

175 000

Kari Stadigh(12)

160 000

Total

2 050 902

(1)Approximately 40% of each Board member’s annual fee was paid in Nokia shares purchased from the market and the remaining amount of approximately 60% was paid in cash. The meeting fees as resolved by the Annual General Meeting in 2016 will be paid in cash in 2017 and are not included in the table.
(2)Consists of EUR 70 082 for services as the Vice Chair of the Board from January 8, 2016 until the Annual General Meeting in 2016 and EUR 185 000 for services as the Vice Chair of the Board from the Annual General Meeting in 2016.
(3)Consists of EUR 160 000 for services as a member of the Board and EUR 15 000 for services as a member of the Audit Committee. However, Mr. Badrinath stepped down from the Board on July 29, 2016 and has returned to the company the compensation paid to him.
(4)Consists of EUR 160 000 for services as a member of the Board and EUR 30 000 for services as the Chair of the Personnel Committee.
(5)Served as a member of the Audit Committee and a member of the Board until January 8, 2016. She was not paid any compensation during fiscal year 2016, but received compensation for the term until the close of the Annual General Meeting in June 2016 in the fiscal year 2015.
(6)Consists of EUR 60 738 for services as a member of the Board and EUR 4 672 for services as a member of the Audit Committee from January 8, 2016 until the Annual General Meeting in 2016 and of EUR 160 000 for services as a member of the Board and EUR 15 000 for services as a member of the Audit Committee from the Annual General Meeting in 2016.
(7)Served as a member of the Board until the Annual General Meeting in 2016. He was not paid any compensation during fiscal year 2016, but received compensation for the term until the close of the Annual General Meeting in 2016 in the fiscal year 2015.
(8)Served as the Vice Chair of the Board until January 8, 2016, the Chair of the Audit Committee until April 1, 2016 and as a member of the Board until the Annual General Meeting in 2016. He was not paid any compensation during fiscal year 2016, but received compensation for the term until the close of the Annual General Meeting in 2016 in the fiscal year 2015.
(9)Consists of EUR 60 738 for services as a member of the Board and EUR 4 672 for services as a member of the Audit Committee from January 8, 2016 until the Annual General Meeting in June 2016 and of EUR 160 000 for services as a member of the Board from the Annual General Meeting in 2016.
(10)Consists of EUR 160 000 for services as a member of the Board and EUR 30 000 for services as the Chair of the Audit Committee.
(11)Consists of EUR 160 000 for services as a member of the Board and EUR 15 000 for services as a member of the Audit Committee.
(12)Consists of EUR 160 000 for services as a member of the Board.

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The President and CEO

The following table shows the remuneration received by the President and CEO in 2016 and 2015. The long-term incentive payments reflect actual payments in the respective years attributable to the vesting of the 2012 Nokia Networks equity incentive plan.

EUR  2016   2015 

Salary

   1 049 044    1 000 000 

Short-term incentive(1)

   780 357    1 922 125 

Equity-based incentive(2)

    

From role as Nokia President and CEO

   –    – 

From role as NSN CEO

   7 556 598    3 238 542 

Other compensation(3)

   122 157    145 658 

Total

               9 508 156                6 306 325 

(1)Short-term incentives represent amounts earned in respect of the financial year, but that are paid in April of the following year.
(2)Amounts represent the value of the 2012 Nokia Networks equity incentive plan. Refer to “—2012 Nokia Networks Equity Incentive Plan” above.
(3)Other compensation includes compensation for housing equaling EUR 41 312 (2015: EUR 47 950); travel assistance equaling EUR 33 482 (2015: EUR 48 510); Tax services equaling EUR 19 260 (2015: EUR 17 834) and other benefits including mobile phone, driver and supplemental medical and disability insurance equaling EUR 28 103 (2015: EUR 31 363).

Pursuant to Finnish legislation, Nokia is required to make contributions to the Finnish TyEL pension arrangements in respect of the President and CEO. Such payments can be characterized as defined contribution payments. In 2016, payments to the Finnish state pension system equaled EUR 469 737 (EUR 491 641 in 2015).

Short-term incentive

In line with Nokia’s performance in 2016, the short-term incentive of the President and CEO equaled EUR 780 357, or 63.5%, of the target award, reflecting the challenging market environment.

Long-term incentive

In 2016, the President and CEO was eligible to exercise the final options under the 2012 Nokia Networks equity incentive plan. The plan was established in 2012 to incentivize the turnaround of the former Nokia Siemens Networks business. The value of the options to the President and CEO reflects the dramatic success of the turnaround plan and is borne out by the fact that, today, the core of Nokia’s business is networks-related.

In 2016, the President and CEO was awarded the following equity awards under the Nokia equity program:

AwardUnits awarded    Grant date fair value  (EUR)Grant dateVesting date

Performance shares(1)

642 1143 005 736July 1, 2016    January 1, 2019

Restricted shares (with individual integration-related performance conditions)(2)

208 700986 942    August 16, 2016

October 1, 2017,

2018 and 2019


(1)The 2016 performance share plan has a two-year performance period based on financial targets and a one-year restriction period. Minimum payout under the plan, even if threshold performance is not achieved, is 25% of the awarded amount. The maximum payout would be 200% subject to maximum performance against all the performance criteria. Vesting is subject to continued employment.
(2)In 2016, Nokia and certain senior executives of the company entered into agreements based on which the vesting of restricted shares granted to them is subject to fulfillment of predetermined performance conditions related to the successful integration of Nokia and Alcatel Lucent. Performance is currently estimated at 100% payout and the restricted shares are expected to vest in three equal tranches on October 1, 2017, 2018 and 2019. Vesting is subject to continued employment.

The award of restricted shares represents a special long-term incentive to ensure that the President and CEO (and other senior executives) is motivated to deliver the synergies of the Acquisition of Alcatel Lucent and share alongside shareholders in the benefits that they are expected to deliver.

Share ownership

Our share ownership policy requires that the President and CEO holds a minimum of three times his base salary in Nokia shares in order to ensure alignment with shareholder interests over the long term. This requirement has been met. In 2016, the President and CEO acquired 519 757 Nokia shares. In addition, the 2014 performance share plan vested on January 1, 2017 and consequently 742 297 Nokia shares were delivered to the President and CEO on February 8, 2017.

UnitsValue (EUR)

Beneficially owned shares as of December 31, 2016(1)

549 4802 522 113

Vested shares under the 2014 performance share plan delivered on February 8, 2017(2)

742 2973 377 451

Unvested shares under other Nokia equity plans(3)

1 351 9616 205 500

Total

                2 643 738                12 105 064

(1)The value is based on the closing price of Nokia share of EUR 4.59 on Nasdaq Helsinki on December 30, 2016.
(2)The value and number of units represent fair market value of a Nokia share of EUR 4.55 on Nasdaq Helsinki on February 8, 2017 and the net number of shares delivered after the applicable taxes was withheld from the number of shares that vested to the President and CEO.
(3)The number of units represents the number of unvested awards at December 31, 2016 including the payout factor of the 2015 performance share plan and excluding the 2014 performance share plan that vested on January 1, 2017. The value is based on the closing price of a Nokia share of EUR 4.59 on Nasdaq Helsinki on December 30, 2016. Vesting is subject to continued employment.

NOKIA ANNUAL REPORT ON FORM 20-F 2016 115

    

Compensationcontinued

    

    

    

Alcatel Lucent liquidity agreements

Nokia, Alcatel Lucent and certain beneficiaries

Group Leadership Team

Following the Acquisition of Alcatel Lucent, stock option and performance share plans have entered into liquidity agreements, pursuant to which the Alcatel Lucent performance shares, or the Alcatel Lucent shares resulting from the stock options exercises, would be exchanged to for either (i) Nokia shares according to an exchange ratio of 0.55 Nokia shares for each Alcatel Lucent share, or for (ii) a cash amount equivalent to the market value of such Nokia shares, provided in any case that a reduced liquidity event has occurred. A reduced liquidity was acknowledged on February 12, 2016 in respect of Alcatel Lucent shares. The choice for the settlement in cash or in Nokia shares is at Nokia’s sole discretion, subject to the possible applicable legal, regulatory or other local constraints.

The exchange ratio of 0.55 is subject to some adjustments in the event of financial transactions of Nokia or Alcatel Lucent, in order to allow the holders of stock options or the recipients of performance shares to obtain the same value in Nokia shares or in cash which they would have obtained had such transactions not taken place. Liquidity agreements have been offered also to current Group Leadership Team members who held Alcatel Lucent stock options or performance shares that were eligible for liquidity agreements.

Share ownership of the Board of Directors, the President and Chief Executive Officer and the Nokia Group Leadership Team

General

The following section describes the ownership or potential ownership interest in Nokia of the members of our Board, the President and CEO and, on aggregate level, the Group Leadership Team has consisted of 13 persons split between Finland, other European countries and the United States. The compensation structure for the Group Leadership Team was set in the Nokia framework honoring inherited agreements where appropriate.

NamePosition in 2016Appointment date

Rajeev Suri

President and CEOMay 1, 2014

Samih Elhage

President of Mobile NetworksMay 1, 2014

Federico Guillén

President of Fixed NetworksJanuary 8, 2016

Basil Alwan

President of IP/Optical NetworksJanuary 8, 2016

Bhaskar Gorti

President of Applications & AnalyticsJanuary 8, 2016

Ramzi Haidamus(1)

President of Nokia TechnologiesSeptember 3, 2014

Timo Ihamuotila(2)

Chief Financial OfficerSeptember 1, 2011

Hans-Jürgen Bill

Chief Human Resources OfficerJanuary 8, 2016

Kathrin Buvac

Chief Strategy OfficerJanuary 8, 2016

Ashish Chowdhary

Chief Customer Operations OfficerJanuary 8, 2016

Barry French

Chief Marketing OfficerJanuary 8, 2016

Marc Rouanne

Chief Innovation & Operating OfficerJanuary 8, 2016

Maria Varsellona

Chief Legal OfficerJanuary 8, 2016

(1)Ramzi Haidamus was a member of the Group Leadership Team until September 30, 2016.
(2)Timo Ihamuotila was a member of the Group Leadership Team until December 31, 2016. Kristian Pullola was appointed as Chief Financial Officer and a member of the Group Leadership Team as of January 1, 2017. The Group Leadership Team currently consists of twelve (12) members, however, as announced on March 17, 2017, the Group Leadership Team will grow to fourteen (14) members from April 1, 2017.

Remuneration of the Group Leadership Team (excluding the President and CEO) in 2015 and 2016, in the aggregate, was as follows:

    

2016   

EURm(1)

   

2015   

EURm(1)

 

Salary, short-term incentives and other compensation(2)

   22.7      6.3   

Equity-based incentives(3)

   25.5      3.7   

Total

                                    48.2                                       10.0   

(1)In 2016, the Group Leadership Team consisted of up to twelve members (excluding the President and CEO), whereas in 2015 the Group Leadership Team consisted of up to four members (excluding the President and CEO).
(2)Short-term incentives represent amounts earned in respect of 2016 performance. Other compensation includes mobility related payments, local benefits and certain pension costs.
(3)Amounts represent the value of the 2012 Nokia Networks equity incentive plan or other equity awards vesting or stock options exercised during 2016 and share awards from Alcatel Lucent where appropriate.

In 2016, the Group Leadership Team was awarded the following equity awards under the Nokia equity program:

Award        Units  awarded

        Grant date fair

value (EUR)

        Grant date        Vesting  date

Performance shares(1)

1 571 4787 356 200

July 1, and

August 16, 2016


January 1, 2019

Restricted shares (with individual integration-related performance conditions)(2)

1 015 100

4 800 408

August 16, 2016


October 1, 2017,

2018 and 2019


(1)The 2016 performance share plan has a two-year performance period based on financial targets and a one-year restriction period. Minimum payout under the plan, even if threshold performance is not achieved, is 25% of the awarded amount. The maximum payout would be 200% subject to maximum performance against all the performance criteria. Vesting is subject to continued employment.
(2)Nokia and certain senior executives of the company entered into agreements based on which the vesting of restricted shares granted to them is subject to fulfillment of predetermined performance conditions related to the successful integration of Nokia and Alcatel Lucent. Performance is currently estimated at 100% payout and the restricted shares are expected to vest in three equal tranches on October 1, 2017, 2018 and 2019. Vesting is subject to continued employment.

116NOKIA ANNUAL REPORT ON FORM 20-F 2016

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Review of our incentive plans

Short-term Incentives

Short-term incentive targets and achievements for the members of the Group Leadership Team (excluding the President and CEO) were based on a mix of revenue, operating profit and cash flow targets. These targets are measured either at a Nokia Group level or, alternatively, a mix of Nokia Group and business group level for business group presidents. Payout levels for 2016 represent the challenging business environment in which Nokia has been operating with median payout at 70% of target.

Long-term incentives

We have actively introduced a rolling review of compensation against key metrics such as total shareholder return and share price to validate the effectiveness of our equity plans.

The 2014 performance share plan vested on January 1, 2017 with 125.72% of the target award vesting based on the achievement against the net sales and earnings per share targets during the performance period.

The 2015 performance share plan will vest on January 1, 2018 with 123.75% of the target award vesting based on the achievement against the net sales and earnings per share targets during the performance period.

While short-term performance in 2016 was affected by a challenging market and the integration of Alcatel Lucent, the performance under long-term incentive plans represents the significant turnaround of Nokia from 2013 when it acquired the remainder of Nokia Siemens Networks and the continued focus on delivering profit despite challenging market conditions. The performance of the business in 2014, 2015 and 2016 against targets set in the context of analyst forecasts shows fair rewards for a business well positioned for the longer term.

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NOKIA ANNUAL REPORT ON FORM 20-F 2016117

Compensationcontinued

Pay for performance

Core to our compensation philosophy is a desire to pay for performance.

We compare ourselves to a group of peer companies. We rank our performance against the peer group based on total shareholder return and total compensation paid, to ensure that the targets and amounts paid are for superior performance and reflect a balanced view. Data are only publicly available for our peer group for financial years to December 31, 2015, either through share ownership or, with respect2015. Based on the comparison, the performance of Nokia over the preceding three years, as measured by total shareholder return, was ranked first, whilst the compensation paid out to the President and CEO (as opposed to awarded) was ranked second. This shows a strong pay-for-performance alignment at Nokia, and the Group Leadership Team, through holding of equity-based incentives, which may lead to share ownershipthis is illustrated in the future.chart opposite.

With respect to the Board, approximately 40%Our Peers

In looking for suitable comparators, we have considered ourselves a European technology company and looked at businesses of director compensation is paid in the form of Nokia shares that are purchased from the market or, alternatively, by using treasury shares held by Nokia. The remainder of the remuneration, approximately 60%, is paid in cash, most of which is typically used to cover related taxes. It is also our policy that the directors retain until the end of their directorship the net after-tax number of shares that they have received as remuneration for their duties as members of the Board during their first three years of service. Additionally, it is our policy that non-executive members of the Board do not participate in any of Nokia’s equity programssimilar size, global scale and do not receive stock options, performance shares, restricted shares or any other equity-based or otherwise variable compensation for their duties as Board members.complexity, such as:

For a description of the remuneration of our Board members, refer to “—Board of Directors” above.

ABBInfineon
ASMLKone
BTPhillips
Deutsche TelekomRolls-Royce
EricssonSAP
HexagonVodafone

The President and CEO receives equity-based compensation primarily in the form of performance shares. Stock options are no longer granted and restricted shares are only granted in exceptional circumstances. For a description of our equity-based compensation programs for employees and executives, refer to “—Equity compensation” above.Share ownership

Share ownership of the Board of Directors

AtAs of December 31, 2015,2016, the members of our Board held the aggregatea total of 1 414 4454 754 602 shares and ADSs in Nokia, which represented 0.04%approximately 0.08% of our outstanding shares and total voting rights excluding shares held by Nokia Group at that date.Group.

The following table sets forth the number of shares and ADSs held by the members of the Board at December 31, 2015:2016:

 

Name(1)   Shares(1)   ADSs(1) 

Risto Siilasmaa

   992 3341 282 708   – 

Vivek BadrinathOlivier Piou

   19 255252 760   – 

Bruce Brown

   –   74 847            99 961 

Elizabeth DohertyLouis R. Hughes

   30 75441 827   – 

Simon JiangJean C. Monty

   8 666            2 767 557   – 

Jouko Karvinen

72 723–

ElisabethElizabeth Nelson

   –   87 30845 868

Carla Smits-Nusteling

13 921– 

Kari Stadigh

   128 558250 000   – 

 

(1)The number of shares or ADSs includes not only shares orand ADSs received as director compensation but alsoas well as shares orand ADSs acquired through any other means. Stock options or other equity awards that are deemed as being beneficially owned under the applicable SEC rules are not included. For the number of shares or ADSs received as director compensation, refer to Note 34,35, Related party transactions, of our consolidated financial statements included in this annual report on Form 20-F.

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118NOKIA ANNUAL REPORT ON FORM 20-F 2016

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Share ownership of the President and Chief Executive OfficerCEO and the Nokia Group Leadership Team

The following table sets forth the share ownership of the President and CEO, and the other members of the Group Leadership Team members in office in aggregate, atas of December 31, 2015.2016. The share ownership of all members of the Group Leadership Team, including Mr. Suri,the President and CEO, was approximately 0.01%1 091 181 Nokia shares, which represented 0.02% of the outstanding shares of the companyand total voting rights excluding shares held by Nokia Group at December 31, 2015.2016. The share ownership requirement of the President and CEO as well as the members of the Group Leadership Team members is describerdescribed under “—Variable pay”share ownership requirement” above.

 

Name  
Position in 2016

Beneficially owned shares

number


Rajeev Suri President and CEO

  29 722President and Chief Executive Officer  549 480

Other members of the Group Leadership Team, in aggregateSamih Elhage

  200 055

In addition to the 29 722 shares held by Mr. Suri, there are a number of unvested performance shares that are expected to vest in the coming years. The performance of the performance share plan 2014 is now known and 125.72% of the target award is expected to vest on January 1, 2017. The chart below shows the expected value of shares valued at EUR 6.60 on December 31, 2015 compared to the shareholding requirement for Mr. Suri. Unvested performance shares under the performance share plan 2015 are valued below at “on target” performance until the final performance level of the plan is known. Subject to the terms and conditions of the long-term incentive plans and the potential sale of vesting share awards to meet associated tax liabilities, it is expected that Mr. Suri will meet the shareholding requirements within the next 12 months.

116President of Mobile Networks  NOKIA ANNUAL REPORT ON FORM 20-F 2015

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Shareholding target and awards held by the President and CEO of Nokia

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1.Valued at EUR 6.60 per share as at December 31, 2015.
2.Projections do not take into account any potential sales of shares to meet tax associated liabilities.
3.Subject to disposals to meet tax liabilities it is expected that the President and CEO will meet the shareholding requirements of Nokia when the long-term incentive 2014 awards vest assuming that they vest at or above target.

Unvested Equity awards held by the President and Chief Executive Officer at December 31, 2015

The following table provides certain information relating to performance shares held by the President and CEO at December 31, 2015. These entitlements were granted pursuant to our performance share plans 2014 and 2015. The 2014 performance share plan will vest on January 1, 2017, and is expected to vest at 125.72% of the target award. For a description of our performance share plans, refer to Note 25, Share based payment, of our consolidated financial statements included in this annual report on Form 20-F.

Performance shares:



Shares receivable
through performance
shares at threshold



Shares receivable
through performance
shares at maximum

(1)–

Number of unvested equity awards held by the President and CEOFederico Guillén

  538 520President of Fixed Networks  13 498

Basil Alwan

  2 154 078President of IP/Optical Networks  163 071

(1)

Bhaskar Gorti

At maximum performance under the performance share plans 2014 and 2015, the numberPresident of shares deliverable equals four times the number of performance shares at threshold. The performance period for the performance share plan 2014 ended on December 31, 2015, and the threshold performance criteria for net sales and EPS were met and a settlement to the participants will occur in accordance with the plan in 2017.Applications & Analytics133

Timo Ihamuotila

Chief Financial Officer353 120

Hans-Jürgen Bill

Chief Human Resources Officer10 000

Kathrin Buvac

Chief Strategy Officer–

Ashish Chowdhary

Chief Customer Operations Officer1 746

Barry French

Chief Marketing Officer133

Marc Rouanne

Chief Innovation & Operating Officer–

Maria Varsellona

Chief Legal Officer–

Other share-based awards

Additionally, Mr. Suri holds options under the Nokia Networks EIP as described under “—Long-term incentives” above.

Unvested equity awards held by the Nokia Group Leadership Team atas of December 31, 20152016

The following table sets forth the potential ownership interest through the holding of equity-based incentives of the Nokia Group Leadership Team, including the President and CEO.CEO:

 

   
 		Shares receivable
through stock options		  
  		   
 
 		Shares receivable
through performance
shares at threshold		  
  
  		   
 
 		Shares receivable
through performance
shares at maximum		  
 
(4) 		  
 
 		Shares receivable
through restricted
shares		  
  
  		    

Shares receivable

through stock options

     

Shares receivable

through performance

shares at grant

     

Shares receivable   

through performance   

shares at maximum(4)

     

Shares receivable

through restricted

shares

 

Number of unvested equity awards held by the
Group Leadership Team(1)

   565 000     1 108 462     4 433 846    206 164  

Number of equity awards held by the Group Leadership Team(1)

     320 000      4 912 265      9 824 530      1 250 480 

% of the outstanding shares(2)

   0.01%     0.03%     0.11%    0.01%       0.01%      0.09%      0.17%      0.02% 

% of the total outstanding equity incentives (per instrument)(3)

   15.52%     9.67%     9.67%    9.80%       19.99%      11.31%      11.31%      20.95% 

 

(1)Includes the four12 members of the Group Leadership Team members in office at year-end 2015.as of December 31, 2016. The number of units held under awards made before June 30, 2016 was adjusted to reflect the impact of the special dividend paid in 2016.
(2)The percentages are calculated in relation to the outstanding number of shares and total voting rights of Nokia atas of December 31, 2015,2016, excluding shares held by Nokia Group. No member of the Group Leadership Team owns more than 1% of the outstanding Nokia shares.
(3)The percentages are calculated in relation to the total outstanding equity incentives per instrument. The number of units outstanding under awards made before June 30, 2016 reflects the impact of the special dividend paid in 2016.
(4)At maximum performance, under the performance share plans outstanding as of December 31, 2016, the payout would be 200% and the table reflects this potential maximum payout. The restriction period for the performance share plan 2014 and 2015, the number of shares deliverable equals four times the number of performance shares at threshold. The performance period for the performance share plan 20142015 ended on December 31, 2015,2016 and Nokia’s performance against the performance criteria set out in the plan rules, was above the threshold performance criterialevel for net sales and EPS were met and aboth plans. The settlement to the participants will occurunder the performance share 2014 plan took place in accordance withFebruary 2017 and the settlement for the performance share 2015 plan is expected to take place in 2017.the beginning of 2018 after the restriction period ends.

Insider trading in securities

The Board has established a policy in respect of insiders’ trading in Nokia securities (“Insider Policy”). Under the Insider Policy, the holdings of Nokia securities by the members of the Board and the Group Leadership Team are considered public information. Nokia insiders (as defined in the Insider Policy) are subject to certain trading restrictions and rules, including, among other things, prohibitions on trading in Nokia securities during the 30-calendar day “closed-window” period immediately preceding the release of our interim and annual results including the day of the release. Nokia can also set trading restrictions based on participation in projects. We update our Insider Policy from time to time and provide training to ensure compliance with the policy. Nokia’s Insider Policy is in line with the Nasdaq Helsinki Guidelines for Insiders and also sets requirements beyond those guidelines.

Other related party transactions

Other than the paid compensation, as described above, there have been no material transactions during the last three fiscal years to which any director, executive officer or 5% shareholder, or any relative or spouse of any of them, was a party. There is no significant outstanding indebtedness owed to Nokia by any director, executive officer or 5% shareholder.

There are no material transactions with enterprises controlling, controlled by or under common control with Nokia or associates of Nokia. Refer to Note 34, Related party transactions, of our consolidated financial statements included in this annual report on Form 20-F.

 

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118120 NOKIA ANNUAL REPORT ON FORM 20-F 20152016

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Contents
 

Contents

  
 

History of NokiaOur history

 120122               
 

Memorandum and Articles of
Association

 122123 
 

Selected financial data

 124125 
 

Shares and shareholders

 126127 

Depositary payments in 2016

135

Related party transactions

135 
 

Production of infrastructure
equipment and products

 133135 
 

Key ratios

 134136 
 

Controls and procedures

 134136 
 

Government regulation

 135138 
 

Sales in US sanctionedU.S.-sanctioned countries

 135138 
 

Taxation

 136140 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 119121

    

General facts on Nokia

    

    

 

History of NokiaOur history

WeFew companies have a long history of successful changeNokia’s storied capacity for transforming, developing new technologies and innovation, adapting to shifts in marketsmarket conditions. From its beginning in 1865 as a single paper mill operation, Nokia has found and technologies. Fromnurtured success in several sectors over the beginning as oneyears, including cable, paper products, rubber boots and tires, mobile devices and telecommunications infrastructure equipment.

Nokia’s sector-by-sector success over the years has mirrored its geographical rise: from a Finnish-focused company until the 1980s with a growing Nordic and European presence; to a genuine European company in the early 1990s; and on to a truly global company from the mid-1990s onward. With the Acquisition of Alcatel Lucent, we further deepen and widen our global reach.

Nokia has been producing telecommunications equipment since the 1880s—almost since telephony began.

A storied past

When Finnish engineer Fredrik Idestam set up his initial wood pulp mill in Southern Finland in 1865, we have been parthe took the first step in laying the foundation of many sectors over time: cables, paper products, tires, rubber boots, consumerNokia’s capacity for innovating and industrial electronics, plastics, chemicals, telecommunications infrastructure and more. Fromfinding opportunity. Sensing growing pulp product demand, Idestam opened a second mill a short time later on the mid-1990sNokianvirta River, inspiring him to 2014, we were widely known for our mobile phones, which reached all partsname his company Nokia AB.

Idestam’s sense of the globe. In April 2014, we began the next chapter in our history with the Sale of the D&S Business. Reinventing ourselves once again, we changed our course and announced that our strategyendeavor would focus on seizing opportunitiescontinue to prevail in the connected world,different phases Nokia would take.

In the 1960s, Nokia became a worldconglomerate, comprised of rubber, cable, forestry, electronics and power generation businesses, resulting from the merger of Idestam’s Nokia AB, and Finnish Cable Works Ltd, a phone and power cable producer founded in which billions of devices1912, and sensors are connected to each other and to the internet.businesses.

The year 2015 marked our anniversary as a 150-year old company, being yet another year of fundamental change for us as we took a major step forward as the company shaping the revolution in connectivity and digitization in the connected world.Transformation anew

150 years of reinventionIt was not long before transformation would call again.

Regulatory and technological reforms have played a role in our success over the years. The deregulationDeregulation of the European telecommunications industries stimulated competitionin the 1980s triggered new thinking and boosted customer demand. fresh business models.

In 1982, weNokia introduced both the first fully digitalfully-digital local telephone exchange in Europe and in the same year, the world’s first car phone for the Nordic Mobile Telephone analog standard. The technological breakthrough of GSM which made(global system for mobile communications) in the 1980s introduced more efficient use of radio frequencies and had greater capacity, in addition to high-quality sound, was followed by the 1987 European resolution to adopt GSM as the European digital standard. On July 1, 1991, thehigher-quality sound. The first GSM call was made with a Nokia phone over the Nokia-built network of a Finnish operator called Radiolinja and in the same year, we won agreements to supply GSM networks to other European countries.1991.

InIt was around this time that Nokia made the early 1990s, we made a strategic decision to focus onmake telecommunications asand mobile phones our core business, with the goal of establishing leadership in every major global market. Basic industry and non-telecommunications operations—business. Our other businesses, including aluminum, cable, chemicals, paper, personal computers, rubber, footwear, chemicals, power plant, cable, aluminum and television businesses—businesses were divested between 1989 and 1996. subsequently divested.

By 1998, we wereNokia was the world leader in mobile phones, a position we heldit enjoyed for more than a decade.

In 2006, having already been investing in mapping capabilities for many years, we acquired Gate5, a mapping software specialist, and then in 2008 we acquired NAVTEQ, a US-based manufacturer of digital mapping and navigational software. We offered leading location services throughAnd still, the HERE business and brand, launched in 2012. The HERE business was soldtechnology worlds would continue to a German automotive industry consortium in December 2015.evolve, as would Nokia.

A shifting industry

In 2007, weNokia combined our telecommunicationsits telecoms infrastructure operations with those of Siemens to formcreate the NSN joint venture. We later bought Siemens’ stake in NSN in 2013 as the business was emerging from a joint venture namedsuccessful strategy shift and the reality of what Nokia Siemens Networks, also known has NSN. NSN becamecalls a leading global providerProgrammable World of telecommunications infrastructureconnected devices, sensors and services, with a focus on offering innovative mobile broadband technology and services.people was starting to take shape.

In 2011, we joined forces with Microsoft to strengthen our position in the highly competitive smartphone market. We adopted the Windows Phone operating system for smart devices and smartphones and, through the strategic partnership, Nokia and Microsoft set about establishing an alternative ecosystem to rival iOS and Android. In 2011, we also started to make a number of changes to our operations and company culture that wouldmarket, which in 2014 resulted in the course of the next two years lead to shortened product development times, improved product quality and better responsiveness to market demand.

In 2013, we moved to reinvent ourselves once more, with two transformative transactions. The first was the purchase of Siemens’ stake in NSN, which was nearing the end of a deep restructuring and remarkable transformation. The second was the announcementclosing of the Sale of the D&S Business. The MicrosoftNokia emerged from the transaction was announcedwith a firm financial footing and three strong businesses—Nokia Networks, HERE and Nokia Technologies—focused on September 3, 2013connecting the things and was completed on April 25, 2014, following which we relocated our headquarters to the Karaportti campus in Espoo, Finland.

In April 2015, we announced the acquisition of Alcatel Lucent, in a deal that closed in early January 2016 and made us the leading player in multiple technology categories, including LTE, fixed and optical networks as well as IP routing.

In 2015, we also sold our HERE digital mapping and location services business to a German automotive industry consortium, another indication of our plan to focus on seizing the major opportunities to improve how we access and tap the power of connectivity to positively impact people’s lives each day.

The rapidly evolving world of technology provides the context for our vision and strategy. With the acquisition of Alcatel Lucent, we have the innovation capability, portfolio, and global scale to lead in shaping and deploying the technologies that are at the heart of an increasingly connected world. We are leveraging the strength of our complete and converged portfolio of network infrastructure, software, services and advanced technologies, to help our customers—telecommunications operators, governments, enterprises and webscale players—meet the challenges and capture the opportunity from an industry in transition. With these strong assets, we are ready for the next chapter in our 150-year history.

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Today, our Networks business is conducted through four business groups: Mobile Networks, Fixed Networks, IP/Optical Networks and Applications & Analytics. These business groups bring together deep expertise and leadership that span the key network technology areas: smart products and innovative services for mobile, fixed and IP networks, and beyond. Additionally, the Networks business is supported by Bell labs and Services.

Nokia Technologies’ patents business manages onepeople of the broadest and strongest IP portfolios in the industry, comprised of approximately 9 900 patent families made up of approximately 30 000 granted patents and applications.Programmable World.

Bell Labs supplements and complements Nokia Technologies’ innovation capacity efforts. Bell Labs is focused on finding solutions to problems in information and communication technology that require a 10x improvement in the key dimensions of the network, to solve problems that have the potential to fundamentally change the way we communicate, and that reimagine what the world will be like a decade from now.

Bell Labs is pioneering the Future X projects, which are thirteen distinct new technology solutions—each of these aims to ensure that tomorrow’s networks will be high-performing, low-cost, efficient, personalized and always-on.

The Sale of the HERE Business

TheNokia’s transformation was not complete. Our former HERE digital mapping and location services business, an arena we entered in 2006, washad been a key pillar of ourNokia’s operational performance. But in 2015, the Nokia Board heldHowever, following a strategic review of the business by the Board in light of plans to purchaseacquire Alcatel Lucent. The result of that meeting led usLucent, Nokia decided to selling thesell its HERE business in a deal agreed with a German automotive industry consortium valued at EUR 2.8 billion.Business.

The deal was announced August 3, 2015 and closed on December 4, 2015.

Acquisition of Alcatel Lucent and beyond

We announced plans to acquireThe Acquisition of Alcatel Lucent on April 15, 2015, in an all-share transaction valued at EUR 15.6 billion on a fully diluted basis, to createpositions Nokia as an innovation leader in next generationnext-generation technology and services. The deal was agreed on

Our reputation as an innovation powerhouse has been bolstered by the basis of EUR 0.55 of a new Nokia share for every Alcatel Lucent share.

On January 4 and 5, 2016, we published and confirmed that we had gained control of Alcatel Lucent through the successful public exchange offer for all outstanding Alcatel Lucent securities by holding nearly 80% of outstanding Alcatel Lucent securities. Nokia shareholders voted overwhelmingly at the end of 2015 to approve the Alcatel Lucent acquisition. The transaction was settled on January 7, 2016.

The addition of Alcatel Lucent opens up abundant opportunitiesBell Labs, now known as Nokia Bell Labs. It joins a future-focused business backed by tens of thousands of engineers and thousands of patent families, a reflection of Nokia’s innovation pedigree which has produced a huge array of benefits for us.

Our total addressable market—including mobile radio network, fixed access network, core networkconsumers, business and IP routing, and analytics—increased to around EUR 141 billion, an almost 50% increase relative to the slower-growing addressable market we faced before the Alcatel Lucent addition.

Alcatel Lucent gives us the opportunity to cross-sell and upsell our expanded portfolio, and better leverage our global sales channel. Fromsociety as a geographic perspective, we gain a much stronger position in many regions. In North America we have become the market leader; in China we are the largest vendor headquartered outside the country; and in Europe, Latin America and the Middle East and Africa we have roughly doubled our size.whole.

The acquisition has givenhelps us shape the connectivity and digitization revolution before us—the Programmable World—in which billions of people, devices, and sensors are connected in a totalway that opens up a world of possibilities. These can make our planet safer, cleaner, healthier, more than 40 000 research scientistssustainable, more efficient and engineers focused on inventingmore productive.

Nokia’s long history is marked by change and deploying technologies that are shapingreinvention. We have always been excited by where technology will lead us as we seek to enable the futurehuman possibilities of thea connected world: 5G, Cloud-based networks, IP routing, optical fiber transportworld. We will continue to innovate, reimagining how technology works for us discreetly while blending into, and data analytics. Our combined R&D expenses of EUR 4.5 billion in 2015 also supports near and longer term scientific research at Bell Labs—building a strong platform for putting us ahead of the competition.enriching, our daily lives.

 

 

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General facts on Nokiacontinued

    

    

    

    

    

    

 

Memorandum and Articles of Association

Registration

Nokia is organized under the laws of the Republic of Finland and registered under the business identity code 0112038-9. Under its current Articles of Association, Nokia’s corporate purpose is to research, develop, manufacture, market, sell and deliver products, software and services in a wide range of consumer and business-to-business markets. These products, software and services relate to, among others, network infrastructure for telecommunication operators and other enterprises, the IoT, human health and well-being, multi-media,multimedia, big data and analytics, mobile devices and consumer wearables and other electronics. The company may also create, acquire and license intellectual property and software as well as engage in other industrial and commercial operations, including securities trading and other investment activities. The company may carry on its business operations directly, through subsidiary companies, affiliate companies and joint ventures.

Director’s voting powers

Under Finnish law, resolutions of the Board shall be made by a majority vote. A director shall refrain from taking any part in the consideration of an agreement between the director and the company or third party, or any other issue that may provide any material benefit to him or her, which may be contradictory to the interests of the company. Under Finnish law, there is no age limit requirement for directors, and there are no requirements under Finnish law that a director must own a minimum number of shares in order to qualify to act as a director. However, our Board has established a guideline retirement age of 70 years for the members of the Board and the Corporate Governance and Nomination Committee will not without specific reason propose re-election of a person who has reached 70 years of age. Additionally, in accordance with the current company policy, approximately 40% of the annual remuneration payable to the Board members is paid in Nokia shares purchased from the market, and the directors shall retain, until the end of their directorship, such number of shares that corresponds to the number of shares they have received as Board remuneration during their first three years of service (the net amount received after deducting those shares used for offsetting any costs relating to the acquisition of the shares, including taxes).

Share rights, preferences and restrictions

Each share confers the right to one vote at general meetings. According to Finnish law, a company generally must hold an Annual General Meeting called by the Board within six months from the end of the fiscal year. Additionally, the Board is obliged to call an Extraordinary General Meeting, whenever such meeting is deemed necessary, or at the request of the auditor or shareholders representing a minimum of one-tenth of all outstanding shares. Under our Articles of Association, the Board is elected at least annually at the Annual General Meeting of the shareholders for a term ending at the end of the next Annual General Meeting.

Under Finnish law, shareholders may attend and vote at general meetings in person or by proxy. It is not customary in Finland for a company to issue forms of proxy to its shareholders. Accordingly, Nokia does not do so. However, registered holders and beneficial owners of ADSs are issued forms of proxy by the Depositary.

To attend and vote at a general meeting, a shareholder must be registered in the register of shareholders in the Finnish book-entry system on or prior to the record date set forth in the notice of the general meeting. A registered holder or a beneficial owner of the ADSs, like other beneficial owners whose shares are registered in the company’s register of shareholders in the name of a nominee, may vote with their shares provided that they arrange to have their name entered in the temporary register of shareholders for the general meeting.

The record date is the eighth business day preceding the meeting. To be entered in the temporary register of shareholders for the general meeting, a holder of ADSs must provide the Depositary, or have his broker or other custodian provide the Depositary, on or before the voting deadline, as defined in the proxy material issued by the Depositary, a proxy with the following information: the name, address, and social security number or another corresponding personal identification number of the holder of the ADSs, the number of shares to be voted by the holder of the ADSs and the voting instructions. The register of shareholders as of the record date of each general meeting is public until the end of the respective meeting. Other nominee registered shareholders can attend and vote at the general meetings by instructing their broker or other custodian to register the shareholder in Nokia’s temporary register of shareholders and give the voting instructions in accordance with the broker’s or custodian’s instructions.

By completing and returning the form of proxy provided by the Depositary, a holder of ADSs also authorizes the Depositary to give a notice to us, required by our Articles of Association, of the holder’s intention to attend the general meeting.

Each of our shares confers equal rights to share in the distribution of the company’s funds. For a description of dividend rights attaching to our shares, refer to “—Shares and shareholders”. Dividend entitlement lapses after three years if a dividend remains unclaimed for that period, in which case the unclaimed dividend will be retained by Nokia.

Under Finnish law, the rights of shareholders are related to the shares as set forth in law and our Articles of Association. Finnish law or our Articles of Association do not set limitations on the rights to own Nokia securities, including the rights of foreign shareholders to hold or exercise voting rights onin the said securities. Amendment of the Articles of Association requires a decision of the general meeting, supported by two-thirds of the votes cast and two-thirds of the shares represented at the meeting.

 

 

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General facts on Nokiacontinued

    

    

 

Disclosure of shareholder ownership or voting power

According to the Finnish Securities Market Act, which entered into forceeffect on January 1, 2013, a shareholder shall disclose their ownership or voting power to the company and the Finnish Financial Supervisory Authority when the ownership or voting power reaches, exceeds or falls below 5, 10, 15, 20, 25, 30, 50 or 90% of all the shares or the voting rights outstanding. The term “ownership” includes ownership by the shareholder, as well as selected related parties, and calculating the ownership or voting power covers agreements or other arrangements, which when concluded would cause the proportion of voting rights or number of shares to reach, exceed or fall below the aforementioned limits. Upon receiving such notice, the company shall disclose it by a stock exchange release without undue delay.

Purchase obligation

Our Articles of Association require a shareholder that holds one-third or one-half of all of our shares to purchase the shares of all other shareholders that so request, at a price generally based on the historical weighted average trading price of the shares. A shareholder who becomes subject to the purchase obligation is also obligated to purchase any subscription rights, stock options or convertible bonds issued by the company if so requested by the holder. The purchase price of the shares under our Articles of Association is the higher of: (a) the weighted average trading price of the shares on Nasdaq Helsinki during the ten business days prior to the day on which we have been notified by the purchaser that its holding has reached or exceeded the threshold referred to above or, in the absence of such notification or its failure to arrive within the specified period, the day on which our Board otherwise becomes aware of this; or (b) the average price, weighted by the number of shares, which the purchaser has paid for the shares it has acquired during the last 12 months preceding the date referred to in (a).

Under the Finnish Securities Market Act, a shareholder whose voting power exceeds 30% or 50% of the total voting rights in a company shall, within one month, offer to purchase the remaining shares of the company, as well as any other rights entitling to the shares issued by the company, such as subscription rights, convertible bonds or stock options issued by the company. The purchase price shall be the market price of the securities in question. The market price is determined on the basis of the highest price paid for the security during the preceding six months by the shareholder or any party in close connection to the shareholder. This price can be deviated from for a specific reason. If the shareholder or any related party has not during the six months preceding the offer acquired any securities that are the target for the offer, the market price is determined based on the average of the prices paid for the security in public trading during the preceding three months weighted by the volume of trade. This price can be deviated from for a specific reason.

Under the Finnish Companies Act, a shareholder whose holding exceeds nine-tenths of the total number of shares or voting rights in Nokia has both the right and, upon a request from the minority shareholders, the obligation to purchase all the shares of the minority shareholders for the current market price. The market price is determined, among other things, on the basis of the recent market price of the shares. The purchase procedure under the Finnish Companies Act differs, and the purchase price may differ, from the purchase procedure and price under the Finnish Securities Market Act, as discussed above. However, if the threshold of nine-tenths has been exceeded through either a mandatory or a voluntary public offer pursuant to the Finnish Securities Market Act, the market price under the Finnish Companies Act is deemed to be the price offered in the public offer, unless there are specific reasons to deviate from it.

Pre-emptive rights

In connection with any offering of shares, the existing shareholders have a pre-emptive right to subscribe for shares offered in proportion to the amount of shares in their possession. However, a general meeting of shareholders may vote, by a majority of two-thirds of the votes cast and two-thirds of the shares represented at the meeting, to waive this pre-emptive right provided that, from the company’s perspective, weighty financial grounds exist.

Under the Finnish Act on the Monitoring of Foreign Corporate Acquisitions (2012/172 as amended), a notification to the Ministry of Employment and the Economy is required for a non-resident of Finland, directly or indirectly, when acquiring one-tenth or more of the voting power or corresponding factual influence in a company. The Ministry of Employment and the Economy has to confirm the acquisition unless the acquisition would jeopardize important national interests, in which case the matter is referred to the Council of State. If the company in question is operating in the defense sector, an approval by the Ministry of Employment and the Economy is required before the acquisition is made. These requirements are not applicable if, for instance, the voting power is acquired in a share issue that is proportional to the holder’s ownership of the shares. Moreover, the requirements do not apply to residents of countries in the European Economic Area or EFTA countries.

 

 

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General facts on Nokiacontinued

    

    

    

    

    

    

 

Selected financial data

Five-year consolidated financial statementinformation

The financial data set forth below atas of and for the years ended December 31, 20152016 and 20142015 and for each of the three years ended December 31, 2016, 2015 2014 and 20132014 has been derived from our audited consolidated financial statements included in this annual report on Form 20-F. Financial data atas of December 31, 2014, 2013, 2012, and 20112012 and for each of the years in the two years ended December 31, 20122013 and 20112012 have been reclassified to reflect HERE as Discontinued operations.

The financial data atas of December 31, 20152016 and 20142015 and for each of the three years ended December 31, 2016, 2015 2014 and 20132014 should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements.

We acquired Alcatel Lucent in January 2016,2016; consequently the acquisition is not reflected in the financial data presented below.as of and for the year ended December 31, 2016 only. Refer to Note 36, Subsequent events5, Acquisitions, of our consolidated financial statements included in this annual report on Form 20-F. For information on material trends affecting our business and results of operations, refer to “Operating and financial review and prospects—Principal industry trends affecting operations” above.

The audited consolidated financial statements from which the selected consolidated financial data set forth below have been derived were prepared in accordance with IFRS. For information on our critical accounting policies refer to “UseNote 3, Use of estimates and critical accounting judgments” in Note 1, Accounting principles,judgments, of our consolidated financial statements included in this annual report on Form 20-F.

 

  2015   2015   2014   2013 2012 2011   2016       2016 2015   2014   2013 2012 
   (USD)(1)     (EUR)     (USD)(1)     (EUR) 
For the year ended December 31  (in millions, except per share data)   (in millions, except per share data) 

From the consolidated income statement(2)

                      

Net sales from Continuing operations

       13 789          12 499         11 762         11 795        14 298        14 877     26 044     23 614       12 499        11 762        11 795       14 298 

Operating profit/(loss) from Continuing operations

   1 862      1 688     1 412     672    (520)   138  

Profit/(loss) before tax from Continuing operations

   1 699      1 540     999     399    (877)   (10) 

Profit/(loss) for the year from Continuing operations

   1 317      1 194     2 718     128    (1 291)   (358) 

Profit/(loss) from Discontinued operations

   1 405      1 274     758     (867)   (2 495)   (1 128) 

Profit/(loss) for the year

   2 723      2 468     3 476     (739)   (3 786)   (1 486) 

Profit/(loss) from Continuing operations attributable to equity
holders of the parent

   1 315      1 192     2 710     273    (580)   (17) 

Profit/(loss) attributable to equity holders of the parent

   2 720      2 466     3 462     (615)   (3 105)   (1 163) 

Operating (loss)/profit from Continuing operations

   (1 213)     (1 100)   1 697    1 414    672   (520) 

(Loss)/profit before tax from Continuing operations

   (1 510)         (1 369)   1 540    999    399   (877) 

(Loss)/profit for the year from Continuing operations

   (1 006)     (912)   1 194    2 718    128   (1 291) 

(Loss)/profit from Discontinued operations

   (17)     (15)   1 274    758    (867)   (2 495) 

(Loss)/profit for the year

       (1 022)     (927)   2 468    3 476    (739)   (3 786) 

(Loss)/profit from Continuing operations attributable to equity holders of the parent

   (828)     (751)   1 192    2 710    273   (580) 

(Loss)/profit attributable to equity holders of the parent

   (845)     (766)   2 466    3 462    (615)   (3 105) 

Earnings per share (for profit/(loss) attributable to equity
holders of the parent)

                      

Basic earnings per share, EUR

                      

From Continuing operations

   0.35      0.32     0.73     0.07    (0.16)   (0.00)    (0.14)     (0.13)   0.32    0.73    0.07   (0.16) 

From the profit/(loss) for the year

   0.74      0.67     0.94     (0.17)   (0.84)   (0.31) 

From the (loss)/profit for the year

   (0.14)     (0.13)   0.67    0.94    (0.17)   (0.84) 

Diluted earnings per share, EUR

                      

From Continuing operations

   0.34      0.31     0.67     0.07    (0.16)   (0.00)    (0.14)     (0.13)   0.31    0.67    0.07   (0.16) 

From the profit/(loss) for the year

   0.70      0.63     0.85     (0.17)   (0.84)   (0.31) 

From the (loss)/profit for the year

   (0.14)     (0.13)   0.63    0.85    (0.17)   (0.84) 

Cash dividends per share, EUR(3)(2)

   0.29      0.26     0.14     0.37    –    0.20     0.19     0.17   0.26    0.14    0.37   – 

Average number of shares (millions of shares)

                      

Basic

   3 671      3 671     3 699     3 712    3 711    3 710     5 732     5 732   3 671    3 699    3 712   3 711 

Diluted

                      

Continuing operations

   3 949      3 949     4 132     3 733    3 711    3 710     5 741     5 741   3 949    4 132    3 733   3 711 

Group

   3 949      3 949     4 132     3 712    3 711    3 710     5 741     5 741   3 949    4 132    3 712   3 711 

 

(1)In 2015,2016, average rate of USD per EUR 1.1032 and end of period rate of USD per EUR 1.0859 have1.1029 has been used to translate the consolidated income statement and the consolidated statement of financial position items, respectively.items.
(2)The historical results of HERE and Devices & Services have been recast as Discontinued operations for each of the years presented. Refer to Note 3, Disposals treated as Discontinued operations, of our consolidated financial statements included in this annual report on Form 20-F.
(3)The Board proposes a cash dividend of EUR 0.17 per share for 2015 for the2016, subject to shareholders’ approval at the Annual General Meeting convening on June 16, 2016. The proposal comprises a planned dividend for 2015 of EUR 0.16 per share and a special dividend of EUR 0.10 per share.May 23, 2017.

 

124NOKIA ANNUAL REPORT ON FORM 20-F 20152016125

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General facts on Nokiacontinued

    

    

    

    

    

    

 

 

  2015   2015   2014   2013   2012   2011   2016      2016   2015   2014   2013   2012 
   (USD)(1)     (EUR)     (USD)(1)     (EUR) 
For the year ended December 31  (in millions)           (in millions) 

From the consolidated statement of financial position

                          

Non-current assets

   5 540      5 102     7 339     6 048     9 323     10 950     25 517     24 182    5 102    7 339    6 048    9 323 

Cash and other liquid assets(2)

   10 695      9 849     7 715     8 971     9 909     10 902     9 841     9 326    9 849    7 715    8 971    9 909 

Other current assets

   6 488      5 975     6 009     4 825     10 752     14 373     11 975     11 349    5 975    6 009    4 825    10 752 

Assets held for sale and assets of disposal groups classified
as held for sale

   –      –     –     5 347     –     –     46     44    –    –    5 347    – 

Total assets

       22 724          20 926         21 063         25 191         29 984         36 225     47 380         44 901        20 926        21 063        25 191        29 984 

Capital and reserves attributable to equity holders of
the parent

   11 405      10 503     8 611     6 468     7 937     11 866         21 203     20 094    10 503    8 611    6 468    7 937 

Non-controlling interests

   23      21     58     192     1 302     2 043     930     881    21    58    192    1 302 

Long-term interest-bearing liabilities

   2 197      2 023     2 576     3 286     5 087     3 969     3 859     3 657    2 023    2 576    3 286    5 087 

Other non-current liabilities

   2 159      1 988     2 530     1 067     2 002     1 903     8 087     7 664    1 988    2 530    1 067    2 002 

Current borrowings

   55      51     116     3 376     462     1 352     390     370    51    116    3 376    462 

Other current liabilities

   6 885      6 340     7 172     6 074     13 194     15 092     12 910     12 235    6 340    7 172    6 074    13 194 

Liabilities of disposal groups classified as held for sale

   –      –     –     4 728     –     –     –     –    –    –    4 728    – 

Total shareholders’ equity and liabilities

   22 724      20 926     21 063     25 191     29 984     36 225     47 380     44 901    20 926    21 063    25 191    29 984 

Net cash(3)

   8 443      7 775     5 023     2 309     4 360     5 581     5 592     5 299    7 775    5 023    2 309    4 360 

Share capital

   267      246     246     246     246     246     260     246    246    246    246    246 

 

(1)In 2015, average rate of USD per EUR 1.1032 and2016, end of period rate of USD per EUR 1.0859 have1.0552 has been used to translate the consolidated income statement and the consolidated statement of financial position items, respectively.items.
(2)Cash and other liquid assets consist of the following line items from our consolidated statement of financial position: cash and cash equivalents, available-for-sale investments, liquid assets and investments at fair value through profit and loss, liquid assets. Net interest-bearing liabilities consist of borrowings due within one year and long-term interest-bearing liabilities, less cash and other liquid assets.
(3)Total cash and other liquid assets less long-term interest-bearing liabilities (including the current portion thereof) less short-term borrowings.

Exchange rate data

Our business and results of operations are, from time to time, affected by changes in exchange rates, particularly between the euro, our reporting currency, and other currencies such as the USU.S. dollar, the Chinese yuan, the Japanese yen and the Korean won. The following table sets forth information concerning the noon buying rate for the years 20112012 to 20152016 and for each of the months in the six-month period ended February 29, 2016,28, 2017, expressed in USU.S. dollars per euro. The average rate for a year means the average of the exchange rates on the last day of each month during a year. The average rate for a month means the average of the daily exchange rates during that month.

 

                     End of period rate                    Average rate                    Highest rate                    Lowest rate 
For the year ended December 31 (unless otherwise specified)  (USD per EUR) 

2011

   1.2973     1.4002     1.4875     1.2926  

2012

   1.3186     1.2909     1.3463     1.2062  

2013

   1.3779     1.3303     1.3816     1.2774  

2014

   1.2101     1.3210     1.3927     1.2101  

2015

   1.0859     1.1032     1.2015     1.0524  

September 30, 2015

   1.1162     1.1229     1.1358     1.1104  

October 30, 2015

   1.1042     1.1228     1.1437     1.0963  

November 30, 2015

   1.0562     1.0727     1.1026     1.0562  

December 21, 2015

   1.0859     1.0889     1.1025     1.0573  

January 29, 2016

   1.0832     1.0855     1.0964     1.0743  

February 29, 2016

   1.0868     1.1092     1.1362     1.0868  
                End  of period rate                    Average rate                    Highest rate                    Lowest rate 
For the year ended December 31 (unless otherwise specified)       (USD per EUR)           

2012

   1.3186    1.2909    1.3463    1.2062 

2013

   1.3779    1.3303    1.3816    1.2774 

2014

   1.2101    1.3210    1.3927    1.2101 

2015

   1.0859    1.1032    1.2015    1.0524 

2016

   1.0552    1.1029    1.1516    1.0375 

September 30, 2016

   1.1238    1.1218    1.1271    1.1158 

October 31, 2016

   1.0962    1.1014    1.1212    1.0866 

November 30, 2016

   1.0578    1.0792    1.1121    1.0560 

December 30, 2016

   1.0552    1.0545    1.0758    1.0375 

January 31, 2017

   1.0794    1.0635    1.0794    1.0416 

February 28, 2017

   1.0618    1.0650    1.0802    1.0551 

March 1, 2017 to March 10, 2017

   1.0667    1.0575    1.0667    1.0514 

On March 24, 2016,10, 2017, the noon buying rate was USD 1.11631.0667 per EUR 1.00.

 

126NOKIA ANNUAL REPORT ON FORM 20-F 20151252016

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General facts on Nokiacontinued

    

    

    

    

    

    

 

Shares and shareholders

Shares and share capital

Nokia has one class of shares. Each Nokia share entitles the holder to one vote at general meetings of Nokia.

OnAs of December 31, 2015,2016, the share capital of Nokia Corporation wasequaled EUR 245 896 461.96 and the total number of shares issued was 3 992 863 716. At5 836 055 012. As of December 31, 2015,2016, the total number of shares included 53 668 695115 551 878 shares owned by Group companies representing approximately 1.3%2.0% of the total number of shares and the total voting rights.

Nokia does not have minimum or maximum share capital or a par value of a share.

 

Share capital and shares at December 31     2015   2014   2013   2012   2011 

Share capital, EURm

    246     246     246     246     246  

Shares, (000s)

     3 992 864      3 745 044      3 744 994      3 744 956      3 744 956  

Shares owned by the Group, (000s)

    53 669     96 901     32 568     33 971     34 767  

Number of shares excluding shares owned by the Group, (000s)

    3 939 195     3 648 143     3 712 427     3 710 985     3 710 189  

Average number of shares excluding shares owned by the Group during the year, (000s), basic

    3 670 934     3 698 723     3 712 079     3 710 845     3 709 947  

Average number of shares excluding shares owned by the Group during the year, (000s), diluted

    3 949 312     4 131 602       3 712 079         3 710 845       3 709 947  

Number of registered shareholders(1)

     209 509     216 830     225 587     250 799     229 096  

(1)Each account operator is included in the figure as only one registered shareholder.

Calculation of key ratios

Key ratios at December 31,

Continuing operations

     2015   2014   2013   2012  2011 

Earnings per share for profit attributable to equity holders of the parent

          

Earnings per share, basic, EUR

    0.32     0.73     0.07     (0.16)   (0.00) 

Earnings per share, diluted, EUR

    0.31     0.67     0.07     (0.16)   (0.00) 

P/E ratio, basic(1)

     20.6     8.99     83.14     neg.    neg.  

Dividend per share, EUR(2)

    0.26     0.14     0.37     –    0.20  

Total dividends paid, EURm(2)(3)

    1 488     511     1 374     –    742  

Payout ratio, basic(2)

    0.81     0.19     5.29     neg.    neg.  

Dividend yield, %(2)

     3.94     2.13     6.36     –    5.30  

Shareholders’ equity per share, EUR(4)

    2.67     2.36     1.74     2.14    3.20  

Market capitalization, EURm(4)

           25 999           23 932             21 606             10 873            13 987  

(1)Based on Nokia closing share price at year-end.
(2)In 2015, based on Board of Directors proposal for 2015, subject to shareholders approval at the Annual General Meeting convening on June 16, 2016 and assuming 100% ownership of Alcatel Lucent.
(3)Maximum amount to be distributed as dividends based on the number of shares at April 1, 2016, excluding the number of treasury shares. Comparative figures represent the total actual amounts paid.
(4)Excludes shares owned by the Group companies.

Reductions of share capital and number of shares

Type of reduction     Year   

Number of

shares

000s

   

Amount

     of reduction

of the share

capital

EURm

   

Amount

of reduction

of the restricted

capital

EURm

   

Amount

of reduction

of the retained

earnings

EURm

 

Cancellation of shares

             2011     –     –     –     –  

Cancellation of shares

    2012     –     –     –     –  

Cancellation of shares

    2013     –     –     –     –  

Cancellation of shares

    2014     –     –     –     –  

Cancellation of shares

     2015          66 904     –     –     –  

126NOKIA ANNUAL REPORT ON FORM 20-F 2015

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Share turnover

    2015   2014   2013   2012   2011 

Share turnover (000s)(1)

     8 490 455       9 278 853       16 748 295       19 995 211       15 651 671  

Total number of shares (000s)

   3 992 823     3 745 044     3 744 956     3 744 956     3 744 956  

% of total number of shares

   213     248     447     534     418  

(1)   Source: Nasdaq Helsinki, the NYSE composite tape and Euronext Paris (since November 2015).

      

The principal trading markets for the shares are the NYSE, in the form of ADSs, and Nasdaq Helsinki and Euronext Paris, in the form of shares.  

Share prices(1)

 

          
EUR  2015   2014   2013   2012   2011 

Low/high

   4.91/7.87     4.89/6.97     2.30/6.03     1.33/4.46     3.33/8.48  

Average(2)

   6.53     5.99     3.57     2.62     5.19  

Year-end

   6.60     6.56     5.82     2.93     3.77  

 

(1)   Source: Nasdaq Helsinki.

(2)   Total turnover divided by total volume.

 

Share prices(1)

 

          
EUR  2015   2014   2013   2012   2011 

Low/high

   6.29/7.15     –     –     –     –  

Average(2)

   6.66     –     –     –     –  

Year-end

   6.59     –     –     –     –  

 

(1)   Source: Euronext Paris.

(2)   Total turnover divided by total volume.

 

Share prices (ADS)(1)

 

          
USD  2015   2014   2013   2012   2011 

Low/high

   5.71/8.37     6.64/8.73     3.02/8.18     1.63/5.87     4.46/11.75  

Average(2)

   7.28     7.79     4.82     3.41     7.14  

Year-end

   7.02     7.86     8.11     3.95     4.82  

(1)Source: The NYSE composite tape.
(2)Total turnover divided by total volume.

Nokia share prices on Nasdaq Helsinki (EUR), Euronext Paris (EUR) and the New York Stock Exchange (USD) 2011-2015

LOGO

As of December 31     2016  2015   2014   2013   2012 

Share capital, EURm

    246   246    246    246    246 

Shares, (000s)

    5 836 055   3 992 864    3 745 044    3 744 994    3 744 956 

Shares owned by the Group, (000s)

    115 552   53 669    96 901    32 568    33 971 

Number of shares excluding shares owned by the Group, (000s)

    5 720 503   3 939 195    3 648 143    3 712 427    3 710 985 

Average number of shares excluding shares owned by the Group during the year, (000s), basic

    5 732 371   3 670 934    3 698 723    3 712 079    3 710 845 

Average number of shares excluding shares owned by the Group during the year, (000s), diluted

    5 741 117   3 949 312    4 131 602    3 712 079    3 710 845 

Number of registered shareholders(1)

     237 700   209 509    216 830    225 587    250 799 

 

(1)   Each account operator is included in the figure as only one registered shareholder.

 

Key ratios

 

    

 

As of December 31, Continuing operations     2016  2015   2014   2013   2012 
Earnings per share for (loss)/profit attributable to equity holders of the parent          

Earnings per share, basic, EUR

    (0.13)   0.32    0.73    0.07    (0.16) 

Earnings per share, diluted, EUR

    (0.13)   0.31    0.67    0.07    (0.16) 

P/E ratio, basic(1)

     neg.   20.6    8.99    83.14    neg. 

Dividend per share, EUR(2)

    0.17   0.26    0.14    0.37    – 

Total dividends paid, EURm(2)(3)

    972   1 501    511    1 374    – 

Payout ratio, basic(2)

    neg.   0.81    0.19    5.29    neg. 

Dividend yield, %(2)

     3.70   3.94    2.13    6.36    – 

Shareholders’ equity per share, EUR(4)

    3.51   2.67    2.36    1.74    2.14 

Market capitalization, EURm(4)

           26 257         25 999            23 932            21 606            10 873 

 

(1) Based on Nokia closing share price at year-end.

(2) The Board proposes a cash dividend of EUR 0.17 per share for 2016, subject to shareholders’ approval at the Annual General Meeting convening on May 23, 2017.

(3) For 2016, the figure represents the maximum amount to be distributed as dividends, based on the number of shares as of December 31, 2016, excluding the number of shares owned by the Group companies. Comparative figures represent the total actual amounts paid.

(4) Excludes shares owned by Group companies.

 

Reductions of share capital and number of shares

 

 

 

 

 

 

Type of reduction     Year  

Number of

shares

000s

   

Amount

    of reduction

of the share

capital

EURm

   

Amount

of reduction

of the restricted

capital

EURm

   

Amount

of reduction

of the retained

earnings

EURm

 

Cancellation of shares

             2012   –    –    –    – 

Cancellation of shares

    2013   –    –    –    – 

Cancellation of shares

    2014   –    –    –    – 

Cancellation of shares

    2015        66 904    –    –    – 

Cancellation of shares

     2016   –    –    –    – 

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 127

    

General facts on Nokiacontinued

    

    

    

    

    

    

 

Stock option exercises 2011–2015Share turnover

 

Year Stock option category  

Subscription price

EUR

   

    Number of new

shares 000s

   

Date of

              payment

   

      Net proceeds

EURm

   

  New share capital

EURm

 

2011      

 

Nokia Stock Option Plan 2006 1Q

   14.99     0     2011     0.00     –  
 

Nokia Stock Option Plan 2006 2Q

   18.02     0     2011     0.00     –  
 

Nokia Stock Option Plan 2006 3Q

   15.37     0     2011     0.00     –  
 

Nokia Stock Option Plan 2006 4Q

   15.38     0     2011     0.00     –  
 

Nokia Stock Option Plan 2007 1Q

   17.00     0     2011     0.00     –  
 

Nokia Stock Option Plan 2007 2Q

   18.39     0     2011     0.00     –  
 

Nokia Stock Option Plan 2007 3Q

   21.86     0     2011     0.00     –  
 

Nokia Stock Option Plan 2007 4Q

   27.53     0     2011     0.00     –  
 

Nokia Stock Option Plan 2008 1Q

   24.15     0     2011     0.00     –  
 

Nokia Stock Option Plan 2008 2Q

   19.16     0     2011     0.00     –  
 

Nokia Stock Option Plan 2008 3Q

   17.80     0     2011     0.00     –  
 

Nokia Stock Option Plan 2008 4Q

   12.43     0     2011     0.00     –  
 

Nokia Stock Option Plan 2009 1Q

   9.82     0     2011     0.00     –  
 

Nokia Stock Option Plan 2009 2Q

   11.18     0     2011     0.00     –  
 

Nokia Stock Option Plan 2009 3Q

   9.28     0     2011     0.00     –  
 

Nokia Stock Option Plan 2009 4Q

   8.76     0     2011     0.00     –  
 

Nokia Stock Option Plan 2010 1Q

   10.11     0     2011     0.00     –  
 

Nokia Stock Option Plan 2010 2Q

   8.86     0     2011     0.00     –  
  

Nokia Stock Option Plan 2010 3Q

   7.29                      
  

Total

        0          0.00       

2012

 

Nokia Stock Option Plan 2007 2Q

   18.39     0     2012     0.00     –  
 

Nokia Stock Option Plan 2007 3Q

   21.86     0     2012     0.00     –  
 

Nokia Stock Option Plan 2007 4Q

   27.53     0     2012     0.00     –  
 

Nokia Stock Option Plan 2008 1Q

   24.15     0     2012     0.00     –  
 

Nokia Stock Option Plan 2008 2Q

   19.16     0     2012     0.00     –  
 

Nokia Stock Option Plan 2008 3Q

   17.80     0     2012     0.00     –  
 

Nokia Stock Option Plan 2008 4Q

   12.43     0     2012     0.00     –  
 

Nokia Stock Option Plan 2009 1Q

   9.82     0     2012     0.00     –  
 

Nokia Stock Option Plan 2009 2Q

   11.18     0     2012     0.00     –  
 

Nokia Stock Option Plan 2009 3Q

   9.28     0     2012     0.00     –  
 

Nokia Stock Option Plan 2009 4Q

   8.76     0     2012     0.00     –  
 

Nokia Stock Option Plan 2010 1Q

   10.11     0     2012     0.00     –  
 

Nokia Stock Option Plan 2010 2Q

   8.86     0     2012     0.00     –  
 

Nokia Stock Option Plan 2010 3Q

   7.29     0     2012     0.00     –  
  

Nokia Stock Option Plan 2010 4Q

   7.59     0     2012     0.00     –  
  

Total

        0          0.00       
    2016   2015   2014   2013   2012  

Share turnover (000s)(1)

     9 604 722      8 490 823      9 278 853      16 748 295     19 995 211  

Total number of shares (000s)

   5 836 055    3 992 823    3 745 044    3 744 956   3 744 956  

% of total number of shares

   165    213    248    447   534  

(1)   Source: Nasdaq Helsinki, the NYSE composite tape and Euronext Paris (since November 2015).

The principal trading markets for the shares are Nasdaq Helsinki and Euronext Paris, in the form of shares, and the NYSE, in the form of ADSs.

Nasdaq Helsinki share prices(1)

 

          
EUR  2016   2015   2014   2013   2012  

Low/high

   3.66/6.99    4.91/7.87    4.89/6.97    2.30/6.03   1.33/4.46  

Average(2)

   5.07    6.53    5.99    3.57   2.62  

Year-end

   4.59    6.60    6.56    5.82   2.93  

 

(1)   Source: Nasdaq Helsinki.

(2)   Total turnover divided by total volume.

 

Euronext Paris share prices(1)

 

          
EUR  2016   2015   2014   2013   2012  

Low/high

   3.66/6.99    6.29/7.15    –    –   –  

Average(2)

   4.98    6.66    –    –   –  

Year-end

   4.57    6.59    –    –   –  

 

(1)   Source: Euronext Paris.

(2)   Total turnover divided by total volume.

 

NYSE share prices (ADS)(1)

 

          
USD  2016   2015   2014   2013   2012  

Low/high

   4.04/7.55    5.71/8.37    6.64/8.73    3.02/8.18   1.63/5.87  

Average(2)

   5.64    7.28    7.79    4.82   3.41  

Year-end

   4.81    7.02    7.86    8.11   3.95  

(1)Source: The NYSE composite tape.
(2)Total turnover divided by total volume.

Nokia share prices on Nasdaq Helsinki (EUR) and the NYSE (USD) 2012–2016

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128 NOKIA ANNUAL REPORT ON FORM 20-F 20152016

LOGOLOGO

    

    

    

    

    

    

    

    

 

Stock option exercises 2012–2016

Year Stock option category  

Subscription price

EUR

   

    Number of new

shares 000s

   

Date of

              payment

   

      Net proceeds

EURm

   

  New share capital

EURm

 

2013      

 

Nokia Stock Option Plan 2008 1Q

   24.15     0     2013     0.00     –  
 

Nokia Stock Option Plan 2008 2Q

   19.16     0     2013     0.00     –  
 

Nokia Stock Option Plan 2008 3Q

   17.80     0     2013     0.00     –  
 

Nokia Stock Option Plan 2008 4Q

   12.43     0     2013     0.00     –  
 

Nokia Stock Option Plan 2009 1Q

   9.82     0     2013     0.00     –  
 

Nokia Stock Option Plan 2009 2Q

   11.18     0     2013     0.00     –  
 

Nokia Stock Option Plan 2009 3Q

   9.28     0     2013     0.00     –  
 

Nokia Stock Option Plan 2009 4Q

   8.76     0     2013     0.00     –  
 

Nokia Stock Option Plan 2010 1Q

   10.11     0     2013     0.00     –  
 

Nokia Stock Option Plan 2010 2Q

   8.86     0     2013     0.00     –  
 

Nokia Stock Option Plan 2010 3Q

   7.29     0     2013     0.00     –  
  

Nokia Stock Option Plan 2010 4Q

   7.59     0     2013     0.00     –  
  

Total

        0          0.00       

2014

 

Nokia Stock Option Plan 2009 1Q

   9.56     0     2014     0.00     –  
 

Nokia Stock Option Plan 2009 2Q

   10.92     0     2014     0.00     –  
 

Nokia Stock Option Plan 2009 3Q

   9.02     0     2014     0.00     –  
 

Nokia Stock Option Plan 2009 4Q

   8.50     0     2014     0.00     –  
 

Nokia Stock Option Plan 2010 1Q

   9.85     0     2014     0.00     –  
 

Nokia Stock Option Plan 2010 2Q

   8.60     0     2014     0.00     –  
 

Nokia Stock Option Plan 2010 3Q

   7.03     0     2014     0.00     –  
 

Nokia Stock Option Plan 2010 4Q

   7.33     0     2014     0.00     –  
 

Nokia Stock Option Plan 2011 2Q

   5.76     50     2014     0.29     –  
  

Nokia Stock Option Plan 2011 3Q

   3.50     0     2014     0.00     –  
  

Total

        50          0.29       

2015

 

Nokia Stock Option Plan 2010 1Q

   9.85     0     2015     0.00     –  
 

Nokia Stock Option Plan 2010 2Q

   8.60     0     2015     0.00     –  
 

Nokia Stock Option Plan 2010 3Q

   7.03     0     2015     0.00     –  
 

Nokia Stock Option Plan 2010 4Q

   7.33     0     2015     0.00     –  
 

Nokia Stock Option Plan 2011 2Q

   5.76     442     2015     2.55     –  
 

Nokia Stock Option Plan 2011 3Q

   3.50     212     2015     0.74     –  
 

Nokia Stock option Plan 2011 4Q

   4.58     90     2015     0.41     –  
 

Nokia Stock option Plan 2012 1Q

   3.58     0     2015     0.00     –  
 

Nokia Stock option Plan 2012 2Q

   2.18     213     2015     0.47     –  
  

Nokia Stock option Plan 2012 3Q

   1.92     285     2015     0.55     –  
  

Total

        1 242          4.72       

Year  Stock option category  

Subscription price

EUR

   

    Number of new

shares 000s

   

Date of

              payment

   

      Net proceeds

EURm

   

  New share capital

EURm

 

2012      

  

Nokia Stock Option Plan 2007 2Q

   18.39    0    2012    0.00    – 
  

Nokia Stock Option Plan 2007 3Q

   21.86    0    2012    0.00    – 
  

Nokia Stock Option Plan 2007 4Q

   27.53    0    2012    0.00    – 
  

Nokia Stock Option Plan 2008 1Q

   24.15    0    2012    0.00    – 
  

Nokia Stock Option Plan 2008 2Q

   19.16    0    2012    0.00    – 
  

Nokia Stock Option Plan 2008 3Q

   17.80    0    2012    0.00    – 
  

Nokia Stock Option Plan 2008 4Q

   12.43    0    2012    0.00    – 
  

Nokia Stock Option Plan 2009 1Q

   9.82    0    2012    0.00    – 
  

Nokia Stock Option Plan 2009 2Q

   11.18    0    2012    0.00    – 
  

Nokia Stock Option Plan 2009 3Q

   9.28    0    2012    0.00    – 
  

Nokia Stock Option Plan 2009 4Q

   8.76    0    2012    0.00    – 
  

Nokia Stock Option Plan 2010 1Q

   10.11    0    2012    0.00    – 
  

Nokia Stock Option Plan 2010 2Q

   8.86    0    2012    0.00    – 
  

Nokia Stock Option Plan 2010 3Q

   7.29    0    2012    0.00    – 
   

Nokia Stock Option Plan 2010 4Q

   7.59    0    2012    0.00    – 
   

Total

        0         0.00      

2013

  

Nokia Stock Option Plan 2008 1Q

   24.15    0    2013    0.00    – 
  

Nokia Stock Option Plan 2008 2Q

   19.16    0    2013    0.00    – 
  

Nokia Stock Option Plan 2008 3Q

   17.80    0    2013    0.00    – 
  

Nokia Stock Option Plan 2008 4Q

   12.43    0    2013    0.00    – 
  

Nokia Stock Option Plan 2009 1Q

   9.82    0    2013    0.00    – 
  

Nokia Stock Option Plan 2009 2Q

   11.18    0    2013    0.00    – 
  

Nokia Stock Option Plan 2009 3Q

   9.28    0    2013    0.00    – 
  

Nokia Stock Option Plan 2009 4Q

   8.76    0    2013    0.00    – 
  

Nokia Stock Option Plan 2010 1Q

   10.11    0    2013    0.00    – 
  

Nokia Stock Option Plan 2010 2Q

   8.86    0    2013    0.00    – 
  

Nokia Stock Option Plan 2010 3Q

   7.29    0    2013    0.00    – 
   

Nokia Stock Option Plan 2010 4Q

   7.59    0    2013    0.00    – 
   

Total

        0         0.00      

2014

  

Nokia Stock Option Plan 2009 1Q

   9.56    0    2014    0.00    – 
  

Nokia Stock Option Plan 2009 2Q

   10.92    0    2014    0.00    – 
  

Nokia Stock Option Plan 2009 3Q

   9.02    0    2014    0.00    – 
  

Nokia Stock Option Plan 2009 4Q

   8.50    0    2014    0.00    – 
  

Nokia Stock Option Plan 2010 1Q

   9.85    0    2014    0.00    – 
  

Nokia Stock Option Plan 2010 2Q

   8.60    0    2014    0.00    – 
  

Nokia Stock Option Plan 2010 3Q

   7.03    0    2014    0.00    – 
  

Nokia Stock Option Plan 2010 4Q

   7.33    0    2014    0.00    – 
  

Nokia Stock Option Plan 2011 2Q

   5.76    50    2014    0.29    – 
   

Nokia Stock Option Plan 2011 3Q

   3.50    0    2014    0.00    – 
   

Total

        50         0.29      

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 129

    

General facts on Nokiacontinued

    

    

    

    

    

    

 

Year  Stock option category      

Subscription price

EUR

   

    Number of new

shares 000s

   

Date of

              payment

   

      Net proceeds

EURm

   

  New share capital

EURm

 

2015    

  

Nokia Stock Option Plan 2010 1Q

    9.85    0    2015    0.00    – 
  

Nokia Stock Option Plan 2010 2Q

    8.60    0    2015    0.00    – 
  

Nokia Stock Option Plan 2010 3Q

    7.03    0    2015    0.00    – 
  

Nokia Stock Option Plan 2010 4Q

    7.33    0    2015    0.00    – 
  

Nokia Stock Option Plan 2011 2Q

    5.76    442    2015    2.55    – 
  

Nokia Stock Option Plan 2011 3Q

    3.50    212    2015    0.74    – 
  

Nokia Stock Option Plan 2011 4Q

    4.58    90    2015    0.41    – 
  

Nokia Stock Option Plan 2012 1Q

    3.58    0    2015    0.00    – 
  

Nokia Stock Option Plan 2012 2Q

    2.18    213    2015    0.47    – 
   

Nokia Stock Option Plan 2012 3Q

       1.92    285    2015    0.55    – 
   

Total

            1 242         4.72      

2016

  

Nokia Stock Option Plan 2011 2Q

    5.66    104    2016    0.60    – 
  

Nokia Stock Option Plan 2011 3Q

    3.40    0    2016    0.00    – 
  

Nokia Stock Option Plan 2011 4Q

    4.48    0    2016    0.00    – 
  

Nokia Stock Option Plan 2012 1Q

    3.48    0    2016    0.00    – 
  

Nokia Stock Option Plan 2012 2Q

    2.08    240    2016    0.51    – 
  

Nokia Stock Option Plan 2012 3Q

    1.82    308    2016    0.57    – 
  

Nokia Stock Option Plan 2012 4Q

    1.76    10    2016    0.02    – 
  

Nokia Stock Option Plan 2013 1Q

    2.58    0    2016    0.00    – 
  

Nokia Stock Option Plan 2013 2Q

    2.35    166    2016    0.39    – 
   

Nokia Stock Option Plan 2013 3Q

       2.72    5    2016    0.01      
   

Total

            833         2.10      

Shareholders

AtAs of December 31, 2015,2016, shareholders registered in Finland represented 19.34%17.46% and shareholders registered in the name of a nominee represented 80.66%82.54% of the total number of shares of Nokia Corporation. The number of directly registered shareholders was 209 509 on237 700 as of December 31, 2015.2016. Each account operator (16)(14) is included in this figure as only one registered shareholder.

Largest shareholders registered in Finland atas of December 31, 20152016(1)

 

Shareholder       

Total number

                of shares 000s

                   % of all shares           % of all  voting rights   

Total number

                of shares  000s

                   % of all shares           % of all  voting rights 

Varma Mutual Pension Insurance Company

Varma Mutual Pension Insurance Company

  

   80 722     2.02     2.05     62 722    1.07    1.09 

Schweizerische Nationalbank

   38 498    0.66    0.67 

The State Pension Fund

   38 000    0.65    0.66 

Ilmarinen Mutual Pension Insurance Company

Ilmarinen Mutual Pension Insurance Company

  

   29 394     0.74     0.75     29 820    0.51    0.52 

The State Pension Fund

  

   25 600     0.64     0.65  

Schweizerische Nationalbank

  

   23 990     0.60     0.61  

Elo Mutual Pension Insurance Company

   18 499    0.32    0.32 

Folketrygdfondet

   18 389    0.32    0.32 

Lival Oy Ab

   14 626    0.25    0.26 

Svenska Litteratursällskapet i Finland rf

Svenska Litteratursällskapet i Finland rf

  

   14 313     0.36     0.36     14 394    0.25    0.25 

Elo Mutual Pension Insurance Company

  

   14 130     0.36     0.36  

Nordea Finland Fund

Nordea Finland Fund

  

   10 804     0.27     0.27     13 263    0.23    0.23 

Lival Oy Ab

  

   10 141     0.25     0.26  

Keva (Local Government Pensions Institution)

Keva (Local Government Pensions Institution)

  

   9 454     0.24     0.24     10 849    0.19    0.19 

Folketrygdfondet

      6 225     0.16     0.16  

(1) Excluding nominee registered shares and shares owned by Nokia Corporation. Nokia Corporation owned 53 232 002 shares as at December 31, 2015.

Breakdown of share ownership at December 31, 2015(1)

      

  

  
By number of shares owned  

Number of

                  shareholders

   

% of

shareholders

   

Total number

of shares

   

% of

all shares

 

1–100

   47 375     22.61     2 803 903     0.07  

101–1 000

   103 219     49.27     46 963 072     1.18  

1 001–10 000

   52 451     25.04     159 757 648     4.00  

10 001–100 000

   6 090     2.91     148 236 215     3.71  

100 001–500 000

   278     0.13     56 400 977     1.41  

500 001–1 000 000

   34     0.02     24 221 217     0.61  

1 000 001–5 000 000

   42     0.02     88 675 907     2.22  

Over 5 000 000

   20     0.01     3 465 804 777     86.80  

Total

   209 509     100.00     3 992 863 716     100.00  

 

(1)The breakdown covers only shareholdersExcluding nominee registered in Finland,shares and each account operator (16) is included in the numbershares owned by Nokia Corporation. Nokia Corporation owned 104 093 217 shares as of shareholders as only one registered shareholder. As a result, the breakdown is not illustrative of the entire shareholder base of Nokia.December 31, 2016.

 

By nationality130     % of shares

Non-Finnish shareholders

80.66

Finnish shareholders

19.34

Total

100.00

By shareholder category (Finnish shareholders)% of shares

Corporations

2.88

Households

8.61

Financial and insurance institutions

2.12

Non-profit organizations

1.39

Governmental bodies (incl. pension insurance companies)

4.34

Total

19.34NOKIA ANNUAL REPORT ON FORM 20-F 2016

At

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Breakdown of share ownership as of December 31, 2015,2016(1)

By number of shares owned  

Number of

                   shareholders

   

% of

               shareholders

   

Total number

of shares

   

% of  

                    all  shares  

1–100

   47 964    20.18    2 774 317   0.05  

101–1 000

   115 933    48.77    53 091 780   0.91  

1 001–10 000

   65 028    27.36    203 634 514   3.49  

10 001–100 000

   8 267    3.48    200 858 393   3.44  

100 001–500 000

   388    0.16    77 417 339   1.33  

500 001–1 000 000

   43    0.02    29 450 835   0.51  

1 000 001–5 000 000

   53    0.02    126 843 622   2.17  

Over 5 000 000

   24    0.01    5 141 984 212   88.11  

Total

   237 700    100.00            5 836 055 012   100.00  

 

(1)   The breakdown covers only shareholders registered in Finland, and each account operator (14) is included in the number of shareholders as only one registered shareholder. As a result, the breakdown is not illustrative of the entire shareholder base of Nokia.

 

By nationality                     % of shares  

Non-Finnish shareholders

 

      82.54  

Finnish shareholders

 

            17.46  

Total

 

            100.00  

    

 

      
By shareholder category (Finnish shareholders)             % of shares  

Corporations

 

      3.50  

Households

 

      7.67  

Financial and insurance institutions

 

      2.09  

Non-profit organizations

 

      1.08  

Governmental bodies (incl. pension insurance companies)

 

            3.12  

Total

 

            17.46  

As of December 31, 2016, a total of 408 320 704617 976 509 ADSs (equivalent to the same number of shares or approximately 10.23%10.59% of the total outstanding shares) were outstanding and held of record by 2 215 295139 658 registered holders in the United States. We are aware that many ADSs are held of record by brokers and other nominees, and accordingly the above number of holders is not necessarily representative of the actual number of persons who are beneficial holders of ADSs or the number of ADSs beneficially held by such persons. Based on information available from Automatic Data Processing Inc., the number of beneficial owners of ADSs atas of December 31, 20152016 was 406 105 409.391 848.

Based on information known to us as of March 31, 2016, at22, 2017, as of November 26, 2015 Blackrock, Inc. beneficially owned 287 009 903 Nokia shares or convertible bonds combined, which at that time corresponded to approximately 7.19% of the total number of shares and voting rights of Nokia. All of our shareholders have the same voting rights, refer to “Operating and financial review and prospects—Shares and share capital”.

130NOKIA ANNUAL REPORT ON FORM 20-F 2015

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As far as we know,To our knowledge, Nokia is not directly or indirectly owned or controlled by any other corporation or any government, and there are no arrangements that may result in a change of control of Nokia.

NOKIA ANNUAL REPORT ON FORM 20-F 2016131

General facts on Nokiacontinued

Shares and stock options owned by the members of the Board and the Nokia Group Leadership Team

As of December 31, 2015,2016, members of the Board and the Group Leadership Team owned an aggregate of 1 644 2223 142 338 shares which represented approximately 0.04%0.05% of the aggregate number of shares and voting rights. They also owned stock options which, if exercised in full, including both exercisable and non-exercisable stock options, would be exercisable for an additional 565310 000 shares representing approximately 0.01%0.005% of the total number of shares and voting rights atas of December 31, 2015.2016.

Authorizations

Authorizations to issue shares and special rights entitling to shares

At the Annual General Meeting held on May 5, 2015, Nokia shareholders authorized the Board to issue a maximum of 730 million shares through one or more issues of shares or special rights entitling to shares. The Board maywas authorized to issue either new shares or shares held by the Company.company. The authorization includesincluded the right for the Board to resolve on all the terms and conditions of such issuances of sharesshare and special rights entitling to shares,issuances, including issuance in deviation from the shareholders’ pre-emptive rights. The authorization may be used to develop the Company’scompany’s capital structure, diversify the shareholder base, finance or carry out acquisitions or other arrangements, settle the Company’scompany’s equity-based incentive plans, or for other purposes resolved by the Board. The authorization isthat would have been effective until November 5, 2016 was terminated by a resolution of Annual General Meeting on June 16, 2016.

At the Extraordinary General Meeting held on December 2, 2015, Nokia shareholders authorized the Board to issue, in deviation from the shareholders’ pre-emptive right, a maximum of 2 100 million shares through one or more issues of shares.share issues. The authorization includes the right for the Board to resolve on all the terms and conditions of such issuances of shares.share issuances. The authorization may be used to issue Nokia shares to the holders of Alcatel Lucent shares, American depositary sharesADSs and convertible bonds as well as to beneficiaries of Alcatel Lucent employee equity compensation arrangements for the purpose of implementing the transaction with Alcatel Lucent, including the consummation of the public exchange offeroffers for all outstanding Alcatel Lucent securities made to Alcatel Lucent shareholders as well as other transactions contemplated by the memorandum of understanding between Nokia and Alcatel Lucent, and/or otherwise to effect the combination of Nokia and Alcatel Lucent. The authorization is effective until December 2, 2020. On November 2, 2016 Nokia reached 100% ownership of Alcatel Lucent.

At the Annual General Meeting held on June 16, 2016, Nokia shareholders authorized the Board to issue a maximum of 1 150 million shares through one or more issues of shares or special rights entitling to shares. The Board is authorized to issue either new shares or shares held by the company. The authorization includes the right for the Board to resolve on all the terms and conditions of such share and special rights issuances, including issuance in deviation from the shareholders’ pre-emptive rights. The authorization may be used to develop the company’s capital structure, diversify the shareholder base, finance or carry out acquisitions or other arrangements, settle the company’s equity-based incentive plans, or for other purposes resolved by the Board. The authorization is effective until December 16, 2017.

As of December 31, 2015,2016, the Board had no other authorizations to issue shares, convertible bonds, warrants or stock options.

132NOKIA ANNUAL REPORT ON FORM 20-F 2016

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Authorization to repurchase shares

At the Annual General Meeting held on May 5, 2015, Nokia shareholders authorized the Board to repurchase a maximum of 365 million Nokia shares. The amount correspondscorresponded to less than 10% of the total number of Company’sthe company’s shares. The shares may be repurchased in order to optimize the capital structure of the Company,company, in order to finance or carry out acquisitions or other arrangements, to settle the Company’scompany’s equity-based incentive plans or to be transferred for other purposes. The authorization that would have been effective until November 5, 2016 was terminated by a resolution of the Annual General Meeting on June 16, 2016.

At the Annual General Meeting held on June 16, 2016, Nokia shareholders authorized the Board to repurchase a maximum of 575 million Nokia shares. The amount corresponds to less than 10% of the total number of the company’s shares. The shares may be repurchased in order to optimize the capital structure of the company, to finance or carry out acquisitions or other arrangements, to settle the company’s equity-based incentive plans, or to be transferred for other purposes. The authorization is effective until December 16, 2017.

On November 5,15, 2016, in line with its previously announced EUR 7 billion capital structure optimization program, the Board resolved to commence a share repurchase program under the authorization granted by the Nokia Annual General Meeting on June 16, 2016. The Board resolved to repurchase a maximum of 575 million Nokia shares up to an equivalent of EUR 1 billion.

 

Period   

 

Total number of

             shares purchased

  

  

   

 

             Average  euro price

paid per share

  

  

   

 

 

 

Total number of shares

purchased as part of

    publicly announced plans

or programs

  

  

  

(1) 

  

 

 

 

Maximum value

of shares that may yet

be purchased under the

      plans or programs, EUR

  

  

  

  

   

Total number of

             shares purchased

 

 

   

             Average  price

paid per share, EUR


 

   

Total number of shares

purchased as part of

    publicly announced plans

or programs

 

 

 

(1) 

  

Maximum value

of shares that may yet

be purchased under the

      plans or programs, EUR

 

 

 

 

January

   728 384     6.86     728 384    818 280 207     –    –    –   – 

February

   13 175 547     6.96     13 175 547    726 566 079     –    –    –   – 

March

   10 612 158     7.23     10 612 158    649 823 340     –    –    –   – 

April

   –     –     –    –     –    –    –   – 

May

   –     –     –    –     –    –    –   – 

June

   –     –     –    –     –    –    –   – 

July

   –     –     –    –     –    –    –   – 

August

   –     –     –    –     –    –    –   – 

September

   –     –     –    –     –    –    –   – 

October

   –     –     –    –     –    –    –   – 

November(2)

   –     –     –    –     20 880 143    3.95    20 880 143   917 499 980 

December

   –     –     –    –     33 416 039    4.43    33 416 039   769 389 815 

Total

   24 516 089     7.07     24 516 089    –     54 296 182    4.25    54 296 182  769 389 815 

 

(1)EUR 1.25 billion share repurchase program wasOn October 29, 2015 Nokia announced in conjunction with thea capital structure optimization program in April, 2014. Theincluding share repurchaserepurchases. In line with the program, a EUR 1 billion share purchase program was suspended in conjunction with the announcement of Nokia’s intention to combine with Alcatel Lucent in April, 2015.announced on November 15, 2016.
(2)Repurchases commenced on November 16, 2016.

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 131133

    

General facts on Nokiacontinued

    

    

    

    

    

    

 

Offer and listing details

Our capital consists of shares traded on Nasdaq Helsinki under the symbol “NOKIA” and Euronext Paris under the symbol “NOKIA”. Our ADSs, each representing one of our shares, are traded on the NYSE under the symbol “NOK”. The ADSs are evidenced by American Depositary Receipts (“ADRs”) issued by Citibank, N.A., as the Depositary under the Amended and Restated Deposit Agreement dated as of March 28, 2000 (as amended), among Nokia, Citibank, N.A. and registered holders from time to time of ADRs, as amended on February 6, 2008.

The table below sets forth, for the periods indicated, the reported high and low quoted prices for our shares on Nasdaq Helsinki and Euronext Paris, and the high and low quoted prices for the ADSs, as reported on the NYSE composite tape.

 

  

              Nasdaq Helsinki               

price per share

      

       New York Stock Exchange       

price per ADS

      

Euronext Paris

            price per share(1)            

   

                  Nasdaq  Helsinki            

      price per share

      

       New York Stock Exchange       

price per ADS

      

Euronext Paris

            price per share(1)            

 
  High   Low    High   Low    High   Low   High   Low    High   Low    High   Low 
      EUR       USD       EUR   EUR   USD   EUR 

2011

   8.48     3.33      11.75     4.46      –     –  

2012

   4.46     1.33      5.87     1.63      –     –     4.46    1.33     5.87    1.63     –    – 

2013

   6.03     2.30      8.18     3.02      –     –     6.03    2.30     8.18    3.02     –    – 

2014

                 6.97    4.89     8.73    6.64     –    – 

First Quarter

   6.11     4.89      8.20     6.64      –     –  

Second Quarter

   6.01     5.13      8.35     7.00      –     –  

Third Quarter

   6.89     5.38      8.73     7.30      –     –  

Fourth Quarter

   6.97     5.95      8.58     7.58      –     –  

Full year

   6.97     4.89      8.73     6.64      –     –  

2015

                            

First Quarter

   7.38     6.33      8.14     7.40      –     –     7.38    6.33     8.14    7.40     –    – 

Second Quarter

   7.87     5.71      8.37     6.30      –     –     7.87    5.71     8.37    6.30     –    – 

Third Quarter

   6.55     4.91      7.10     5.71      –     –     6.55    4.91     7.10    5.71     –    – 

Fourth Quarter

   7.11     5.92      7.63     6.53      –     –     7.11    5.92     7.63    6.53     7.15    6.29 

Full year

   7.87     4.91      8.37     5.71      –     –     7.87    4.91     8.37    5.71     7.15    6.29 

2016

              

First Quarter

   6.99    5.06     7.55    5.74     6.99    5.06 

Second Quarter

   5.58    4.48     6.31    5.01     5.57    4.17 

Third Quarter

   5.38    4.56     5.99    5.22     5.38    4.56 

Fourth Quarter

   5.20    3.66     5.83    4.04     5.20    3.66 

Full year

   6.99    3.66     7.55    4.04     6.99    3.66 

Most recent six months

                            

September 2015

   6.14     5.39      6.83     6.06      –     –  

October 2015

   6.79     5.92      7.47     6.53      –     –  

November 2015

   7.04     6.62      7.63     7.09      6.97     6.75  

December 2015

   7.11     6.22      7.48     6.79      7.15     6.29  

January 2016

   6.99     6.35      7.55     6.89      6.99     6.25  

February 2016

   6.04     5.06      6.40     5.78      6.50     5.06  

March 24, 2016(2)

   5.73     5.15      6.19     5.75      5.73     5.13  

September 2016

   5.20    4.78     5.89    5.40     5.20    4.78 

October 2016

   5.20    4.06     5.83    4.47     5.20    4.06 

November 2016

   4.17    3.66     4.53    4.04     4.17    3.66 

December 2016

   4.74    3.93     4.99    4.20     4.75    3.93 

January 2017

   4.67    4.15     4.99    4.50     4.71    4.15 

February 2017

   4.92    4.12     5.21    4.52     4.92    4.13 

March 10, 2017(2)

   5.01    4.82     5.38    5.16     5.00    4.82 

 

(1)Nokia’s listing and trading on Euronext Paris commenced on November 19, 2015.
(2)For the period until March 24, 2016.10, 2017.

132NOKIA ANNUAL REPORT ON FORM 20-F 2015

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Depositary fees and charges

ADS holders may have to pay the following service fees to the Depositary:

 

Service  Fees (USD) 

Issuance of ADSs

   Up to 5 cents per ADS(1) 

Cancellation of ADSs

   Up to 5 cents per ADS(1) 

Distribution of cash dividends or other cash distributions

   Up to 2 cents per ADS(2) 

Distribution of ADSs pursuant to (i) stock dividends, free stock distributions or (ii) exercises of rights to purchase additional ADSs

   Up to 5 cents per ADS(2) 

Distribution of securities other than ADSs or rights to purchase additional ADSs

   Up to 5 cents per ADS(1)

ADR transfer fee

   1.50 per transfer(1) 

 

(1)These fees are typically paid to the Depositary by the brokers on behalf of their clients receiving the newly issued ADSs from the Depositary and by the brokers on behalf of their clients delivering the ADSs to the Depositary for cancellation. The brokers in turn charge these transaction fees to their clients.
(2)In practice, the Depositary has not collected these fees. If collected, such fees are offset against the related distribution made to the ADR holder.

134NOKIA ANNUAL REPORT ON FORM 20-F 2016

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Additionally, ADS holders are responsible for certain fees and expenses incurred by the Depositary on their behalf and certain governmental charges such as taxes and registration fees, transmission and delivery expenses, conversion of foreign currency and fees relating to compliance with exchange control regulations. The fees and charges may vary over time.

In the event of refusal to pay the depositary fees, the Depositary may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set-off the amount of the depositary fees from any distribution to be made to the ADR holder.

Depositary payments 2015in 2016

In 2015,2016, our Depositary made the following payments on our behalf in relation to our ADR program.

 

Category  Payment, (USD)USD 

Settlement infrastructure fees (including the Depositary Trust Company fees)

   45 006.551 134 238.33 

Proxy process expenses (including printing, postage and distribution)

   1 288 957.34741 811.94 

ADS holder identification expenses

   63 790.8371 459.99 

Legal fees

   50 709.07N/A 

NYSE listing fees

   –554 639.00 

Total

   1 448 463.792 502 149.26 

Additionally for 2015,2016, our Depositary has agreed to reimburse us USD 4 567 796.002 662 184 mainly related to contributions towards our investor relations activities, including investor meetings and conferences and fees of investor relations service vendors, and other miscellaneous expenses related to the USUnited States listing of our ADSs.

Related party transactions

Other than the paid compensation, as described above, there have been no material transactions during the last three fiscal years to which any director, executive officer or 5% shareholder, or any relative or spouse of any of them, was a party. There is no significant outstanding indebtedness owed to Nokia by any director, executive officer or 5% shareholder.

In 2016, through the Acquisition of Alcatel Lucent, we also acquired Alcatel-Lucent Shanghai Bell Co. Ltd (“ASB”), a partly owned subsidiary incorporated in China, which has a counterparty, China Huaxin, with a non-controlling interest (50% less one share) that is material to the Group. ASB, with its subsidiaries in China and the rest of the world, including the RFS Group, comprise the Alcatel-Lucent Shanghai Bell Group. Refer to Note 33, Significant partly-owned subsidiaries, and Note 35, Related party transactions, of our consolidated financial statements included in this annual report on Form 20-F.

Production of infrastructure equipment and products

Nokia Networks’ Global OperationsOur operations team handles the supply chain management of all its hardware, software and original equipment manufacturer products. This includes supply planning, manufacturing, distribution, procurement, logistics supply, network design and delivery capability creation in product programs.supply.

On December 31, 2015, Nokia Networks2016, we had fourtwelve manufacturing facilities globally: one in China (Shanghai),Australia, one in Japan (Saedo),Brazil, three in China, one in Finland, (Oulu),two in France, one in Germany, one in India, one in the United Kingdom and one in India (Chennai).the United States.

In addition to Nokia Networks’ strong manufacturing capabilities, it also utilizes third-party suppliers for certain componentsMost of our production and sub-assembly for certain products. Examples include company-specific integrated circuits and radio frequency components. Nokia Networks then assembles these components and sub-assemblies into final products and solutions and, for selected products and solutions, its suppliers also deliver goods directly to customers.assembly is outsourced, while the remaining portion is carried out in our production sites. This system provides Nokia Networksus with considerable flexibility in itsour manufacturing and enables itus to meet demands related to cost, availability and customer requirements more easily.

The table below shows the productive capacity per location of majorsignificant manufacturing facilities for Nokia Networks’our infrastructure equipment aton December 31, 2015.2016.

 

Country Location and products(1)  

Productive

capacity,

Net (m2)

 

(2) 

ChinaAustralia

 Shanghai: base stations, transmissionKilsyth: radio frequency systems  15 9545 000 

JapanBrazil

 Saedo: base stations, distributed antennaEmbu: radio frequency systems  2 6987 800

China

Shanghai: fixed access and wireless access systems

23 000

China

Shanghai (cable): radio frequency systems9 200

China

Shanghai (antenna): radio frequency systems5 600 

Finland

 Oulu: base stations  14 78416 000

France

Calais: submarine cables48 000

France

Trignac: radio frequency systems10 200

Germany

Hanover: radio frequency systems21 000 

India

 

Chennai: base stations, radio
controllers and transmission systems

12 800

UK

Greenwich: submarine cables19 500

USA

Meriden: radio frequency systems  12 77831 000 

 

(1)Nokia Networks considersWe consider the production capacity of itsour manufacturing facilitiesnetwork to be sufficient to meet the requirements of its network infrastructure business. The extent of utilization of itsour manufacturing facilities varies from plant to plant and from time to time during the year.
None of these facilities is subject to a material encumbrance.
(2)Productive capacity equals the total area allotted to manufacturing and to the storage of manufacturing-related materials.
 

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 133135

    

General facts on Nokiacontinued

    

    

    

    

 

Key ratios

Operating profit

Profit before interest and taxes

Earnings per share (basic)

Profit attributable to equity holders of the parent

Average number of shares during the year

Earnings per share (diluted)

Adjusted profit attributable to equity holders of the parent    

Average number of shares during the year adjusted for the

effect of dilutive shares

Average adjusted number of shares during the year 

P/E ratio

Closing share price at

Closing share price as of December 31

Earnings per share (basic) for Continuing operations

Earnings per share (basic) for Continuing operations 

Payout ratio

Dividend per share

Earnings per share (basic) for Continuing operations

Earnings per share (basic) for Continuing operations 

Dividend yield %

Dividend per share

Closing share price as of December 31

Closing share price at December 31 

Shareholders’ equity per share

Capital and reserves attributable to equity holders of the parent

Number of shares as of December 31—number of treasury shares

as of December 31

Number of shares at December 31—number of treasury shares at December 31 

Market capitalization

(Number of shares atas of December 31—number of treasury shares at

as of December 31) x closing share price atas of December 31

Share turnover %

Number of shares traded during the year  

Average number of shares during the year

Average number of shares during the year 

Interest-bearing liabilities

Long-term interest-bearing liabilities (including the current

portionthereof) + short-term borrowings

Net cash

Total cash and other liquid assets—interest-bearing liabilities

Controls and procedures

Our management, with the participation of our President and CEO and our Group Chief Financial Officer, after evaluatingconducted an evaluation pursuant to Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended, of the effectiveness of our disclosure controls and procedures (as defined in US Exchange Act Rule 13a-15(e)) as of December 31, 2016. On January 4, 2016, we acquired Alcatel Lucent in a purchase business combination and as permitted by the endCommission, our management has excluded the acquired business from its assessment of the period covered by this annual reporteffectiveness of disclosure controls and procedures as of December 31, 2016. Based on Form 20-F,such evaluation, our President and CEO and our Chief Financial Officer have concluded that as of such date, our disclosure controls and procedures were effective.

Disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and that such information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.

Management’s annual report on internal control over financial reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for Nokia. Our internal control over financial reporting is designed to provide reasonable assurance to our management and the Board regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurances with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may decline.

Our management evaluated the effectiveness of our internal control over financial reporting based on the COSO framework (2013)(2013 version). Our evaluation excluded the business acquired through the Acquisition of Alcatel Lucent which we acquired on January 4, 2016. Alcatel Lucent’s sales constituted approximately 51% of our sales for fiscal year 2016, and Alcatel Lucent’s assets constituted approximately 42% of our total assets as of December 31, 2016. Based on this evaluation, our management has assessed the effectiveness of Nokia’s internal control over financial reporting at December 31, 20152016 and concluded that such internal control over financial reporting is effective.

The effectiveness of our internal control over financial reporting as of December 31, 2016 has been audited by PricewaterhouseCoopers Oy, an independent registered public accounting firm, as stated in their report which has auditedappears on page 214 of this Annual Report on Form 20-F.

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Material weaknesses in the acquired business

On January 4, 2016, we acquired Alcatel Lucent in a purchase business combination. We have excluded Alcatel Lucent from the December 31, 2016 evaluation of the effectiveness of our internal control over financial reporting and disclosure controls and procedures. In 2016, our management identified two material weaknesses in internal control over financial reporting in the acquired business.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual financial statements will not be prevented or detected on a timely basis.

Accounting for income taxes in the United States

In reviewing our accounting for income taxes for the year ended December 31, 2016 at a subsidiary of Alcatel Lucent in the United States, our management identified a material weakness in internal control over financial reporting related to the accounting for income taxes.

Specifically, the subsidiary’s controls did not adequately identify all changes to deferred tax assets at the entity resulting primarily from a tax election made in the fourth quarter of 2016, which is described in “Operating and financial review and prospects—Provision for Income Taxes” in this Form 20-F. Nonetheless, we have concluded that this material weakness does not require a change to the fourth quarter or full year 2016 consolidated financial results that we released in February 2017.

As Alcatel Lucent was acquired during 2016, this material weakness in internal control over financial reporting does not impact our consolidated financial statements for 2015,any prior annual period.

Controls over revenue recognition in China

Subsequent to the Acquisition of Alcatel Lucent, management identified errors in the accounting for certain revenue transactions at a subsidiary of Alcatel Lucent in China. After conducting investigation of these matters, our management has issued an attestation report onconcluded that a material weakness exists over the effectivenesstiming and amount of revenue recognition at that subsidiary.

Specifically, we did not maintain adequate controls over the assignment of roles and responsibilities between the accounting, operations and sales departments, controls over invoicing and cash application, or effective monitoring controls which resulted in revenue being recognized prior to valid delivery and customer acceptance. In response to the existence of these matters, our management has completed a detailed review of the company’sresults of the subsidiary and the statements of financial position as of the date of the Acquisition of Alcatel Lucent and as of December 31, 2016 and has concluded that the identified errors did not materially impact our consolidated financial statements for the year ended December 31, 2016.

As Alcatel Lucent was acquired during 2016, this material weakness in internal control over financial reporting under Auditing Standard No. 5does not impact our consolidated financial statements for any prior annual period.

Management’s plans for remediation of the Public Company Accounting Oversight Board (Unitedmaterial weaknesses

With the oversight of our Audit Committee, our management has begun implementing a remediation plan to address the control deficiencies that resulted in the identified material weaknesses.

For the material weakness related to accounting for income taxes in the United States, the remediation plan includes the following: (i) continued efforts to integrate the local tax reporting processes throughout the Group and the implementation of America).standard income tax accounting systems and controls to ensure consistent execution of income tax accounting; (ii) augmentation of our tax accounting resources with the requisite skillsets to supplement the current complement of tax professionals in place; and (iii) providing additional income tax accounting training to our relevant United States tax professionals. Our plan is to remediate this material weakness in 2017.

Attestation reportFor the material weakness related to revenue recognition in China, the remediation plan includes the following: (i) changes in the roles and responsibilities of the registered public accounting, firm

Referoperations and sales departments in the areas of revenue recognition and enhancements to the auditors’ report on page 210.invoicing and cash application controls; (ii) implementation of additional monitoring controls over the operations of the entity; (iii) enhancing resources to ensure qualified staffing in all key positions in the affected areas; and (iv) providing continued reinforcement of Nokia’s culture of compliance and training to employees who are in positions of authority to embed Nokia’s culture and behaviors. Our plan is to remediate this material weakness in 2017.

Changes in internal control over financial reporting

ThereAs noted above, our evaluation of internal controls excluded Alcatel Lucent, which was acquired on January 4, 2016 and which previously operated under its own set of systems and internal controls. During the integration period, our management is harmonizing certain processes within the acquired business to be able to integrate and test the effectiveness of Alcatel Lucent’s internal controls over financial reporting in 2017.

Except as noted above, there were no changes in Nokia’sour internal control over financial reporting that occurred during the year ended December 31, 20152016 that have materially affected, or are reasonably likely to materially affect, the Group’s internal control over financial reporting during 2015.reporting.

NOKIA ANNUAL REPORT ON FORM 20-F 2016137

General facts on Nokiacontinued

Attestation report of the registered public accounting firm

Refer to the auditors’ report on page 214.

Exchange controls

There are currently no Finnish laws which may affect the import or export of capital, or the remittance of dividends, interest or other payments.

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Government regulation

Nokia and its businesses are subject to direct and indirect regulation in each of the countries in which we, the companies with which we work and our customers do business. As a result, changes in or uncertainties related to various types of regulations applicable to current or new technologies, intellectual property, products and services could affect our business adversely. Moreover, the implementation of technological or legal requirements could impact our products and services, technology and patent licensing activities, manufacturing and distribution processes, and could affect the timing of product and services introductions and the cost of our production, products and services, as well as their commercial success. Also, our business is subject to the impacts of changes in economic and trade policies or regulation favoring the local industry participants, as well as other measures with potentially protectionist objectives that the host governments in different countries may take. Export control, tariffs or other fees or levies imposed on our products and services, environmental, product safety and security and other regulations that adversely affect the export, import, pricing or costs of our products and services as well as export prohibitions (sanctions) enacted by the EU, the USUnited States or other countries or regions could adversely affect our net sales and results of operations.

For example, in the United States, our products and services are subject to a wide range of government regulations that might have a direct impact on our business, including, but not limited to, regulation related to product certification, standards, spectrum management, provision of telecommunications services, privacy and data protection, competition and sustainability. The EU-level or local member state regulation has a direct impact in many areas on our business, markets and customers within the EU. The European regulation influences, for example, conditions for innovation for telecommunications infrastructure and internet and related services, location platform and associated services as well as technology and patent licensing; investment in fixed and wireless broadband communication infrastructure and operation of global data flows. In China, new partly local telecommunications standards have been enacted that may affect production processes and have an impact on our business. Additionally, with respect to certain developing market countries, for example, in Asia and in Latin and South America, the business environment we operate in can pose risks to our business due to unpredictable, discriminatory or protectionist regulation.

We are in continuous dialoguedialog with relevant state agencies, regulators and other decision makers through our experts, industry associations and ourgovernment relations representatives in Washington, D.C., Paris, Brussels, Espoo, Berlin, Beijing, Moscow, São Paulo, Dubai, Singapore and Delhi as well as through our experts, industry associations and representatives in the regions of Asia, the Middle East and Africa, Europe, and Latin America and North America in order to proactively understand planned changes to regulation as well as to exchange views onand address the impact of any planned changes to the regulatory environment toon our business activities.

Sales in US sanctionedU.S.-sanctioned countries

General

We are a global company and have sales in most countries of the world. For more information on our organizational structure refer to “Overview—Key data—This is Nokia—Organizational structure and reportable segments in 2015” and “Overview—Key data—Organizational structure in 2016”segments” and Note 2,4, Segment information, of our consolidated financial statements included in this annual report on Form 20-F. The region of Crimea as well as Cuba, Iran, North Korea, Sudan and Syria are targets of comprehensive United States economic sanctions.

Continuing operations

In 2015,Iran, we providedprovide telecommunications equipment with ancillary services to various network operator customers and internet service providers through our Nokia Networks business certainbusiness. None of the equipment and services delivered by us in Iran is intended for military purposes, or intended to be used for the purpose of limiting political discourse, blocking legitimate forms of free speech or conducting surveillance of individuals.

In Cuba, we provide telecommunications equipment with local services to customers in Syria as well asETECSA, the exclusive Cuban public operator of mobile and fixed telecommunications networks, through our Networks business. In addition, we have provided local services and network equipment to customers in Iran. Nokia Networks did not have anythrough a joint venture with a Cuban government-owned entity. Our aggregate sales in SudanCuba consisted primarily of fixed, IP and transmission technology, and amounted to approximately EUR 7.3 million in 2015 or 2014. Our Nokia Technologies business did not have sales in Iran, Sudan or Syria in 2015, 2014 or 2013. Continuing operations2016. We did not have any sales in Cuba forin 2015 2014 or 2013. Nokia Networks2014.

We have discontinued sales to customers in Syria and did not generate any revenue in Syria during 2016. We did not have any sales in North Korea, Sudan, or in the region of Crimea in 2016, 2015 or 2014.

Our aggregate net sales in 20152016 to customers in Iran, Sudan and Syria accounted for approximately 0.5%0.37% of Nokia’s Continuing operations total net sales, or approximately EUR 88 million. In 2015, our aggregate sales to customers in Iran, Sudan and Syria amounted to approximately EUR 62 million;million, which accounted for approximately 0.5% of Continuing operations total net sales; and EUR 5 million in 2014, which accounted for approximately 0.04% of Continuing operations total net sales.

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Our Nokia Technologies business did not have sales in Cuba, Iran, North Korea, Sudan, Syria or EUR 5 million, in 2014; and 0.01%the region of Continuing operations total net sales,Crimea, during 2016, 2015 or EUR 1 million, in 2013.2014.

We cannot exclude the possibility that third parties acting independently from us have exported our products to these countries from other countries in which we sell them, or that, in case offor services distributed through the internet, that third parties could have accessed them in markets or countries for which they are not intended by circumventing the industry standard protective mechanisms, such as IP address blocks.blocks, despite our efforts in implementing measures to prevent such actions.

Discontinued operations

In 2016 and 2015, our Discontinued operations did not generate any revenue in Cuba, Iran, Sudan or Syria. Our aggregate net sales to customers through our Discontinued operations for 2014 in Iran, Sudan and Syria accounted for approximately 0.98%0.20% of our total net sales, or EUR 24 million; and approximately 1.02%0.70% of Discontinued operation’s total net sales, or EUR 110 million, for 2013, Activities relating to the termination of the local presence in Iran for Discontinued operations have been ongoing, including the closing of the local branch. In connection with terminating the presence in Iran, we have routine contacts with governmental agencies in Iran as required, such as with respect to activities related to closing the local branch.sales.

Disclosure pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012

As a result of continued international developments and the partial lifting of international sanctions, Nokia has increased its business activitiesWe continue to operate in Iran in compliance with applicable economic and trade sanctions and other trade-related laws. In connection with the business activities relating to Iran, Nokia has routine contacts with governmental agencieswe currently have two local offices in Iran as required, for example, to maintain a legal presence in Iran, pay taxes,that employ Iranian nationals and offer customary work-related services and facilities and maintain shareholdings in certain Iranian companies as required under Iranian law and as is customary under Iranian business practices.

NOKIA ANNUAL REPORT ON FORM 20-F 2015135

General facts on Nokiacontinued

To our knowledge, none of our sales in 201550 employees through Nokia Networks in Iran are required to be disclosed pursuant to ITRA Section 219, with the possible exception of the following: in 2015, Nokia provided radio, core and transmission equipment, including some implementation services, in Iran with Mobile Communications Company of Iran (“MCCI”) and MTN Irancell. Additionally in 2015, Nokia Networks purchased certain fixed line telephony services from Telecommunication Company of Iran (“TCI”) and certain mobile telephony services from MCCI. Through a branch of itsa Finnish subsidiary Nokia employs personnel in Iran to perform its contractual and regulatory obligations.three employees through a branch of Alcatel Lucent International. Nokia also maintains a shareholding in Pishahang Communications Network Development Company (“Pishahang”). Nokia Networks holds 49% of the outstanding shares of Pishahang. The other major shareholder in Pishahang is Information Technology Application Development TACFAM Company (“Tacfam”). Tacfam which holds 49% of the outstanding sharesshares. Pishahang has been historically the contracting entity for Nokia in Nokia’s transactions with MTN-Irancell, and Pishahang has not pursued, nor does it intend to pursue any other business.

We maintain routine contacts with governmental agencies in Iran as required, for example, to maintain a legal presence and office facilities in Iran, pay taxes and employ Iranian nationals.

To our knowledge, none of Pishahang. our sales in Iran in 2016 are required to be disclosed pursuant to ITRA Section 219, with the possible exception of the following:

In 2016, we provided radio, core and transmission equipment, including associated services, to Iranian mobile network operators, Mobile Communications Company of Iran (“MCCI”) and MTN Irancell, as well as two local internet service providers, Shatel Group and Pars Online. Also, RFS, a wholly owned subsidiary of Alcatel-Shanghai Bell, has in 2016 sold wireless infrastructure products through an Iranian distributor, FourSat Kish. Additionally in 2016, we purchased certain fixed line telephony services from Telecommunication Company of Iran (“TCI”).

Moreover, our subsidiary, Alcatel-Lucent Deutschland AG, in 2013 reached a settlement agreement with Iranian Telecommunication Manufacturing Company Public Stock Corporation (“ITMC”) on claims raised by ITMC related to contracts that were completed prior to 2007 for the delivery of telecommunications equipment and services. In the course of these contracts, performance bonds had been opened between 2001 and 2006 at Bank Tejarat, Bank Saderat and Bank Mellat and had been retained by ITMC as security against their claims. The settlement agreement stipulates that Alcatel-Lucent Deutschland AG shall pay EUR 1.6 million to ITMC as settlement for the claims and that, in return, performance bonds held by ITMC shall be released. In 2016, the performance bonds held by ITMC have reduced in value from EUR 1.6 million to EUR 1.35 million. Payment of the settlement amount remains pending.

We further maintain, through our Alcatel Lucent branch offices, bank accounts at Bank Tejarat for purposes of carrying out routine financial transactions.

Although it is difficult to evaluate with any reasonable degree of certainty, we have concluded that we cannot exclude the possibility that TCI, MCCI, MTN Irancell, Shatel, Pars Online, ITMC, FourSat Kish or Tacfam is owned or controlled, directly or indirectly, by the government of Iran cannot be excluded.Iran.

None of these activities involve U.S. affiliates of Nokia or Alcatel Lucent, or any U.S. persons.

In 2015, Nokia2016, we recognized sales revenue of EUR 55.762.5 million and a net profit of EUR 29.525.5 million from business with MCCI, and sales revenue of EUR 6.222.5 million and a net loss of EUR 6.7 million from business with MTN Irancell. Furthermore, we recognized sales revenue of EUR 2.2 million and a net profit 6.2of EUR 0.6 million from business with MTNI Irancell. Nokia intendsPars Online, and sales revenue of EUR 0.8 million and a net profit of EUR 0.5 million from business with Shatel. Moreover, RFS recognized sales revenue of approximately EUR 0.06 million, and net profit of EUR 0.02 million from business with FourSat Kish.

We intend to continue and seek to expand itsour business activities in Iran in compliance with applicable economic and trade sanctions and other trade-related laws.

NOKIA ANNUAL REPORT ON FORM 20-F 2016139

General facts on Nokiacontinued

Taxation

General

The statements of USU.S. and Finnish tax laws set out below are based on the laws in force as of the date of this annual report on Form 20-F and may be subject to any changes in USU.S. or Finnish law, and in any double taxation convention or treaty between the United States and Finland, occurring after that date, possibly with retroactive effect.

For purposes of this summary, beneficial owners of ADSs that hold the ADSs as capital assets and that are considered residents of the United States for purposes of the current income tax convention between the United States and Finland, signed on September 21, 1989 (as amended by a protocol signed on May 31, 2006), referred to as the “Treaty”, and that are entitled to the benefits of the Treaty under the “Limitation on Benefits” provisions contained in the Treaty, are referred to as “US“U.S. Holders”. Beneficial owners that are citizens or residents of the United States, corporations created in or organized under USU.S. law, and estates or trusts (to the extent their income is subject to USU.S. tax either directly or in the hands of beneficiaries) generally will be considered to be residents of the United States under the Treaty. Special rules apply to USU.S. Holders that are also residents of Finland and to citizens or residents of the United States that do not maintain a substantial presence, permanent home or habitual abode in the United States. For purposes of this discussion, it is assumed that the Depositary and its custodian will perform all actions as required by the deposit agreement with the Depositary and other related agreements between the Depositary and Nokia.

If a partnership holds ADSs (including for this purpose any entity or arrangement treated as a partnership for USU.S. federal income tax purposes), the tax treatment of a partner will depend upon the status of the partner and activities of the partnership. If a USU.S. Holder is a partnership or a partner in a partnership that holds ADSs, the holder is urged to consult its own tax adviser regarding the specific tax consequences of owning and disposing of its ADSs.

Because this summary is not exhaustive of all possible tax considerations—such as situations involving financial institutions, banks, tax-exempt entities, pension funds, USU.S. expatriates, real estate investment trusts, persons that are dealers in securities, persons who own (directly, indirectly or by attribution) 10% or more of the share capital or voting stock of Nokia, persons who acquired their ADSs pursuant to the exercise of employee stock options or otherwise as compensation, or USU.S. Holders whose functional currency is not the USU.S. dollar, who may be subject to special rules that are not discussed herein—holders of shares or ADSs that are USU.S. Holders are advised to satisfy themselves as to the overall USU.S. federal, state and local tax consequences, as well as to the overall Finnish and other applicable non-USnon-U.S. tax consequences, of their ownership of ADSs and the underlying shares by consulting their own tax advisers. This summary does not discuss the treatment of ADSs that are held in connection with a permanent establishment or fixed base in Finland, and it does not address the USU.S. Medicare tax on certain investment income.

For the purposes of both the Treaty and the USU.S. Internal Revenue Code of 1986, as amended, referred to as the “Code”, USU.S. Holders of ADSs will be treated as the owners of the underlying shares that are represented by those ADSs. Accordingly, the following discussion, except where otherwise expressly noted, applies equally to USU.S. Holders of ADSs, on the one hand, and of shares on the other.

The holders of ADSs will, for Finnish tax purposes, be treated as the owners of the shares that are represented by the ADSs. The Finnish tax consequences to the holders of shares, as discussed below, also apply to the holders of ADSs.

USU.S. and Finnish taxation of cash dividends

For USU.S. federal income tax purposes, the gross amount of dividends paid to USU.S. Holders of shares or ADSs, including any related Finnish withholding tax, generally will be included in gross income as foreign source dividend income. We do not expect to maintain calculations of our earnings and profits under USU.S. federal income tax principles; therefore, USU.S. Holders should expect that the entire amount of any distribution generally will be reported as dividend income. Dividends will not be eligible for the dividends received deduction allowed to corporations under Section 243 of the Code. The amount includible in income (including any Finnish withholding tax) will equal the USU.S. dollar value of the payment, determined at the time such payment is received by the Depositary (in the case of ADSs) or by the USU.S. Holder (in the case of shares), regardless of whether the payment is in fact converted into USU.S. dollars. Generally, any gain or loss resulting from currency exchange rate fluctuations during the period between the time such payment is received and the date the dividend payment is converted into USU.S. dollars will be treated as USU.S. source ordinary income or loss to a USU.S. Holder.

136NOKIA ANNUAL REPORT ON FORM 20-F 2015

LOGO

Special rules govern and specific elections are available to accrual method taxpayers to determine the USU.S. dollar amount includible in income in the case of a dividend paid (and taxes withheld) in foreign currency. Accrual basis taxpayers are urged to consult their own tax advisers regarding the requirements and elections applicable in this regard.

Under the Finnish Income Tax Act and Act on Taxation of Non-residents’ Income, non-residents of Finland are generally subject to a withholding tax at a rate of 30% payable on dividends paid by a Finnish resident company. However, pursuant to the Treaty, dividends paid to USU.S. Holders generally will be subject to Finnish withholding tax at a reduced rate of 15% of the gross amount of the dividend.

140NOKIA ANNUAL REPORT ON FORM 20-F 2016

LOGO

Qualifying pension funds are, however, pursuant to the Treaty exempt from Finnish withholding tax. Refer also to “—Finnish withholding taxes on nominee registered shares” below.

Subject to conditions and limitations, Finnish income taxes withheld will be treated as foreign taxes eligible for credit against a USU.S. Holder’s USU.S. federal income tax liability. Dividends received generally will constitute foreign source “passive category income” for foreign tax credit purposes. In lieu of a credit, a USU.S. Holder may elect to deduct all of its foreign taxes provided the deduction is claimed for all of the foreign taxes paid by the USU.S. Holder in a particular year. A deduction does not reduce USU.S. tax on a dollar-for-dollar basis like a tax credit. The deduction, however, is not subject to the limitations applicable to foreign tax credits.

Provided that certain holding period and other requirements are met, certain USU.S. Holders (including individuals and some trusts and estates) are eligible for reduced rates of USU.S. federal income tax at a maximum rate of 20% in respect of “qualified dividend income”. Dividends that Nokia pays with respect to its shares and ADSs generally will be qualified dividend income if Nokia was not, in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend is paid, a passive foreign investment company (a “PFIC”(“PFIC”). Nokia currently believes that dividends paid with respect to its shares and ADSs will constitute qualified dividend income for USU.S. federal income tax purposes,purposes; however, this is a factual matter and is subject to change. Nokia anticipates that its dividends will be reported as qualified dividends on Forms 1099-DIV delivered to USU.S. Holders. USU.S. Holders of shares or ADSs are urged to consult their own tax advisers regarding the availability to them of the reduced dividend tax rate in light of their own particular situation and the computations of their foreign tax credit limitation with respect to any qualified dividends paid to them, as applicable.

We believe we should not be classified as a PFIC for USU.S. federal income tax purposes for the taxable year ended December 31, 20152016 and we do not expect to become a PFIC in the foreseeable future. USU.S. Holders are advised, however, that this conclusion is a factual determination that must be made annually and thus may be subject to change. If we were to be classified as a PFIC, the tax on distributions on our shares or ADSs and on any gains realized upon the disposition of our shares or ADSs generally would be less favorable than as described herein. Dividends paid by a PFIC are not “qualified dividend income” and are not eligible for reduced rates of taxation. Additionally, USU.S. persons that are shareholders in a PFIC generally will be required to file an annual report disclosing the ownership of such shares and certain other information as yet to be determined. USU.S. Holders should consult their own tax advisers regarding the application of the PFIC rules (including the new reporting requirements) to their ownership of our shares or ADSs.

The USU.S. Treasury has expressed concern that parties to whom ADSs are released may be taking actions inconsistent with the claiming of foreign tax credits or reduced rates in respect of qualified dividends by USU.S. Holders of ADSs. Accordingly, the analysis of the creditability of Finnish withholding taxes or the availability of qualified dividend treatment could be affected by future actions that may be taken by the USU.S. Treasury with respect to ADSs.

Finnish withholding taxes on nominee registered shares

Generally, for USU.S. Holders, the reduced 15% withholding tax rate of the Treaty (instead of 30%) is applicable to dividends paid to nominee registered shares only when the conditions of the provisions applied to dividends are met (Section 10b of the Finnish Act on Taxation of Non-residents’ Income).

According to the provisions, the Finnish account operator and a foreign custodian are required to have a custody agreement, according to which the custodian undertakes to (a) declare the country of residence of the beneficial owner of the dividend, (b) confirm the applicability of the Treaty to the dividend, (c) inform the account operator of any changes to the country of residence or the applicability of the Treaty, and (d) provide the legal identification and address of the beneficial owner of the dividend and a certificate of residence issued by the local tax authorities upon request. It is further required that the foreign custodian is domiciled in a country with which Finland has entered into a treaty for the avoidance of double taxation and that the custodian is entered into the register of foreign custodians maintained by the Finnish tax authorities.

In general, if based on an applicable treaty for the avoidance of double taxation the withholding tax rate for dividends is 15% or higher, the treaty rate may be applied when the aforementioned conditions of the new provisions are met (Section 10b of the Finnish Act on Taxation of Non-residents’ Income). A lower rate than 15% may be applied based on the applicable treaty for the avoidance of double taxation only when the following information on the beneficial owner of the dividend is provided to the payer prior to the dividend payment: name, date of birth or business ID (if applicable) and address in the country of residence.

US

NOKIA ANNUAL REPORT ON FORM 20-F 2016141

General facts on Nokiacontinued

U.S. and Finnish tax on sale or other disposition

A USU.S. Holder generally will recognize taxable capital gain or loss on the sale or other disposition of ADSs in an amount equal to the difference between the USU.S. dollar value of the amount realized and the adjusted tax basis (determined in USU.S. dollars) in the ADSs. If the ADSs are held as a capital asset, this gain or loss generally will be long-term capital gain or loss if, at the time of the sale, the ADSs have been held for more than one year. Any capital gain or loss, for foreign tax credit purposes, generally will constitute USU.S. source gain or loss. In the case of a USU.S. Holder that is an individual, long-term capital gain generally is subject to USU.S. federal income tax at preferential rates. The deductibility of capital losses is subject to significant limitations.

The deposit or withdrawal by a USU.S. Holder of shares in exchange for ADSs or of ADSs for shares under the deposit agreement generally will not be subject to USU.S. federal income tax or Finnish income tax.

The sale by a USU.S. Holder of the ADSs or the underlying shares, other than an individual that,who, by reason of his residence in Finland for a period exceeding six months, is or becomes liable for Finnish income tax according to the relevant provisions of Finnish tax law, generally will not be subject to income tax in Finland, in accordance with Finnish tax law and the Treaty.

NOKIA ANNUAL REPORT ON FORM 20-F 2015137

General facts on Nokiacontinued

Finnish transfer tax

Transfers of shares and ADSs could be subject to the Finnish transfer tax only when one of the parties to the transfer is subject to Finnish taxation under the Finnish Income Tax Act by virtue of being a resident of Finland or a Finnish branch of a non-Finnish (a) credit institution (b) investment firm (c) management company of collective investment undertaking or (d) alternative investment fund manager. In accordance with the amendments in the Finnish Transfer Tax Act (applicable as offrom November 9, 2007) no transfer tax is payable on the transfer of publicly traded shares or ADSs (irrespective of whether the transfer is carried out on a stock exchange or not). However, there are certain conditions for the exemption. Prior to the said amendments, transfer tax was not payable on stock exchange transfers. In cases where the transfer tax would be payable, the transfer tax would be 1.6% of the transfer value of the security traded.

Finnish inheritance and gift taxes

A transfer of an underlying share by gift or by reason of the death of a USU.S. Holder and the transfer of an ADS are not subject to Finnish gift or inheritance tax provided that none of the deceased person, the donor, the beneficiary of the deceased person or the recipient of the gift is resident in Finland.

Non-residents of the United States

Beneficial owners of ADSs that are not USU.S. Holders will not be subject to USU.S. federal income tax on dividends received with respect to ADSs unless such dividend income is effectively connected with the conduct of a trade or business within the United States. Similarly, non-USnon-U.S. Holders generally will not be subject to USU.S. federal income tax on any gain realized on the sale or other disposition of ADSs, unless (a) the gain is effectively connected with the conduct of a trade or business in the United States or (b) in the case of an individual, that individual is present in the United States for 183 days or more in the taxable year of the disposition and other conditions are met.

USU.S. information reporting and backup withholding

Dividend payments with respect to shares or ADSs and proceeds from the sale or other disposition of shares or ADSs may be subject to information reporting to the Internal Revenue Service and possible USU.S. backup withholding. Backup withholding will not apply to a holder if the holder furnishes a correct taxpayer identification number or certificate of foreign status and makes any other required certification in connection therewith, or if it is a recipient otherwise exempt from backup withholding (such as a corporation). Any USU.S. person required to establish itstheir exempt status generally must furnish a duly completed IRS Form W-9 (Request for Taxpayer Identification Number and Certification). Non-USNon-U.S. holders generally are not subject to USU.S. information reporting or backup withholding. However, such holders may be required to provide certification of non-USnon-U.S. status (generally on IRS Form W-8BEN for individuals and Form W-8BEN-E for corporations) in connection with payments received in the United States or through certain US-relatedU.S.-related financial intermediaries. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder’s USU.S. federal income tax liability, and the holder may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the Internal Revenue Service and furnishing the proper required information.

 

 

138142 NOKIA ANNUAL REPORT ON FORM 20-F 20152016

         LOGOLOGO
 

Financial statements

 

    
 

 

    
ContentsContents  Contents  

Consolidated income statement

Consolidated income statement

   140  

Consolidated income statement

   144 

Consolidated statement of comprehensive income

Consolidated statement of comprehensive income

   141  

Consolidated statement of comprehensive income

   145 

Consolidated statement of financial position

Consolidated statement of financial position

   142  

Consolidated statement of financial position

   146 

Consolidated statement of cash flows

Consolidated statement of cash flows

   143  

Consolidated statement of cash flows

   147 

Consolidated statement of changes in shareholders’ equity

Consolidated statement of changes in shareholders’ equity

   144  

Consolidated statement of changes in shareholders’ equity

   148 

Notes to consolidated financial statements

Notes to consolidated financial statements

   146  

Notes to consolidated financial statements

   150 

1.

 

Accounting principles

   146   

Corporate information

   150 

2.

 

Segment information

   155   

Significant accounting policies

   150 

3.

 

Disposals treated as Discontinued operations

   157   

Use of estimates and critical accounting judgments

   157 

4.

 

Acquisitions

   161   

Segment information

   160 

5.

 

Revenue recognition

   162   

Acquisitions

   162 

6.

 

Expenses by nature

   163   

Disposals treated as Discontinued operations

   166 

7.

 

Personnel expenses

   163   

Revenue recognition

   169 

8.

 

Pensions

   164   

Expenses by nature

   169 

9.

 

Depreciation and amortization by function

   167   

Personnel expenses

   170 

10.

 

Impairment

   168   

Other income and expenses

   170 

11.

 

Other income and expenses

   169   

Financial income and expenses

   171 

12.

 

Financial income and expenses

   170   

Income taxes

   171 

13.

 

Income tax

   170   

Earnings per share

   174 

14.

 

Deferred taxes

   171   

Intangible assets

   175 

15.

 

Earnings per share

   173   

Property, plant and equipment

   176 

16.

 

Intangible assets

   174   

Impairment

   177 
       

17.

 

Property, plant and equipment

   175  

18.

 

Investments in associated companies and joint ventures

   176  

19.

 

Fair value of financial instruments

   176  

20.

 

Derivative financial instruments

   180  

21.

 

Inventories

   181  

22.

 

Allowances for doubtful accounts

   181  

23.

 

Prepaid expenses and accrued income

   181  

24.

 

Shares of the Parent Company

   182  

25.

 

Share-based payment

   183  

26.

 

Translation differences

   186  

27.

 

Fair value and other reserves

   187  

28.

 

Provisions

   188  

29.

 

Accrued expenses, deferred revenue and other liabilities

   190  

30.

 

Commitments and contingencies

   190  

31.

 

Contractual obligations

   191  

32.

 

Notes to the consolidated statement of cash flows

   191  

33.

 

Principal Group companies

   192  

34.

 

Related party transactions

   192  

35.

 

Risk management

   195  

36.

 

Subsequent events

   204  

Report of Independent Registered Public Accounting Firm

   206  
   

17.

 

Inventories

   178 

18.

 

Allowances for doubtful accounts

   179 

19.

 

Prepaid expenses and accrued income

   179 

20.

 

Shares of the Parent Company

   180 

21.

 

Fair value and other reserves

   181 

22.

 

Other comprehensive income

   182 

23.

 

Interest-bearing liabilities

   183 

24.

 

Fair value of financial instruments

   184 

25.

 

Derivative financial instruments

   187 

26.

 

Share-based payment

   188 

27.

 

Pensions and other post-employment benefits

   191 

28.

 

Accrued expenses, deferred revenue and other liabilities

   198 

29.

 

Provisions

   199 

30.

 

Commitments and contingencies

   201 

31.

 

Notes to the consolidated statement of cash flows

   202 

32.

 

Principal Group companies

   202 

33.

 

Significant partly-owned subsidiaries

   203 

34.

 

Investments in associates and other companies

   203 

35.

 

Related party transactions

   204 

36.

 

Risk management

   206 

37.

 

Subsequent events

   213 

Report of Independent Registered Public Accounting Firm

   214 
 

    

 

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 139143

    

Consolidated income statement

    

    

 

 

       2015 2014 2013        2016 2015(1) 2014(1) 
For the year ended December 31  Notes   EURm EURm EURm   Notes   EURm EURm EURm 

Net sales

   2, 5             12 499           11 762           11 795     4, 7            23 614          12 499          11 762 

Cost of sales

   6     (7 046)   (6 855)   (7 157)    8    (15 158)   (6 963)   (6 774) 

Gross profit

     5 453   4 907   4 638       8 456  5 536  4 988 

Research and development expenses

   6     (2 126)   (1 948)   (1 970)    8    (4 904)   (2 080)   (1 904) 

Selling, general and administrative expenses

   6     (1 652)   (1 453)   (1 483)    8    (3 819)   (1 772)   (1 559) 

Other income

   11     236    135    272     10    116   236   118 

Other expenses

   11     (223)   (229)   (785)    8, 10    (949)   (223)   (229) 

Operating profit

     1 688   1 412   672  

Operating (loss)/profit

     (1 100)  1 697  1 414 

Share of results of associated companies and joint ventures

   18     29    (12)   4     34    18   29   (12) 

Financial income and expenses

   12     (177)   (401)   (277)    11    (287)   (186)   (403) 

Profit before tax

     1 540   999   399  

Income tax (expense)/benefit

   13     (346)   1 719    (271) 

Profit for the year from Continuing operations

      1 194   2 718   128  

Attributable to:

      

(Loss)/profit before tax

     (1 369)  1 540  999 

Income tax benefit/(expense)

   12    457   (346)   1 719 

(Loss)/profit for the year from Continuing operations

      (912)  1 194  2 718 

(Loss)/profit for the year from Continuing operations attributable to:

      

Equity holders of the parent

     1 192    2 710    273       (751)   1 192   2 710 

Non-controlling interests

      2    8    (145)       (161)   2   8 

Profit for the year from Continuing operations

      1 194   2 718   128  

Profit/(loss) for the year from Discontinued operations attributable to:

      

(Loss)/profit for the year from Continuing operations

      (912)  1 194  2 718 

(Loss)/profit for the year from Discontinued operations attributable to:

      

Equity holders of the parent

     1 274    752    (888)      (15)   1 274   752 

Non-controlling interests

      –    6    21        –   –   6 

Profit/(loss) for the year from Discontinued operations

   3     1 274   758   (867) 

Profit/(loss) for the year attributable to:

      

(Loss)/profit for the year from Discontinued operations

   6    (15)  1 274  758 

(Loss)/profit for the year attributable to:

      

Equity holders of the parent

     2 466    3 462    (615)      (766)   2 466   3 462 

Non-controlling interests

      2    14    (124)       (161)   2   14 

Profit/(loss) for the year

      2 468   3 476   (739) 

(Loss)/profit for the year

      (927)  2 468  3 476 
                                
Earnings per share attributable to equity holders of the parent  15   EUR EUR EUR   13   EUR EUR EUR 

Basic earnings per share

            

Continuing operations

     0.32    0.73    0.07       (0.13)   0.32   0.73 

Discontinued operations

     0.35    0.20    (0.24)      0.00   0.35   0.20 

Profit/(loss) for the year

      0.67    0.94    (0.17) 

(Loss)/profit for the year

      (0.13)   0.67   0.94 

Diluted earnings per share

            

Continuing operations

     0.31    0.67    0.07       (0.13)   0.31   0.67 

Discontinued operations

     0.32    0.18    (0.24)      0.00   0.32   0.18 

Profit/(loss) for the year

      0.63    0.85    (0.17) 

(Loss)/profit for the year

      (0.13)   0.63   0.85 
Average number of shares       000s shares 000s shares 000s shares        000s shares 000s shares 000s shares 

Basic

            

Continuing operations

     3 670 934    3 698 723    3 712 079       5 732 371   3 670 934   3 698 723 

Discontinued operations

     3 670 934    3 698 723    3 712 079       5 732 371   3 670 934   3 698 723 

Profit/(loss) for the year

      3 670 934    3 698 723    3 712 079  

(Loss)/profit for the year

      5 732 371   3 670 934   3 698 723 

Diluted

            

Continuing operations

     3 949 312    4 131 602    3 733 364       5 741 117   3 949 312   4 131 602 

Discontinued operations

     3 949 312    4 131 602    3 712 079       5 741 117   3 949 312   4 131 602 

Profit/(loss) for the year

      3 949 312    4 131 602    3 712 079  

(Loss)/profit for the year

      5 741 117   3 949 312   4 131 602 

(1)In 2016, following the Acquisition of Alcatel Lucent, the Group adopted a new financial reporting structure which resulted in changes to allocation and presentation principles of certain costs. Comparatives for 2015 and 2014 have been recasted to reflect the new financial reporting structure.

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

 

140144 NOKIA ANNUAL REPORT ON FORM 20-F 20152016

 LOGOLOGO

Consolidated statement ofcomprehensive income

of comprehensive income

 

    

    

 

 

       2015 2014 2013        2016 2015 2014 
For the year ended December 31  Notes   EURm EURm EURm   Notes   EURm EURm EURm 

Profit/(loss) for the year

     2 468   3 476   (739) 

(Loss)/profit for the year

     (927)  2 468  3 476 

Other comprehensive income

            

Items that will not be reclassified to profit or loss:

            

Remeasurements on defined benefit plans

   8     112    (275)   83                 613   112   (275) 

Income tax related to items that will not be reclassified to profit or loss

     (28)   96    (3)      (269)   (28)   96 

Items that may be reclassified subsequently to profit or loss:

            

Translation differences

   26     (1 054)   820    (496)      251   (1 054)   820 

Net investment hedges

   26     322    (167)             114       (103)   322   (167) 

Cash flow hedges

   27     (5)   (30)   3       14   (5)   (30) 

Available-for-sale investments

   27     113    106    49       (75)   113             106 

Other increase, net

     2    40    5  

Other (decrease)/increase, net

     (6)   2   40 

Income tax related to items that may be reclassified subsequently to profit or loss

   26, 27     (88)   16    1        20   (88)   16 

Other comprehensive (expense)/income, net of tax

      (626)  606   (244) 

Total comprehensive income/(expense) for the year

      1 842   4 082   (983) 

Other comprehensive income/(loss), net of tax

   22    445  (626)  606 

Total comprehensive (loss)/income for the year

      (482)          1 842  4 082 

Attributable to:

            

Equity holders of the parent

     1 837    4 061    (863)      (277)   1 837   4 061 

Non-controlling interests

      5    21    (120)       (205)   5   21 

Total comprehensive income/(expense) for the year

              1 842           4 082   (983) 

Total comprehensive (loss)/income for the year

      (482)  1 842  4 082 

Attributable to equity holders of the parent:

            

Continuing operations

     1 513    2 350    55       (262)   1 513   2 350 

Discontinued operations

      324    1 711    (918)       (15)   324   1 711 

Total attributable to equity holders of the parent

      1 837   4 061   (863)       (277)  1 837  4 061 

Attributable to non-controlling interests:

            

Continuing operations

     5    16    (139)      (205)   5   16 

Discontinued operations

      –    5    19        –   –   5 

Total attributable to non-controlling interests

      5   21   (120)       (205)  5  21 

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

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 141145

    

Consolidated statement

of financial position

    

 

 

       2015 2014        2016 2015 
At December 31  Notes   EURm EURm 
As of December 31  Notes   EURm EURm 

ASSETS

          

Non-current assets

          

Goodwill

   10, 16     237    2 563  

Other intangible assets

   16     323    350  

Intangible assets

   14, 16    10 960   560 

Property, plant and equipment

   17     695    716     15    1 981   695 

Investments in associated companies and joint ventures

   18     84    51     34    116   84 

Available-for-sale investments

   19     1 004    828     24    1 040   1 004 

Deferred tax assets

   14     2 634    2 720     12    5 701   2 634 

Long-term loans receivable

   19, 35     49    34  

Prepaid pension costs

   8     25    30  

Other non-current financial assets

   24, 36    254   49 

Defined benefit pension assets

   27    3 802   25 

Other non-current assets

      51    47     19    328   51 
      5 102    7 339  

Total non-current assets

      24 182  5 102 

Current assets

          

Inventories

   21     1 014    1 275     17    2 506   1 014 

Accounts receivable, net of allowances for doubtful accounts

   19, 22, 35     3 913    3 430     18, 24, 36    6 972   3 913 

Prepaid expenses and accrued income

   23     749    913     19    1 296   749 

Current income tax assets

     171    124       279   171 

Current portion of long-term loans receivable

   19, 35     21    1  

Other financial assets

   19, 20, 35     107    266     24, 25, 36    296   128 

Investments at fair value through profit and loss, liquid assets

   19, 35     687    418     24, 36    327   687 

Available-for-sale investments, liquid assets

   19, 35     2 167    2 127     24, 36    1 502   2 167 

Cash and cash equivalents

   19, 35     6 995    5 170     24, 36    7 497   6 995 
      15 824    13 724  

Total current assets

      20 675  15 824 

Assets held for sale

      44   – 

Total assets

      20 926   21 063        44 901  20 926 

SHAREHOLDERS’ EQUITY AND LIABILITIES

          

Capital and reserves attributable to equity holders of the parent

          

Share capital

   24     246    246     20    246   246 

Share issue premium

     380    439       439   380 

Treasury shares at cost

     (718)   (988) 

Treasury shares

     (881)   (718) 

Translation differences

   26     292    1 099     21    483   292 

Fair value and other reserves

   27     204    22     21    488   204 

Reserve for invested non-restricted equity

     3 820    3 083       15 731   3 820 

Retained earnings

      6 279    4 710        3 588   6 279 
     10 503    8 611  

Total capital and reserves attributable to equity holders of the parent

     20 094  10 503 

Non-controlling interests

      21    58        881   21 

Total equity

      10 524   8 669        20 975  10 524 

Non-current liabilities

          

Long-term interest-bearing liabilities

   19, 35     2 023    2 576     23, 24, 36    3 657   2 023 

Deferred tax liabilities

   14     61    32     12    403   61 

Defined benefit pension liabilities

   8     423    530  

Defined benefit pension and post-retirement liabilities

   27    5 000   423 

Deferred revenue and other long-term liabilities

   19, 29     1 254    1 667     24, 28    1 453   1 254 

Provisions

   28     250    301     29    808   250 
      4 011    5 106  

Total non-current liabilities

      11 321  4 011 

Current liabilities

          

Current portion of long-term interest-bearing liabilities

   19, 35     1    1  

Short-term borrowings

   19, 35     50    115  

Short-term interest-bearing liabilities

   23, 24, 36    370   51 

Other financial liabilities

   19, 20, 35     114    174     24, 25, 36    236   114 

Current income tax liabilities

     446    481       634   446 

Accounts payable

   19, 35     1 910    2 313     24, 36    3 781   1 910 

Accrued expenses, deferred revenue and other liabilities

   29     3 395    3 632     28    6 412   3 395 

Provisions

   28     475    572     29    1 172   475 
      6 391    7 288  

Total current liabilities

      12 605  6 391 

Total liabilities

      10 402   12 394        23 926  10 402 

Total shareholders’ equity and liabilities

              20 926           21 063                44 901          20 926 

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

 

142146 NOKIA ANNUAL REPORT ON FORM 20-F 20152016

 LOGOLOGO

Consolidated statement

of cash flows

 

    

    

 

 

       2015 2014 2013        2016 2015 2014 
For the year ended December 31  Notes   EURm EURm EURm   Notes   EURm EURm EURm 

Cash flow from operating activities

            

Profit/(loss) for the year

     2 468    3 476    (739) 

(Loss)/profit for the year

     (927)   2 468   3 476 

Adjustments, total

   32     (261)   (2 262)   1 913     31    2 407   (261)   (2 262) 

Change in net working capital

   32     (998)   1 153    (945)    31    (2 207)   (1 377)   988 

Cash from operations

     1 209    2 367    229  

Cash (used in)/from operations

     (727)   830   2 202 

Interest received

     62    45    92       85   62   45 

Interest paid

     (99)   (336)   (208)      (309)   (99)   (336) 

Other financial income and expenses, net (paid)/received

     (375)   (165)   345  

Income taxes, net paid

      (290)   (636)   (386) 

Net cash from operating activities

      507   1 275   72  

Income taxes paid, net

      (503)   (290)   (636) 

Net cash (used in)/from operating activities

      (1 454)  503  1 275 

Cash flow from investing activities

            

Acquisition of businesses, net of acquired cash

     (98)   (175)   –       5 819   (98)   (175) 

Purchase of current available-for-sale investments, liquid assets

     (3 133)   (2 977)   (1 021) 

Purchase of current available-for-sale investments, liquid assets(2)

     (4 131)   (3 133)   (2 977) 

Purchase of investments at fair value through profit and loss, liquid assets

     (311)   –    –       –   (311)   – 

Purchase of non-current available-for-sale investments

     (88)   (73)   (53)      (73)   (88)   (73) 

(Payment of)/proceeds from other long-term loans receivable

     (2)   7    (1) 

(Payment of)/proceeds from short-term loans receivable

     (17)   20    4  

Proceeds from/(payment of) other long-term loans receivable

     11   (2)   7 

Proceeds from/(payment of) short-term loans receivable

     19   (17)   20 

Purchases of property, plant and equipment, and intangible assets

     (314)   (311)   (407)      (477)   (314)   (311) 

Proceeds from/(payment for) disposal of businesses, net of disposed cash(1)

     2 586    2 508    (63) 

Proceeds from disposal/(purchase) of shares in associated companies

     –    7    (8) 

Proceeds from maturities and sale of investments, liquid assets

     3 074    1 774    586  

Proceeds from maturities and sale of investments at fair value through profit and loss, liquid assets

     48    –    –  

Proceeds from disposal of businesses, net of disposed cash(1)

     6   2 586   2 508 

Proceeds from disposal of shares in associated companies

     10   –   7 

Proceeds from maturities and sale of current available-for-sale investments, liquid assets(2)

     5 121   3 074   1 774 

Proceeds from maturities and sale of investments at fair value through profit and loss,liquid assets

     368   48   – 

Proceeds from sale of non-current available-for-sale investments

     149    62    129       134   149   62 

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

     –    44    138  

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

     28   –   44 

Dividends received

      2    –    5        1   2   – 

Net cash from/(used in) investing activities

      1 896   886   (691) 

Net cash from investing activities

      6 836  1 896  886 

Cash flow from financing activities

            

Proceeds from stock option exercises

     6   4   – 

Purchase of treasury shares

     (173)   (427)   –       (216)   (173)   (427) 

Purchase of a subsidiary’s equity instruments

     (52)   (45)   (1 707) 

Purchase of equity instruments of subsidiaries(2)

     (724)   (52)   (45) 

Proceeds from long-term borrowings

     232    79    2 291       225   232   79 

Repayment of long-term borrowings(2)

     (24)   (2 749)   (862)      (2 599)   (24)   (2 749) 

Repayment of short-term borrowings

     (55)   (42)   (128)      (100)   (55)   (42) 

Dividends paid and other contributions to shareholders

      (512)   (1 392)   (71)       (1 515)   (512)   (1 392) 

Net cash used in financing activities

      (584)  (4 576)  (477)       (4 923)  (580)  (4 576) 

Foreign exchange adjustment

      6    (48)   (223) 

Translation differences

      43   6   (48) 

Net increase/(decrease) in cash and cash equivalents

      1 825   (2 463)  (1 319)       502  1 825  (2 463) 

Cash and cash equivalents at beginning of year

     5 170    7 633    8 952  

Cash and cash equivalents at end of year

              6 995           5 170           7 633  

Cash and cash equivalents as of January 1

     6 995   5 170   7 633 

Cash and cash equivalents as of December 31

              7 497          6 995          5 170 

 

(1)In 2014, proceeds from the Sale of the D&S Business are presented net of the amount of principal and accrued interest on the repaid convertible bonds.
(2)In 2016, Alcatel Lucent ordinary shares and ADSs and OCEANEs acquired in cash by Nokia subsequent to the closing of the reopened exchange offer are presented within cash flow from financing activities as purchase of equity instruments of subsidiaries and repayment of long-term borrowings, respectively. In relation to the Public Buy-Out offer/Squeeze-Out, Nokia’s pledged cash asset of EUR 724 million to cover the purchase of the remaining Alcatel Lucent securities was recorded within cash flow from investing activities as purchase of current available-for-sale investments, liquid assets. The amount of pledged cash released upon acquisition of Alcatel Lucent securities of EUR 724 million was recorded within cash flow from investing activities as proceeds from maturities and sale of current available-for-sale investments, liquid assets.

The consolidated statement of cash flows combines cash flows from both the Continuing and the Discontinued operations. Refer to Note 3,6, Disposals treated as Discontinued operations.

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

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

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 143147

    

Consolidated statement

of changes in shareholders’ equity

    

 

 

                      Reserve for                                   Reserve for             
   Number           invested            Number           invested         
   of shares   Share     Fair value non-   Equity Non-      of shares   Share     Fair value non-   Equity Non-   
   outstanding Share issue Treasury Translation and other restricted Retained holders of controlling      outstanding Share issue Treasury Translation and other restricted Retained holders of controlling   
EURm Notes (000s) capital premium shares differences reserves equity earnings the parent interests Total  Notes (000s) capital premium shares differences reserves equity earnings the parent interests Total 

At January 1, 2013

   3 710 985   246   446   (629)  746   (5)  3 136   3 997   7 937   1 302   9 239  

Remeasurements of defined benefit plans, net of tax

  27         55      55    25    80  

Translation differences

  26        (468)      (468)   (28)   (496) 

Net investment hedge gains, net of tax

  26        114       114     114  

Cash flow hedges, net of tax

        (3)     (3)   7    4  

Available-for-sale investments, net of tax

  27         49      49     49  

Other increase, net

          5    5     5  

Loss for the year

                  (615)   (615)   (124)   (739) 

Total comprehensive (loss)/income for the year

      –    –    –   (354)  101    –   (610)  (863)  (120)  (983) 

Share-based payment

     25         25     25  

Settlement of performance and restricted shares

   1 404     (7)   26      (21)    (2)    (2) 

Dividends(1)

           –    (37)   (37) 

Acquisition of non-controlling interests

  26, 27      (3)    42    (16)    (806)   (783)   (924)   (1 707) 

Other changes in non-controlling interests

           –    (29)   (29) 

Convertible bond—equity component

     154         154     154  

Convertible bond—conversion to equity

    38                      

Total other equity movements

      –   169   26   42   (16)  (21)  (806)  (606)  (990)  (1 596) 

At December 31, 2013

   3 712 427   246   615   (603)  434   80   3 115   2 581   6 468   192   6 660  

As of January 1, 2014

  3 712 427  246  615  (603)  434  80  3 115  2 581  6 468  192  6 660 

Remeasurements of defined benefit plans, net of tax

  27         (142)    (46)   (188)    (188)   21        (142)    (46)   (188)    (188) 

Translation differences

  26        813       813    7    820    21       813      813   7   820 

Net investment hedge losses, net of tax

  26        (148)      (148)    (148)   21       (148)      (148)    (148) 

Cash flow hedges, net of tax

        (30)     (30)    (30)         (30)     (30)    (30) 

Available-for-sale investments, net of tax

  27         103      103     103    21        103     103    103 

Other increase, net

        10     39    49     49          10    39   49    49 

Profit for the year

                  3 462    3 462    14    3 476      3 462   3 462   14   3 476 

Total comprehensive income/(loss) for the year

      –    –    –   665   (59)   –   3 455   4 061   21   4 082      –   –   –  665  (59)   –  3 455  4 061  21  4 082 

Share-based payment

     4         4     4       4        4    4 

Excess tax benefit on share-based payment

     10         10     10       10        10    10 

Settlement of performance and restricted shares

   2 570     (25)   47      (32)    (10)    (10)    2 570    (25)   47     (32)    (10)    (10) 

Acquisition of treasury shares

   (66 904)     (427)       (427)    (427)    (66 904)     (427)       (427)    (427) 

Stock options exercise

  24    50           –     –     50          –    – 

Dividends(1)

          (1 374)   (1 374)   (9)   (1 383)           (1 374)   (1 374)   (9)   (1 383) 

Disposal of subsidiaries

           –    (109)   (109)            –   (109)   (109) 

Acquisition of non-controlling interests

          (7)   (7)   (38)   (45)           (7)   (7)   (38)   (45) 

Convertible bond—equity component

     (114)        (114)    (114)      (114)        (114)    (114) 

Other movements

        (51)   (5)     1      55    –    1    1      (51)   (5)   1   55   –   1   1 

Total other equity movements

      –   (176)  (385)   –   1   (32)  (1 326)  (1 918)  (155)  (2 073)     –  (176)  (385)   –  1  (32)  (1 326)  (1 918)  (155)  (2 073) 

At December 31, 2014

   3 648 143   246   439   (988)  1 099   22   3 083   4 710   8 611   58   8 669  

As of December 31, 2014

  3 648 143  246  439  (988)  1 099  22  3 083  4 710  8 611  58  8 669 

Remeasurements of defined benefit plans, net of tax

  21        85    (7)   78    78 

Translation differences

  21       (1 057)      (1 057)   4   (1 053) 

Net investment hedge gains, net of tax

  21       252      252    252 

Cash flow hedges, net of tax

        (4)     (4)    (4) 

Available-for-sale investments, net of tax

  21        95     95    95 

Other increase/(decrease), net

        6    1   7   (1)   6 

Profit for the year

    2 466   2 466   2   2 468 

Total comprehensive income/ (loss) for the year

    –   –   –  (805)  182   –  2 460  1 837  5  1 842 

Share-based payment

     34        34    34 

Excess tax benefit on share-based payment

     (2)        (2)    (2) 

Settlement of performance and restricted shares

   1 281    (12)   24     (16)    (4)    (4) 

Acquisition of treasury shares

   (24 516)     (174)       (174)    (174) 

Cancellation of treasury shares

      427      (427)   –    – 

Stock options exercise

   1 042        4    4    4 

Dividends(1)

          (507)   (507)   (5)   (512) 

Acquisition of non-controlling interests

          (15)   (15)   (37)   (52) 

Convertible bond—equity component

     (57)       57   –    – 

Convertible bond—conversion to equity

   313 681    (30)      750    720    720 

Other movements

   (436)   8   (7)   (2)   (1)   1   (1)   (1) 

Total other equity movements

    –  (59)  270  (2)   –  737  (891)  55  (42)  13 

As of December 31, 2015

  3 939 195  246  380  (718)  292  204  3 820  6 279  10 503  21  10 524 

 

144148 NOKIA ANNUAL REPORT ON FORM 20-F 20152016

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                      Reserve for                                   Reserve for             
   Number           invested            Number           invested         
   of shares   Share     Fair value non-   Equity Non-      of shares   Share     Fair value non-   Equity Non-   
   outstanding Share issue Treasury Translation and other restricted Retained holders of controlling      outstanding Share issue Treasury Translation and other restricted Retained holders of controlling   
EURm Notes (000s) capital premium shares differences reserves equity earnings the parent interests Total  Notes (000s) capital premium shares differences reserves equity earnings the parent interests Total 

At December 31, 2014

   3 648 143   246   439   (988)  1 099   22   3 083   4 710   8 611   58   8 669  

As of December 31, 2015

  3 939 195  246  380  (718)  292  204  3 820  6 279  10 503  21  10 524 

Remeasurements of defined benefit plans, net of tax

  27         85     (7)   78     78    21        348     348   (4)   344 

Translation differences

  26        (1 057)      (1 057)   4    (1 053)   21       289      289   (38)   251 

Net investment hedge gains, net of tax

  26        252       252     252  

Net investment hedge losses, net of tax

  21       (83)      (83)    (83) 

Cash flow hedges, net of tax

        (4)     (4)    (4)         12     12    12 

Available-for-sale investments, net of tax

  27         95      95     95    21        (73)     (73)    (73) 

Other increase/(decrease), net

        6     1    7    (1)   6  

Profit for the year

                  2 466    2 466    2    2 468  

Other decrease, net

        (1)    (3)   (4)   (2)   (6) 

Loss for the year

    (766)   (766)   (161)   (927) 

Total comprehensive (loss)/income for the year

      –    –    –   (805)  182    –   2 460   1 837   5   1 842      –   –   –  206  286   –  (769)  (277)  (205)  (482) 

Share-based payment

     34         34     34       117        117    117 

Excess tax benefit on share-based payment

     (2)        (2)    (2)      (6)        (6)    (6) 

Settlement of performance and restricted shares

   1 281     (12)   24      (16)    (4)    (4)    3 408    (22)   68     (52)    (6)    (6) 

Acquisition of treasury shares

   (24 516)     (174)       (174)    (174)   20   (54 296)     (231)       (231)    (231) 

Cancellation of treasury shares

      427       (427)   –     –  

Stock options exercise

  24    1 042         4     4     4     1 074    3      3    6    6 

Dividends(1)

          (507)   (507)   (5)   (512)           (1 501)   (1 501)   (14)   (1 515) 

Acquisitions through business combinations

  5   1 765 358        11 616    11 616   1 714   13 330 

Equity issuance costs related to acquisitions

         (16)    (16)    (16) 

Acquisition of non-controlling interests

          (15)   (15)   (37)   (52)    65 778      (15)   (2)   359   (459)   (117)   (635)   (752) 

Vested portion of share-based payment awards related to acquisitions

  5     6        6    6 

Convertible bond—equity component

     (57)       57    –     –       (38)       38   –    – 

Convertible bond—conversion to equity

   313 681     (30)      750     720     720  

Other movements

    (436)     8    (7)   (2)     (1)   1    (1)     (1)    (14)   (1)   1   –   – 

Total other equity movements

      –   (59)  270   (2)   –   737   (891)  55   (42)  13      –  59  (163)  (15)  (2)  11 911  (1 922)  9 868  1 065  10 933 

At December 31, 2015

   3 939 195   246   380   (718)  292   204   3 820   6 279   10 503   21   10 524  

As of December 31, 2016

  5 720 503  246  439  (881)  483  488  15 731  3 588  20 094  881  20 975 

 

(1)Dividend declared is EUR 0.16 per share and a special dividend declared is EUR 0.100.17 per share, subject to shareholders’ approval (dividend EUR 0.16 per share for 2015; special dividend EUR 0.10 per share for 2015; and dividend EUR 0.14 per share for 2014 and EUR 0.11 per share for 2013; special dividend EUR 0.26 per share for 2013)2014).

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

 

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Notes to consolidated financial statements

    

    

 

1. Accounting principles

Corporate information

Nokia Oyj, a public limited liability company incorporated and domiciled in Helsinki, Finland, is the parent company (“Parent Company” or “Parent”) for all its subsidiaries (“Nokia” or “the Group”). The Group’s operational headquarters are located in Espoo, Finland. The Group is listed on the Nasdaq Helsinki stock exchange, the New York stock exchange and the Euronext Paris stock exchange.

The Group is a leading global provider of mobile and fixed network infrastructure combining hardware, software and related services, with a focus on mobile broadband, as well as advanced technology developmenttechnologies and licensing.licensing that connect people and things.

On March 31, 201623, 2017 the Board of Directors authorized the financial statements for 20152016 for issuance and filing.

2. Significant accounting policies

Basis of presentation and statement of compliance

The consolidated financial statements of the Group are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IASB”) and in conformity with IFRS as adopted by the European Union (“IFRS”). The consolidated financial statements are presented in millions of euros (“EURm”), except as otherwise noted, and are prepared under the historical cost convention, except as disclosed in the accounting policies below. The notes to the consolidated financial statements also conform to the Finnish accounting legislation.

The Group presents two businesses as Discontinued operations in these consolidated financial statements. In 2015, the HERE business was sold and this is referred to as the “Sale of the HERE Business”. In 2014, substantially all of the Devices & Services business was sold and this is referred to as the “Sale of the D&S Business”. Refer to Note 3, Disposals treated as Discontinued operations.

In 2015,2016, comparative presentation of certain items in the consolidated financial statements has been modified to conform with current year presentation.

Other information

This paragraph is included in connection with statutory reporting requirements in Germany. The fully consolidated German subsidiary, Nokia Solutions and Networks GmbH & Co. KG, registered in the commercial register of Munich under HRA 88537, has made use of the exemption available under § 264b of the German Commercial Code (“HGB”).

Adoption of pronouncements under IFRS

On January 1, 2015, the Group adopted amendments to multiple IFRS standards, which resulted from the IASB’s annual improvement projects for the 2010-2012 and 2011-2013 cycles. They comprise amendments that result in accounting changes for presentation, recognition or measurement purposes as well as terminology or editorial amendments related to a variety of individual IFRS standards. The amendments did not have a material impact on the Group’s consolidated financial statements.

Significant accounting principles

Principles of consolidation

The consolidated financial statements comprise the financial statements of Nokia Oyj as the parent company (“Parent Company”),Company, and each of those companies over which the Groupit exercises control. Control over an entity exists when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When the Group has less than a majority of voting or similar rights in an entity, the Group considers all relevant facts and circumstances in assessing whether it has power over an entity, including the contractual arrangements, and the Group’s voting rights and potential voting rights. The Group reassesses whether or not it controls an entity if facts and circumstances indicate that there are changes to one or more of the three elements of control.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control over the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control in a subsidiary, the related assets, liabilities, non-controlling interest and other components of equity are derecognized with any gain or loss recognized in the consolidated income statement. Any investment retained in the former subsidiary is measured at fair value.

All inter-company transactions are eliminated as part of the consolidation process. Non-controlling interests are presented

separately as a component of net profit and are shown as a component of shareholders’ equity in the consolidated statement of financial position.

Acquired entities or businesses have been consolidated fromBusiness combinations

Business combinations are accounted for using the date on which control over the net assets and operations was transferred to the Group. Similarly, the results of Group entities or businesses disposed of are included in the consolidated financial statements only up to the date of disposal.

Business combinations

The acquisition method of accounting is used to account for acquisitions of separate entities or businesses.method. The consideration transferred in a business combination is measured as the aggregate of the fair values of the assets transferred, liabilities incurred towards the former owners of the acquired entity or business and equity instruments issued. Acquisition-related costs are recognized as expenses in the consolidated income statement in the period in which the costs are incurred and the related services are received. received with the exception of costs directly attributable to the issuance of equity instruments that are accounted for as a deduction from equity.

Identifiable assets acquired and liabilities assumed are measured separately at the acquisition date fair values.

Non-controlling The Group elects whether to measure the non-controlling interests in the acquired business are measured separatelyacquiree at fair value or at the non-controlling interests’ proportionate share of the acquiree’s identifiable net assets of the acquired business.on a business combination by business combination basis. The excess of the costaggregate of the aggregate consideration transferred and the amount recognized for non-controlling interests over the acquisition date fair values of the identifiable net assets acquired is recorded as goodwill.

Investment in associates and joint ventures

An associate is an entity over which the Group exercises significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the entity, but is not control or joint control over those policies.

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture.arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The Group’s share of profits and losses ofinvestments in associates and joint ventures is included in the consolidated income statement in accordance withare accounted for using the equity method of accounting.method. Under the equity method, the investment in an associate or joint venture is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Group’s share of net assets of the associate or joint venture since the acquisition date. AfterThe Group’s share of profits and losses of associates and joint ventures is included in the carrying amountconsolidated income statement outside operating profit or loss. Any change in other comprehensive income (“OCI”) of associates and joint ventures is presented as part of the Group’s interest is reduced to nil, in caseOCI.

After application of a loss-making investment, losses continue to be recognized when it is considered that a constructive obligation exists.

Disposalthe equity method, as of separate entities or businesses

If upon disposaleach reporting date the Group loses control of a separate entitydetermines whether there is objective evidence that the investment in an associate or business, it records a gain orjoint venture is impaired. If there is such evidence, the Group recognizes an impairment loss on disposal at the date when control is lost. The gain or loss on disposalthat is calculated as the difference between the fair valuerecoverable amount of the consideration receivedassociate or joint venture and theits carrying amountsvalue. The impairment loss is presented in ‘Share of derecognized assetsresults of associated companies and liabilities of the disposed entity or business attributable to the equity holders of the parent and non-controlling interest, adjusted by amounts recognized in other comprehensive income in relation to that entity or business.

Discontinued operations and assets held for disposal

Discontinued operations are reported when a component of the Group, comprising operations and cash flows that can be clearly distinguished both operationally and for financial reporting purposes from the rest of the Group, is classified as held for disposal or has been disposed of, and the component represents a major line of business or geographical area of operations, or is a part of a single coordinated plan to dispose of a separate major line of business or

146NOKIA ANNUAL REPORT ON FORM 20-F 2015

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geographical area of operations. Profit or loss from Discontinued operations is reported separately from income and expenses from Continuing operationsjoint ventures’ in the consolidated income statement, with prior periods presented on a comparative basis. Cash flowsstatement.

Non-current assets held for Discontinuedsale (or disposal groups) and discontinued operations are presented separately in the notes to the consolidated financial statements. Inter-group revenues and expenses between Continuing and Discontinued operations are eliminated, except for those revenues and expenses that are considered to continue after the disposal of the Discontinued operations.

Non-current assets or disposal groups are classified as assets held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the asset, or the disposal group, must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets or disposal groups, and the sale must be highly probable. These assets, or in the case of disposal groups, assets and liabilities, are presented separately in the consolidated statement of financial position and measured at the lower of the carrying amount and fair value less costs of disposal. to sell.

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Non-current assets classified as held for sale, or included in a disposal group classified as held for sale, are not depreciated.depreciated or amortized.

Discontinued operations are reported when a component of the Group, comprising operations and cash flows that can be clearly distinguished both operationally and for financial reporting purposes from the rest of the Group, is classified as held for sale or has been disposed of, or the component represents a major line of business or geographical area of operations, or is a part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations. Profit or loss from Discontinued operations is reported separately from income and expenses from Continuing operations in the consolidated income statement, with prior periods presented on a comparative basis. Cash flows for Discontinued operations are presented separately in the notes to the consolidated financial statements. Intra-group revenues and expenses between Continuing and Discontinued operations are eliminated.

Revenue recognition

Revenue is recognized when the following criteria for the transaction have been met: significant risks and rewards of ownership have transferred to the buyer; continuing managerial involvement and effective control usually associated with ownership have ceased; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the Group; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenue is measured at the fair value of the consideration received or receivable net of discounts and excluding taxes and duties.

Recurring service revenue which includes managed services and maintenance services is generally recognized on a straight-line basis over the agreed period, unless there is evidence that some other method better represents the rendering of services.

The Group enters into contracts consisting of any combination of hardware, services and software. Within these multiple element arrangements, separate components are identified and accounted for based on the nature of those components, considering the economic substance of the entire arrangement. Revenue is allocated to each separately identifiable component based on the relative fair value of each component. The fair value of each component is determined by taking into consideration factors such as the price of the component when sold separately and the component cost plus a reasonable margin when price references are not available. The revenue allocated to each component is recognized when the revenue recognition criteria for that component have been met.

Revenue from contracts involving the construction of an asset according to customer specifications is recognized using the percentage of completion method. Stage of completion for each contract is measured by referenceeither the achievement of contractually defined milestones or costs incurred compared to cost incurred to date as a percentage of estimated total project costs for each contract.costs.

Revenue on license fees is recognized in accordance with the substance of the relevant agreements. Where, subsequentSubsequent to the initial licensing transaction, where the Group has no remaining obligations to perform and licensing fees are non-refundable, revenue is recognized after the customer has been provided access to the underlying asset. Where the Group retains obligations related to the licensed asset after the initial licensing transaction, revenue is typically recognized over a period of time during which remaining performance obligations are satisfied. In some multiple element licensing transactions, the Group applies the residual method in the absence of reference information.

Net sales includes revenue from all licensing negotiations, litigations and arbitrations to the extent that the criteria for revenue recognition have been met.

ResearchGovernment grants

Government grants are recognized when there is reasonable assurance that the Group will comply with the conditions attached to them and development

Research coststhe grants will be received. Government grants received as compensation for expenses or losses incurred are expensedrecognized in the consolidated income statement as incurred. Development costs may bea deduction against the related expenses. Government grants related to assets are presented in the consolidated statement of financial position as deferred income and recognized as an intangible asset ifincome over the Group has the technical feasibility to complete the asset; has an ability and intention to use or sell the asset; can demonstrate that the asset will generate future economic benefits; has resources available to complete the asset; and has the ability to measure reliably the expenditure during development. The intangible asset is carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete andsame period the asset is available for use. Thedepreciated or amortized.

Government grants received in the form of R&D tax credits are recognized as a deduction against R&D expenses if the amount of the tax credit is linked to the amount of R&D expenditures incurred by the Group and the tax credit is a fully collectible asset which will be paid in cash by the government in case the Group is amortised over the period of expected futurenot able to offset it against its income tax payable. R&D tax credits that do not meet both conditions are recognized as income tax benefit.

Employee benefits

Pensions and other post-employment benefits

The Group companies have various pensionpost-employment plans in accordance with the local conditions and practices in the countries in which they operate. The plans are generally funded through payments to insurance companies or contributions to trustee-administered funds as determined by periodic actuarial calculations.

In a defined contribution plan, the Group’s legal or constructive obligation is limited to the amount that it agrees to contribute to the fund. The Group’s contributions to defined contribution plans, multi-employer and insured plans are recognized in the consolidated income statement in the period to which the contributions relate. If a pension plan is funded through an insurance contract where the Group does not retain any legal or constructive obligations, the plan is treated as a defined contribution plan. All arrangements that do not fulfill these conditions are considered defined benefit plans.

For defined benefit plans, including pension and post-retirement healthcare and life insurance, costs are assessed using the projected unit credit method: the pension cost is recognized in the consolidated income statement so as to spread the current service costbenefit over the service lives of employees. The pensiondefined benefit obligation is measured as the present value of the estimated future cash outflows using interest rates on high-quality corporate bonds or government bonds with appropriate maturities. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past service costs and settlement gains and losses are recognized immediately in the consolidated income statement as part of service cost, when the plan amendment, curtailment or settlement occurs. Curtailment gains and losses are accounted for as past service costs.

The liability or asset recognized in the consolidated statement of financial position is the pensiondefined benefit obligation atas of the closing date less the fair value of plan assets including effects relating to any asset ceiling.

Remeasurements, comprising actuarial gains and losses, the effect of the asset ceiling and the return on plan assets, excluding amounts recognized in net interest, are recognized immediately in the consolidated statement of financial position with a corresponding debit or credit to retained earningsFair Value and Other Reserves in Equity through the consolidated statement of other comprehensive income in the period in which they occur. Remeasurements are not reclassified to the consolidated income statement in subsequent periods.

Actuarial valuations for the Group’s defined benefit pensionpost-employment plans are performed annually or when a material curtailment or settlement of a defined benefit plan occurs.

 

 

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Notes to consolidated financial statementscontinued

    

    

 

Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognizes termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal, or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Local laws may provide employees with the right to benefits from the employer upon termination whether the termination is voluntary or involuntary. For these specific termination benefits, the portion of the benefit that the companyGroup would be required to pay to the employee in the case of voluntary termination is treated as a constructive obligation determined by local law and accounted for as a defined benefit arrangement as described in the pensions section above.

Share-based payment

The Group offers three types of global equity-settled share-based compensation plans for employees: stock options, performance shares and restricted shares.

Employee services received and the corresponding increase in equity are measured by reference to the fair value of the equity instruments atas of the grant date, excluding the impact of any non-market vesting conditions. Non-market vesting conditions attached to the performance shares are included in assumptions about the number of shares that the employee will ultimately receive. The Group reviews the assumptions made on a regular basis and, where necessary, revises its estimates of the number of performance shares that are expected to be settled. Plans that apply tranched vesting are accounted for under the graded vesting model. Share-based compensation is recognized as an expense in the consolidated income statement over the relevant service periods.

The Group has issued certain stock options which are accounted for as cash-settled. The related employee services received and the liabilities incurred are measured at the fair value of the liability. The fair value of stock options is estimated based on the reporting date market value less the exercise price of the stock options. The fair value of the liability is remeasured atas of each statement of financial positionreporting date and atas of the date of settlement, with changes in fair value recognized in the consolidated income statement over the relevant service periods.

Income taxes

The income tax expense comprises current tax and deferred tax. Tax is recognized in the consolidated income statement except to the extent that it relates to items recognized in other comprehensive income, or directly in equity,equity; then the related tax is recognized in other comprehensive income or equity, respectively.

Current taxes are based on the results of the Groupgroup companies and are calculated using the local tax laws and tax rates that are enacted or substantively enacted atas of each consolidated statement of financial positionreporting date. Corporate taxes withheld at the source of the income on behalf of the Groupgroup companies, both recoverable and irrecoverable, as well as penalties and interests on income taxes are accounted for in income taxes.

The Group periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It adjusts the amounts recorded, where appropriate, on the basis of amounts expected to be paid to the tax authorities. The amount of current income tax liabilities for uncertain income tax positions is recognized when it is more likely than not that certain tax positions will be challenged and may not be fully sustained upon review by tax authorities. The amounts recorded are based upon the estimated future settlement amount atas of each consolidated statement of financial positionreporting date.

Deferred tax assets and liabilities are determined using the liability method for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the unused tax losses, unused tax credits or deductible temporary differences can be utilized before the unused tax losses or unused tax credits expire. Deferred tax assets are assessed for realizability atas of each statement of financial positionreporting date. When circumstances indicate it is no longer probable that deferred tax assets will be utilized, adjustments are made as necessary. Deferred tax liabilities are recognized for temporary differences that arise between the fair value and the tax base of identifiable net assets acquired in business combinations.

Deferred tax assets and deferred tax liabilities are offset for presentation purposes when there is a legally enforceable right to set off current tax assets against current tax liabilities, and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously in each future period in which significant amounts of deferred tax liabilities or deferred tax assets are expected to be settled or recovered.

Deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill. Deferred tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, associates and joint arrangements, except for deferred tax liability where the timing of the reversal of the temporary difference is controlled by the Group, and it is probable that the temporary difference will not reverse in the foreseeable future.

The enacted or substantively enacted tax rates atas of each consolidated statement of financial positionreporting date that are expected to apply in the period when the asset is realized or the liability is settled are used in the measurement of deferred tax assets and deferred tax liabilities. Deferred tax assets and liabilities are not discounted.

Foreign currency translation

Functional and presentation currency

The financial statements of all Group entitiesgroup companies are measured using functional currency, which is the currency of the primary economic environment in which the entity operates. The consolidated financial statements are presented in euro, the functional and presentation currency of the parent.Parent Company.

Transactions in foreign currencies

Transactions in foreign currencies are recorded at exchange rates prevailing atas of the dates of the individual transactions. For practical reasons, a rate that approximates the actual rate atas of the date of the transaction is often used. At the end of the accountingreporting period, the unsettled balances on foreign currency monetary assets and liabilities denominated in foreign currency are valued at the exchange rates prevailing at the end of the accountingreporting period. Foreign exchange gains and losses arising from statement of financial position itemsmonetary assets and liabilities as well as fair value changes of related hedging instruments are recognized in financial income and expenses. Unrealized foreign exchange gains and losses related to non-current available-for-sale investments such as equityare included in the fair value measurement of these investments areand recognized in other comprehensive income.

Foreign Groupgroup companies

All income and expenses of foreign Groupgroup companies where the functional currency is not the euro are translated into euro at the average foreign exchange rates for the accountingreporting period. All assets and liabilities of foreign Groupgroup companies are translated into euro at foreign exchange rates prevailing at the end of the accountingreporting period.

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Differences resulting from the translation of income and expenses at the average rate and assets and liabilities at the closing rate are recognized as translation differences in otherconsolidated statement of comprehensive income.

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On the disposal of all or part of a foreign Groupgroup company through sale, liquidation, repayment of share capital or abandonment, the cumulative amount or proportionate share of translation differences is recognized as income or expense when the gain or loss on disposal is recognized.

Foreign Group companiesIntangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in hyperinflationary economies

The financial statements of foreign Group companies where the functional currencya business combination is the currency of a hyperinflationary economy are adjusted to reflect changes in general purchasing power. Non-monetary items in the statement of financial position and all items in the income statement are restated to the current purchasing power by applying the general price index and translated into euro using the measuring unit current at the endtheir fair value as of the accounting period. Inflationary gainsdate of acquisition. Internally generated intangibles, except for development costs that may be capitalized, are expensed as incurred. Development costs are capitalized only if the Group has the technical feasibility to complete the asset; has an ability and losses onintention to use or sell the net monetary position are recognized as gainsasset; can demonstrate that the asset will generate future economic benefits; has resources available to complete the asset; and losses inhas the consolidated income statement. Comparatives presented as current year amounts inability to measure reliably the prior year financial statements in a stable currency are not restated.expenditure during development.

Assessment of the recoverability of long-lived assets,Following initial recognition, intangible assets are carried at cost less accumulated amortization and goodwill

The Group assesses the carrying value of goodwill annually or more frequently if events or changes in circumstances indicate that such carrying value may not be recoverable. The carrying value of identifiable intangibleaccumulated impairment losses. Intangible assets and long-lived assets is assessed if events or changes in circumstances indicate that such carrying value may not be recoverable. Factors that trigger an impairment review include, but are not limited to, underperformance relative to historical or projected future results, significant changes in the manner of the use of the acquired assets or the strategy for the overall business, and significant negative industry or economic trends.

For purposes of impairment testing, goodwill has been allocated to the cash-generating units or groups of cash-generating units (“CGUs”) expected to benefit from the synergies of the combination. A cash-generating unit, as determined for the purposes of the Group’s goodwill impairment testing, is the smallest group of assets, including goodwill, generating cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

The Group conducts its impairment testing by determining the recoverable amount for the asset or cash-generating unit. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs of disposal and its value-in-use. The recoverable amount is compared with the asset or cash-generating unit’s carrying value. The carrying value of a cash-generating unit’s net assets is determined by allocating relevant net assets to cash-generating units on a reasonable and consistent basis. An impairment loss is recognized immediately in the consolidated income statement if the recoverable amount for an asset or a cash-generating unit is less than its carrying value.

Other intangible assets

Acquired patents, trademarks, licenses, software licenses for internal use, customer relationships and developed technology are capitalized and amortized using the straight-line method over their useful lives, generally three to seven years. When an indicationten years, using the straight-line method which is considered reflecting best the pattern in which the asset’s future economic benefits are expected to be consumed. The amortization charges are presented within cost of impairment exists, the carrying amount of the related intangible asset is assessed for recoverability. Any resulting impairment losses are recognized immediatelysales, research and development expenses and selling, general and administrative expenses in the consolidated income statement.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation.depreciation and accumulated impairment losses. Depreciation is recorded on a straight-line basis over the expected useful lives of the assets as follows:

 

Buildings and constructions

  

Buildings and constructions

  20-3320–33 years

Light buildings and constructions

  3-20 years

Machinery and equipment

  

Production machinery, measuring and test equipment

  1-5 years

Other machinery and equipment

  3-10 years

Land and water areas are not depreciated. Assets held for sale are not depreciated as they are carried at the lower of carrying value and fair value less costs to sell.

Maintenance, repairs and renewals are generally expensed in the period in which they are incurred. However, major renovations are capitalized and included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. Leasehold improvements are depreciated over the shorter of the lease term and the useful life. Gains and losses on the disposal of property, plant and equipment are included in operating profit or loss.

Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards incidental to ownership to the lessee. All other leases are classified as operating leases.

The Group has entered into various operating lease contracts.contracts as a lessee. The related payments are treated as rental expenses and recognized in the consolidated income statement on a straight-line basis over the lease terms unless another systematic approach is more representative of the pattern of the benefit.

The Group does not have any significant finance lease arrangements.

Impairment of goodwill, other intangible assets and property, plant and equipment

The Group assesses the recoverability of the carrying value of goodwill, other intangible assets and property, plant and equipment if events or changes in circumstances indicate that the carrying value may be impaired. In addition, the Group tests the carrying value of goodwill for impairment annually even if there is no indication of impairment.

Factors that the Group considers when it reviews indications of impairment include, but are not limited to, underperformance of the asset relative to its historical or projected future results, significant changes in the manner of using the asset or the strategy for the overall business, and significant negative industry or economic trends.

For impairment testing purposes, goodwill is allocated to the cash-generating units or groups of cash-generating units expected to benefit from the synergies of the business combination. A cash-generating unit, as determined for the purposes of the Group’s benefit.goodwill impairment testing, is the smallest group of assets, including goodwill, generating cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The carrying value of a cash-generating unit includes its share of relevant corporate assets allocated to it on a reasonable and consistent basis.

The Group conducts its impairment testing by determining the recoverable amount for an asset or a cash-generating unit. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs of disposal and its value-in-use. The recoverable amount is compared to the asset’s or cash-generating unit’s carrying value. If the recoverable amount for the asset or cash-generating unit is less than its carrying value, the asset is considered impaired and is written down to its recoverable amount. Impairment losses are presented in other expenses, or as a separate line item if significant, in the consolidated income statement.

For more information on the annual impairment testing of goodwill, including key assumptions used in calculating the recoverable amount of goodwill, refer to Note 16, Impairment.

Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using standard cost, which approximates actual cost on a first-in first-out (“FIFO”) basis. Net realizable value is the amount that can be realized from the sale of the inventory in the normal course of business after allowing for the costs of realization. In addition to the cost of materials and direct labor, an appropriate proportion of production overhead is included in the inventory values. An allowance is recorded for excess inventory and obsolescence based on the lower of cost and net realizable value.

Fair value measurement

A number of financial instruments are measured at fair value atas of each consolidated statement of financial positionreporting date after initial recognition. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest by using quoted market rates, discounted cash flow analyses and other appropriate valuation models. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair values are being measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

 

 

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Level 1—Quoted (unadjusted) market prices for exchange-traded products in active markets for identical assets or liabilities;

Level 2—Valuation techniques for which significant inputs other than quoted prices are directly or indirectly observable; and

Level 3—Valuation techniques for which significant inputs are unobservable.

The Group categorizes assets and liabilities that are measured at fair value on a recurring basis into an appropriate level of the fair value hierarchy at the end of each reporting period.

Financial assets

The Group has classified its financial assets in the following categories: available-for-sale investments, derivative and other current financial assets, loans receivable, accounts receivable, financial assets at fair value through profit or loss, and cash and cash equivalents. Derivatives are described in the section on derivative financial instruments.

Available-for-sale investments

The Group invests a portion of the cash needed to cover the projected cash needsoutflows of its ongoing business operations in highly liquid, interest-bearing investments and certain equity instruments. The following investments are classified as available-for-sale based on the purpose of the investment and the Group’s ongoing intentions:

(1) Available-for-sale investments, liquid assets consist of highly liquid, fixed-income and money-market investments with maturities at acquisition of more than three months, as well as bank deposits with maturities or contractual call periods at acquisition of more than three months.

∎Available-for-sale investments, liquid assets consist of highly liquid, fixed-income and money-market investments with maturities at acquisition of more than three months, as well as bank deposits with maturities or contractual call periods at acquisition of more than three months.

(2) Investments in technology-related publicly quoted equity shares or unlisted private equity shares and unlisted venture funds, classified in the consolidated statement of financial position as non-current available-for-sale investments.

∎Investments in technology-related publicly quoted equity shares or unlisted private equity shares and unlisted venture funds, classified in the consolidated statement of financial position as non-current available-for-sale investments.

Current fixed-income and money-market investments are fair valued by using quoted market rates, discounted cash flow analyses and other appropriate valuation models atas of the statement of financial positionreporting date. Investments in publicly quoted equity shares are measured at fair value using exchange quoted bid prices. Other available-for-sale investments carried at fair value include holdings in unlisted shares. Fair value is estimated using a number of methods, including, but not limited to: the current market value of similar instruments; prices established from a recent arm’s-length financing transaction of target companies; and analysis of market prospects and operating performance of target companies, taking into consideration public market comparable companies in similar industry sectors. The Group uses judgment in selecting the appropriate valuation methodology as well as underlying assumptions based on existing market practice and conditions. Changes in these assumptions may cause the Group to recognize impairments or losses in future periods.

The remaining available-for-sale investments are carried at cost less impairment. These are technology-related investments in private equity shares and unlisted venture funds for which fair value cannot be measured reliably due to non-existent public markets or reliable valuation methods.

All purchases and sales of investments are recorded on the trade date, that is, when the Group commits to purchase or sell the asset.

Changes in the fair value of available-for-sale investments are recognized in fair value and other reserves as part of other comprehensive income, with the exception of interest calculated using the effective interest method and foreign exchange gains and losses on current available-for-sale investments recognized directly in the consolidated income statement. Dividends on available-for-sale equity instruments are recognized in the consolidated income statement

when the Group’s right to receive payment is established.

When the investment is disposed of, the related accumulated fair value changes are released from other comprehensive income and recognized in the consolidated income statement. The weighted average method is used to determine the cost basis of publicly listed equities being disposed of. The FIFO method is used to determine the cost basis of fixed -incomefixed-income securities being disposed of. An impairment charge is recorded if the carrying amount of an available-for-sale investment is greater than the estimated fair value and there is objective evidence that the asset is impaired including, but not limited to, counterparty default and other factors causing a reduction in value that can be considered other than temporary. The cumulative net loss relating to the investment is removed from equity and recognized in the consolidated income statement for the period. If, in a subsequent period, the fair value of the investment in a non-equity instrument increases and the increase can be objectively related to an event occurring after the loss was recognized, the loss is reversed and the reversal is recognized in the consolidated income statement.

Investments at fair value through profit and loss, liquid assets

Certain highly liquid financial assets are designated at inception as investments at fair value through profit and loss, liquid assets. These investments must meet one of the following two criteria: the designation eliminates or significantly reduces an inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on a different basis; or the assets are part of a group of financial assets, which are managed and their performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy. These investments are initially recognized and subsequently remeasured at fair value. Fair value adjustments and realized gains and losses are recognized in the consolidated income statement.

Loans receivable

Loans receivable include loans to customers and suppliers and are measured initially at fair value and subsequently at amortized cost less impairment using the effective interest method. Loans are subject to regular review as to their collectability and available collateral. AnA valuation allowance is made if a loan is deemed not to be fully recoverable. The related cost is recognized in other expenses or financial expenses, depending on the nature of the receivable to reflect the shortfall between the carrying amount and the present value of the expected future cash flows. Interest income on loans receivable is recognized in otherfinancial income or financialand expenses in the consolidated income statement by applying the effective interest rate.

Cash and cash equivalents

Cash and cash equivalents consist of cash at bank and in hand and available-for-sale investments, cash equivalents. Available-for-sale investments, cash equivalents consist of highly liquid, fixed-income and money-market investments that are readily convertible to known amounts of cash with maturities at acquisition of three months or less, as well as bank deposits with maturities or contractual call periods at acquisition of three months or less. Due to the high credit quality and short-term nature of these investments, there is an insignificant risk of change in value. Investments in money-market funds that have a risk profile consistent with the aforementioned criteria are also classified as cash equivalents.

Accounts receivable

Accounts receivable include amounts invoiced to customers, amounts where the Group’s revenue recognition criteria have been fulfilled but the customers have not yet been invoiced, and amounts where the contractual rights to the cash flows have been confirmed but the customers have not yet been invoiced. Billed accounts receivable are carried at the original amount invoiced to customers less allowances for doubtful accounts. Allowances for doubtful accounts are based on a periodic review of all outstanding amounts, including an analysis of

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historical bad debt, customer concentrations, customer creditworthiness, past due amounts, current economic trends and changes in customer payment terms. Impairment charges on receivables identified as uncollectible are included in other operating

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expenses. The Group derecognizes an accounts receivable balance only when the contractual rights to the cash flows from the asset expire or it transfers the financial asset and substantially all the risks and rewards of the asset to another entity.

Financial liabilities

The Group has classified its financial liabilities into the following categories: derivative and other current financial liabilities, compound financial instruments, loans payable, and accounts payable. Derivatives are described in the section on derivative financial instruments.

Compound financial instruments

Compound financial instruments have both a financial liability and an equity component from the issuers’ perspective. The components are defined based on the terms of the financial instrument and presented and measured separately according to their substance. The financial liability component is initially recognized at fair value, the residual being allocated to the equity component. The allocation remains the same for the life of the compound financial instrument. The Group has issuedfinancial liability components of convertible bonds for whichissued by the financial liability component isGroup are accounted for as a loan payable.payables.

Loans payable

Loans payable are recognized initially at fair value net of transaction costs. In subsequent periods, loans payable are presented at amortized cost using the effective interest method. Transaction costs and loan interest are recognized in the consolidated income statement as financial expenses over the life of the instrument.

Accounts payable

Accounts payable are carried at invoiced amount which is considered to be the fair value due to the short-term nature of the Group’s accounts payable.

Derivative financial instruments

All derivatives are recognized initially at fair value on the date a derivative contract is entered into and subsequently remeasured at fair value. The method of recognizing the resulting gain or loss varies according to whether the derivatives are designated and qualify under hedge accounting. Generally, the cash flows of a hedge are classified as cash flows from operating activities in the consolidated statement of cash flows as the underlying hedged items relate to the Group’s operating activities. When a derivative contract is accounted for as a hedge of an identifiable position relating to financing or investing activities, the cash flows of the contract are classified in the same way as the cash flows of the position being hedged.

Derivatives not designated in hedge accounting relationships carried at fair value through profit and loss

Forward foreign exchange contracts are valued at market-forward exchange rates. Changes in fair value are measured by comparing these rates with the original contract-forward rate. Currency options are valued atas of each statement of financial positionreporting date by using the Garman & Kohlhagen option valuation model. Changes in fair value are recognized in the consolidated income statement.

Fair values of forward rate agreements, interest rate options, futures contracts and exchange-traded options are calculated based on quoted market rates atas of each statement of financial positionreporting date. Discounted cash flow analyses are used to value interest rate and cross-currency interest rate swaps. Changes in fair value are recognized in the consolidated income statement.

For derivatives not designated under hedge accounting but hedging identifiable exposures such as anticipated foreign currency denominated sales and purchases, the gains and losses are recognized in other income or expenses. The gains and losses on all other derivatives not designated under hedge accounting are recognized in financial income and expenses.expenses in the consolidated income statement.

Embedded derivatives, if any, are identified and monitored by the Group and measured at fair value atas of each consolidated statement of financial positionreporting date with changes in fair value recognized in the consolidated income statement.

Hedge accounting

The Group applies hedge accounting on certain forward foreign exchange contracts, certain options or option strategies, and certain interest rate derivatives. Qualifying options and option strategies have zero net premium or a net premium paid. For option structures, the critical terms of the bought and sold options are the same and the nominal amount of the sold option component is nonot greater than that of the bought option.

Cash flow hedges: hedging of forecast foreign currency denominated sales and purchases

The Group applies hedge accounting for ‘qualifying hedges’.qualifying hedges. Qualifying hedges are those properly documented cash flow hedges of foreign exchange rate risk of future forecast foreign currency denominated sales and purchases that meet the requirements set out in IAS 39, Financial Instruments: Recognition and Measurement. The hedged item must be ‘highly probable’highly probable and present an exposure to variations in cash flows that could ultimately affect profit or loss. The hedge must be highly effective, both prospectively and retrospectively.

For qualifying foreign exchange forwards, the change in fair value that reflects the change in spot exchange rates and, for qualifying foreign exchange options or option strategies, the change in intrinsic value are deferred in fair value and other reserves in the consolidated statement of shareholders’ equity to the extent that the hedge is effective. The ineffective portion is recognized immediately in the consolidated income statement. Hedging costs, expressed either as the change in fair value that reflects the change in forward exchange rates less the change in spot exchange rates for forward foreign exchange contracts, or as changes in the time value for options or options strategies, are recognized in other income or expenses in the consolidated income statement.

Accumulated changes in fair value from qualifying hedges are released from fair value and other reserves into the consolidated income statement as adjustments to sales and cost of sales when the hedged cash flow affects the consolidated income statement. Forecast foreign currency sales and purchases affect the consolidated income statement at various dates up to approximately one year from the consolidated statement of financial positionreporting date. If the forecasted transaction is no longer expected to take place, all deferred gains or losses are released immediately into the consolidated income statement. If the hedged item ceases to be highly probable but is still expected to take place, accumulated gains and losses remain in fair value and other reserves until the hedged cash flow affects the consolidated income statement.

Cash flow hedges: hedging of foreign currency risk of highly probable business acquisitions and other transactions

From time to time, the Group hedges cash flow variability caused by foreign currency risk inherent in highly probable business acquisitions and other future transactions that result in the recognition of non-financial assets. When those non-financial assets are recognized in the consolidated statement of financial position, the gains and losses previously deferred in fair value and other reserves are transferred to the initial acquisition cost of the asset. The deferred amounts are ultimately recognized in the consolidated income statement as a result of goodwill assessments for business acquisitions and through depreciation or amortization for other assets. The application of hedge accounting is conditional on the forecast transaction being highly probable and the hedge being highly effective, prospectively and retrospectively.

 

 

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Notes to consolidated financial statementscontinued

    

    

 

Cash flow hedges: hedging of cash flow variability

on variable rate liabilities

From time to time, the Group applies cash flow hedge accounting for hedging cash flow variability on certain variable rate liabilities. The effective portion of the gain or loss relating to interest rate swaps hedging variable rate borrowings is deferred in fair value and other reserves. The gain or loss related to the ineffective portion is recognized immediately in the consolidated income statement. If hedging instruments are settled before the maturity date of the related liability, hedge accounting is discontinued and all cumulative gains and losses recycled gradually to the consolidated income statement when the hedged variable interest cash flows affect the consolidated income statement.

Fair value hedges: hedging of foreign exchange exposure

The Group applies fair value hedge accounting for foreign exchange risk with the objective to reduce the exposure to fluctuations in the fair value of firm commitments due to changes in foreign exchange rates. Changes in the fair value of derivatives designated and qualifying as fair value hedges, together with any changes in the fair value of the hedged firm commitments attributable to the hedged risk, are recorded in financial income and expenses in the consolidated income statement.

Fair value hedges: hedging of interest rate exposure

The Group applies fair value hedge accounting to reduce exposure to fair value fluctuations of interest-bearing liabilities due to changes in interest rates and foreign exchange rates. Changes in the fair value of derivatives designated and qualifying as fair value hedges, together with any changes in the fair value of hedged liabilities attributable to the hedged risk, are recognized in financial income and expenses. If the hedged item no longer meets the criteria for hedge accounting, hedge accounting ceases and any fair value adjustments made to the carrying amount of the hedged item while the hedge was effective are recognized in financial income and expenses based on the effective interest method.

Hedges of net investments in foreign operations

The Group applies hedge accounting for its foreign currency hedging on net investments. Qualifying hedges are those properly documented hedges of foreign exchange rate risk of foreign currency denominated net investments that are effective both prospectively and retrospectively.

The change in fair value that reflects the change in spot exchange rates for qualifying foreign exchange forwards, and the change in intrinsic value for qualifying foreign exchange options, are deferred in translation differences in the consolidated statement of shareholder’s equity. The change in fair value that reflects the change in forward exchange rates less the change in spot exchange rates for forwards, and changes in time value for options are recognized in financial income and expenses. If a foreign currency denominated loan is used as a hedge, all foreign exchange gains and losses arising from the transaction are recognized in translation differences. The ineffective portion is recognized immediately in the consolidated income statement.

Accumulated changes in fair value from qualifying hedges are released from translation differences on the disposal of all or part of a foreign Group company by sale, liquidation, repayment of share capital or abandonment. The cumulative amount or proportionate share of changes in the fair value of qualifying hedges deferred in translation differences is recognized as income or expense when the gain or loss on disposal is recognized.

Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. When the Group expects a provision to be reimbursed, the reimbursement is recognized as an asset only when the reimbursement is virtually certain. The Group assesses the adequacy of its existing provisions and adjusts the amounts as necessary based on actual experience and changes in facts and circumstances atas of each statement of financial positionreporting date.

Restructuring provisions

The Group provides for the estimated cost to restructure when a detailed formal plan of restructuring has been completed, approved by management, and announced. Restructuring costs consist primarily of personnel restructuring charges. The other main components are costs associated with exiting real estate locations, and divestment-related charges.costs of terminating certain other contracts directly linked to the restructuring.

Warranty provisions

The Group provides for the estimated liability to repair or replace products under standard warranty at the time revenue is recognized. The provision is an estimate based on historical experience of the level of repairs and replacements.

Litigation provisions

The Group provides for the estimated future settlements related to litigation based on the probable outcome of potential claims.

Environmental provisions

The Group provides for estimated costs of environmental remediation relating to soil, groundwater, surface water and sediment contamination when the Group becomes obliged, legally or constructively, to rectify the environmental damage, or to perform restorative work.

Project loss provisions

The Group provides for onerous contracts based on the lower of the expected cost of fulfilling the contract and the expected cost of terminating the contract. An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

LitigationDivestment-related provisions

The Group provides for indemnifications it is required to make to the estimated future settlements related to litigation based on the probable outcomebuyers of potential claims.its disposed businesses.

Material liability provisions

The Group recognizes the estimated liability for non-cancellable purchase commitments for inventory in excess of forecasted requirements at each statement of financial positionreporting date.

Other provisions

The Group provides for other legal and constructive obligations based on the expected cost of executing any such commitments.

Treasury shares

The Group recognizes its own equity instruments that are acquired (“treasury shares”) as a reduction of equity at cost of acquisition. When cancelled, the acquisition cost of treasury shares is recognized in retained earnings.

Dividends

Dividends proposed by the Board of Directors are recognized in the consolidated financial statements when they have been approved by the shareholders at the Annual General Meeting.

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New and amended standards and interpretations adopted

On January 1, 2016, the Group adopted amendments to multiple IFRS standards, which resulted from the amendments to IAS 1 and the IASB’s annual improvement project for the 2012-2014 cycles. They comprise amendments that result in accounting changes for presentation, recognition or measurement purposes, most visibly through additional guidance on use of judgment in applying materiality in aggregation and disaggregation of line items and more generally in the presentation in the financial statements. The amendments did not have a material impact on the Group’s consolidated financial statements.

Standards issued but not yet effective

The Group will adopt the following new and revised standards, amendments and interpretations to existing standards issued by the IASB that are expected to be relevant to its operations and financial position when they become effective and are endorsed by the EU. Other revisions, amendments and interpretations to existing standards issued by the IASB that are not yet effective, except what has been described below, are not expected to have a material impact on the consolidated financial statements of the Group when adopted.

The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

IFRS 9 Financial Instruments

IFRS 9, Financial Instruments, was issued in July 2014 and replaces IAS 39, Financial Instruments: Recognition and Measurement. It addresses the classification and measurement of financial assets and liabilities, introduces a new impairment model and a new hedge accounting model. The Group will adopt the standard on the effective date of January 1, 2018.

The adoption of the new standard will impact the classification and measurement of the Group’s financial assets. The Group has assessed the investments currently classified as current available-for-sale, liquid assets, and will classify certain bank deposits to be measured at amortized cost and certain investment funds to be measured at fair value through profit or loss at the adoption of the new standard. The rest of these investments satisfy the conditions for classification at fair value through other comprehensive income. Also certain trade receivables currently carried at the invoiced amount less allowances for doubtful accounts that are managed with a business model of hold to collect and occasionally sell would be classified at fair value through other comprehensive income. The Group’s investments in venture funds that are currently classified as non-current available-for-sale investments would by default be classified at fair value through profit or loss with the election to classify certain investments at fair value through other comprehensive income being available at the adoption of the new standard.

The Group has assessed the impact of the new impairment model. As the credit quality of the Group’s fixed income and money market investments is high, no significant impact from the new model is expected. While the Group has not yet assessed in detail the impact of the new model to its current valuation allowances, there can be a limited impact to valuation allowances for trade receivables and loans extended to the Group’s customers as the new model may result in an earlier recognition of credit losses.

The new hedge accounting rules will align the accounting for hedging instruments more closely with the Group’s risk management practices. The Group’s foreign exchange risk management policy and hedge accounting model have already been aligned with the requirements from IFRS 9. Accordingly, the Group does not expect a significant impact on the accounting for its hedging relationships. The new standard also introduces expanded disclosure requirements and changes in presentation that are expected to change the nature

and extent of the group’s disclosures about its financial instruments, particularly in the year of the adoption of the new standard. The Group continues to assess the detailed impact of IFRS 9.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 Revenue from Contracts with Customers was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15, revenue is recognized to reflect the transfer of promised goods and services to customers for amounts that reflect the consideration to which an entity expects to be entitled in exchange for those goods and services to a customer. The Group will adopt the standard on the effective date of January 1, 2018. The new standard replaces IAS 18, Revenue, and IAS 11, Construction contracts. The Group is currently evaluating whether the application will be the full retrospective or modified retrospective method, both permissible under the new standard.

The Group currently believes that the adoption of the new standard will have a material impact on revenue. Specifically, under some license transfer contracts, revenue is expected to be recorded earlier at a point in time instead of over time. Due to the complexity of some of the Group’s license subscription contracts, the actual revenue recognition treatment required under the new standard will be dependent on contract-specific terms. Also, revenue related to certain software contracts is likely to change from over time under the current standard to point in time. The Group continues to assess all potential impacts of IFRS 15.

IFRS 16 Leases

IFRS 16, Leases, issued in January 2016, sets out the requirements for the recognition, measurement, presentation and disclosure of leases. The Group expects to adopt the standard on the effective date of January 1, 2019. The standard provides a single lessee accounting model, requiring lessees to recognize right-of-use assets and lease liabilities for substantially all leases on the consolidated statement of financial position. The Group has started to analyze contracts containing identified assets and estimates that the standard will mainly affect the recognition and disclosure of the Group’s operating leases. The full impact of IFRS 16 is currently being assessed. As of December 31, 2016 the Group has non-cancellable operating lease commitments of EUR 1 141 million. Refer to Note 30, Commitments and contingencies.

3. Use of estimates and critical accounting judgments

The preparation of consolidated financial statements in accordance with IFRS requires the applicationuse of management judgment in selecting appropriateelecting and applying accounting policies as well as in making estimates that involve assumptions for calculatingabout the future. These judgments, estimates and assumptions may have a significant effect on the consolidated financial estimates. Management bases itsstatements.

The estimates used in determining the carrying amounts of assets and liabilities subject to estimation uncertainty are based on historical experience, expected outcomes and various other assumptions that were available when these consolidated financial statements were prepared, and they are believed to be reasonable under the circumstances. These estimates form the basis for the reported carrying values of assets and liabilities and recognized revenues and expenses that may not be readily apparent from other sources. MaterialThe estimates are revised if changes in circumstances occur, or as a result of new information or more experience. As estimates inherently contain a varying degree of uncertainty, actual outcomes may differ, resulting in additional charges or credits to the consolidated income statement.

Management considers that the estimates, assumptions and judgments about the following accounting policies represent the most significant areas of estimation uncertainty and critical judgment that may have an impact on the Group’sconsolidated financial information.statements.

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Notes to consolidated financial statementscontinued

Business combinations

The Group applies the acquisition method to account for acquisitions of separate entities or businesses. The determination of the fair value and allocation thereof to each separately identifiable asset acquired and liability assumed as well as the determination of the acquisition date, when the valuation and allocation is to be conducted require estimation and judgment.

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Estimation and judgment are required in determining the fair value of the acquisition, including the discount rate, the terminal growth rate, the number of years on which to base the cash flow projections, and the assumptions and estimates used to determine the cash inflows and outflows. The discount rate reflects current assessments of the time value of money, relevant market risk premiums, and industry comparisons. Risk premiums reflect risks and uncertainties for which the future cash flow estimates have not been adjusted. Terminal values are based on the expected life of products and forecasted life cycle, and forecasted cash flows over that period. The assumptions are based on information available at the date of acquisition; actual results may differ materially from the forecast as more information becomes available. Refer to Note 4,5, Acquisitions.

Judgment iswas required in determining the date on which the Group obtainsobtained control of the acquiree (acquisition date). On April 15, 2015, the GroupAlcatel Lucent. Nokia and Alcatel Lucent announced their intention to combinecombined through a Public Exchange Offer (the “Exchange Offer”)public exchange offer in France and inwhich the United States. As part of the Exchange Offer,Group offered to exchange all holders of Alcatel Lucent ordinary shares, Alcatel Lucent American Depositary Shares (“ADS”) and OCEANE convertible bonds (collectively, the “Alcatel Lucent Equity Securities”) could exchange their Alcatel Lucent Equity Securities for Nokia shares on the basis of 0.55 of a new Nokia share for every Alcatel Lucent share.

shares. The initial Exchange Offeroffer period was opened on November 18, 2015 and it was closed inon December 23, 2015. On January 7,4, 2016 the Exchange Offer was completed and shares were exchanged, which created legal standing for the acquisition. Under IFRS 3, however, the Group concluded that it was already the public announcement of the interim results of the successful initial Exchange Offer by the French stock market authority Autorité des Marchés Financiers (“AMF”) published the interim results of the successful offer which indicated that the Group held 70.52% of the Alcatel Lucent share capital on a fully diluted basis. On January 7, 2016 the Group announced that it had settled the offer and registered the new shares in the Finnish Trade Register, which created legal standing for the acquisition.

The management concluded that it had obtained control over Alcatel Lucent on January 4, 2016 when it was announced that established a shared understanding betweenthe offer had been successful and the Group had acquired the majority of voting rights in Alcatel LucentLucent.

In addition, management judgment was used to determine that the initial and Alcatel Lucent shareholders that control of Alcatel Lucent had passedreopened offers would be accounted for as a linked transaction. Pursuant to the Group,Article 232-4 of the AMF General Regulation, any public exchange offer made shall be reopened with the same terms and thereforeconditions within ten trading days of publication of the final outcome of the offer provided that the offer has been successful. In conformity to this rule, the offer was reopened on January 14, 2016 and closed on February 3, 2016. The AMF published the results of operations will be consolidated from January 4, 2016. Referthe reopened offer on February 10, 2016 according to Note 36, Subsequent events.which the Group held 91.25% of the share capital of Alcatel Lucent.

Based on the facts that the reopened offer was compulsory according to the AMF General Regulation, the same terms and conditions applied to both the initial and reopened offers, and the reopened offer followed shortly after the initial offer and was open only for a short period, the management concluded that the initial and reopened offers are essentially parts of the same transaction. Therefore, the ownership interests acquired in the initial and reopened offers were accounted for as if they were all acquired at the acquisition date as part of the transaction to gain control. Acquisitions of ownership interests subsequent to the closing of the reopened offer were accounted for as equity transactions with the non-controlling interests in Alcatel Lucent.

Revenue recognition

The Group enters into transactions involving multiple components consisting of any combination of hardware, services, software and softwareintellectual property rights where the Group identifies the separate components and estimates their relative fair values, considering the economic substance of the entire arrangement. The fair value of each component is determined by taking into consideration factors such as the price of the component when sold separately and the component cost plus a reasonable margin when price references are not available. The determination of the fair value and allocation thereof to each separately identifiable component requires the use of estimates and judgment which may have a significant impact on the timing and amount of revenue recognized. In some multiple element licensing transactions, the Group applies the residual method in the absence of reference information.

Net sales includes revenue from all licensing negotiations, litigations and arbitrations to the extent that the criteria for revenue recognition have been met. The final outcome may differ from the current estimate. Refer to Note 5,7, Revenue recognition.

Pension and other post-employment benefit obligations and expenses

The determination of pension and other post-employment benefit obligations and expenses for defined benefit pension plans is dependent on a number of estimates and assumptions, including the discount rate, future mortality rate, and annual rate of increase in future compensation levels.levels, and healthcare costs trend rates and usage of services in the United States where the majority of our post-employment healthcare plans are maintained. A portion of plan assets is invested in debt and equity securities, which are subject to market volatility. Changes in assumptions and actuarial estimates may materially affect the pension benefit obligation, future expense and future expense.cash flow. Based on these estimates and assumptions, pensiondefined benefit obligations amount to EUR 28 663 million (EUR 1 840 million (EUR 1 884 million in 2014)2015) and the fair value of plan assets amounts to EUR 27 770 million (EUR 1 451 million (EUR 1 387 million in 2014)2015). The increase in both defined benefit obligations and fair value of plan assets in 2016 compared to 2015 is due to the Acquisition of Alcatel Lucent. Refer to Note 8, Pensions.27, Pensions and other post-employment benefits.

Income taxes

The Group is subject to income taxes in both Finland and a number of other jurisdictions.the jurisdictions in which it operates. Judgment is required in determining current tax expense, uncertain tax positions, deferred tax assets and deferred tax liabilities; and the extent to which deferred tax assets can be recognized.

Estimates related to the recoverability of deferred tax assets are based on forecasted future taxable income and tax planning strategies. Based on these estimates and assumptions, the Group has EUR 20 952 million (EUR 1 843 million in 2015) of temporary differences, tax losses carry forward temporary differences and tax credits for which no deferred tax assets are recognized due to uncertainty are EUR 1 412 million (EUR 2 550 million in 2014).of utilization. Majority of the unrecognized deferred tax assets relate to France. Refer to Note 12, Income taxes.

The utilization of deferred tax assets is dependent on future taxable profit in excess of the profit arising from the reversal of existing taxable temporary differences. The recognition of deferred tax assets is based on the assessment of whether it is more likely than not that sufficient taxable profit will be available in the future to utilize the reversal of deductible temporary differences, unused tax losses and unused tax credits before the unused tax losses and unused tax credits expire. Recognition of deferred tax assets involves judgment regarding the future financial performance of the particular legal entity or tax group that has recognized the deferred tax asset.

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Liabilities for uncertain tax positions are recorded based on estimates and assumptions of the amount and likelihood of outflow of economic resources when it is more likely than not that certain positions will be challenged and may not be fully sustained upon review by local tax authorities. Currently, the Group has ongoing tax investigations in multiple jurisdictions, including India.India and Germany. Due to the inherently uncertain nature of tax investigations, the ultimate outcome or actual cost of settlement may vary materially from estimates. Refer to Note 13,12, Income tax, and Note 14, Deferred taxes.

Carrying value of cash-generating units (“CGUs”)

The recoverable amounts of the Group’sgroups of CGUs are determined usingand the CGU were based on fair value less costs of disposal method.that was determined using market participant assumptions based on a discounted cash flow calculation. The cash flow projections used in calculating the recoverable amounts were based on financial plans approved by management covering an explicit forecast period of five years. Five additional years of cash flow projections subsequent to the explicit forecast period reflect a gradual progression towards the steady state cash flow projections modeled in the terminal year. Estimation and judgment are required in determining the components of the recoverable amount calculation, including the discount rate, the terminal growth rate, estimated revenue growth rates, profit margins, costs of disposalgross margin and the cost level of operational and capital investment.operating margin. The discount rate reflectsrates reflect current assessments of the time value of money and relevant market risk premiums and industry comparisons. Risk premiums reflectreflecting risks and uncertainties for which the future cash flow estimates have not been adjusted. Terminal values are based onThe terminal growth rate assumptions reflect long-term average growth rates for the expected lifeindustry and economies in which the groups of productsCGUs and forecasted life cycle,the CGU operate.

The Group allocated a significant proportion of the goodwill arising from the Acquisition of Alcatel Lucent to the IP/Optical Networks group of CGUs, which is comprised mainly of businesses acquired in the acquisition. As a result, the fair value of the IP/Optical Networks group of CGUs corresponds closely to its respective carrying amount.

The results of the impairment testing indicate significant headroom for each group of CGUs and forecasted cash flows over that period. Based on these estimates and assumptions,CGU, except for the IP/Optical Networks group of CGUs, where the recoverable amount exceeds its carrying amount by approximately EUR 1 200 million. Taken in isolation, the following changes would cause the recoverable amount of IP/Optical Networks group of CGUs to equal its carrying amount:

∎Increase in discount rate from 8.9% to 10.7%.

∎Reduction in operational profitability in the terminal year by 40% which is equal to the decrease in the operating profit of EUR 331 million.

Total goodwill amounts to EUR 5 724 million as of December 31, 2016 (EUR 237 million (EUR 2 563 million in 2014)2015). Refer to Note 10,14, Intangible assets and Note 16, Impairment.

Allowances for doubtful accounts

Allowances for doubtful accounts are recognized for estimated losses resulting from customers’ inability to meet payment obligations. Estimation and judgment are required in determining the value of allowances for doubtful accounts at each statement of financial positionreporting date. Management specifically analyzes account receivablesaccounts receivable and historical bad debt; customer concentrations; customer creditworthiness; past due balances; current economic trends; and changes in customer payment terms when determining allowances for doubtful accounts. Additional allowances may be required in future periods if financial positions of customers deteriorate, reducing their ability to meet payment obligations. Based on these estimates and assumptions, allowances for doubtful accounts are EUR 168 million (EUR 62 million (EUR 103 million in 2014)2015), representing 2% of accounts receivable (3%(2% in 2014)2015). Refer to Note 22,18, Allowances for doubtful accounts.

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Notes to consolidated financial statementscontinued

Allowances for excess and obsolete inventory

Allowances for excess and obsolete inventory are recognized for excess amounts, obsolescence and declines in net realizable value below cost. Estimation and judgment are required in determining the value of the allowance for excess and obsolete inventory at each statement of financial positionreporting date. Management specifically analyzes estimates of future demand for products when determining allowances for excess and obsolete inventory. Changes in these estimates could result in revisions to the valuation of inventory in future periods. Based on these estimates and assumptions, allowances for excess and obsolete inventory are EUR 456 million (EUR 195 million (EUR 204 million in 2014)2015), representing 16%15% of inventory (14%(16% in 2014)2015). Refer to Note 21,17, Inventories.

Fair value of derivatives and other financial instruments

The fair value of derivatives and other financial instruments that are not traded in an active market such as unlisted equities is determined using valuation techniques. Estimation and judgment are required in selecting an appropriate valuation technique and in determining the underlying assumptions. Where quoted market prices are not available for unlisted shares, the fair value is based on a number of factors including, but not limited to, the current market value of similar instruments; prices established from recent arm’s- lengtharm’s-length transactions; and/or analysis of market prospects and operating performance of target companies with reference to public market comparable companies in similar industry sectors. Changes in these estimates could result in impairments or losses in future periods. Based on these estimates and assumptions, the fair value of derivatives and other financial instruments that are not traded in an active market, using non-observable data (level 3 of the fair value hierarchy), is EUR 660 million (EUR 688 million (EUR 556 million in 2014)2015), representing 6%24% of total net financial assets measured at fair value on a recurring basis (7%(19% in 2014)2015). Refer to Note 19,24, Fair value of financial instruments.

Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. At times, judgment is required in determining whether the Group has a present obligation; estimation is required in determining the value of the obligation. Whilst provisions are based on the best estimate of unavoidable costs, management may be required to make a number of assumptions surrounding the amount and likelihood of outflow of economic resources, and the timing of payment. Changes in estimates of timing or amounts of costs to be incurred may become necessary as time passes and/or more accurate information becomes available. Based on these estimates and assumptions, provisions amount to EUR 1 980 million (EUR 725 million (EUR 873 million in 2014)2015). Refer to Note 28,29, Provisions.

Legal contingencies

Legal proceedings covering a wide range of matters are pending or threatened in various jurisdictions. Provisions are recognized for pending litigation when it is apparent that an unfavorable outcome is probable and a best estimate of unavoidable costs can be reasonably estimated. Due to the inherently uncertain nature of litigation, the ultimate outcome or actual cost of settlement may vary materially from estimates. Refer to Note 28,29, Provisions.

New accounting pronouncements under IFRS

The Group will adopt the following new and revised standards, amendments and interpretations to existing standards issued by the IASB that are expected to be relevant to its operations and financial position:

IFRS 9, Financial Instruments, was issued in July 2014 and replaces IAS 39, Financial Instruments: Recognition and Measurement. The Group will adopt the standard at the latest on the effective date of January 1, 2018. The adoption of the new standard will impact the classification and measurement of the Group’s financial assets and introduces a new hedge accounting model. The Group is currently assessing the impact of IFRS 9.

IFRS 15, Revenue from Contracts with Customers, was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15, revenue is recognized to reflect the transfer of promised goods and services to customers for amounts that reflect the consideration to which an entity expects to be entitled in exchange for those goods or services to a customer. The Group will adopt the standard on the effective date of January 1, 2018. The adoption of the new standard is likely to have an impact on revenue recognition. The impact of IFRS 15 is currently being assessed.

IFRS 16, Leases, was issued in January 2016 and sets out the principles for the recognition, measurement, presentation and disclosure requirements on leases. The Group expects to adopt the standard on the effective date of January 1, 2019. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. The adoption of the new standard will have an impact on the way leases are recognized and presented. The full impact of IFRS 16 is currently being assessed.

On January 1, 2016, the Group will adopt amendments to multiple IFRS standards, which result from the IASB’s annual improvement projects for the 2012-2014 cycle. They comprise amendments that result in accounting changes for presentation, recognition or measurement purposes as well as terminology or editorial amendments related to a variety of individual IFRS standards. The amendments will not have a material impact on the Group’s consolidated financial statements.

 

 

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Notes to consolidated financial statementscontinued

    

    

    

    

    

    

 

2.4. Segment information

The Group has two businesses: Nokia’s Networks business and Nokia Technologies, and three reportable segments for financial reporting purposes: (1) Ultra Broadband Networks and (2) IP Networks and Applications within Nokia’s Networks business; and (3) Nokia Technologies;Technologies. Segment-level information for Group Common and Other is also presented.

The Group has aggregated Mobile Networks and Fixed Networks operating segments to one reportable segment, Ultra Broadband Networks; and IP/Optical Networks and Applications & Analytics operating segments to one reportable segment, IP Networks and Applications. The aggregated operating segments have similar economic characteristics, such as long-term margins; have similar products, production processes, distribution methods and customers; and operate in a similar regulatory environment.

The current operational and reporting structure was adopted following the Acquisition of Alcatel Lucent on January 4, 2016. Previously the Group had three operating and reportable segments in its Continuing operations for financialmanagement reporting purposes: Mobile Broadband and Global Services within Nokia Networks, and Nokia Technologies.

Two businesses are presented as Discontinued operations. The HERE business formed an Prior period segment information has been regrouped and recasted for comparability purposes according to the new operating and reportable segment until December 4, 2015 when its sale was completed. The Devices & Services business formed an operating and reportable segment until April 25, 2014 when its sale was completed.

The Group adopted its current operational and reporting structure in 2013. On August 7, 2013 the Group announced that it had completed the acquisition of Siemens’ stake in Nokia Networks. Until then, Nokia Networks was reported as a single operating and reportable segment. Following the completion of the transaction, Nokia Networks business has two operating and reportable segments, Mobile Broadband and Global Services. On September 2, 2013 the Group signed an agreement for the Sale of the D&S Business to Microsoft. After receiving shareholder confirmation and approval for the transaction at the Extraordinary General Meeting in November 2013, the Group has presented substantially all of its former Devices & Services business as Discontinued operations and Nokia Technologies, previously a part of the Devices & Services business, as an operating and reportable segment. On August 3, 2015 the Group announced the Sale of the HERE Business to a consortium of leading automotive companies, comprising AUDI AG, BMW Group and Daimler AG. Subsequent to the announcement, the Group has presented the HERE business as Discontinued operations. Refer to Note 3, Disposals treated as Discontinued operations.structure.

The chief operating decision maker receives monthly financial information for the Group’s operating and reportable segments. Key financial performance measures of the reportable segments include primarily non-IFRS net sales and non-IFRS operating profit. The chief operating decision maker evaluates the performance of the segments and allocates resources to them based on non-IFRSsegment operating profit. The non-IFRS operating profit of Mobile Broadband, Global Services and Nokia Technologies excludes restructuring and associated charges, purchase price accounting-related charges and certain other items not directly related to these segments.

Mobile Broadband provides mobile operators with flexible network solutions for mobile voice and data services through its Radio and Core business lines. The Radio business consists of 2G to 5G technology generations. The Core business has a comprehensive mobile switching portfolio as well as voice and packet core solutions.

Global Services provides mobile operators with services to create and maintain effective networks. The services include network implementation, care, managed services, network planning and optimization as well as systems integration.

Nokia Networks Other includes net sales and related cost of sales and operating expenses of non-core businesses, IPR net sales and related costs, as well as the Optical Nokia Networks business until May 6, 2013, when its divestment was completed. It also includes restructuring and associated charges for the Nokia Networks business.

Nokia Technologies focuses on advanced technology development and licensing and includes net sales from both intellectual property right activities and technology licensing.

Group Common Functions consists of company-wide support functions.

The HERE business focused on the development of location intelligence, location-based services and local commerce. The HERE brand was introduced for the location and mapping service in 2012 and on January 1, 2013 the Group’s former Location & Commerce business and reportable segment was renamed HERE.

The Devices & Services business focused on developing and selling smartphones powered by the Windows Phone system, feature phones and affordable smartphones.(1).

Accounting policies of the segments are the same as those described in Note 1, Accounting principles. The Group accounts for inter-segment2, Significant accounting policies. Inter-segment revenues and transfers are accounted for as if the revenues were to third parties, that is, at current market prices. Certain costs and revenue adjustments(1) are not allocated to the segments.

No single customer represents 10% or more of revenues.

Segment descriptions

Ultra Broadband Networks

Ultra Broadband Networks comprises Mobile Networks and Fixed Networks operating segments.

The Mobile Networks operating segment offers an industry-leading portfolio of end-to-end mobile networking solutions comprising hardware, software and services for telecommunications operators, enterprises and related markets/verticals, such as public safety and Internet of Things (“IoT”).

The Fixed Networks operating segment provides copper and fiber access products, solutions and services. The portfolio allows for a customized combination of technologies that brings fiber to the most economical point for the customer.

IP Networks and Applications

IP Networks and Applications comprises IP/Optical Networks and Applications & Analytics operating segments.

The IP/Optical Networks operating segment provides the key IP routing and optical transport systems, software and services to build high capacity network infrastructure for the internet and global connectivity.

The Applications & Analytics operating segment offers software solutions spanning customer experience management, network operations and management, communications and collaboration, policy and charging, as well as Cloud, IoT, security, and analytics platforms that enable digital services providers and enterprises to accelerate innovation, monetize services, and optimize their customer experience.

Nokia Technologies

The Nokia Technologies operating segment has two main objectives: to drive growth and renewal in its existing patent licensing business; and to build new businesses based on breakthrough innovation in key technologies and products, in the areas of Digital Media and Digital Health.

From January 2016, the majority of net sales and related costs and expenses attributable to licensing and patenting the separate patent portfolios of Nokia Technologies, Nokia’s Networks business, and Nokia Bell Labs are recorded in Nokia Technologies. Each reportable segment continues to separately record its own research and development expenses.

Group revenues.Common and Other

Segment-level information for Group Common and Other is also presented. From January 2016, Group Common and Other includes the Alcatel-Lucent Submarine Networks and Radio Frequency Systems businesses, both of which are being managed as separate entities. In addition, Group Common and Other includes Nokia Bell Labs’ operating expenses, as well as certain corporate-level and centrally managed operating expenses.

(1)Segment results exclude costs related to the Acquisition of Alcatel Lucent and related integration, goodwill impairment charges, intangible asset amortization and other purchase price fair value adjustments, restructuring and associated charges and certain other items.

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Segment information

EURm   

Ultra

Broadband

Networks

 

 

(1) 

  

IP Networks

and

Applications

 

 

(2) 

  

Nokia’s

Networks

business

total

 

 

 

(3) 

  
Nokia
Technologies		 
 		   

Group

Common

and Other

 

 

 

  Eliminations   

Segment

total

 

 

  

Unallocated

items

 

(4) 

  Total 
Continuing operations           
2016           

Net sales to external customers

   15 770   6 029   21 799   1 038    1 108   –   23 945   (331)   23 614 

Net sales to other segments

   1   –   1   15    37   (53)   –   –   – 

Depreciation and amortization

   348   151   499   8    45   –   552   1 042   1 594 

Impairment charges

   9   –   9   –    8   –   17   –   17 

Operating profit/(loss)

   1 362   573   1 935   579    (342)   –   2 172   (3 272)   (1 100) 

Share of results of associated companies and joint ventures

   18   –   18   –    –   –   18   –   18 
2015           

Net sales to external customers

   10 159   1 328   11 487   1 012    –   –   12 499   –   12 499 

Net sales to other segments

   –   –   –   15    –   (15)   –   –   – 

Depreciation and amortization

   158   35   193   6    8   –   207   79   286 

Impairment charges

   –   –   –   –    11   –   11   –   11 

Operating profit/(loss)

   1 211   138   1 349   698    (89)   –   1 958   (261)   1 697 

Share of results of associated companies and joint ventures

   29   –   29   –    –   –   29   –   29 
2014           

Net sales to external customers

   9 817   1 326   11 143   618    1   –   11 762   –   11 762 

Net sales to other segments

   1   –   1   14    –   (15)   –   –   – 

Depreciation and amortization

   131   33   164   2    7   –   173   67   240 

Impairment charges

   –   –   –   –    13   –   13   –   13 

Operating profit/(loss)

   1 251   188   1 439   389    (226)   –   1 602   (188)   1 414 

Share of results of associated companies and joint ventures

   (12)   –   (12)   –    –   –   (12)   –   (12) 

(1)Includes Mobile Networks net sales of EUR 13 406 million (EUR 10 023 million in 2015 and EUR 9 639 million in 2014) and Fixed Networks net sales of EUR 2 365 million (EUR 136 million in 2015 and EUR 179 million in 2014).
(2)Includes IP Routing net sales of EUR 2 940 million (EUR 515 million in 2015 and EUR 523 million in 2014), Optical Networks net sales of EUR 1 562 million and Applications & Analytics net sales of EUR 1 527 million (EUR 813 million in 2015 and EUR 803 million in 2014).
(3)Includes services net sales of EUR 8 531 million (EUR 5 424 million in 2015 and EUR 5 078 million in 2014).
(4)Excludes costs related to the Acquisition of Alcatel Lucent and related integration, goodwill impairment charges, intangible asset amortization and other purchase price fair value adjustments, restructuring and associated charges and certain other items.

Reconciliation of total segment operating profit to total operating profit

EURm  2016  2015  2014 

Total segment operating profit

                   2 172                   1 958                   1 602 

Amortization and depreciation of acquired intangible assets and property, plant and equipment

   (1 026)   (79)   (67) 

Release of acquisition-related fair value adjustments to deferred revenue and inventory

   (840)   –   – 

Restructuring and associated charges

   (774)   (123)   (57) 

Product portfolio strategy costs

   (348)   –   – 

Transaction and related costs, including integration costs relating to the Acquisition of Alcatel Lucent

   (295)   (99)   (39) 

Other

   11   40   (25) 

Total operating (loss)/profit

   (1 100)   1 697   1 414 

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 155161

    

Notes to consolidated financial statementscontinued

Segment data

Segment

    

EURm

   

 

Mobile

Broadband

  

(1) 

  

 

Global

Services

  

(1) 

  
 
 		Nokia
Networks
Other		  
  
  		  
 
 		Nokia
Networks
Total		  
  
  		  

 

Nokia

Technologies

  

(1) 

  
 
 		Group
Common
Functions		  
  
  		  Eliminations    

 

Non-IFRS

total

(2) 

  

  

 

Non-IFRS

exclusions

(2) 

  

  Total  

Continuing operations

           

2015

           

Net sales to external customers

   6 064    5 422    4    11 490    1 009    –    –    12 499    –    12 499  

Net sales to other segments

   –    –    –    –    15    –    (15)   –    –    –  

Depreciation and amortization

   153    41    –    194    6    7    –    207    79    286  

Impairment charges

   –    –    –    –    –    11    –    11    –    11  

Operating profit

   604    653    –    1 257    720    (28)   –    1 949    (261)   1 688  

Share of results of associated companies and joint ventures

   –    –    43    43    –    (14)   –    29    –    29  

2014

           

Net sales to external customers

   6 038    5 105    54    11 197    564    1    –    11 762    –    11 762  

Net sales to other segments

   1    –    –    1    14    –    (15)   –    –    –  

Depreciation and amortization

   131    34    –    165    1    7    –    173    67    240  

Impairment charges

   –    –    –    –    –    15    –    15    –    15  

Operating profit

   683    653    28    1 364    357    (121)   –    1 600    (188)   1 412  

Share of results of associated companies and joint ventures

   –    –    (9)   (9)   –    (3)   –    (12)   –    (12) 

2013

           

Net sales to external customers

   5 346    5 752    182    11 280    515    –    –    11 795    –    11 795  

Net sales to other segments

   1    1    –    2    14    –    (16)   –    –    –  

Depreciation and amortization

   157    50    6    213    3    3    –    219    100    319  

Impairment charges

   1    1    –    2    –    6    –    8    12    20  

Operating profit

   422    693    (26)   1 089    329    (30)   –    1 388    (716)   672  

Share of results of associated companies and joint ventures

   –    –    8    8    –    (4)   –    4    –    4  

(1)Represents an operating and reportable segment.
(2)Non-IFRS measures exclude goodwill impairment charges, intangible asset amortization and items related to purchase price allocation, as well as restructuring-related costs, costs related to the Alcatel Lucent transaction and certain other items that may not be indicative of the Group’s underlying business.

Reconciliation of total non-IFRS operating profit to total operating profit

EURm  2015  2014  2013 

Total non-IFRS operating profit

   1 949    1 600    1 388  

Restructuring and associated charges(1)

   (123)   (57)   (373) 

Transaction and related costs, including integration costs relating to Alcatel Lucent acquisition(2)

   (99)   (39)   (18) 

Amortization of acquired intangible assets(3)

   (79)   (67)   (100) 

Divestment of businesses(3)

   –    –    (157) 

Country and contract exit charges(3)

   –    –    (52) 

Other

   40    (25)   (16) 

Total operating profit

                    1 688                        1  412                         672  

(1)In 2015, includes EUR 121 million related to Nokia Networks, EUR 3 million related to Nokia Technologies and a reversal of EUR 1 million related to Group Common Functions. In 2014, included EUR 57 million related to Nokia Networks. In 2013, included EUR 361 million related to Nokia Networks, EUR 2 million related to Nokia Technologies and EUR 10 million related to Group Common Functions.
(2)Relates to Group Common Functions.
(3)Relates to Nokia Networks.

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Net sales to external customers by geographic location of customer

 

EURm  2015   2014   2013   2016   2015   2014 

Finland(1)

   1 100     680     572     1 138    1 100    680 

United States

   1 489     1 445     1 255     6 635    1 489    1 445 

China

   1 323     994     881     2 249    1 323    994 

India

   1 098     768     641     1 281    1 098    768 

France

   1 055    207    220 

United Kingdom

   717    394    296 

Australia

   646    133    189 

Japan

   877     1 194     1 388     627    877    1 194 

Russia

   438     498     377  

United Kingdom

   394     296     369  

Taiwan

   389     387     303  

Germany

   567    312    400 

Saudi Arabia

   364     291     297     565    364    291 

Italy

   355     345     313  

Other

   4 672     4 864     5 399     8 134                    5 202    5 285 

Total

                    12 499                     11 762                     11 795                     23 614    12 499                    11 762 

 

(1)All Nokia Technologies IPR and licensing net sales are allocated to Finland.

Non-current assets by geographic location(1)

 

EURm  2015   2014   2016   2015 

Finland

   724     574     726    724 

United States

   159     2 686     7 946    159 

France

   2 369    2 

China

   129     117     458    129 

India

   70     71     130    70 

Other

   173     181     1 312    171 

Total

                      1 255                       3 629                      12 941                      1 255 

 

(1)Consists of goodwill and other intangible assets and property, plant and equipment.

3.5. Acquisitions

Alcatel Lucent business combination

On April 15, 2015, the Group and Alcatel Lucent announced their intention to combine through a public exchange offer (“exchange offer”) in France and the United States. Alcatel Lucent is a global leader in IP networking, ultra-broadband access and Cloud applications. The combined company leverages the combined scale of operations, complementary technologies, portfolios and geographical presence; and unparalleled innovation capabilities to lead in the next generation network technology and services, and to create access to an expanded addressable market with improved long-term growth opportunities.

Acquisition of Alcatel Lucent Securities

The Group obtained control of Alcatel Lucent on January 4, 2016 when the interim results of the successful initial exchange offer were announced by the French stock market authority, Autorité des Marchés Financiers (“AMF”). On January 14, 2016, as required by the AMF General Regulation, the Group reopened its exchange offer in France and the United States for the outstanding Alcatel Lucent ordinary shares, Alcatel Lucent American Depositary Shares (“ALU ADS”) and OCEANE convertible bonds (the “OCEANEs”, collectively “Alcatel Lucent Securities”) not tendered during the initial exchange offer period. The reopened exchange offer closed on February 3, 2016. The Group has determined that the initial and the reopened exchange offers are linked transactions that are considered together as a single arrangement, given that the reopened exchange offer is required by the AMF General Regulation and is based on the same terms and conditions as the initial exchange offer.

As part of the exchange offers, holders of Alcatel Lucent Securities could exchange Alcatel Lucent Securities for Nokia shares and Nokia American Depositary Shares (“Nokia ADS”) on the basis of 0.55 Nokia share or Nokia ADS for every Alcatel Lucent share or ALU ADS.

Following the initial and reopened exchange offers, the Group held 90.34% of the share capital, and at least 90.25% of the voting rights of Alcatel Lucent. The Group issued a total of 1 776 379 756 new Nokia shares as consideration for the Alcatel Lucent Securities tendered in the exchange offers.

Alcatel Lucent ordinary shares and ALU ADSs acquired subsequent to the closing of the reopened exchange offer, including through the Public Buy-Out Offer and the Squeeze-Out, were accounted for as equity transactions with the remaining non-controlling interests in Alcatel Lucent. As such, any new Nokia shares or cash consideration paid for these instruments were recorded directly in equity against the carrying amount of non-controlling interests. The acquisition of OCEANEs subsequent to the transactions linked to the exchange offer was treated both as extinguishment of debt and equity transaction with remaining non-controlling interests in Alcatel Lucent, with the redemption consideration allocated to the liability and equity components.

162NOKIA ANNUAL REPORT ON FORM 20-F 2016

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Subsequent to the exchange offers, the following transactions were carried out relating to the acquisition of the remaining outstanding equity interests in Alcatel Lucent:

∎On February 12, 2016, the OCEANEs acquired as part of the initial and reopened exchange offers were converted to Alcatel Lucent shares.

∎On February 19, 2016, the Group announced the issue of 6 501 503 new Nokia shares in exchange for Alcatel Lucent shares in a private transaction at the 0.55 exchange offer provided in the initial and reopened exchange offers. This transaction was based on a Board of Directors resolution on February 18, 2016.

∎On May 9, 2016, the acquisition of 107 775 949 Alcatel Lucent shares was closed in exchange for 59 276 772 new Nokia shares from JPMorgan Chase Bank N.A., as depositary, pursuant to the share purchase agreement announced on March 17, 2016. These shares represented Alcatel Lucent shares that remained in the ALU ADS receipts program after the cancellation period and following the program’s termination on April 25, 2016.

∎On May 12, 2016, the Group agreed to acquire 72 994 133 of 2019 OCEANEs and 19 943 533 of 2020 OCEANEs through a privately negotiated transaction in consideration for an aggregate cash payment of EUR 419 million.

∎On June 17, 2016, 24 392 270 Alcatel Lucent shares, 9 614 661 of 2019 OCEANEs and 2 290 001 of 2020 OCEANEs were acquired through privately negotiated transactions in consideration for an aggregate cash payment of EUR 85 million for the Alcatel Lucent shares (corresponding to a unit price of EUR 3.50 per share) and EUR 54 million for the OCEANEs (corresponding to a unit price of EUR 4.51 per 2019 OCEANE and EUR 4.50 per 2020 OCEANE).

Following these transactions, the Group held 95.32% of the share capital and 95.25% of the voting rights in Alcatel Lucent, corresponding to 95.15% of the Alcatel Lucent shares on a fully diluted basis.

On September 6, 2016, a joint offer document was filed with Alcatel Lucent with the AMF relating to the proposed Public Buy-Out Offer, in cash, for the remaining Alcatel Lucent shares and OCEANEs (the “Public Buy-Out Offer”). The Public Buy-Out Offer was followed by a Squeeze-Out in accordance with the AMF General Regulation, in cash, for the Shares and OCEANEs not tendered into the Public Buy-Out Offer (the “Squeeze-Out”, and together with the Public Buy-Out Offer, the “Offer”).

Following the AMF Offer clearance decision on September 20, 2016, the Group commenced the Public Buy-Out Offer on September 22, 2016 pursuant to which it proposed to all holders of the Alcatel Lucent shares and OCEANEs to acquire Nokia securities. The financial terms of the Public Buy-Out Offer were:

∎EUR 3.50 per Alcatel Lucent share;

∎EUR 4.51 per 2019 OCEANE; and

∎EUR 4.50 per 2020 OCEANE.

On October 4, 2016, the AMF announced that a legal action was filed before the Paris Court of Appeal on September 30, 2016 for the annulment of the AMF’s Offer clearance decision. Pursuant to the AMF General Regulation, the Group provided a pledge in relation to the Offer to cover the purchase of the remaining Alcatel Lucent Securities.

On October 25, 2016, the AMF announced the continuation of the Offer timetable. Accordingly, the Public Buy-Out Offer period ended on October 31, 2016, and the Squeeze-Out was implemented on November 2, 2016, in accordance with the AMF General Regulation. In the Squeeze-Out, the Alcatel Lucent shares and OCEANEs not tendered into the Public Buy-Out Offer were transferred to the Group for the same consideration as the above-mentioned consideration of the Public Buy-Out Offer, net of all costs. The remaining outstanding Alcatel Lucent stock options and performance shares were modified to settle in cash or Nokia shares.

On November 2, 2016, following the Public Buy-Out Offer and the Squeeze-Out, the Group held 100% of the share capital and voting rights of Alcatel Lucent. Alcatel Lucent shares and OCEANEs were delisted from the Euronext Paris regulated market on the same date.

On December 15, 2016, the plaintiffs withdrew their complaint for the annulment of the AMF’s Offer clearance decision from the Paris Court of Appeal. Consequently, the commitments, put in place as a precautionary measure, are no longer in force and the funds and Alcatel Lucent Securities deposited into escrow accounts were released and the Group no longer has an obligation to maintain the integrity of the entity Alcatel Lucent SA.

Purchase consideration

The purchase consideration comprises the fair value of the consideration paid for the Alcatel Lucent Securities obtained through the exchange offers, and the fair value of the portion of Alcatel Lucent stock options and performance shares attributable to pre-combination services that were settled with Nokia shares. The fair value of the purchase consideration is based on the closing price of Nokia share of EUR 6.58 on Nasdaq Helsinki on January 4, 2016, and the exchange offer ratio of 0.55 Nokia share for every Alcatel Lucent share.

NOKIA ANNUAL REPORT ON FORM 20-F 2016163

Notes to consolidated financial statementscontinued

Fair value of the purchase consideration:

EURm

Alcatel Lucent shares or ADSs

10 046

OCEANE convertible bonds

1 570

Consideration attributable to the vested portion of replacement share-based payment awards

6

Total

11 622

Fair value of the purchase consideration is based on the results of the initial and the reopened exchange offers.

Purchase accounting

The Group has finalized Alcatel Lucent acquisition-related purchase accounting, including purchase price allocation. The fair values of the identifiable assets and liabilities, as of the date of acquisition:

EURm
Non-current assets

Intangible assets

5 711

Property, plant and equipment

1 412

Deferred tax assets

2 328

Defined benefit pension assets

3 201

Other non-current assets

687

Total non-current assets

13 339
Current assets

Inventories

1 992

Accounts receivable

2 813

Other current assets

1 360

Cash and cash equivalents

6 198

Total current assets

12 363

Total assets acquired

25 702
Non-current liabilities

Long-term interest-bearing liabilities

4 037

Deferred tax liabilities

425

Defined benefit pension and post-retirement liabilities

4 464

Other non-current liabilities

601

Total non-current liabilities

9 527
Current liabilities

Current borrowings and other financial liabilities

671

Other current liabilities

7 252

Total current liabilities

7 923

Total liabilities assumed

17 450

Net identifiable assets acquired

8 252
Attributable to:

Equity holders of the parent

6 538

Non-controlling interests

1 714

Goodwill

5 084

Purchase consideration

11 622

Goodwill arising from the Acquisition of Alcatel Lucent amounts to EUR 5 084 million and is primarily attributable to synergies arising from the significant economies of scale and scope that the Group is expecting to benefit from as part of the new combined entity. Goodwill was allocated to the four operating segments within Nokia’s Networks business. Refer to Note 16, Impairment.

The components of non-controlling interests in Alcatel Lucent that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation, were measured based on the non-controlling interests’ proportionate share of the fair value of the acquired identifiable net assets. As such, goodwill excludes the goodwill related to the non-controlling interests. The equity component of the remaining outstanding OCEANEs, as well as the outstanding stock options and performance shares that will be settled in Alcatel Lucent ordinary shares were measured at fair value within non-controlling interests.

164NOKIA ANNUAL REPORT ON FORM 20-F 2016

LOGO

Fair values of other intangible assets acquired:

    

Fair value

EURm

   

        Amortization period

years

 

Customer relationships

   2 902    10 

Technologies

   2 170    4 

Other

   639    8 

Total

   5 711      

Acquisition-related costs not directly attributable to the issue of shares, recorded in selling, general and administrative expenses and other expenses in the consolidated income statement, and in operating cash flows in the consolidated statement of cash flows, amount to EUR 125 million, of which EUR 93 million is recognized in 2016.

From January 4 to December 31, 2016 the acquired business contributed revenues of EUR 12 151 million and a net loss of EUR 508 million to the consolidated income statement. These amounts have been calculated using the subsidiary’s results, adjusting them for accounting policy alignments.

Other acquisitions

In 2016 the Group acquired four businesses (two businesses in 2015), which are individually immaterial to the consolidated financial statements. Goodwill arising on acquisitions is attributable to future derivations of the acquired technology, future customers and assembled workforce, and has been allocated to cash-generating units or groups of cash-generating units expected to benefit from the synergies of the combination. Refer to Note 16, Impairment. The majority of goodwill acquired in 2016 is not expected to be deductible for tax purposes. The acquired intangible assets are primarily technology-based intangible assets.

Acquisitions in 2016 and 2015:

Company/businessDescription

2016

Nakina Systems Inc.Nakina Systems Inc. is a Canadian security and operational systems software company. The Group acquired the business through an asset transaction on March 31, 2016.
Withings S.A.Withings S.A. is a provider of digital health products and services. The Group acquired 100% ownership interest on May 31, 2016.
GainspeedGainspeed is a United States-based start-up specializing in Distributed Access Architecture (“DDA”) solutions for the cable industry through its Virtual Converged Cable Access Platform (“CCAP”) product line. The Group acquired 100% ownership interest on July 29, 2016.
ETA DevicesETA Devices is a United States-based start-up specializing in power amplifier efficiency solutions for base stations, access points and devices. The Group acquired 100% ownership interest on October 4, 2016.
2015
Wireless network
business of Panasonic		The business transfer included Panasonic’s LTE/3G wireless base station system business, related wireless equipment system business, fixed assets and business contracts with Panasonic’s customers as well as more than 300 Panasonic employees. The Group acquired the business through an asset transaction on January 1, 2015.
Eden Rock
Communications, LLC		Eden Rock Communications is a pioneer in SON and creator of Eden-NET, an industry leading multivendor centralized in SON solution. The Group acquired 100% ownership interest on July 10, 2015.

Total consideration paid, aggregate fair values of intangible assets, other net assets acquired and resulting goodwill as of each acquisition date:

EURm  2016   2015 

Other intangible assets

   70    56 

Other net assets

   16    33 

Total identifiable net assets

   86                        89 

Goodwill

   274    7 

Total purchase consideration(1)

                    360    96 

(1)The total purchase consideration does not equal to the acquisition of businesses, net of acquired cash in the consolidated statement of cash flows due to foreign exchange rate differences and the timing of the consideration payment.

NOKIA ANNUAL REPORT ON FORM 20-F 2016165

Notes to consolidated financial statementscontinued

6. Disposals treated as Discontinued operations

Results of Discontinued operations

 

EURm  2015 2014 2013   2016 2015 2014 

Net sales

                     1 075                      3 428                    11 649     –   1 075   3 428 

Cost of sales

   (244)   (2 325)   (8 734)    –   (244)   (2 325) 

Gross profit

   831   1 103   2 915     –  831  1 103 

Research and development expenses

   (498)   (899)   (1 778)    –   (498)   (899) 

Selling, general and administrative expenses

   (213)   (628)   (1 747)    (11)   (213)   (628) 

Other income and expenses

   (23)   (1 354)   (133)    (4)   (23)   (1 354) 

Operating profit/(loss)

   97   (1 778)  (743) 

Share of results of associated companies and joint ventures

   –    –    1  

Operating (loss)/profit

   (15)  97  (1 778) 

Financial income and expenses

   (9)   10    7     14   (9)   10 

Profit/(loss) before tax

   88   (1 768)  (735) 

Income tax benefit/(expense)

   8    (277)   (132) 

Profit/(loss) for the year, ordinary activities

   96   (2 045)  (867) 

Gain on the Sale of the HERE and D&S Businesses, net of tax

   1 178    2 803    –  

Profit/(loss) for the year

   1 274   758   (867) 

(Loss)/profit before tax

   (1)  88  (1 768) 

Income tax (expense)/benefit

   (28)   8   (277) 

(Loss)/profit for the year, ordinary activities

   (29)  96  (2 045) 

Gain on the sale of HERE and D&S Businesses, net of tax(1)

                            14   1 178                   2 803 

(Loss)/profit for the year

   (15)                  1 274  758 

(1)In 2016, an additional gain on the sale of EUR 7 million was recognized related to the HERE business as a result of the final settlement of the purchase price, and EUR 7 million related to the D&S business due to a tax indemnification.

Sale of the HERE Business

On August 3, 2015 the Group announced the Sale of the HERE Business to a consortium of leading automotive companies, comprising AUDI AG, BMW Group and Daimler AG. Subsequent to the announcement, the Group has presented the HERE business as Discontinued operations. The HERE business was previously an operating and reportable segment and its business focused on the development of location intelligence, location-based services and local commerce. The Sale of the HERE Business was completed on December 4, 2015.

NOKIA ANNUAL REPORT ON FORM 20-F 2015157

Notes to consolidated financial statementscontinued

Gain on the Sale of the HERE Business

    EURm 

Fair value of sales proceeds less costs to sell(1)

   2 551 

Net assets disposed of

   (2 667) 

Total

   (116) 

Foreign exchange differences reclassified from other comprehensive income(2)

   1 174 

Gain before tax

   1 058 

Income tax benefit(3)

   120 

Total gain

   1 178 

 

(1)Comprises purchase price of EUR 2 800 million, offset by adjustments for certain defined liabilities of EUR 249 million.
(2)Includes cumulative translation differences for the duration of ownership from translation of mainly USU.S. dollar denominated balances into euro.
(3)The disposal was largely tax exempt, the tax benefit is due to hedging-related tax deductible losses.

Assets and liabilities, HERE business

Assets and liabilities disposed of at December 4, 2015:

 

EURm  December 4, 2015 

Goodwill and other intangible assets

   2 722 

Property, plant and equipment

   115 

Deferred tax assets and non-current assets

   151 

Inventories

   14 

Trade and other receivables

   174 

Prepaid expenses and other current assets

   87 

Cash and cash equivalents and current available-for-sale investments, liquid assets

   56 

Total assets

   3 319 

Deferred tax liabilities and other liabilities

   286 

Trade and other payables

   55 

Deferred income and accrued expenses

   306 

Provisions

   5 

Total liabilities

   652 

Net assets disposed of

   2 667 

Results of Discontinued operations, HERE business

EURm  2015  2014  2013 

Net sales

                   1 075                        970                        914  

Cost of sales

   (243)   (239)   (208) 

Gross profit

   832    731    706  

Research and development expenses

   (498)   (545)   (648) 

Selling, general and administrative expenses

   (198)   (181)   (187) 

Other income and expenses(1)

   (18)   (1 247)   (24) 

Operating profit/(loss)

   118    (1 242)   (153) 

Share of results of associated companies and joint ventures

   –    –    1  

Financial income and expenses

   2    5    (3) 

Profit/(loss) before tax

   120    (1 237)   (155) 

Income tax (expense)/benefit(2)

   –    (310)   68  

Profit/(loss) for the period, ordinary activities

   120    (1 547)   (87) 

Gain on the Sale of the HERE Business, net of tax(3)

   1 178    –    –  

Profit/(loss) for the period

   1 298    (1 547)   (87) 

Costs and expenses include:

    

Depreciation and amortization

   (33)   (57)   (241) 

Impairment charges

   –    (1 209)   –  

(1)In 2014, includes impairment of goodwill of EUR 1 209 million.
(2)Excludes the tax impact of the disposal.
(3)Represents net gain on disposal.

 

158166 NOKIA ANNUAL REPORT ON FORM 20-F 20152016

LOGOLOGO

    

    

    

    

    

    

 

Cash flows fromResults of Discontinued operations, HERE business

 

EURm                               2015                                2014                               2013 

Net cash from operating activities

   12     106    62  

Net cash from/(used in) investing activities

   2 503     (104)   (39) 

Net cash flow for the period

   2 515     2    23  

Goodwill impairment

In the third quarter 2015, in connection with the Group’s announcement of the Sale of the HERE Business on August 3, 2015, the carrying value of the HERE CGU was reassessed. Estimated net sale proceeds less costs of disposal were in excess of the carrying value of the HERE CGU.

In 2014, goodwill impairment assessment for the HERE CGU was carried out at September 30, 2014. The previous assessment date was October 1, 2013. The assessment date was brought forward to September 30, 2014 due to an adjustment to the HERE strategy and the related new long-range plan, which incorporated the slower-than-expected increase in net sales directly to consumers, and the Group’s plans to curtail its investment in certain higher-risk and longer-term growth opportunities. This represented a triggering event resulting in an interim impairment test to assess if events or changes in circumstances indicated that the carrying amount of HERE goodwill may not be recoverable. The goodwill impairment assessment for the HERE CGU was rolled forward to October 1, 2014 to align with the annual assessment date. In 2014, the HERE CGU corresponded to the HERE operating and reportable segment.

The recoverable amount of the HERE CGU was determined using the fair value less costs of disposal method. In the absence of observable market prices, the recoverable amount was estimated based on an income approach, specifically a discounted cash flow model. The cash flow projection used in calculating the recoverable amount was based on financial plans approved by management covering an explicit forecast period of five years and reflected the price that would be received to sell the CGU in an orderly transaction between market participants at the measurement date. The level of fair value hierarchy within which the fair value measurement was categorized was level 3. Refer to Note 19, Fair value of financial instruments for the fair value hierarchy.

The recoverable amount of the HERE CGU at September 30, 2014 was EUR 2 031 million, which resulted in an impairment charge of EUR 1 209 million. The carrying value of goodwill allocated to the CGU after the impairment charge at the impairment testing date was EUR 2 273 million. The impairment charge was the result of an evaluation of the projected financial performance and net cash flows of the HERE CGU and was allocated entirely against the carrying value of HERE goodwill. The evaluation incorporated the slower-than-expected increase in net sales directly to consumers, and the Group’s plans to curtail its investment in certain higher-risk and longer-term growth opportunities. It also reflected the current assessment of risks related to the growth opportunities that management planned to continue pursuing, as well as the related terminal value growth assumptions. After consideration of all relevant factors, management reduced the net sales projections for the HERE CGU, particularly in the latter years of the valuation.

The key assumptions applied in the impairment testing analysis for the HERE CGU were terminal growth rate of 1.2% and post-tax discount rate of 11.0%. Terminal growth rates reflected long-term average growth rates for the industry and economies in which the CGU operated. The discount rates reflected current assessments of the time value of money and relevant market risk premiums. Risk premiums reflected risks and uncertainties for which the future cash flow estimates had not been adjusted. Other key variables in future cash flow projections included assumptions on estimated sales growth, gross margin and operating margin. All cash flow projections were consistent with external sources of information, wherever possible.

EURm                                   2016                                   2015                                   2014 

Net sales

   –   1 075   970 

Cost of sales

   –   (243)   (239) 

Gross profit

   –   832   731 

Research and development expenses

   –   (498)   (545) 

Selling, general and administrative expenses

   (1)   (198)   (181) 

Other income and expenses(1)

   –   (18)   (1 247) 

Operating (loss)/profit

   (1)   118   (1 242) 

Financial income and expenses

   –   2   5 

(Loss)/profit before tax

   (1)   120   (1 237) 

Income tax expense(2)

   (3)   –   (310) 

(Loss)/profit for the year, ordinary activities

   (4)   120   (1 547) 

Gain on the Sale of the HERE Business, net of tax(3)

   7   1 178   – 

Profit/(loss) for the year

   3   1 298   (1 547) 

Costs and expenses include:

    

Depreciation and amortization

   –   (33)   (57) 

Impairment charges

   –   –   (1 209) 

(1)   In 2014, includes impairment of goodwill of EUR 1 209 million.

(2)   Excludes the tax impact of the disposal.

(3)   Represents net gain on disposal. In 2016, includes EUR 7 million recognized as a result of the final settlement of the purchase price.

 

 

Cash flows from Discontinued operations, HERE business

 

    

    

    

 

 
EURm  2016  2015  2014 

Net cash (used in)/from operating activities

   (2)   12   106 

Net cash (used in)/from investing activities

   (25)   2 503   (104) 

Net cash flow for the year

   (27)   2 515   2 

Sale of the D&S Business

In September 2013, the Group announced the Sale of the D&S Business to Microsoft. Subsequent to the approval of the sale in the Extraordinary General Meeting in November 2013, the Group has presented the Devices & Services business as Discontinued operations including items outside the final transaction scope; specifically, discontinued manufacturing facilities located in Chennai, India and Masan, Republic of Korea. The Devices & Services business consisted of two previously reportable segments, Smart Devices and Mobile Phones as well as Devices & Services Other. Smart Devices focused on more advanced products, including smartphones powered by the Windows Phone operating system. Mobile Phones focused on the area of mass market entry, feature phones and affordable smartphones. Devices & Services Other included spare parts, the divested Vertu business and major restructuring programs related to the Devices & Services business.

The Sale of the D&S Business was completed on April 25, 2014. The total purchase price was EUR 5 440 million comprising the Sale of the D&S Business and a 10-yearten-year non-exclusive license to patents and patent applications with an option to extend the mutual patent agreement in perpetuity. The value allocated to the Sale of the D&S Business was EUR 3 790 million and the fair value of the mutual patent agreement and the future option was EUR 1 650 million. The gain on disposal was EUR 3 175 million. The gain may change in subsequent periods depending on the development of certain liabilities for which the Group has indemnified Microsoft.

NOKIA ANNUAL REPORT ON FORM 20-F 2015159

Notes to consolidated financial statementscontinued

Gain on the Sale of the D&S Business

 

    EURm 

Fair value of sales proceeds less costs to sell(1)

   5 167 

Net assets disposed of

   (2 347) 

Settlement of Windows Phone royalty(2)

   383 

Other

   (28) 

Total

   3 175 

Foreign exchange differences reclassified from other comprehensive income

   (212) 

Gain before tax

   2 963 

Income tax expense(3)

   (160) 

Total gain

   2 803 

 

(1)Comprises purchase price of EUR 3 790 million, net cash adjustment of EUR 1 114 and other adjustments of EUR 263 million.
(2)Recognized when the partnership with Microsoft to license the Windows Phone smartphone platform was terminated in conjunction with the Sale of the D&S Business.
(3)Primarily includes non-resident capital gains taxes in certain jurisdictions, as well as tax impacts of legal entity restructuring carried out in connection with the Sale of the D&S Business.

NOKIA ANNUAL REPORT ON FORM 20-F 2016167

Notes to consolidated financial statementscontinued

Assets and liabilities, Devices & Services business

Assets and liabilities disposed of at April 25, 2014 and the assets and liabilities of disposal groups classified as held for sale at December 31, 2013:2014:

 

EURm      April 25, 2014       December 31, 2013 

Goodwill and other intangible assets

   1 427     1 426  

Property, plant and equipment

   534     559  

Deferred tax assets and non-current assets

   371     381  

Inventories

   374     347  

Trade and other receivables

   541     691  

Prepaid expenses and other current assets

   1 638     1 854  

Cash and cash equivalents and current available-for-sale investments, liquid assets

   1 114     –  

Total assets

   5 999     5 258  

Deferred tax liabilities and other liabilities

   203     114  

Trade and other payables

   1 340     1 381  

Deferred income and accrued expenses

   1 205     2 220  

Provisions

   795     1 013  

Total liabilities

   3 543     4 728  

Non-controlling interests

   109     –  

Net assets disposed of

   2 347     –  
EURmApril 25, 2014

Goodwill and other intangible assets

1 427

Property, plant and equipment

534

Deferred tax assets and non-current assets

371

Inventories

374

Trade and other receivables

541

Prepaid expenses and other current assets

1 638

Cash and cash equivalents and current available-for-sale investments, liquid assets

1 114

Total assets

5 999

Deferred tax liabilities and other liabilities

203

Trade and other payables

1 340

Deferred income and accrued expenses

1 205

Provisions

795

Total liabilities

3 543

Non-controlling interests

109

Net assets disposed of

2 347

Results of Discontinued operations, Devices & Services business

 

EURm                           2015                               2014                               2013 

Net sales

   –    2 458    10 735  

Cost of sales

   (1)   (2 086)   (8 526) 

Gross (loss)/profit

   (1)   372    2 209  

Research and development expenses

   –    (354)   (1 130) 

Selling, general and administrative expenses

   (15)   (447)   (1 560) 

Other income and expenses

   (5)   (107)   (109) 

Operating loss

   (21)   (536)   (590) 

Financial income and expenses

   (11)   5    10  

Loss before tax

   (32)   (531)   (580) 

Income tax benefit/(expense)(1)

   8    33    (200) 

Loss for the period, ordinary activities

   (24)   (498)   (780) 

Gain on the Sale of the D&S Business, net of tax(2)

   –    2 803    –  

(Loss)/profit for the period

   (24)   2 305    (780) 

Costs and expenses include:

    

Depreciation and amortization

   –    –    (168) 

Impairment charges

   –    (111)   –  

(1)Excludes the tax impact of the disposal.
(2)Represents net gain on disposal.

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Cash flows from Discontinued operations, Devices & Services business

EURm                           2015                          2014                          2013                                2016                              2015                              2014 

Net sales

   –   –   2 458 

Cost of sales

   –   (1)   (2 086) 

Gross (loss)/profit

   –  (1)  372 

Research and development expenses

   –   –   (354) 

Selling, general and administrative expenses

   (10)   (15)   (447) 

Other income and expenses

   (4)   (5)   (107) 

Operating loss

   (14)  (21)  (536) 

Financial income and expenses

   14   (11)   5 

Loss before tax

   –  (32)  (531) 

Income tax (expense)/benefit(1)

   (25)   8   33 

Loss for the year, ordinary activities

   (25)  (24)  (498) 

Gain on the Sale of the D&S Business, net of tax(2)

   7   –   2 803 

(Loss)/profit for the year

   (18)  (24)  2 305 

Costs and expenses include:

    

Impairment charges

   –   –   (111) 

(1) Excludes the tax impact of the disposal.

(2) Represents net gain on disposal. In 2016, includes EUR 7 million recognized due to a tax indemnification.

Cash flows from Discontinued operations, Devices & Services business

(1) Excludes the tax impact of the disposal.

(2) Represents net gain on disposal. In 2016, includes EUR 7 million recognized due to a tax indemnification.

Cash flows from Discontinued operations, Devices & Services business

    

    

 

 
EURm  2016 2015 2014 

Net cash used in operating activities

   (6)   (1 054)   (1 062)    (8)   (6)   (1 054) 

Net cash from/(used in) investing activities

   50    2 480    (130) 

Net cash from investing activities

   28   50   2 480 

Net cash used in financing activities

   –    (9)   (21)    –   –   (9) 

Net cash flow for the period

   44   1 417   (1 213) 

Net cash flow for the year

   20  44  1 417 

On April 25, 2014, upon completion of the Sale of the D&S Business, EUR 500 million 1.125% convertible bonds due September 2018, EUR 500 million 2.5% convertible bonds due September 2019 and EUR 500 million 3.625% convertible bonds due September 2020, all issued by the Group to Microsoft, were repaid and netted against the deal proceeds by the amount of principal and accrued interest. Refer to Note 35, Risk management.

4. Acquisitions

In 2015, the Group acquired two businesses (four businesses in 2014). The combined purchase consideration amounts to EUR 96 million (EUR 175 million in 2014). The combined goodwill arising on acquisition amounts to EUR 7 million (EUR 76 million in 2014) and is attributable to assembled workforce and post-acquisition synergies. The Group expects that the majority of goodwill acquired in 2015 will be deductible for tax purposes. The Group expects that the majority of goodwill acquired in 2014 will not be deductible for tax purposes.

Acquisitions during 2015 and 2014:

 

Company/business168 Description

2015

Wireless network
business of Panasonic		The business transfer included Panasonic’s LTE/3G wireless base station system business, related wireless equipment system business, fixed assets and business contracts with Panasonic’s customers as well as more than 300 Panasonic employees. The Group acquired the business through an asset transaction on January 1, 2015.
Eden Rock Communications, LLCEden Rock Communications is pioneer in SON and creator of Eden-NET, an industry leading multivendor centralized in SON solution. The Group acquired 100% ownership interest on July 10, 2015.

2014

SAC Wireless(1)SAC Wireless is a company providing infrastructure and network deployment solutions. The Group acquired 100% ownership interest on August 22, 2014.
Medio Systems Inc.(2)Medio Systems Inc. is a company specializing in real-time predictive analytics. The Group acquired 100% ownership interest on July 2, 2014.
Desti(2)Desti specializes in artificial intelligence and natural language processing technology. The Group acquired the business through an asset transaction on May 28, 2014.
Mesaplexx Pty Ltd.Mesaplexx Pty Ltd. has know-how in developing compact, high performance radio frequency filter technology. The Group acquired 100% ownership interest on March 24, 2014.

(1)Legal entities acquired are SAC Wireless LLC and HCP Wireless LLC.
(2)HERE business acquisitions.

Total consideration paid, aggregate fair values of intangible assets, other net assets acquired and resulting goodwill at each acquisition date:

EURm                           2015                            2014 

Other intangible assets

   56     77  

Other net assets

   33     22  

Total identifiable net assets

   89     99  

Goodwill

   7     76  

Total purchase consideration(1)

   96     175  

(1)In 2015, the total purchase consideration does not correspond with the acquisition of businesses, net of acquired cash in the consolidated statement of cash flows due to foreign exchange rate used and the closing mechanism. In 2014, the total purchase consideration of the HERE acquisitions amounted to EUR 84 million of which goodwill was EUR 65 million.

The intangible assets are primarily customer-related, and technology-based intangible assets. Goodwill has been allocated to cash-generating units or groups of cash-generating units expected to benefit from the synergies of the combination. Refer to Note 10, Impairment. Acquisition-related costs of EUR 3 million (EUR 3 million in 2014) have been charged to selling, general and administrative expenses in the consolidated income statement.

NOKIA ANNUAL REPORT ON FORM 20-F 20151612016

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Notes to consolidated financial statementscontinued

    

    

 

5.7. Revenue recognition

 

EURm  2015  2014  2013 

Continuing operations

    

Revenue from sale of products and licensing

   7 060    6 462    5 489  

Nokia Networks

   6 036    5 884    4 960  

Nokia Technologies

   1 024    578    529  

Revenue from services

   5 395    4 961    5 310  

Nokia Networks

   5 395    4 961    5 310  

Contract revenue recognized under percentage
of completion accounting

   59    353    1 012  

Nokia Networks

   59    353    1 012  

Eliminations and Group Common Functions

   (15)   (14)   (16) 

Total

                    12 499                    11 762                    11 795  
EURm                                   2016                                    2015                                    2014 

Continuing operations

      

Revenue from sale of products and licensing

   14 526    7 045    6 448 

Revenue from services(1)

   8 156    5 395    4 961 

Contract revenue recognized under percentage of completion accounting(2)

   931    59    353 

Total

   23 614    12 499    11 762 

(1)Excludes services performed as part of contracts under percentage of completion accounting.
(2)In 2016, contract revenue includes submarine projects, which account for the majority of the revenue.

Revenue recognition-related positions for construction contracts in progress atas of December 31:

 

       2015          2014   2016   2015 
EURm                    Assets               Liabilities                     Assets               Liabilities                                Assets                                Liabilities                                Assets                            Liabilities 

Contract revenues recorded prior to billings

   16         82       11      16   

Billings in excess of costs incurred

     29         40       164      29 

Work in progress on construction contracts

   57      –   

Advances received

     –         1       113      – 

Retentions

   2           12        1       2    

AssetsWork in progress is included in inventories, other assets are included in accounts receivable, and liabilities are included in accrued expenses in the consolidated statement of financial position.

The aggregate amount of costs incurred and profits recognized, net of recognized losses, for construction contracts in progress since inception are EUR 970 million as of December 31, 2016 (EUR 670 million at December 31, 2015 (EUR 4 219 million in 2014),2015). For construction contracts acquired in 2016, the majority of which relate to projects near completion. The decrease in the aggregate amount ofincludes costs incurred and profits recognized is in line withfrom the decrease in revenue recognized under contract accounting.

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acquisition date.

6.8. Expenses by nature

 

EURm  2015   2014   2013 

Continuing operations

      

Personnel expenses(1)(Note 7)

   3 617     3 340     3 426  

Cost of material

   2 907     2 957     2 755  

Subcontracting costs

   2 323     2 211     2 659  

Depreciation and amortization (Note 9)

   286     240     319  

Real estate costs

   236     232     306  

Other

   1 455     1 276     1 146  

Total(2)

                    10 824                     10 256                     10 610  
EURm                                   2016                                    2015                                    2014 

Continuing operations

      

Personnel expenses (Note 9)

   7 814    3 738    3 381 

Cost of material

   7 260    2 907    2 957 

Depreciation and amortization (Notes 14, 15)

   1 594    286    240 

Rental expenses

   344    164    154 

Other

   7 818    3 943    3 734 

Total operating expenses

   24 830    11 038    10 466 

(1)Excludes EUR 121 million (EUR 41 million in 2014 and EUR 209 million in 2013) restructuring-related personnel expenses recognized in other expenses.
(2)In 2015, the Group recorded amounts in order to correct items previously reported in 2014 and 2013 as cost of sales and reductions to accounts receivable. The impact of this correction was to reduce cost of sales in 2015 by EUR 37 million, of which EUR 7 million related to 2014 and EUR 30 million to 2013. The error related to businesses divested in 2013 where the Group continued to operate certain accounting functions under a transitional arrangement and erroneously recorded pass-through costs of the disposed businesses as costs of the Group.

RentalOperating expenses includedinclude government grant income and R&D tax credits of EUR 126 million (EUR 20 million in 2015 and EUR 17 million in 2014) that have been recognized in the above line items amount to EUR 164 million (EUR 171 million in 2014consolidated income statement as a deduction against research and EUR 241 million in 2013).development expenses.

7. Personnel expenses

EURm  2015   2014   2013 

Continuing operations

      

Salaries and wages

   3 075     2 797     3 030  

Share-based payment expense (Note 25)

   67     53     37  

Pension expense, net

   223     189     189  

Other social expenses

   373     342     379  

Total

                      3 738                       3 381                       3 635  

Personnel expenses include termination benefits. Pension expense, comprising multi-employer, insured and defined contribution plans is EUR 172 million ( EUR 146 million in 2014 and EUR 143 million in 2013). Expenses related to defined benefit plans are EUR 51 million (EUR 43 million in 2014 and EUR 46 million in 2013). Refer to Note 8, Pensions.

Average number of employees  2015   2014   2013 

Nokia Networks(1)

   55 509     50 557     52 564  

Nokia Technologies

   596     650     657  

Group Common Functions(1)

   585     292     215  

Total

                    56 690                     51 499                     53 436  

(1)In 2014, the average number of employees was restated to account for a transfer of employees from Nokia Networks to Group Common Functions.

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 163169

    

Notes to consolidated financial statementscontinued

    

    

 

8.9. Personnel expenses

EURm                                     2016                                     2015                                     2014 

Continuing operations

    

Salaries and wages

   6 275   3 075   2 797 

Share-based payment expense(1)

   130   67   53 

Pension and other post-employment benefit expense, net(2)

   458   223   189 

Other social expenses

   951   373   342 

Total

   7 814    3 738    3 381  

(1)Includes EUR 119 million for equity-settled awards (EUR 43 million in 2015 and EUR 14 million in 2014).
(2)Includes costs related to defined contribution plans of EUR 236 million (EUR 172 million in 2015 and EUR 144 million in 2014) and costs related to defined benefit plans of EUR 222 million (EUR 51 million in 2015 and EUR 45 million in 2014). Refer to Note 27, Pensions and other post-employment benefits.

The average number of employees is 102 687 (56 690 in 2015 and 51 499 in 2014).

10. Other income and expenses

EURm                                     2016                                     2015                                     2014 

Continuing operations

    

Other income

    

Interest income from customer receivables and overdue payments

   29   6   23 

VAT and other indirect tax refunds and social security credits

   19   17   7 

Realized gains from unlisted venture funds

   13   144   18 

Subsidies and government grants

   11   4   15 

Profit on sale of property, plant and equipment

   –   8   15 

Other

   44   57   40 

Total

   116   236   118 

Other expenses

    

Restructuring, cost reduction and associated charges

   (759)   (120)   (61) 

Valuation allowances for doubtful accounts and accounts receivable write-offs

   (116)   24   5 

Expenses related to sale of receivables transactions

   (42)   (21)   (39) 

Foreign exchange loss on hedging forecasted sales and purchases

   (26)   (22)   (15) 

Impairment charges

   (17)   (11)   (13) 

Losses and expenses related to unlisted venture funds

   (4)   (47)   – 

Loss on sale of property, plant and equipment

   (3)   (5)   (12) 

VAT and other indirect tax write-offs and provisions

   1   (3)   (15) 

Contractual remediation costs

   –   5   (31) 

Other

   17   (23)   (48) 

Total

   (949)   (223)   (229) 

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11. Financial income and expenses

EURm                   2016                   2015                   2014 

Continuing operations

    

Interest income on investments and loans receivable

   84   31   50 

Net interest expense on derivatives not under hedge accounting

   (18)   (4)   (4) 

Interest expense on financial liabilities carried at amortized cost(1)

   (234)   (135)   (387) 

Net interest expense on defined benefit pensions (Note 27)

   (65)   (9)   (2) 

Net realized gains on disposal of fixed income available-for-sale financial investments

   15   2   1 

Net fair value (losses)/gains on investments at fair value through profit and loss

   (18)   (2)   20 

Net gains/(losses) on other derivatives designated at fair value through profit and loss

   21   (5)   (20) 

Net fair value gains/(losses) on hedged items under fair value hedge accounting

   11   7   (18) 

Net fair value (losses)/gains on hedging instruments under fair value hedge accounting

   (15)   (12)   17 

Net foreign exchange losses

   (9)   (76)   (61) 

Other financial income(2)

   85   31   15 

Other financial expenses(3)

   (144)   (14)   (14) 

Total

   (287)   (186)   (403) 

(1)In 2016, interest expense includes one-time charges of EUR 41 million, primarily related to the redemption of Alcatel-Lucent USA Inc. USD 650 million 4.625% notes due July 2017, USD 500 million 8.875% notes due January 2020 and USD 700 million 6.750% notes due November 2020. In 2014, interest expense included a one-time non-cash charge of EUR 57 million relating to the repayment of the EUR 1.5 billion convertible bonds issued to Microsoft when the Sale of the D&S Business was completed and one-time expenses of EUR 123 million relating to the redemption of materially all, then Nokia Networks’ borrowings.
(2)Includes distributions of EUR 66 million (EUR 25 million in 2015 and EUR 14 million in 2014) from private venture funds held as non-current available-for-sale investments.
(3)Includes impairments of EUR 108 million (EUR 2 million in 2014) related to private venture funds held as non-current available-for-sale investments. Refer to Note 16, Impairment.

12. Income taxes

Components of the income tax benefit/(expense)

EURm                                   2016                                   2015                                   2014 

Continuing operations

    

Current tax

   (534)   (258)   (300) 

Deferred tax

   991   (88)   2 019 

Total

   457   (346)   1 719 

Income tax reconciliation

Reconciliation of the difference between income tax computed at the statutory rate in Finland of 20% and income tax recognized in the consolidated income statement:

EURm                                   2016                                   2015                                   2014 

Income tax benefit/(expense) at statutory rate

   274   (308)   (200) 

Permanent differences

   31   16   (41) 

Tax impact on operating model changes(1)

   439   –   – 

Non-creditable withholding taxes

   (42)   (17)   (31) 

Income taxes for prior years

   3   6   (14) 

Effect of different tax rates of subsidiaries operating in other jurisdictions

   88   (50)   (47) 

Effect of deferred tax assets not recognized(2)

   (318)   (35)   (26) 

Benefit arising from previously unrecognized deferred tax assets(3)

   19   38   2 081 

Net (increase)/decrease in uncertain tax positions

   (20)   4   – 

Change in income tax rates

   3   –   (1) 

Income taxes on undistributed earnings

   (23)   (7)   – 

Other

   3   7   (2) 

Total

   457   (346)   1 719 

(1)In 2016, following the completion of the Squeeze-Out of the remaining Alcatel Lucent Securities, the Group launched actions to integrate the former Alcatel Lucent and Nokia operating models. In connection with these integration activities, the Group transferred certain intellectual property to its operations in the United States, recording a tax benefit and additional deferred tax assets of EUR 348 million. In addition, the Group elected to treat the Acquisition of Alcatel Lucent’s operations in the United States as an asset purchase for United States tax purposes. The impact of this election was to utilize or forfeit existing deferred tax assets and record new deferred tax assets with a longer amortization period than the life of those forfeited assets. As a result of this, EUR 91 million additional deferred tax assets were recorded in 2016.
(2)In 2016, relates primarily to tax losses and temporary differences in France.
(3)In 2014, relates primarily to tax losses, unused tax credits and temporary differences in Finland for which a deferred tax asset was re-recognized.

NOKIA ANNUAL REPORT ON FORM 20-F 2016171

Notes to consolidated financial statementscontinued

Income tax liabilities and assets include a net EUR 495 million liability (EUR 394 million in 2015) relating to uncertain tax positions with inherently uncertain timing of cash outflows.

Prior period income tax returns for certain Group companies are under examination by local tax authorities. The Group has on-going tax audits in various jurisdictions, including India, Germany, Finland and Canada. The Group’s business and investments, especially in emerging market countries, may be subject to uncertainties, including unfavorable or unpredictable tax treatment. Management judgment and a degree of estimation are required in determining the tax expense or benefit. Even though management does not expect that any significant additional taxes in excess of those already provided for will arise as a result of these examinations, the outcome or actual cost of settlement may vary materially from estimates.

In 2013, the tax authorities in India commenced an investigation into withholding tax in respect of payments by Nokia India Private Limited to Nokia Corporation for the supply of operating software. Subsequently, the authorities extended the investigation to other related tax consequences and issued orders and made certain assessments. The Group has denied all such allegations and continues defending itself in various Indian litigation proceedings, under both Indian and international law, while extending its full cooperation to the authorities.

Through the Acquisition of Alcatel Lucent, the Group has an on-going tax audit in Germany relating to the disposal of former Alcatel Lucent railway signaling business in 2006 to Thales. In the tax audit report issued in 2012, the tax authorities have claimed EUR 140 million before interest and penalties (being EUR 202 million including interest and penalties as of December 31, 2016). The case is pending with the tax court of Baden-Wuerttemberg in Stuttgart, Germany. The Group has not recognized a liability for this on-going tax audit as it is considered more likely than not that the Group will not have to pay these taxes.

Deferred tax assets and liabilities

        2016                2015     
   Deferred  Deferred          Deferred  Deferred    
EURm          tax assets          tax liabilities          Net balance                tax assets          tax liabilities          Net balance 

Tax losses carried forward and unused tax credits

   1 428   –       916   –  

Undistributed earnings

   –   (67)       –   (15)  

Intangible assets and property, plant and equipment

   3 713   (501)       1 321   (154)  

Defined benefit pension assets

   3   (1 334)       1   (9)  

Other non-current assets

   19   (52)       4   (12)  

Inventories

   154   (3)       85   (6)  

Other current assets

   81   (66)       43   (41)  

Defined benefit pension and other post-retirement liabilities

   1 478   (29)       154   (3)  

Other non-current liabilities

   12   (2)       1   (2)  

Provisions

   249   (6)       106   (3)  

Other current liabilities

   307   (56)       191   (33)  

Other temporary differences

   16   (46)             29   –     

Total before netting

   7 460   (2 162)   5 298         2 851   (278)   2 573 

Netting of deferred tax assets and liabilities

   (1 759)   1 759   –         (217)   217   – 

Total after netting(1)

   5 701   (403)   5 298         2 634   (61)   2 573 

(1)The increase, especially in deferred tax assets and liabilities relating to intangible assets and property, plant and equipment; and defined benefit pension assets and defined benefit pension and other post-retirement liabilities, is primarily due to the Acquisition of Alcatel Lucent.

Movements in the net deferred tax balance during the year:

EURm                                           2016                                           2015 

As of January 1

   2 573   2 688 

Recognized in income statement, Continuing operations

   991   (88) 

Recognized in income statement, Discontinued operations

   (2)   147 

Recognized in other comprehensive income

   (255)   (114) 

Recognized in equity

   (5)   5 

Acquisitions through business combinations and disposals

   1 914   (74) 

Translation differences

   82   9 

As of December 31

   5 298   2 573 

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Amount of temporary differences, tax losses carried forward and tax credits for which no deferred tax asset was recognized due to uncertainty of utilization:

EURm                                       2016                                        2015 

Temporary differences

   2 214    334 

Tax losses carried forward

   18 706    1 488 

Tax credits

   32    21 

Total(1)

   20 952    1 843 

(1)In 2016, the increase is primarily due to the Acquisition of Alcatel Lucent.

The majority of the unrecognized temporary differences and tax losses relate to France. Based on the pattern of losses in the past years and in the absence of convincing other evidence of sufficient taxable profit in the future years, it is uncertain whether these deferred tax assets can be utilized in the foreseeable future. A significant portion of the French unrecognized deferred tax assets are indefinite in nature and available against future French tax liabilities, subject to a limitation of 50% of annual taxable profits.

The recognition of the remaining deferred tax assets is supported by offsetting deferred tax liabilities, earnings history and profit projections in the relevant jurisdictions. As of December 31, 2016 the majority of recognized net deferred tax assets relate to unused tax losses, tax credits and deductible temporary differences in the United States of EUR 2.5 billion (EUR 0.1 billion in 2015) and Finland of EUR 2.2 billion (EUR 2.0 billion in 2015). Based on the recent years’ profitability in the United States and Finland, as well as the latest forecasts of future financial performance, the Group has been able to establish a pattern of sufficient tax profitability in the United States and Finland to conclude that it is probable that it will be able to utilize the tax losses, tax credits and deductible temporary differences in the foreseeable future. In 2016, the Group incurred an accounting loss in Finland due to significant integration and restructuring costs following the Acquisition of Alcatel Lucent, which may delay the utilization of these tax attributes in Finland.

Expiry of tax losses carried forward and unused tax credits:

    2016        2015 
EURm          Recognized           Unrecognized                        Total                Recognized           Unrecognized                        Total 

Tax losses carried forward

              

Within 10 years

   1 853    1 681    3 534      1 742    1 171    2 913 

Thereafter

   79    17    96      174    –    174 

No expiry

   1 878    17 008    18 886         280    317    597 

Total

   3 810    18 706    22 516         2 196    1 488    3 684 

Tax credits

              

Within 10 years

   395    23    418      434    14    448 

Thereafter

   94    –    94      42    –    42 

No expiry

   66    9    75         –    7    7 

Total

   555    32    587         476    21    497 

The Group has undistributed earnings of EUR 1 074 million (EUR 769 million in 2015) for which a deferred tax liability has not been recognized as these earnings will not be distributed in the foreseeable future.

NOKIA ANNUAL REPORT ON FORM 20-F 2016173

Notes to consolidated financial statementscontinued

13. Earnings per share

    2016  2015   2014 
    EURm  EURm   EURm 

Basic

     

(Loss)/profit for the year attributable to equity holders of the parent

     

Continuing operations

   (751)   1 192    2 710 

Discontinued operations

   (15)   1 274    752 

Total

   (766)   2 466    3 462 

Diluted

     

Effect of profit adjustments

     

Profit adjustment relating to Alcatel Lucent American Depositary Shares

   (8)   –    – 

Elimination of interest expense, net of tax, on convertible bonds, where dilutive

   –   36    60 

Total effect of profit adjustments

   (8)   36    60 

(Loss)/profit attributable to equity holders of the parent adjusted for the effect of dilution

     

Continuing operations

   (759)   1 228    2 770 

Discontinued operations

   (15)   1 274    752 

Total

   (774)   2 502    3 522 
                         000s shares                       000s shares   

 

                    000s shares

 

Basic

     

Weighted average number of shares in issue

   5 732 371   3 670 934    3 698 723 

Diluted

     

Effect of dilutive shares

     

Effect of dilutive equity-based share incentive programs

     

Restricted shares and other

   –   4 253    14 419 

Performance shares

   –   3 179    1 327 

Stock options

   –   1 971    3 351 

Total effect of dilutive equity-based share incentive programs

   –   9 403    19 097 

Effect of other dilutive shares

     

Alcatel Lucent American Depositary Shares

   8 746   –    – 

Assumed conversion of convertible bonds

   –   268 975    413 782 

Total effect of other dilutive shares

   8 746   268 975    413 782 

Total effect of dilutive shares

   8 746   278 378    432 879 

Adjusted weighted average number of shares

   5 741 117   3 949 312    4 131 602 
     
Earnings per share attributable to equity holders of the parent  EUR  EUR   EUR 

Basic earnings per share

     

Continuing operations

   (0.13)   0.32    0.73 

Discontinued operations

   0.00   0.35    0.20 

(Loss)/profit for the year

   (0.13)   0.67    0.94 

Diluted earnings per share

     

Continuing operations

   (0.13)   0.31    0.67 

Discontinued operations

   0.00   0.32    0.18 

(Loss)/profit for the year

   (0.13)   0.63    0.85 

Basic earnings per share is calculated by dividing the profit/loss attributable to equity holders of the parent by the weighted average number of shares outstanding during the year, excluding treasury shares. Diluted earnings per share is calculated by adjusting the profit/loss attributable to equity holders of the parent to eliminate the interest expense of dilutive convertible bonds and other equity instruments; and by adjusting the weighted average number of shares outstanding with the dilutive effect of stock options, restricted shares and performance shares outstanding during the period as well as the assumed conversion of convertible bonds and other equity instruments.

5 million restricted shares are outstanding (none in 2015 and 2014) that could potentially have a dilutive impact in the future but are excluded from the calculation as they are determined to be anti-dilutive.

10 million performance shares are outstanding (none in 2015 and 2014) that could potentially have a dilutive impact in the future but are excluded from the calculation as they are determined to be anti-dilutive. In addition, 4 million performance shares (4 million in 2015 and fewer than 1 million in 2014) have been excluded from the calculation of diluted shares as contingency conditions have not been met.

Stock options equivalent to fewer than 1 million shares (fewer than 1 million shares in 2015 and 2 million in 2014) have been excluded from the calculation of diluted shares as they are determined to be anti-dilutive.

174NOKIA ANNUAL REPORT ON FORM 20-F 2016

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In 2014, convertible bonds issued to Microsoft in September 2013 were fully redeemed as a result of the closing of the Sale of the D&S Business. 116 million potential shares were included in the calculation of diluted shares to reflect the part-year effect of these convertible bonds.

In 2015, the Group exercised its option to redeem the EUR 750 million convertible bonds at their original amount plus accrued interest. Virtually all bondholders elected to convert their convertible bonds into Nokia shares before redemption. 269 million potential shares have been included in the calculation of diluted shares to reflect the part-year effect of these convertible bonds. In 2014, the conversion price was increased and 298 million potential shares were included in the calculation of diluted shares as they were determined to be dilutive. Voluntary conversion of the entire bond would have resulted in the issue of 307 million shares in 2014.

On May 9, 2016, the Group acquired 107 775 949 Alcatel Lucent shares from JPMorgan Chase Bank N.A., as depositary, pursuant to the share purchase agreement announced on March 17, 2016. These shares represent Alcatel Lucent shares that remained in the Alcatel Lucent American Depositary Receipts program after the cancellation period and following the program’s termination on April 25, 2016. On May 10, 2016 the Group registered with the Finnish Trade Register 59 276 772 new Nokia shares issued to the Alcatel depositary in settlement of the transaction. 9 million potential shares have been included in the calculation of diluted shares from March 16, 2016 to reflect the part-year effect of these shares, and were included in the calculation as dilutive shares until the registration date.

14. Intangible assets

EURm                           Goodwill                           Other                           Total 

Acquisition cost as of January 1, 2015

   5 770   5 646   11 416 

Translation differences

   350   382   732 

Additions

   –   26   26 

Acquisitions through business combinations

   7   56   63 

Disposals and retirements(1)

   (4 982)   (2 973)   (7 955) 

Acquisition cost as of December 31, 2015

   1 145   3 137   4 282 

Accumulated amortization and impairment charges as of January 1, 2015

   (3 207)   (5 296)   (8 503) 

Translation differences

   –   (350)   (350) 

Disposals and retirements(1)

   2 299   2 934   5 233 

Amortization

   –   (102)   (102) 

Accumulated amortization and impairment charges as of December 31, 2015

   (908)   (2 814)   (3 722) 

Net book value as of January 1, 2015

   2 563   350   2 913 

Net book value as of December 31, 2015

   237   323   560 

Acquisition cost as of January 1, 2016

   1 145   3 137   4 282 

Translation differences

   129   424   553 

Additions

   –   62   62 

Acquisitions through business combinations

   5 358   5 781   11 139 

Disposals and retirements(2)

   –   (22)   (22) 

Acquisition cost as of December 31, 2016

   6 632   9 382   16 014 

Accumulated amortization and impairment charges as of January 1, 2016

   (908)   (2 814)   (3 722) 

Translation differences

   –   (325)   (325) 

Disposals and retirements(2)

   –   9   9 

Amortization

   –   (1 016)   (1 016) 

Accumulated amortization and impairment charges as of December 31, 2016

   (908)   (4 146)   (5 054) 

Net book value as of January 1, 2016

   237   323   560 

Net book value as of December 31, 2016

   5 724   5 236   10 960 

(1)Included goodwill with acquisition cost of EUR 4 982 million and accumulated impairment of EUR 2 299 million and other intangible assets with acquisition cost of EUR 2 892 million and accumulated amortization of EUR 2 853 million disposed as part of the Sale of the HERE Business.
(2)Includes impairment charges of EUR 9 million. Refer to Note 16, Impairment.

Net book value of other intangible assets by type of asset:

EURm                       2016                    2015 

Customer relationships

   2 765    132 

Technologies

   1 786    126 

Tradenames and trademarks

   308    9 

Other

   377    56 

Total

   5 236    323 

The remaining amortization periods are approximately one to nine years for customer relationships, one to seven years for developed technology and five to seven years for tradenames and trademarks.

NOKIA ANNUAL REPORT ON FORM 20-F 2016175

Notes to consolidated financial statementscontinued

15. Property, plant and equipment

    Buildings and  Machinery and      Assets under     
EURm  constructions  equipment                   Other  construction                   Total 

Acquisition cost as of January 1, 2015

   438   1 854   41   19   2 352 

Translation differences

   32   134   1   –   167 

Additions

   62   186   15   16   279 

Acquisitions through business combinations

   2   5   –   –   7 

Reclassifications

   12   4   –   (16)   – 

Disposals and retirements(1)

   (119)   (437)   (16)   (4)   (576) 

Acquisition cost as of December 31, 2015

   427   1 746   41   15   2 229 

Accumulated depreciation as of January 1, 2015

   (180)   (1 434)   (22)   –   (1 636) 

Translation differences

   (18)   (114)   (1)   –   (133) 

Disposals and retirements(1)

   71   365   16   –   452 

Depreciation

   (47)   (168)   (2)   –   (217) 

Accumulated depreciation as of December 31, 2015

   (174)   (1 351)   (9)   –   (1 534) 

Net book value as of January 1, 2015

   258   420   19   19   716 

Net book value as of December 31, 2015

   253   395   32   15   695 

Acquisition cost as of January 1, 2016

   427   1 746   41   15   2 229 

Transfers to assets held for sale

   (47)   –   –   –   (47) 

Translation differences

   1   (15)   2   –   (12) 

Additions

   65   361   3   87   516 

Acquisitions through business combinations

   587   674   68   84   1 413 

Reclassifications

   20   75   2   (97)   – 

Disposals and retirements

   (54)   (148)   (2)   –   (204) 

Acquisition cost as of December 31, 2016

   999   2 693   114   89   3 895 

Accumulated depreciation as of January 1, 2016

   (174)   (1 351)   (9)   –   (1 534) 

Transfers to assets held for sale

   5   –   –   –   5 

Translation differences

   1   13   –   –   14 

Disposals and retirements

   46   133   –   –   179 

Depreciation

   (94)   (480)   (4)   –   (578) 

Accumulated depreciation as of December 31, 2016

   (216)   (1 685)   (13)   –   (1 914) 

Net book value as of January 1, 2016

   253   395   32   15   695 

Net book value as of December 31, 2016

   783   1 008   101   89   1 981 

(1)Included buildings and constructions with acquisition cost of EUR 81 million and accumulated depreciation of EUR 35 million, machinery and equipment with acquisition cost of EUR 305 million and accumulated depreciation of EUR 239 million and assets under construction with acquisition cost of EUR 3 million disposed as part of the Sale of the HERE Business.

In 2014, the tax authorities in India placed a lien which prohibited the Group from transferring the mobile devices-related facility in Chennai to Microsoft as part of the Sale of the D&S Business.

176NOKIA ANNUAL REPORT ON FORM 20-F 2016

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16. Impairment

Goodwill

Following the Acquisition of Alcatel Lucent on January 4, 2016, the Group adopted an operational and reporting structure consisting of two businesses: Nokia’s Networks business and Nokia Technologies, and three reportable segments for financial reporting purposes: Ultra Broadband Networks and IP Networks and Applications within Nokia’s Networks business, and Nokia Technologies. Based on the current operational and reporting structure, the Group allocated goodwill to the operating segments within Nokia’s Networks business and to the Withings cash generating unit within Nokia Technologies corresponding to groups of cash generating units (“group of CGUs”) and cash generating unit (“CGU”), respectively. The goodwill allocation reflects the lowest level at which goodwill is monitored for internal management purposes; and is allocated to the group of CGUs or the CGU that is expected to benefit from the synergies of the combination.

Allocation of goodwill

The following table presents the allocation of goodwill to groups of CGUs and the CGU as of the annual impairment testing date October 1, 2016:

EURm                               2016                                2015 

Mobile Networks

   2 298   

Fixed Networks

   896   

IP/Optical Networks

   1 970   

Applications & Analytics

   240   

Withings (Nokia Technologies)

   141   

Global Services

     124 

Radio Access Networks (Mobile Broadband)

        115 

Recoverable amounts

The recoverable amounts of the groups of CGUs and the CGU were based on fair value less costs of disposal that was determined using a level 3 fair value measurement based on a discounted cash flow calculation. The cash flow projections used in calculating the recoverable amounts were based on financial plans approved by management covering an explicit forecast period of five years.

Five additional years of cash flow projections subsequent to the explicit forecast period reflect a gradual progression towards the steady state cash flow projections modeled in the terminal year. The terminal growth rate assumptions reflect long-term average growth rates for the industry and economies in which the groups of CGUs and the CGU operate. The discount rates reflect current assessments of the time value of money and relevant market risk premiums reflecting risks and uncertainties for which the future cash flow estimates have not been adjusted. Other key variables in future cash flow projections include assumptions on estimated sales growth, gross margin and operating margin. All cash flow projections are consistent with external sources of information, wherever possible.

The key assumptions applied in the impairment testing analysis for the groups of CGUs and the CGU:

                                     2016                                    2015                                        2016                                   2015 
Key assumption %  Terminal growth rate       Post-tax discount  rate 

Mobile Networks

   0.9     9.2  

Fixed Networks

   0.9     8.6  

IP/Optical Networks

   1.4     8.9  

Applications & Analytics

   1.8     9.0  

Withings (Nokia Technologies)

   2.1     12.7  

Global Services

     1.0      8.7 

Radio Access Networks (Mobile Broadband)

        1.0       9.2 

NOKIA ANNUAL REPORT ON FORM 20-F 2016177

Notes to consolidated financial statementscontinued

Sensitivity analysis

The Group allocated a significant proportion of the goodwill arising from the Acquisition of Alcatel Lucent to the IP/Optical Networks group of CGUs, which is comprised mainly of businesses acquired in the acquisition. As a result, the fair value of the IP/Optical Networks group of CGUs corresponds closely to its respective carrying amount.

The results of the impairment testing indicate significant headroom for each group of CGUs and CGU, except for the IP/Optical Networks group of CGUs, where the recoverable amount exceeds its carrying amount by approximately EUR 1 200 million. Taken in isolation, the following changes would cause the recoverable amount of IP/Optical Networks group of CGUs to equal its carrying amount:

∎Increase in discount rate from 8.9% to 10.7%.

∎Reduction in operational profitability in the terminal year by 40%, which is equal to the decrease in the operating profit of EUR 331 million.

Other non-current assets

Impairment charges by asset category:

EURm                           2016                            2015                            2014 

Other intangible assets

   9    –    – 

Available-for-sale investments

   116    11    15 

Total

   125    11    15 

Other intangible assets

The Group recognized an impairment charge of EUR 9 million following the discontinuation of certain technology-related assets acquired with Mesaplexx Pty Ltd. The impairment charge is recorded in other operating expenses.

Available-for-sale investments

The Group recognized an impairment charge of EUR 116 million (EUR 11 million in 2015 and EUR 15 million in 2014) primarily related to the performance of certain private funds investing in IPR that are included in non-current available-for-sale equity investments at cost less impairment. These charges are recorded in other expenses and financial income and expenses.

17. Inventories

EURm                               2016                                2015 

Raw materials, supplies and other

   268    102 

Work in progress

   1 159    404 

Finished goods

   1 079    508 

Total

   2 506    1 014 

The cost of inventories recognized as an expense during the year and included in the cost of sales is EUR 7 636 million (EUR 3 132 million in 2015 and EUR 3 156 million in 2014).

Movements in allowances for excess and obsolete inventory for the years ended December 31:

EURm                               2016                           2015                               2014 

As of January 1

   195   204   178 

Charged to income statement

   354   71   107 

Deductions(1)

   (93)   (80)   (81) 

As of December 31

   456   195   204 

(1)Deductions include utilization and releases of allowances.

178NOKIA ANNUAL REPORT ON FORM 20-F 2016

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18. Allowances for doubtful accounts

Movements in allowances for doubtful accounts for the years ended December 31:

EURm                               2016                           2015                               2014 

As of January 1

   62   103   124 

Transfer to Discontinued operations

   –   (7)   – 

Charged to income statement

   126   13   24 

Deductions(1)

   (20)   (47)   (45) 

As of December 31

   168   62   103 

(1)Deductions include utilization and releases of allowances.

19. Prepaid expenses and accrued income

Non-current assets

EURm                               2016                                2015 

R&D tax credits and other indirect tax receivables

   254    – 

Other

   74    51 

Total

   328    51 

Current assets

 

    
EURm  2016   2015 

Social security, R&D tax credits, VAT and other indirect taxes

   560    258 

Deposits

   118    83 

Accrued revenue

   101    21 

Divestment-related receivables

   90    160 

Other

   427    227 

Total

   1 296    749 

NOKIA ANNUAL REPORT ON FORM 20-F 2016179

Notes to consolidated financial statementscontinued

20. Shares of the Parent Company

Shares and share capital

Nokia Corporation (“Parent Company”) has one class of shares. Each share entitles the holder to one vote at General Meetings. As of December 31, 2016, the share capital of Nokia Corporation is EUR 245 896 461.96 and the total number of shares issued is 5 836 055 012. As of December 31, 2016, the total number of shares includes 115 551 878 shares owned by Group companies representing 2.0% of share capital and total voting rights. Under the Nokia Articles of Association, Nokia Corporation does not have minimum or maximum share capital or share par value.

Authorizations

Authorization to issue shares and special rights entitling to shares

At the Annual General Meeting held on May 5, 2015, the shareholders authorized the Board of Directors to issue a maximum of 730 million shares through one or more issues of shares or special rights entitling to shares. The Board of Directors was authorized to issue either new shares or shares held by the Parent Company. The authorization included the right for the Board of Directors to resolve on all the terms and conditions of such share and special rights issuances, including issuance in deviation from the shareholders’ pre-emptive rights. The authorization may be used to develop the Parent Company’s capital structure, diversify the shareholder base, finance or carry out acquisitions or other arrangements, settle the Parent Company’s equity-based incentive plans, or for other purposes resolved by the Board of Directors. The authorization that would have been effective until November 5, 2016 was terminated by a resolution of Annual General Meeting on June 16, 2016.

At the Extraordinary General Meeting held on December 2, 2015, the shareholders authorized the Board of Directors to issue, in deviation from the shareholders’ pre-emptive right, a maximum of 2 100 million shares through one or more share issues. The authorization includes the right for the Board of Directors to resolve on all the terms and conditions of such share issuances. The authorization may be used to issue Parent Company shares to the holders of Alcatel Lucent shares, American Depositary Shares and convertible bonds as well as to beneficiaries of Alcatel Lucent employee equity compensation arrangements for the purpose of implementing the transaction with Alcatel Lucent, including the consummation of the public exchange offers made to Alcatel Lucent shareholders as well as other transactions contemplated by the memorandum of understanding between the Group and Alcatel Lucent, and/or otherwise to effect the combination. The authorization is effective until December 2, 2020.

In 2016, under the authorization held by the Board of Directors, the Parent Company issued in deviation from the shareholders’ pre-emptive right to subscription 1 842 158 031 shares in exchange for the Alcatel Lucent ordinary shares, American Depository Shares and OCEANE convertible bonds to effect the business combination with Alcatel Lucent. The number of shares issued consisted of 1 831 136 063 new shares and 11 021 968 shares held by Group companies. On November 2, 2016 the Group reached 100% ownership of Alcatel Lucent. Refer to Note 5, Acquisitions.

At the Annual General Meeting held on June 16, 2016, the shareholders authorized the Board of Directors to issue a maximum of 1 150 million shares through one or more issues of shares or special rights entitling to shares. The Board of Directors is authorized to issue either new shares or shares held by the Parent Company. The authorization included the right for the Board of Directors to resolve on all the terms and conditions of such share and special rights issuances, including issuance in deviation from the shareholders’ pre-emptive rights. The authorization may be used to develop the Parent Company’s capital structure, diversify the shareholder base, finance or carry out acquisitions or other arrangements, settle the Parent Company’s equity-based incentive plans, or for other purposes resolved by the Board of Directors. The authorization is effective until December 16, 2017.

In 2016, under the authorization held by the Board of Directors, the Parent Company issued 3 408 437 treasury shares to employees, including certain members of the Group Leadership Team, as settlement under equity-based incentive plans. The shares were issued without consideration and in accordance with the Plan rules.

In 2016, the Parent Company issued 1 033 265 new shares following the holders of stock options issued in 2011 and 2012 exercising their option rights.

As of December 31, 2016, the Board of Directors had no other authorizations to issue shares, convertible bonds, warrants or stock options.

Other authorizations

At the Annual General Meeting held on May 5, 2015, the shareholders authorized the Board of Directors to repurchase a maximum of 365 million shares. The amount corresponded to less than 10% of the total number of Parent Company’s shares. The shares may be repurchased in order to optimize the capital structure of the Parent Company, in order to finance or carry out acquisitions or other arrangements, to settle the Parent Company’s equity-based incentive plans or to be transferred for other purposes. The authorization that would have been effective until November 5, 2016 was terminated by a resolution of the Annual General Meeting on June 16, 2016.

At the Annual General Meeting held on June 16, 2016, the shareholders authorized the Board of Directors to repurchase a maximum of 575 million shares. The amount corresponds to less than 10% of the total number of Parent Company’s shares. The shares may be repurchased in order to optimize the capital structure of the Parent Company and are expected to be cancelled. In addition, the shares may be repurchased in order to finance or carry out acquisitions or other arrangements, to settle the Parent Company’s equity-based incentive plans or to be transferred for other purposes. The authorization is effective until December 16, 2017.

In 2016, under the authorization held by the Board of Directors and in line with the capital structure optimization program, the Parent Company repurchased 54 296 182 shares representing approximately 0.9% of share capital and total voting rights. The price paid for the shares was based on the current market price of the Nokia share on the securities market at the time of the repurchase.

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21. Fair value and other reserves

EURm  

 

Translation
                 differences

  Pension
                 remeasurements		                   Hedging reserve                   Available-for-sale
Investments		 

As of January 1, 2014

   434   (131)   30   181 

Foreign exchange translation differences

   628   –   –   – 

Net investment hedging losses

   (153)   –   –   – 

Remeasurements of defined benefit plans

   –   (179)   –   – 

Net fair value (losses)/gains

   –   –   (10)   117 

Transfer to income statement

   197   –   (20)   (14) 

Disposal of businesses

   –   46   2   – 

Movement attributable to non-controlling interests

   (7)   –   –   – 

As of December 31, 2014

   1 099   (264)   2   284 

Foreign exchange translation differences

   672   –   –   – 

Net investment hedging losses

   (207)   –   –   – 

Remeasurements of defined benefit plans

   –   84   –   – 

Net fair value (losses)/gains

   –   –   (53)   225 

Transfer to income statement

   (1 268)   –   49   (131) 

Disposal of businesses

   –   8   –   – 

Movement attributable to non-controlling interests

   (4)   –   –   – 

As of December 31, 2015

   292   (172)   (2)   378 

Foreign exchange translation differences

   265   –   –   – 

Net investment hedging losses

   (83)   –   –   – 

Remeasurements of defined benefit plans

   –   343   –   – 

Net fair value losses

   –   –   (13)   (10) 

Transfer to income statement

   (14)   –   25   (63) 

Acquisition of non-controlling interests

   (15)   (2)   –   – 

Movement attributable to non-controlling interests

   38   4   –   – 

As of December 31, 2016

   483   173   10   305 

Translation differences consist of translation differences arising from translation of foreign Group companies’ assets and liabilities into euro, the presentation currency of the consolidated financial statements, as well as gains and losses related to hedging of net investments in foreign operations. On disposal of all or a part of a foreign Group company, the cumulative amount of translation differences and related accumulated changes in fair value of qualifying net investment hedges are recognized as income or expense on the consolidated income statement when the gain or loss on disposal is recognized. Refer to Note 2, Significant accounting policies.

The Group has defined benefit plans. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions for these defined benefit plans are charged or credited to the pension remeasurements reserve. Refer to Note 2, Significant accounting policies and Note 27, Pensions and other post-employment benefits.

The Group applies hedge accounting on certain forward foreign exchange contracts that are designated as cash flow hedges. The change in fair value that reflects the change in spot exchange rates is deferred to the hedging reserve to the extent that the hedge is effective. Refer to Note 2, Significant accounting policies.

The Group invests a portion of cash needed to cover the projected cash needs of its ongoing business operations in highly liquid, interest-bearing investments and certain equity instruments. Changes in the fair value of these available-for-sale investments are recognized in the fair value and other reserves as part of other comprehensive income, with the exception of interest calculated using the effective interest method and foreign exchange gains and losses on current available-for-sale investments recognized directly in the consolidated income statement. Refer to Note 2, Significant accounting policies.

NOKIA ANNUAL REPORT ON FORM 20-F 2016181

Notes to consolidated financial statementscontinued

22. Other comprehensive income

      2016            2015            2014 
EURm    Gross     Tax     Net            Gross     Tax     Net            Gross     Tax     Net 

Pension remeasurements

                                            

Remeasurements of defined benefit plans

     613      (269)     ��344             112      (28)      84             (275)      96      (179) 

Net change during the year

     613      (269)      344          112      (28)      84          (275)      96      (179) 

Translation differences

                                            

Exchange differences on translating foreign operations

     265      –      265          673      –      673          628      –      628 

Transfer to income statement

     (14)      –      (14)             (1 727)      –      (1 727)             192      –      192 

Net change during the year

     251      –      251          (1 054)      –      (1 054)          820      –      820 

Net investment hedging

                                            

Net investment hedging losses

     (103)      20      (83)          (260)      53      (207)          (187)      34      (153) 

Transfer to income statement

     –      –      –             582      (123)      459             20      (15)      5 

Net change during the year

     (103)      20      (83)          322      (70)      252          (167)      19      (148) 

Cash flow hedges

                                            

Net fair value losses

     (16)      3      (13)          (66)      13      (53)          (5)      (5)      (10) 

Transfer to income statement

     30      (5)      25             61      (12)      49             (25)      5      (20) 

Net change during the year

     14      (2)      12          (5)      1      (4)          (30)      –      (30) 

Available-for-sale Investments

                                            

Net fair value (losses)/gains

     (9)      (1)      (10)          246      (21)      225          120      (3)      117 

Transfer to income statement on impairment

     25      (4)      21          11      –      11          15      –      15 

Transfer to income statement on disposal

     (91)      7      (84)             (144)      2      (142)             (29)      –      (29) 

Net change during the year

     (75)      2      (73)          113      (19)      94          106      (3)      103 

Other (decrease)/increase, net

     (6)      –      (6)             2      –      2             40      –      40 

Total

     694      (249)      445             (510)      (116)      (626)             494      112      606 

182NOKIA ANNUAL REPORT ON FORM 20-F 2016

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23. Interest-bearing liabilities

                        Carrying amount EURm
Issuer/borrower  Instrument  Currency          Nominal (million)   Final maturity                     2016                  2015

Nokia Corporation

  

Revolving Credit Facility(1)

  EUR   1 579   June 2019   –  –

Nokia Corporation

  

6.625% Senior Notes

  USD   500   May 2039   482  467

Alcatel-Lucent USA Inc.

  

6.45% Senior Notes

  USD   1 360   March 2029   1 306  –

Alcatel-Lucent USA Inc.

  

6.5% Senior Notes

  USD   300   January 2028   287  –

Alcatel Lucent SA

  

0.125% OCEANE Convertible Bond

  EUR   –   January 2020   –  –

Nokia Corporation

  

5.375% Senior Notes

  USD   1 000   May 2019   961  940

Nokia Corporation

  

6.75% Senior Notes

  EUR   500           February 2019   527  539

Alcatel Lucent SA

  

0% OCEANE Convertible Bond

  EUR   –   January 2019   –  –

Nokia Corporation and various subsidiaries

  Other liabilities(2)               464  128

Total

                  4 027  2 074

(1)In June 2016, the Group exercised its option to increase the size of the EUR 1 500 million revolving credit facility to EUR 1 579 million and to extend the maturity date from June 2018 to June 2019. The facility has a remaining one-year extension option, no financial covenants and remains undrawn.
(2)Includes liabilities related to the French R&D tax credits (Crédits d’Impôt Recherche) of EUR 132 million that have been sold to banks on a recourse basis and hence remain on the consolidated statement of financial position.

Transactions relating to borrowings acquired as part of the Acquisition of Alcatel Lucent

As part of the public exchange offer to acquire Alcatel Lucent 2018 OCEANE, 2019 OCEANE and 2020 OCEANE convertible bonds with nominal amounts of EUR 381 million, EUR 238 million and EUR 293 million respectively, were tendered for exchange into Nokia shares. As a result, less than 15% of the 2018 OCEANE convertible bonds remained outstanding, and the Group caused Alcatel Lucent SA to redeem at par value plus accrued interest, all of the outstanding 2018 OCEANE convertible bonds pursuant to the terms and conditions of the bonds. Subsequently during 2016 the remaining outstanding 2019 OCEANE and 2020 OCEANE convertible bonds with nominal amounts EUR 402 million and EUR 136 million respectively, were either put back, acquired in privately negotiated transactions, or acquired through the Public Buy-Out Offer followed by a Squeeze-Out for an aggregate cash payment of EUR 562 million. Refer to Note 5, Acquisitions.

In January 2016, Alcatel Lucent SA repaid its EUR 190 million 8.50% senior notes. In February, 2016, Alcatel-Lucent USA Inc. redeemed its USD 650 million 4.625% notes due July 2017, USD 500 million 8.875% notes due January 2020 and USD 700 million 6.750% notes due November 2020 in accordance with their respective terms and conditions. In February 2016, Alcatel Lucent SA terminated its EUR 504 million revolving credit facility. In March 2016, the Alcatel-Lucent Submarine Networks’ credit facility of EUR 74 million was repaid.

All of the remaining borrowings are senior unsecured and have no financial covenants.

NOKIA ANNUAL REPORT ON FORM 20-F 2016183

Notes to consolidated financial statementscontinued

24. Fair value of financial instruments

    Carrying amounts       Fair   
value(1)		 
EURm  Current
available-
for-sale
financial  assets		   Non-current
available-
for-sale
financial  assets		   Financial
instruments at
fair value
through profit
or loss		   Loans and
receivables
measured at
amortized cost		   Financial
liabilities
measured at
amortized cost		   Total       Total 

2016

               

Available-for-sale investments, carried at fair value

     838          838     838 

Available-for-sale investments, carried at cost less impairment

     202          202     202 

Other non-current financial assets

       111    143      254     228 

Accounts receivable

         6 972      6 972     6 972 

Other current financial assets

       235    61      296     296 

Investments at fair value through profit and loss, liquid assets

       327        327     327 

Available-for-sale investments, liquid assets carried at fair value

   1 502            1 502     1 502 

Cash and cash equivalents carried at fair value

   7 497                        7 497        7 497 

Total financial assets

   8 999    1 040    673    7 176    –        17 888            17 862 

Long-term interest-bearing liabilities

           3 657    3 657     3 821 

Short-term interest-bearing liabilities

           370    370     370 

Other financial liabilities

       250      34    284     284 

Accounts payable

                       3 781    3 781        3 781 

Total financial liabilities

   –    –    250    –    7 842    8 092        8 256 

2015

               

Available-for-sale investments, carried at fair value

     703          703     703 

Available-for-sale investments, carried at cost less impairment

     285          285     285 

Other non-current financial assets

         49      49     39 

Accounts receivable

         3 913      3 913     3 913 

Other current financial assets

       96    32      128     128 

Investments at fair value through profit and loss, liquid assets

       687        687     687 

Available-for-sale investments, publicly quoted equity shares

     16          16     16 

Available-for-sale investments, liquid assets carried at fair value

   2 167            2 167     2 167 

Cash and cash equivalents carried at fair value

   6 995                        6 995        6 995 

Total financial assets

   9 162    1 004    783    3 994    –    14 943        14 933 

Long-term interest-bearing liabilities

           2 023    2 023     2 100 

Short-term interest-bearing liabilities

           51    51     51 

Other financial liabilities

       114      8    122     122 

Accounts payable

                       1 910    1 910        1 910 

Total financial liabilities

   –    –    114    –    3 992    4 106        4 183 

(1)The following fair value measurement methods are used for items not carried at fair value: the fair value is estimated to equal the carrying amount for available-for-sale investments carried at cost less impairment for which it is not possible to estimate fair value reliably. These assets are tested for impairment using a discounted cash flow analysis if events or changes in circumstances indicate that the carrying amounts may not be recoverable. The fair values of long-term interest-bearing liabilities are primarily based on quotes from third-party pricing services (level 2). The fair values of other assets and liabilities, including loans receivable and loans payable are primarily based on discounted cash flow analysis (level 2). The fair value is estimated to equal the carrying amount for short-term financial assets and financial liabilities due to limited credit risk and short time to maturity. Refer to Note 2, Significant accounting policies.

184NOKIA ANNUAL REPORT ON FORM 20-F 2016

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Fair value hierarchy

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 an increasing amount of judgment associated with the inputs used to derive fair valuation for these assets and liabilities, level 1 being market values for exchange traded products, level 2 being primarily based on quotes from third-party pricing services, and level 3 requiring most management judgment. At the end of each reporting period, the Group categorizes its financial assets and liabilities to appropriate level of fair value hierarchy.

Items measured at fair value on a recurring basis as of December 31:

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 

2016

        

Available-for-sale investments, carried at fair value

   –    164    674    838 

Other current financial assets, derivatives(1)

   –    235    –    235 

Investments at fair value through profit and loss

   –    438    –    438 

Available-for-sale investments, liquid assets carried at fair value

   –    1 502    –    1 502 

Total assets

   –    2 339    674    3 013 

Other financial liabilities, derivatives(1)

   –    236    14    250 

Total liabilities

   –    236    14    250 

2015

        

Available-for-sale investments, carried at fair value

   –    15    688    703 

Other current financial assets, derivatives(1)

   –    96    –    96 

Investments at fair value through profit and loss

   –    687    –    687 

Available-for-sale investments, publicly quoted equity shares

   16    –    –    16 

Available-for-sale investments, liquid assets carried at fair value

   –    2 167    –    2 167 

Total assets

   16    2 965    688    3 669 

Other financial liabilities, derivatives(1)

   –    114    –    114 

Total liabilities

   –    114    –    114 

(1)Refer to Note 25, Derivative financial instruments for the allocation between hedge accounted and non-hedge accounted derivatives.

The level 1 category includes financial assets and liabilities that are measured in whole by reference to published quotes in an active market. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, and those prices represent actual and regularly occurring market transactions on an arm’s-length basis. This category includes only exchange traded products. Comparative presentation has been updated accordingly.

The level 2 category includes financial assets and liabilities measured using a valuation technique based on assumptions that are supported by prices from observable current market transactions. These include assets and liabilities with fair values based on quotes from third-party pricing services, financial assets with fair values based on broker quotes and assets that are valued using the Group’s own valuation models whereby the material assumptions are market observable. The majority of listed bonds and other securities, over-the-counter derivatives and certain other products are included in this category.

The level 3 category includes a large number of investments in unlisted equities and unlisted venture funds, including investments managed by Nokia Growth Partners specializing in growth-stage investing and by BlueRun Ventures focusing on early-stage opportunities. The level 3 fair value is determined using one or more valuation techniques where the use of the market approach generally consists of using comparable market transactions, while the use of the income approach generally consists of calculating the net present value of expected future cash flows. For unlisted funds, the selection of appropriate valuation techniques by the fund managing partner may be affected by the availability and reliability of relevant inputs. In some cases one valuation technique may provide the best indication of fair value while in other circumstances multiple valuation techniques may be appropriate.

NOKIA ANNUAL REPORT ON FORM 20-F 2016185

Notes to consolidated financial statementscontinued

The inputs generally considered in determining the fair value include the original transaction price, recent transactions in the same or similar instruments, completed or pending third-party transactions in the underlying investment or comparable issuers, subsequent rounds of financing, recapitalizations or other transactions undertaken by the issuer, offerings in the equity or debt capital markets, and changes in financial ratios or cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors. The level 3 investments are valued on a quarterly basis taking into consideration any changes, projections and assumptions, as well as any changes in economic and other relevant conditions. The fair value may be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the managing partner in the absence of market information. Assumptions used by the managing partner due to the lack of observable inputs may impact the resulting fair value of individual investments, although no individual input has a significant impact on the total fair value of the level 3 investments.

Reconciliation of the opening and closing balances on level 3 financial assets and liabilities:

EURm

Level 3 financial
            assets and liabilities

As of January 1, 2015

556

Net gain in income statement

96

Net gain in other comprehensive income

83

Purchases

70

Sales

(146) 

Other

29

As of December 31, 2015

688

Net gains in income statement

52

Net loss recorded in other comprehensive income

(48) 

Acquisitions through business combination

(14) 

Purchases

72

Sales

(101) 

Other

11

As of December 31, 2016

660

The gains and losses from financial assets and liabilities categorized in level 3 are included in other operating income and expenses in cases where the investment and disposal objectives for these investments are business-driven. In other cases, the gains and losses are included in financial income and expenses.

186NOKIA ANNUAL REPORT ON FORM 20-F 2016

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25. Derivative financial instruments

    Assets       Liabilities 
EURm         Fair  value(1)         Notional(2)              Fair  value(1)         Notional(2) 

2016

       

Hedges on net investment in foreign subsidiaries

       

Forward foreign exchange contracts

   20   1 829     (1)   255 

Cash flow hedges

       

Forward foreign exchange contracts

   12   382     (9)   185 

Fair value hedges

       

Interest rate swaps

   42   300     –   – 

Forward foreign exchange contracts

   21   350     (51)   689 

Firm commitments

   34   633     (6)   311 

Cash flow and fair value hedges(3)

       

Cross-currency interest rate swaps

   42   1 002     –   – 

Derivatives not designated in hedge accounting relationships carried at fair value through profit and loss

       

Forward foreign exchange contracts

   61   3 777     (135)   7 526 

Currency options bought

   3   569     –   – 

Interest rate swaps

   –   –     (29)   329 

Other derivatives

   –   –        (5)   157 

Total

   235   8 842        (236)   9 452 

2015

       

Hedges on net investment in foreign subsidiaries

       

Forward foreign exchange contracts

   2   223     (5)   464 

Currency options bought

   –   106     –   – 

Currency options sold

   –   –     –   114 

Cash flow hedges

       

Forward foreign exchange contracts

   4   844     (19)   880 

Fair value hedges

       

Interest rate swaps

   52   301     –   – 

Cash flow and fair value hedges(3)

       

Cross-currency interest rate swaps

   17   355     (5)   646 

Derivatives not designated in hedge accounting relationships carried at fair value through profit and loss

       

Forward foreign exchange contracts

   17   2 117     (31)   2 296 

Currency options bought

   4   350     –   – 

Currency options sold

   –   –     –   48 

Interest rate swaps

   –   –     (50)   646 

Other derivatives

   –   –        (4)   37 

Total

   96   4 296        (114)   5 131 

(1)Included in other financial assets and other financial liabilities in the consolidated statement of financial position.
(2)Includes the gross amount of all notional values for contracts that have not yet been settled or cancelled. The amount of notional value outstanding is not necessarily a measure or indication of market risk as the exposure of certain contracts may be offset by that of other contracts.
(3)Cross-currency interest rate swaps have been designated partly as fair value hedges and partly as cash flow hedges.

NOKIA ANNUAL REPORT ON FORM 20-F 2016187

Notes to consolidated financial statementscontinued

26. Share-based payment

The Group has several equity-based incentive programs for employees. The programs consist of performance share plans, restricted share plans and employee share purchase plans. New stock option plans are no longer granted, although the 2011 stock option plan remains in force. Both executives and other eligible employees participate in these programs. The equity-based incentive grants are generally conditional on continued employment as well as the fulfillment of the performance, service and other conditions determined in the relevant plan rules. The share-based payment expense for all equity-based incentive grants for Continuing operations amounts to EUR 130 million (EUR 67 million in 2015 and EUR 53 million in 2014).

Performance shares

In 2016, the Group administered four global performance share plans, the Performance Share Plans of 2013, 2014, 2015 and 2016. The performance shares represent a commitment by the Group to deliver Nokia shares to employees at a future point in time, subject to the fulfillment of predetermined performance criteria. In the Performance Share Plan of 2016, performance shares were granted with pre-defined performance criteria and included a minimum payout guarantee. As a result of the minimum payout defined in the terms and conditions of the 2016 Plan, the number of shares to be settled following the restriction period will start at 25% of the granted amount at target. The number of performance shares at target is the amount of performance shares granted to an individual that will be settled if the target performance with respect to performance criteria is achieved. Any additional payout beyond the minimum amount will be determined based on the financial performance against the established performance criteria during the two-year performance period. At maximum performance, the settlement amounts to two times the amount at target.

Global performance share plans as of December 31:

Plan   
Performance shares
        outstanding at target		 
 		   
            Confirmed  payout
(% of target)		 
 		   Performance period        Restriction period(1)       Settlement year 

2013

   –    86    2013–2014    2015   2016 

2014

   10 247 152    126    2014–2015    2016   2017 

2015

   10 818 660    124    2015–2016    2017   2018 

2016

   22 351 738         2016–2017    2018   2019 

(1)The restriction period will be no less than one year from the end of the performance period.

Performance criteria for the year ended December 31:

                    Threshold  performance           Maximum performance               Weight 
Performance criteria  EUR   EUR   % 

2016 Plan

  

Average annual net sales(1)2016-2017

   24 097 million    27 724 million    50 
   

Average annual diluted(1) EPS 2016-2017

   0.23    0.34    50 

2015 Plan(2)       

  

Annual net sales(1) in 2015

   11 892 million    14 144 million    25 
  

Annual net sales(1) in 2016

   23 421 million    27 852 million    25 
   

Average annual diluted(1) EPS 2015-2016

   0.18    0.29    50 

(1)Excludes costs related to the Acquisition of Alcatel Lucent and related integration, goodwill impairment charges, intangible asset amortization and other purchase price fair value adjustments, restructuring and associated charges and certain other items.
(2)The performance criteria of the Performance Share Plan 2015 were modified in 2016 to reflect the new structure and size of the Group following the Sale of the HERE Business and the Acquisition of Alcatel Lucent. The net sales metric is weighted equally each year, instead of calculating an average over the two-year performance period due to significant difference between the metrics for Nokia in 2015 and the new combined company in 2016.

Until the Nokia shares are delivered, the participants do not have any shareholder rights, such as voting or dividend rights, associated with the performance shares. The performance share grants are generally forfeited if the employment relationship with the Group terminates prior to vesting.

188NOKIA ANNUAL REPORT ON FORM 20-F 2016

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Restricted shares

In 2016, the Group administered four global restricted share plans: the Restricted Share Plan 2013, 2014, 2015 and 2016. The vesting schedule for plans prior to the 2015 Plan was 36 months following the grant quarter. The vesting schedule for the 2015 and 2016 Plans introduce tranche vesting and vest in three equal tranches on the first, second and the third anniversary of the award subject to continued employment with the Group. Restricted shares are granted on a limited basis for exceptional purposes related to retention and recruitment of individuals deemed critical to the Group’s future success. Until the Nokia shares are delivered, the participants do not have any shareholder rights, such as voting or dividend rights, associated with the restricted shares. The restricted share grants are generally forfeited if the employment relationship with the Group terminates prior to vesting of the applicable tranche or tranches.

Active share-based payment plans by instrument

    Performance shares outstanding at target(1)       Restricted shares outstanding(1) 
   Number of  Weighted average grant      Number of  Weighted average grant 
   performance  date fair value      restricted  date fair value 
    shares at target   EUR(2)        shares outstanding   EUR(2) 

As of January 1, 2014

   21 980 408            30 356 850     

Granted

   13 934 730   6.07     1 013 466   5.62 

Forfeited

   (18 676 072)      (19 546 605)  

Vested

   (5 000)            (4 228 306)     

As of December 31, 2014

   17 234 066            7 595 405     

Granted

   13 553 992   5.78     342 200   6.22 

Forfeited

   (7 859 208)      (3 880 221)  

Vested

   –            (1 952 910)     

As of December 31, 2015

   22 928 850            2 104 474     

Granted

   23 110 479   4.70     5 406 682   4.73 

Forfeited

   (1 489 070)      (255 023)  

Vested

   (1 132 709)            (1 286 596)     

As of December 31, 2016(3)

   43 417 550            5 969 537     

(1)Includes performance and restricted shares granted under other than global equity plans.
(2)The fair values of performance and restricted shares are estimated based on the grant date market price of the Nokia share less the present value of dividends expected to be paid during the vesting period.
(3)Includes 10 247 152 performance shares for the Performance Share Plan 2014 and 521 685 Restricted Shares that vested on January 1, 2017.

Employee share purchase plan

The Group offers a voluntary Employee Share Purchase Plan to its employees. Employees make contributions from their salary to purchase Nokia shares on a monthly basis during a 12-month savings period. The Group intends to deliver one matching share for every two purchased shares the employee still holds as of the end of the Plan cycle. In 2016, 1 661 951 matching shares were issued as a settlement to the participants of the Employee Share Purchase Plan 2015 (140 436 matching shares issued in 2015). Additionally in 2016, according to the terms and conditions of the plan, the Group issued 20 free shares to the participants of the Employee Share Purchase Plan, being 601 408 shares in total.

NOKIA ANNUAL REPORT ON FORM 20-F 2016189

Notes to consolidated financial statementscontinued

Legacy equity compensation programs

Stock options

In 2016, the Group administered two global stock option plans, the Stock Option Plans 2007 and 2011, approved by the shareholders at the Annual General Meeting in the year when the plan was launched. Stock option plans have not been granted since 2013 as compensation to Group employees. The Stock Option Plan 2007 lapsed on January 1, 2016.

Each stock option entitles the holder to subscribe for one new Nokia share. The stock options are non-transferable and may be exercised for shares only. Shares will be eligible for dividends for the financial year in which the share subscription takes place. Other shareholder rights will commence on the date on which the subscribed shares are entered in the Trade Register. The stock option grants are generally forfeited if the employment relationship with the Group is terminated.

Reconciliation of stock options outstanding and exercisable:

        Weighted   Weighted        Weighted 
      average exercise   average share   Number of   average exercise 
   Number  price   price   options   price 
Shares under option(1)   of shares   EUR    EUR   exercisable    EUR 

As of January 1, 2014

   28 000 192   4.47         4 339 341    9.66 

Exercised

   (56 623)   5.75    6.69     

Forfeited

   (16 839 593)   3.39       

Expired

   (3 759 953)   9.94                

As of December 31, 2014

   7 344 023   4.81         1 913 537    10.43 

Exercised

   (1 242 381)   3.79    6.44     

Forfeited

   (2 215 216)   2.48       

Expired

   (246 140)   8.07                

As of December 31, 2015

   3 640 286   4.67         2 318 911    5.97 

Exercised

   (832 900)   2.52    4.87     

Forfeited

   (17 875)   2.57       

Expired

   (1 188 490)   7.81                

As of December 31, 2016

   1 601 021   3.34         1 197 771    3.56 

(1)Includes stock options granted under other than global equity plans, excluding the 2012 Nokia Networks Equity Incentive Plan.

Nokia Networks equity incentive plan

In 2012, the Board of Nokia Siemens Networks established the Nokia Networks Equity Incentive Plan (“the Plan”), a share-based incentive program under which options for Nokia Solutions and Networks B.V. shares were granted to selected key employees and senior management. In 2015, 30% of the options became exercisable and the remaining 70% became exercisable in 2016. The exercise price of the options is based on a per share value on grant as determined for the purposes of the Plan. The options are accounted for as a cash-settled share-based payment liability as of December 31, 2016. The fair value of the liability is determined based on the estimated fair value of shares less the exercise price of the options on the reporting date. The total carrying amount of the Plan is EUR 9 million (EUR 73 million in 2015) and is included in accrued expenses and other liabilities in the consolidated statement of financial position.

Alcatel Lucent equity incentive plan

Following the Acquisition of Alcatel Lucent, plans previously granted to former Alcatel Lucent employees that remained outstanding and exercisable were transferred to the Group with original vesting terms and conditions. Multiple liquidity agreements were offered in limited circumstances as part of the transaction to support the delivery of specific awards at the point of vesting with settlement in Nokia shares. For the primary liquidity arrangement (applied to the 2015 performance share grant), the performance conditions are market-driven and the terms were modified to acknowledge the change from Alcatel Lucent share-related measure to Nokia share measure. All shares granted that are covered under the liquidity agreements are accounted for as replacement plans.

At the time of the Squeeze-Out, the remaining plans were modified to allow for the completion of the Squeeze-Out. Modifications to remaining outstanding share and option grants not already covered by liquidity agreements, included mandatory acceleration of unvested performance shares, and modification of plan terms for outstanding stock options that result in options delivered in cash rather than equity, keeping all other terms of the plan constant. The options are accounted for as a cash-settled share-based payment liability as of December 31, 2016. EUR 8 million was included in the total share-based compensation expense in the consolidated income statement in relation to these legacy Alcatel Lucent plans. The fair value of the liability is determined based on the estimated fair value of shares less the exercise price of the options on the reporting date. The total carrying amount of the liability is EUR 19 million and is included in accrued expenses and other liabilities in the consolidated statement of financial position.

190NOKIA ANNUAL REPORT ON FORM 20-F 2016

LOGO

27. Pensions and other post-employment benefits

The Group operates a number of post-employment plans in various countries including both defined contribution and defined benefit plans. TheseDefined benefit plans expose the Group to actuarial risks such as investment risk, interest rate risk, and life expectancy risk. The characteristics and associated risks of the defined benefit plans vary depending on legal, fiscal, and economic requirements in each country. These characteristics and risks are further described below and relate to the plans included in the Continuing operations of the Group.operations.

The total net accrueddefined benefit liability is EUR 1 198 million (EUR 398 million in 2015) consisting of net pension costand other post-employment benefit liabilities of EUR 3985 000 million (EUR 500423 million in 2014) consists of an accrual2015) and net pension and other post-employment benefit assets of EUR 4233 802 million (EUR 53025 million in 2014) and a prepayment of EUR 25 million (EUR 30 million in 2014)2015).

Defined benefit plans

The Group’s most significant defined benefit pension plans are in Germany, the United Kingdom, IndiaStates, Germany, and Switzerland.the United Kingdom. Together they account for 91% (91%93% (80% in 2014)2015) of the Group’s total defined benefit obligation and 92% (92%(81% in 2014)2015) of the Group’s total plan assets.

The defined benefit obligations, the fair value of plan assets, the effects of the asset ceiling and the net defined benefit balance atas of December 31:

 

  2015 2014      2015   2014     2015 2014      2015 2014   2016       2015 
EURm  Defined benefit obligation   Fair value of plan assets   Effects of asset ceiling   Net defined benefit balance   Defined
benefit
        obligation		 Fair value
of plan assets		   Effects of
asset ceiling		     Net defined
benefit
balance		      Defined
benefit
obligation		 Fair value
of plan assets		   Effects of
asset ceiling		     Net defined
benefit
balance		 

United States

   (22 845)   22 880    (265)   (230)     (59)   57    –   (2) 

Germany

   (1 279)   (1 381)     980     965           (299)   (416)    (2 680)   1 160    –   (1 520)     (1 279)   980    –   (299) 

United Kingdom

   (128)   (122)     136     130           8    8     (1 265)   1 485    –   220     (128)   136    –   8 

India

   (147)   (117)     144     112       (4)   (1)     (7)   (6) 

Switzerland

   (112)   (102)     76     70           (36)   (32) 

Other

   (174)   (162)     115     110        (5)   (2)     (64)   (54)    (1 873)   2 245    (40)   332     (374)   278    (9)   (105) 

Total

   (1 840)  (1 884)     1 451     1 387        (9)  (3)     (398)  (500)    (28 663)  27 770    (305)  (1 198)     (1 840)  1 451    (9)  (398) 

United States

The Group has significant defined benefit pension plans and a significant post-retirement welfare benefit plan (“Opeb”), providing post-retirement healthcare benefits and life insurance coverage, in the United States. The pension plans include both traditional service-based programs as well as cash-balance plans. The management plan for salaried, non-union member employees was closed to new entrants after December 31, 2007 and fully frozen as of December 31, 2009. The Group, then Alcatel Lucent, adopted a new cash-balance program for salaried, non-union member employees from January 1, 2015. The program was extended to all United States-based salaried employees, except the employees of Nokia Technologies, from January 1, 2017. For union-represented employees, the Group maintains two United States Occupational plans which are traditional service-based pension programs. The larger of the two, which represents 95% of the obligation, is a closed plan. Post-retirement welfare benefit plans are maintained for certain retired former employees. An agreement was made with the Communications Workers of America (“CWA”) and the International Brotherhood of Electrical Workers (“IBEW”) unions to continue to provide post-retirement healthcare benefits and life-insurance coverage for employees formerly represented by these two unions.

The defined benefit obligations, the fair value of plan assets, the effects of the asset ceiling and the net defined benefit balance as of December 31:

    2016       2015 
EURm  Defined
benefit
        obligation		  Fair value
of plan assets		   Effects of
asset ceiling		      Net defined
benefit
balance		       Defined
benefit
obligation		  Fair value
of plan assets		   Effects of
asset ceiling		       Net defined
benefit
balance		 

Pension benefits

              

Management

   (15 855)   16 861    (2)   1 004     (59)   57    –    (2) 

Occupational

   (3 528)   5 440    (263)   1 649     –   –    –    – 

Supplemental

   (401)   –    –   (401)        –   –    –    – 

Total

   (19 784)   22 301    (265)   2 252        (59)   57    –    (2) 

Post-retirement benefits

              

Health (non-union represented)

   (126)   –    –   (126)         

Health (formerly union represented)

   (1 343)   270    –   (1 073)         

Group life (non-union represented)

   (1 040)   220    –   (820)         

Group life (formerly union represented)

   (551)   89    –   (462)         

Other

   (1)   –    –   (1)                        

Total

   (3 061)   579    –   (2 482)                        

NOKIA ANNUAL REPORT ON FORM 20-F 2016191

Notes to consolidated financial statementscontinued

Germany

The Group maintains two primary plans in Germany which cover the majority of active employees in Germany participate inemployees: the cash balance plan BAP (BeitragsorientierterBeitragsorientierter Alterversorgungs Plan), formerly known as Beitragsorientierte Siemens AlterversorgungPlan (“BSAV”BAP”). and a similar cash balance program for the Group’s former Alcatel Lucent employees. Individual benefits are generally dependent on eligible compensation levels, ranking within the Group and years of service. This plan is a partlyThese plans are partially funded defined benefit pension plan,plans, the benefits of which arebeing subject to a minimum return guaranteed by the Group. The funding vehicle for the BAP plan is the NSN Pension Trust e.V. The Trustfunding vehicle for the former Alcatel Lucent cash balance plan is the Alcatel SEL Unterstützungs-GmbH. The trusts are legally separate from the Group and managesmanage the plan assets in accordance with the respective trust agreements withagreements.

All other plans have been previously frozen and replaced by the Group.cash balance plans. Benefits are paid in annual installments, as monthly retirement pension, or as a lump sum on retirement in an amount equal to accrued pensions and guaranteed interest. The risks specific to the German defined benefit plans are related to changes in mortality of covered members and return on investment return of theon plan assets. Curtailment gains of EUR 1 million (EUR 4 million in 2013) were recognized in service costs following a reduction in the workforce.

United Kingdom

The Group has athree plans in the United KingdomKingdom. The defined benefit planfor the legacy Nokia employees is divided into two sections: the money purchase section and the final salary section, both being closed to future contributions and accruals as of April 30, 2012. Individual benefits are generally dependent on eligible compensation levels and years of service for the defined benefit section of the plan and on individual investment choices for the defined contribution section of the plan. The funding vehicle for the pension plan is the NSN Pension Plan that is run on a trust basis.

India

Government-mandated gratuity and provident plans provide benefits based on years of service and projected salary levels at the date of separation for the Gratuity Plan and through an interest rate guarantee on existing investments in a Government-prescribed Provident Fund Trust. Gratuity Fund plan assets are invested and managed through an insurance policy. Provident Fund assets are managed by NSN PF Trustees through a pattern prescribed by the Government in various fixed-income securities.

Switzerland

The Group’s Swissother two defined benefit pension plans are governed by the Swiss Federal Law on Occupational Retirements, Survivors’Alcatel Pension Plan and Disability Pensionthe Lucent Technologies Retirement Benefits Plan. Both plans (“BVG”), which stipulates that pensionwere closed to new entrants in 2002 and 2001, respectively, although active employees still accrue benefits. These plans are to be managed by an independent, legally autonomous unit. In Switzerland, individual benefits are provided throughboth final salary-based programs.

Impact on the collective foundation Profond. consolidated financial statements

Movements in the defined benefit obligation, fair value of plan assets and the impact of the asset ceiling

The plan’s benefits are based on age, yearsmovements in the present value of service, salary and an individual old age account. The funding vehiclethe defined benefit obligation for the pension scheme is the Profond Vorsorgeeinrichtung. In 2015, a curtailment gain of EUR 4 million was recognized in service costs following a restructuring plan. In 2013, the collective foundation Profond decided to decrease conversion rates (pension received as a percentage of retirement savings) in five years gradually from 7.2% to 6.8%, which will reduce the expected benefits at retirement for all employees. This event qualified as a plan amendment and the past service gain of EUR 1 million arising from this amendment was recognized immediately in the service cost in 2013.ended December 31:

    2016       2015 
EURm  

United States

pension

  

United States

Opeb

  

Other

        pension

                   Total       

United States

pension

  

Other

        pension

                   Total 

As of January 1

   (58)   –   (1 782)   (1 840)        (71)   (1 813)   (1 884) 

Transfer to Discontinued operations

   –   –   –   –        16   –   16 

Current service cost

   (63)   –   (92)   (155)     –   (46)   (46) 

Interest expense

   (711)   (111)   (150)   (972)     (3)   (46)   (49) 

Past service cost and gains on curtailments

   (13)   –   11   (2)     –   5   5 

Settlements

   5   –   6   11        –   –   – 

Total

   (782)   (111)   (225)   (1 118)        (3)   (87)   (90) 

Remeasurements:

          

Gain/(loss) from change in demographic assumptions

   79   15   (13)   81     1   (1)   – 

(Loss)/gain from change in financial assumptions

   (301)   (60)   (593)   (954)     2   112   114 

Experience gain/(loss)

   227   205   (74)   358        1   (1)   – 

Total

   5   160   (680)   (515)        4   110   114 

Exchange differences

   (615)   (91)   166   (540)     (6)   (29)   (35) 

Contributions from plan participants

   –   (124)   (20)   (144)     –   (16)   (16) 

Benefit payments from plans

   1 595   366   243   2 204     2   58   60 

Acquisitions through business combinations

   (19 919)   (3 243)   (3 431)   (26 593)     –   (4)   (4) 

Other

   (10)   (18)   (89)   (117)        –   (1)   (1) 

Total

   (18 949)   (3 110)   (3 131)   (25 190)        (4)   8   4 

As of December 31

   (19 784)   (3 061)   (5 818)   (28 663)        (58)   (1 782)   (1 840) 

 

164192 NOKIA ANNUAL REPORT ON FORM 20-F 20152016

LOGOLOGO

    

    

    

    

    

    

 

The movements in the present value of the defined benefit obligation, fair value of plan assets and the impact of minimum funding/asset ceiling for Continuing operations:

    2015      2014 
         Impact of              Impact of    
   Present  Fair value  minimum        Present  Fair value  minimum    
   value of  of plan  funding/        value of  of plan  funding/    
EURm  obligation  assets  asset ceiling  Total      obligation  assets  asset ceiling  Total 

At January 1

   (1 884)   1 387    (3)   (500)      (1 453)   1 261    (7)   (199) 

Transfer to Discontinued operations

   16    (5)       11                   –  

Current service cost

   (46)     (46)     (39)     (39) 

Interest (expense)/income

   (49)   40     (9)     (59)   52     (7) 

Past service cost and gains on curtailments

   5      5         –  

Settlements

      –      9    (8)    1  

Other movements(1)

       (1)       (1)                  –  
    (90)   39    –    (51)      (89)   44    –    (45) 

Remeasurements:

           

Return on plan assets, excluding amounts included in interest income

    2     2       44     44  

Loss from change in demographic assumptions

      –      (1)     (1) 

Gain/(loss) from change in financial assumptions

   114      114      (321)     (321) 

Experience loss

      –      (16)     (16) 

Change in asset ceiling, excluding amounts included in interest (expense)/income

           (6)   (6)              4    4  
    114    2    (6)   110       (338)   44    4    (290) 

Exchange differences

   (35)   28     (7)     (31)   28     (3) 

Contributions:

           

Employers

    26     26       28     28  

Plan participants

   (16)   16     –      (12)   12     –  

Payments from plans:

           

Benefit payments

   60    (47)    13      55    (35)    20  

Acquired in business combinations

   (4)   4     –      (1)   1     –  

Other movements(2)

   (1)   1        –       (15)   4        (11) 
    4    28    –    32       (4)   38    –    34  

At December 31

   (1 840)   1 451    (9)   (398)      (1 884)   1 387    (3)   (500) 

(1)In 2015, other movements relate to the administration costs that are deducted from plan assets.
(2)In 2014, other movements relate to the inclusion of the defined benefit liability of end of service benefits that have previously been reported as other long-term employee liabilities in certain countries in the Middle East and Africa region.

Present value of obligations include EUR 428 million (EUR 407 million in 2014) of wholly funded obligations, EUR 1 337 million (EUR 1 408 million in 2014) of partly funded obligations and EUR 75 million (EUR 69 million in 2014) of unfunded obligations.

Amounts included in personnel expenses in the consolidated income statement for the years ended December 31:

 

  2016       2015 
EURm                           2015                          2014                          2013   

United States

pension

 

United States

Opeb

 

Other

        pension

               Total      

United States

pension

 

Other

        pension

               Total 

Current service cost

   46    39    44  

Past service cost and gains and losses on curtailments

   (5)   –    (5) 

Net interest cost

   9    7    11  

As of January 1

   57   –   1 394   1 451     59   1 328   1 387 

Transfer to Discontinued operations

   –   –   –   –     (5)   –   (5) 

Interest income

   774   18   135   927     2   38   40 

Administrative expenses and interest on asset ceiling

   (19)   –   (1)   (20)     –   (1)   (1) 

Settlements

   –    (1)   (4)    (5)   –   (6)   (11)     –   –   – 

Total

   750   18   128   896     2   37   39 

Remeasurements:

          

Return on plan assets, excluding amounts included in interest income

   947   6   387   1 340     (3)   5   2 

Total

   947   6   387   1 340     (3)   5   2 

Exchange differences

   709   16   (207)   518     6   22   28 

Contributions:

          

Employers

   32   10   74   116     –   26   26 

Plan participants

   –   124   20   144     –   16   16 

Benefit payments from plans

   (1 595)   (366)   (164)   (2 125)     (2)   (45)   (47) 

Acquisitions through business combinations

   21 571   599   3 182   25 352     –   4   4 

Other(1)

   1    –    –     (170)   172   76   78     –   1   1 

Total

   51   45   46     20 547   555   2 981   24 083     4   24   28 

As of December 31

   22 301   579   4 890   27 770     57   1 394   1 451 

(1) Includes Section 420 asset transfer between United States pension and United States Opeb.

The movements in the funded status for the years ended December 31:

(1) Includes Section 420 asset transfer between United States pension and United States Opeb.

The movements in the funded status for the years ended December 31:

    

 

  
  2016       2015 
EURm  United States
pension		 United States
Opeb		 Other
pension		 Total      United States
pension		 Other
pension		 Total 

As of January 1

   (1)   –   (388)   (389)     (12)   (485)   (497) 

Transfer to Discontinued operations

   –   –   –   –     11   –   11 

Current service cost

   (63)   –   (92)   (155)     –   (46)   (46) 

Interest income/(expense)

   44   (93)   (16)   (65)     (1)   (8)   (9) 

Past service cost and gains on curtailments

   (13)   –   11   (2)     –   5   5 

Settlements

   –   –   –   –     –   (1)   (1) 

Total

   (32)   (93)   (97)   (222)     (1)   (50)   (51) 

Remeasurements:

          

Return on plan assets, excluding amounts included in interest income

   947   6   387   1 340     (3)   5   2 

Gain/(loss) from change in demographic assumptions

   79   15   (13)   81     1   (1)   – 

(Loss)/gain from change in financial assumptions

   (301)   (60)   (593)   (954)     2   112   114 

Experience gain/(loss)

   227   205   (74)   358     1   (1)   – 

Total

   952   166   (293)   825     1   115   116 

Exchange differences

   94   (75)   (41)   (22)     –   (7)   (7) 

Employer contributions

   32   10   74   116     –   26   26 

Benefit payments from plans

   –   –   79   79     –   13   13 

Acquisitions through business combinations

   1 652   (2 644)   (249)   (1 241)     –   –   – 

Other(1)

   (180)   154   (13)   (39)     –   –   – 

Total

   1 598   (2 555)   (150)   (1 107)     –   32   32 

As of December 31

   2 517   (2 482)   (928)   (893)     (1)   (388)   (389) 

 

(1)Other includes administration costs that are deducted from plan assets.Includes Section 420 asset transfer between United States pension and United States Opeb.

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 165193

    

Notes to consolidated financial statementscontinued

    

    

 

MovementsThe movements in pension remeasurements recognized in other comprehensive incomethe impact of the asset ceiling limitation for the years ended December 31:

 

EURm                           2015                           2014                           2013 

Return on plan assets (excluding interest income), gain

   2    44    15  

Changes in demographic assumptions, (loss)/gain

   –    (1)   4  

Changes in financial assumptions, gain/(loss)

   114    (321)   93  

Experience adjustments, (loss)/gain

   –    (16)   6  

Current year change in asset ceiling

   (6)   4    (4) 

Total

   110    (290)   114  
    2016       2015 
EURm  

United States

pension

  

United States

Opeb

  

Other

        pension

              Total       

United States

pension

  

Other

        pension

              Total 

As of January 1

   –   –   (9)   (9)        –   (3)   (3) 

Interest expense

   (1)   –   (1)   (2)     –   –   – 

Remeasurements:

          

Change in asset ceiling, excluding amounts included in interest (expense)/income

   (251)   –   (7)   (258)     –   (6)   (6) 

Acquisitions through business combinations

   –   –   (22)   (22)     –   –   – 

Exchange differences

   (13)   –   (1)   (14)        –   –   – 

As of December 31

   (265)   –   (40)   (305)        –   (9)   (9) 

Net balances as of December 31:

 

          
    2016       2015 
EURm  

United States

pension

  

United States

Opeb

  

Other

pension

  Total       

United States

pension

  

Other

pension

  Total 

Total as of December 31

   2 252   (2 482)   (968)   (1 198)        (1)   (397)   (398) 

Present value of obligations includes EUR 21 271 million (EUR 428 million in 2015) of wholly funded obligations, EUR 6 122 million (EUR 1 337 million in 2015) of partly funded obligations and EUR 1 270 million (EUR 75 million in 2015) of unfunded obligations.

Recognized in the income statement

Recognized in personnel expenses in the consolidated income statement for the years ended December 31:

EURm                   2016                   2015                       2014 

Current service cost

   155   46   39 

Past service cost and gains and losses on curtailments

   2   (5)   – 

Net interest cost

   65   9   7 

Settlements

   –   –   (1) 

Other

   –   1   – 

Total

   222   51   45 

Of which relates to:

    

United States pensions

   32   1   – 

United States Opeb

   92   –   – 

Other pensions

   98   50   45 
Recognized in comprehensive income    

Recognized in other comprehensive income for the years ended December 31:

 

 

  
EURm  2016  2015  2014 

Return on plan assets (excluding interest income), gain

   1 340   2   44 

Changes in demographic assumptions, gain/(loss)

   81   –   (1) 

Changes in financial assumptions, (loss)/gain

   (954)   114   (321) 

Experience adjustments, gain/(loss)

   358   –   (16) 

Current year change in asset ceiling

   (259)   (6)   4 

Total

   566   110   290 

Of which relates to:

    

United States pensions

   701   –   – 

United States Opeb

   166   –   – 

Other pensions

   (301)   110   290 

194NOKIA ANNUAL REPORT ON FORM 20-F 2016

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Actuarial assumptions and sensitivity analysis

The principal actuarial weighted averageActuarial assumptions used for determining the defined benefit obligation:

%                           2015                            2014 

Discount rate for determining present values

   3.0     2.6  

Annual rate of increase in future compensation levels

   2.6     1.9  

Pension growth rate

   1.3     1.4  

Inflation rate

   1.4     1.6  

Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in each country. The discount rates and mortality tables used for the significant plans:

 

                             2015                            2014       2015 
    Discount rate %       Mortality table 

Germany

   2.5     2.0       Richttafeln 2005 G  

United Kingdom

   3.6     3.5       S2PA table adjusted(1) 

India

   7.8     7.9       IALM (2006-08)  

Switzerland

   0.7     0.9       BVG2010G  

Total weighted average for all countries

   3.0     2.6          
                                 2016                                2015      2016 
    Discount rate %      Mortality table 
       RP–2014 w/MP–2016 

United States

   3.7    4.5    mortality projection scale 

Germany

   1.6    2.5    Heubeck Richttafeln 

United Kingdom(1)

   2.7    3.6    2005G S2PA Light 

Total weighted average for all countries

   3.3    3.0         

 

(1)Tables are adjusted down by one year for males and down by three years for females.with 1.5% long-term rate of improvement.

The principal actuarial weighted average assumptions used for determining the defined benefit obligation:

%                               2016                                2015 

Discount rate for determining present values

   3.3    3.0 

Annual rate of increase in future compensation levels

   1.9    2.6 

Pension growth rate

   0.3    1.3 

Inflation rate

   2.0    1.4 

Weighted average duration of defined benefit obligations

   11yrs    15yrs 

 

United States defined benefit plans

Actuarial assumptions used for determining the defined benefit obligation:

 

 

 

%  2016   2015 

Benefit obligation, discount rate

    

Pension

   3.7    4.5 

Post–retirement healthcare and other

   3.4    – 

Post–retirement group life

   3.8    – 

Annual rate of increase in future compensation levels

   2.08    – 

Assumed healthcare cost trend rates

    

Healthcare costs trend rate assumed for next year

   7.5   

Healthcare cost trend rate assumed for next year (excluding post-retirement dental benefits)

   7.7   

Terminal growth rate

   4.9   

Year that the rate reaches the terminal growth value

   2028      

Sensitivity analysis

The sensitivity of the defined benefit obligation to changes in the principal assumptions:

 

              Increase in assumption(1)           Decrease in assumption(1)           Increase in  assumption(1)       Decrease in  assumption(1) 
  Change in assumption   EURm EURm    Change in assumption    EURm  EURm 

Discount rate for determining present values

   1.0%     235    (299)    1.0%    2 766   (3 361) 

Annual rate of increase in future compensation levels

   1.0%     (43)   36     1.0%    (126)   112 

Pension growth rate

   1.0%     (169)   165     1.0%    (580)   481 

Inflation rate

   1.0%     (192)   186     1.0%    (581)   471 

Healthcare cost trend rate

   1.0%    (74)   67 

Life expectancy

   1 year     (54)   54     1 year    (826)   773 

 

(1)Positive movement indicates a reduction in the defined benefit obligation; a negative movement indicates an increase in the defined benefit obligation.

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant and may not be representative of the actual impact of changes. If more than one assumption is changed simultaneously, the combined impact of changes would not necessarily be the same as the sum of the individual changes. If the assumptions change to a different level compared with that presented above, the effect on the defined benefit obligation may not be linear. The methods and types of assumptions used in preparing the sensitivity analyses are the same as in the previous period.

When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method has been applied as when calculating the post-employment benefit obligation recognized in the consolidated statement of financial position; specifically, the present value of the defined benefit obligation is calculated with the projected unit credit method. Increases and decreases in the discount rate, rate of increase in future compensation levels, pension growth rate and inflation, which are used in determining the defined benefit obligation, do not have a symmetrical effect on the defined benefit obligation primarily due to the compound interest effect created when determining the net present value of the future benefit.

 

166NOKIA ANNUAL REPORT ON FORM 20-F 20152016195

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Notes to consolidated financial statementscontinued

    

    

 

Investment strategies

The objective ofoverall investment activitiesobjective is to maximizepreserve or enhance the excessplans’ funded status through the implementation of plan assets overan investment strategy that maximizes return within the projected benefit obligations and to achieve asset performance at least in line withcontext of minimizing surplus risk. In formulating the interest costs in order to minimize required future employer contributions. To achieve these goals, the Group uses an asset liability matching framework which forms the basis for its strategic asset allocation for the Plans, multiple factors are considered, including, but not limited to the long-term risk and return expectations for a variety of asset classes as well as current and multi-year projections of the respective plans. The Group also takes into consideration other factors in addition to the discount rate, such as inflationPlans’ demographics, benefit payments, contributions and longevity.funded status. The results of the asset-liability matchingAsset-Liability framework are implemented on a plan level.

The Group’s pension governance does not allow the pension funds themselves to make direct investments and requires all investments to be placed either in funds partnerships or separate accounts managed by professional asset managers. DerivativeThe investment advisors may use derivative financial instruments are permittedincluding futures contracts, forward contracts, options and are usedinterest rate swaps to change risk characteristics as part of the German plan assets.manage market risk. The performance and risk profile of investments is constantly monitored on a stand-alone basis as well as in the broader portfolio context. One major risk is a decline in the plan’s funded status as a result of the adverse developmentperformance of plan assets and/or defined benefit obligations. The application of the Asset-Liability-ModelAsset-Liability Model study focuses on minimizing such risks.

Disaggregation of plan assets

 

  2015     2014   2016       2015 
EURm       Quoted   Unquoted            Total   %        Quoted   Unquoted            Total   %   Quoted   Unquoted   Total   %      Quoted   Unquoted   Total   % 

Equity securities

   348       348     24       296       296     22     2 777    –    2 777    10     348    –    348    24 

Debt securities

   627     98     725     51       665     104     769     55     18 329    –    18 329    66     627    98    725    51 

Insurance contracts

     78     78     5         74     74     5     –    833    833    3     –    78    78    5 

Real estate

     77     77     5         68     68     5     –    1 389    1 389    5     –    77    77    5 

Short-term investments

   124     9     133     9       108       108     8     1 110    –    1 110    4     124    9    133    9 

Others

      90     90     6           72     72     5  

Other

   –    3 332    3 332    12     –    90    90    6 

Total

   1 099     352     1 451             100        1 069     318     1 387             100         22 216        5 554        27 770                100         1 099        352        1 451                100 

All short-term investments including cash, equities and nearly all fixed-income securities have quoted market prices in active markets. Equity securities represent investments in equity funds and direct investments, which have quoted market prices in an active market. Debt securities represent investments in government and corporate bonds, as well as investments in bond funds, which have quoted market prices in an active market. Debt securities may also comprise investments in funds and direct investments. Real estate investments are investments in real estate funds which invest in a diverse range of real estate properties. Insurance contracts are customary pension insurance contracts structured under domestic law in the respective countries. Real estate investments are investments in commercial properties or real estate funds which invest in a diverse range of real estate properties. Short-term investments are liquid assets or cash which are being held for a short period of time, with the primary purpose of controlling the tactical asset allocation. Other includes commodities as well as alternative investments, including derivative financial instruments.

United States plan

United States plan asset target and actual allocation range of the pension and post-retirement trust by asset category as of December 31, 2016:

%  

Pension target

            allocation range

   

                         Percentage of

plan assets

   

Post retirement

                     target allocation

   

Percentage of post

            employment plan assets

 

Equity securities

   7–13    10    45    45 

Fixed income securities

   62–83    73    15    15 

Real estate

   5–9    6    –    – 

Private equity and other

   8–15    11    –    – 

Cash

   –    –    40    40 

Total

        100    100    100 

The majority of the Group’s United States pension plan assets includeare held in a self-investment through a loan provided by onemaster pension trust. The post-retirement plan assets are held in two separate trusts in addition to the amount set aside in the master pension trust for retiree healthcare. The Pension & Benefits Investment Committee formally approves the target allocation ranges every few years on the completion of the Group’s GermanAsset-Liability Model study by external advisors and internal investment management. The overall United States pension fundsplan asset portfolio reflects a balance of investments split about 27.0/73.0 between equity, including alternative investments for this purpose, and fixed income securities.

United States pension plan assets included EUR 6915 million Nokia bonds as of December 31, 2016 (EUR 698 million in 2014)2015). Refer to Note 34, Related party transactions.

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Future cash flows

Contributions

Group contributions to the pension and other post-retirement benefit plans are made to facilitate future benefit payments to plan participants. The funding policy is to meet minimum funding requirements as set forth in the employee benefit and tax laws, as well as any such additional amounts as the Group may determine to be appropriate. Contributions are made to benefit plans for the sole benefit of plan participants. Employer contributions expected to be made in 20162017 are EUR 29123 million. The weighted

United States pension plans

Funding methods

Funding requirements for the three major United States qualified pension plans are determined by the applicable statutes, namely the Employee Retirement Income Security Act of 1974 (“ERISA”), the Internal Revenue Code of 1986, and regulations issued by the Internal Revenue Service (“IRS”).

In determining funding requirements, ERISA allows assets to be either market value or an average durationvalue over a period of time; and liabilities to be based on average interest rates over a period of time. A preliminary assessment indicates that no funding is required for the active management and occupational pension plans until, at least 2018. For the inactive occupational pension plan, the Group does not foresee any future funding requirement for regulatory funding purposes, given the plan’s asset allocation, and the level of assets compared to liabilities.

Section 420 transfer

Section 420 of the defined benefit obligationsof the IRS (“Section 420”) allows for the transfer of pension assets in excess of specified thresholds (“excess pension assets”) over the plan’s funding obligation to be used to fund the healthcare benefits and life insurance coverage of that plan’s retired participants. Section 420 regulations require the Group to continue to provide healthcare benefits or life insurance coverage to those retirees for a certain period of time (“cost maintenance period”), at levels prescribed by the regulations. Section 420 is 15 years atcurrently set to expire on December 31, 2015.2025. On December 1, 2016, the Group made EUR 180 million Section 420 transfer of excess pension assets from the inactive occupational pension plan to fund healthcare benefits and life insurance coverage for retirees who, when actively employed were represented by CWA and IBEW. The Group expects to make a further Section 420 transfer during 2017 from the inactive occupational pension plan to fund healthcare benefits and group life insurance coverage.

Contributions

The following table summarizes expected maturity analysis of undiscounted benefits paidcontributions to the pension and post-retirement plans until 2026. These figures include the reimbursements the Group will receive from the defined benefitcoverage provided to plan participants eligible for the Medicare Prescription drug benefit. The Group did not make contributions to its qualified pension plans during 2016, nor does it expect to make any contributions until, at least 2018. Actual contributions may differ from expected contributions due to various factors, including performance of the Continuing operations:

EURm               2016                2017                2018                2019                2020   2021-2025 

Pension benefits

   64     47     48     72     46     285  

9. Depreciationplan assets, interest rates and amortization by functionlegislative changes.

EURm  2015   2014   2013 

Continuing operations

      

Cost of sales

   55     40     56  

Research and development expenses(1)

   122     107     120  

Selling, general and administrative expenses(2)

   109     93     143  

Total

                    286                     240                     319  
    Pension       Post-retirement 
                     Medicare subsidy(1)for 
EURm              Non-qualified  plans                    Non-represented               Other benefit plans       formerly union represented 

2017

   28     12    4    (21) 

2018

   28     12    4    (21) 

2019

   28     12    4    (20) 

2020

   28     12    4    (19) 

2021

   27     12    4    (18) 

2022-2026

   128        60    255    (79) 

 

(1)Includes amortizationMedicare Subsidy is recorded within other movements in the reconciliation of acquired intangible assetsthe present value of EUR 35 million (EUR 32 million in 2014 and EUR 20 million in 2013).the defined benefit obligation.
(2)Includes amortization of acquired intangible assets of EUR 44 million (EUR 35 million in 2014 and EUR 80 million in 2013).

Certain actuarial assumptions used to determine whether pension plan funding is required differ from those used for accounting purposes, which may cause significant differences in volatile markets. While the basis for developing discount rates in both cases is by corporate bond yields, for accounting purposes, a yield curve developed by CitiGroup is used as of the close of the last business day of the financial year; whereas the ERISA funding rules allow the use of either a daily average yield curve for the last month of the financial year, or a two-year average yield curve. When measuring assets, fair values of plan assets as of the last business day of the financial year are used for accounting purposes; whereas ERISA funding rules allow for “asset smoothing” that averages fair values over periods as long as two years with limited expected returns included in the averaging. The approach applied by ERISA for the regulatory funding valuation minimizes the impact of sharp changes in asset values and corporate bond yields in volatile markets.

Healthcare benefits for both management and formerly union represented retirees’ benefits are capped for those who retired after February 28, 1990. The benefit obligation associated with this group of retirees is approximately 49% of the total United States retiree healthcare obligation as of December 31, 2016. Medicare is the primary payer for those aged 65 and older, comprising almost all of uncapped retirees.

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 167197

    

Notes to consolidated financial statementscontinued

    

    

 

10. Impairment

Continuing operations

GoodwillBenefit payments

The goodwill impairment assessmentfollowing table summarizes expected benefit payments from the pension and post-retirement plans and other post-employment benefit plans until 2026. Actual benefit payments may differ from expected benefit payments. The amounts for the Nokia Networks Radio Access Networks groupUnited States plans are net of CGUs in Mobile Broadband and Global Services groupexpected plan participant contributions, as well as the annual Medicare Part D subsidy of CGUs was carried out at November 30, 2015 (November 30 in 2014).

The carrying value of goodwill allocated to the Group’s CGUs at the impairment testing date:approximately EUR 21 million.

 

EURm                                   2015                                    2014 

Global Services

   124     106  

Radio Access Networks in Mobile Broadband

   115     96  
    United States direct benefit payments      Other countries      Total 
   Pension     Post-retirement             
   Qualified   Qualified       Non-qualified     Formerly union   Non-union                 
EURm  management           occupational   plans      represented       represented                    Other                 

2017

   1 302    324    29     127    12    85     299     2 178 

2018

   1 232    311    28     114    12    86     256     2 039 

2019

   1 196    299    28     109    12    88     259     1 991 

2020

   1 160    286    27     139    12    89     262     1 975 

2021

   1 124    274    27     131    12    90     285     1 943 

2022-2026

   5 069    1 182    128      514    59    462      1 450      8 864 

The recoverable amounts ofBenefit payments are paid from plan assets where plans are fully funded. Funding mechanisms, such as the Group’s CGUs were determined using the fair value less costs of disposal method. In the absence of observable market prices, the recoverable amounts were estimated based on an income approach, specifically a discounted cash flow model. The valuation method isSection 420 transfer, are further utilized to minimize direct benefit payments for underfunded United States Opeb liabilities. Direct benefit payments expected to be paid in line with the previous year. The cash flow projections used in calculating the recoverable amounts are based on financial plans approved by management covering an explicit forecast period of five years2017 total EUR 119 million.

28. Accrued expenses, deferred revenue and reflect the price that would be received to sell the CGU in an orderly transaction between market participants at the measurement date. The level of fair value hierarchy within which the fair value measurement is categorized is level 3. Refer to Note 19, Fair value of financial instruments for the fair value hierarchy.other liabilities

The key assumptions applied in the impairment testing analysis for the CGUs:Non-current liabilities

 

                                     2015                                    2014                                        2015                                    2014 
   Radio Access Networks group            
Key assumption %  of CGUs in Mobile Broadband       Global Services group of CGUs 

Terminal growth rate

   1.0     2.6       1.0     1.6  

Post-tax discount rate

   9.2     9.4        8.7     9.1  
EURm                               2016                                2015 

Advance payments and deferred revenue(1)

   1 171    1 235 

Salaries, wages and social charges

   138    – 

Other

   144    19 

Total

   1 453    1 254 

 

(1)   Includes a prepayment of EUR 1 080 million (EUR 1 235 million in 2015) relating to a ten-year mutual patent license agreement with Microsoft. Refer to Note 6, Disposals treated as Discontinued operations.

 

    

  

Current liabilities

 

    
EURm  2016   2015 

Advance payments and deferred revenue

   3 178    1 857 

Salaries, wages and social charges

   1 576    891 

VAT and other indirect taxes

   362    164 

Other

   1 296    483 

Total

   6 412    3 395 

Terminal growth rates reflect long-term average growth rates for the industryOther accruals include accrued royalties, research and economies in which the CGUs operate. The discount rates reflect current assessments of the time value of money and relevant market risk premiums. Risk premiums reflect risks and uncertainties for which the future cash flow estimates have not been adjusted. Other key variables in future cash flow projections include assumptions on estimated sales growth, gross margin and operating margin. All cash flow projections are consistent with external sources of information, wherever possible.

Management has determined the discount rate and the terminal growth rate to be the key assumptions for the Nokia Networks Radio Access Networks group of CGUs and the Global Services group of CGUs. The recoverable amounts calculated based on the sensitized assumptions do not indicate impairment in 2015 or 2014. Further, no reasonably possible changes in other key assumptions on which the Group has based its determination of the recoverable amounts would result in impairment in 2015 or 2014.

In 2014, the Group recorded an impairment charge of EUR 1 209 million relating to the discontinued HERE CGU. Refer to Note 3, Disposals treated as Discontinued operations.

Other non-current assets

Impairment charges by asset category:

EURm                                   2015                                    2014                                    2013 

Property, plant and equipment

   –     –     12  

Available-for-sale investments

   11     15     8  

Total

   11     15     20  

Property, plant and equipment

In 2013, Nokia Networks recognized an impairment charge of EUR 6 million following the remeasurement of the Optical Networks disposal group at fair value less cost of disposal. In 2013, the Group recognized impairment losses of EUR 6 million relating to certain properties attributable to Group Common Functions.

Available-for-sale investments

The Group recognized an impairment charge of EUR 11 million (EUR 15 million in 2014 and EUR 8 million in 2013) as certain equity securities held as available-for-sale suffered a significant or prolonged decline in fair value. These charges are recorded in Otherdevelopment expenses, marketing expenses and Financial income and expenses.interest expenses, as well as various amounts which are individually insignificant.

 

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11. Other income and expenses29. Provisions

 

EURm                               2015                               2014                               2013 

Continuing operations

    

Other income

    

Realized gains from unlisted venture funds

   144    18    97  

VAT and other indirect tax refunds and social security credits

   17    7    7  

Profit on sale of other property, plant and equipment

   8    7    26  

Divestment of businesses

   8    8    –  

Indemnification and settlement related to acquisition of businesses

   8    –    –  

Interest income from customer receivables and overdue payments

   6    23    27  

Compensation for litigation costs

   6    –    –  

Subsidies and government grants

   4    15    6  

Rental income

   2    22    25  

Foreign exchange gain on hedging forecasted sales and purchases

   2    –    36  

Gain on sale of real estate

   –    8    6  

Other miscellaneous income

   31    27    42  

Total

   236    135    272  

Other expenses

    

Restructuring and associated charges

   (120)   (61)   (373) 

Realized losses and expenses from unlisted venture funds

   (47)   –    –  

Foreign exchange loss on hedging forecasted sales and purchases

   (22)   (15)   (24) 

Sale of receivables transactions

   (21)   (39)   (53) 

Impairment charges

   (11)   (13)   (13) 

Loss on disposals and retirements of property, plant and equipment

   (5)   (12)   (20) 

Country and contract exit charges

   (3)   –    (52) 

VAT and other indirect tax write-offs and provisions

   (3)   (15)   (37) 

Contractual remediation costs

   5    (31)   –  

Valuation allowances for doubtful accounts

   24    5    (30) 

Environmental risk provision

   –    (5)   –  

Transaction costs related to the Sale of the D&S Business

   –    4    (18) 

Divestment of businesses

   –    –    (157) 

Other miscellaneous expenses

   (20)   (47)   (8) 

Total

   (223)   (229)   (785) 

NOKIA ANNUAL REPORT ON FORM 20-F 2015169

Notes to consolidated financial statementscontinued

12. Financial income and expenses

EURm                   2015                   2014                   2013 

Continuing operations

    

Interest income on investments and loans receivable

   31    50    107  

Net interest expense on derivatives not under hedge accounting

   (4)   (4)   (4) 

Interest expense on financial liabilities carried at amortized cost(1)

   (135)   (387)   (319) 

Net realized gains on disposal of fixed income available-for-sale financial investments

   2    1    2  

Net fair value (losses)/gains on investments at fair value through profit and loss

   (2)   20    (29) 

Net (losses)/gains on other derivatives designated at fair value through profit and loss

   (5)   (20)   32  

Net fair value gains/(losses) on hedged items under fair value hedge accounting

   7    (18)   69  

Net fair value (losses)/gains on hedging instruments under fair value hedge accounting

   (12)   17    (62) 

Net foreign exchange gains/(losses):

    

From foreign exchange derivatives designated at fair value through profit and loss

   239    162    (28) 

From the revaluation of statement of financial position

   (315)   (223)   (73) 

Other financial income(2)

   31    15    48  

Other financial expenses

   (14)   (14)   (20) 

Total

   (177)   (401)   (277) 

(1)In 2014, interest expense includes a one-time non-cash charge of EUR 57 million relating to the repayment of the EUR 1.5 billion convertible bonds issued to Microsoft when the Sale of the D&S Business was completed and one-time expenses of EUR 123 million relating to the redemption of materially all Nokia Networks borrowings.
(2)Includes distributions of EUR 25 million (EUR 14 million in 2014 and EUR 44 million in 2013) from private venture funds held as non-current available-for-sale investments.

13. Income tax

EURm                               2015                               2014                               2013 

Continuing operations

    

Current tax

   (258)   (300)   (321) 

Deferred tax

   (88)   2 019    50  

Total

   (346)   1 719    (271) 

Finnish entities

   (179)   1 841    (87) 

Entities in other countries

   (167)   (122)   (184) 

Total

   (346)   1 719    (271) 

Reconciliation of the difference between income tax computed at the statutory rate in Finland of 20% (20% in 2014 and 24.5% in 2013) and income tax recognized in the consolidated income statement is as follows:

 

   

EURm  2015  2014  2013 

Income tax expense at statutory rate

   (308)   (200)   (98) 

Permanent differences

   16    (41)   34  

Non-creditable withholding taxes

   (17)   (31)   (35) 

Income taxes for prior years

   6    (14)   1  

Income taxes on foreign subsidiaries’ profits in excess of income taxes at statutory rate

   (50)   (47)   (7) 

Effect of deferred tax assets not recognized(1)

   (35)   (26)   (137) 

Benefit arising from previously unrecognized deferred tax assets(2)

   38    2 081    –  

Net decrease/(increase) in uncertain tax positions

   4    –    (13) 

Change in income tax rates

   –    (1)   (7) 

Income taxes on undistributed earnings

   (7)   –    (6) 

Other

   7    (2)   (3) 

Total income tax (expense)/benefit

   (346)   1 719    (271) 
              

Tax charged/(credited) to equity

   5    (7)   6  

(1)In 2013, relates primarily to Nokia Networks’ Finnish and German unrecognized deferred tax assets.
(2)In 2014, relates primarily to the Group’s Finnish tax losses, unused tax credits and temporary differences for which deferred tax was re-recognized.

170NOKIA ANNUAL REPORT ON FORM 20-F 2015

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Current income tax liabilities and assets include net EUR 394 million (EUR 387 million in 2014) related to uncertain tax positions with inherently uncertain timing of cash outflows.

Prior period income tax returns for certain Group companies are under examination by local tax authorities. The Group’s business and investments, especially in emerging market countries, may be subject to uncertainties, including unfavorable or unpredictable tax treatment. Management judgment and a degree of estimation are required in determining the tax expense or benefit. Even though management does not expect that any significant additional taxes in excess of those already provided for will arise as a result of these examinations, the outcome or actual cost of settlement may vary materially from estimates.

In 2013, the tax authorities in India commenced an investigation into withholding tax in respect of payments by Nokia India Private Limited to Nokia Corporation for the supply of operating software. Subsequently, the authorities extended the investigation to other related tax consequences and issued orders and made certain assessments. The litigation and assessment proceedings are pending. The Group has denied all such allegations and continues defending itself in various Indian litigation proceedings and under both Indian and international law, while extending its full cooperation to the authorities.

14. Deferred taxes

    2015       2014 
   Deferred  Deferred         Deferred  Deferred    
EURm          tax assets          tax liabilities          Net balance               tax assets          tax liabilities          Net balance 

Tax losses carried forward and unused tax credits

   916    –        967    –   

Undistributed earnings

   –    (15)       –    (18)  

Intangible and tangible assets

   1 321    (154)       1 254    (188)  

Prepaid pension cost

   1    (9)       2    (18)  

Other non-current assets

   4    (12)       12    (9)  

Inventories

   85    (6)       142    (10)  

Other current assets

   43    (41)       75    (12)  

Defined benefit pension liabilities

   154    (3)       183    (9)  

Other non-current liabilities

   1    (2)       –    (11)  

Provisions

   106    (3)       159    (34)  

Other current liabilities

   191    (33)       220    (25)  

Other temporary differences

   29    –            11    (3)     

Total before netting

   2 851    (278)   2 573        3 025    (337)   2 688  

Reclassification due to netting of deferred tax assets and liabilities

   (217)   217    –        (305)   305    –  

Total after netting

   2 634    (61)   2 573        2 720    (32)   2 688  

NOKIA ANNUAL REPORT ON FORM 20-F 2015171

Notes to consolidated financial statementscontinued

Amount of temporary differences, tax losses carried forward and tax credits for which no deferred tax asset was recognized due to uncertainty of utilization:

EURm                               2015                                2014 

Temporary differences

   334     1 115  

Tax losses carried forward

   1 057     1 422  

Tax credits

   21     13  

Total(1)

   1 412     2 550  
EURm  Restructuring  Warranty  Litigation  Environmental  

Project

losses

  

Divestment-

related

  

Material

liability

  Other  Total 

As of January 1, 2015

   247   117   68   16   107   137   24   157   873 

Disposal of businesses

   –   –   (3)   –   –   –   –   (2)   (5) 

Translation differences

   (4)   2   (11)   –   –   (12)   –   7   (18) 

Reclassification

   (15)   –   15   –   –   (6)   –   –   (6) 

Charged to income statement:

          

Additional provisions

   105   31   24   –   5   49   46   42   302 

Changes in estimates

   (14)   (21)   (11)   –   (25)   (22)   (20)   (18)   (131) 

Total charged to income statement

   91   10   13   –   (20)   27   26   24   171 

Utilized during year(1)

   (125)   (35)   (13)   –   (25)   (17)   (21)   (54)   (290) 

As of December 31, 2015

   194   94   69   16   62   129   29   132   725 

Acquisitions through business combinations

   291   135   100   114   180   26   31   366   1 243 

Translation differences

   2   1   22   4   –   9   2   1   41 

Reclassification

   –   –   8   –   –   (2)   1   (7)   – 

Charged to income statement:

          

Additional provisions

   874   121   75   28   44   16   57   325   1 540 

Changes in estimates

   (123)   (38)   (31)   (2)   (31)   (24)   (21)   (104)   (374) 

Total charged to income statement

   751   83   44   26   13   (8)   36   221   1 166 

Utilized during year(2)

   (525)   (106)   (60)   (26)   (124)   (44)   (22)   (288)   (1 195) 

As of December 31, 2016

   713   207   183   134   131   110   77   425   1 980 

 

(1)The decrease from 2014utilization of restructuring provision includes items transferred to accrued expenses, of which EUR 7 million remained in temporary differences and tax losses carried forward for which no deferred tax asset is recognized is due to the Saleaccrued expenses as of the HERE Business. 2014 comparative corrected to include certain temporary differences.

The recognition of the remaining deferred tax assets is supported by offsetting deferred tax liabilities, earnings history and profit projections in the relevant jurisdictions. Majority of recognized deferred tax assets relate to the Group’s Finnish tax losses, unused tax credits and temporary differences for which deferred tax was re-recognized in 2014, as the Group re-established a pattern of sufficient tax profitability in Finland to utilize the cumulative losses, foreign tax credits and temporary differences.

Expiry of tax losses carried forward and unused tax credits:

    2015       2014 
EURm          Recognized           Unrecognized                    Total               Recognized           Unrecognized                        Total 

Tax losses carried forward

              

Within 10 years

   1 742     740     2 482       1 437     778     2 215  

Thereafter

   174     –     174       122     261     383  

No expiry

   280     317     597        232     383     615  

Total

   2 196     1 057     3 253        1 791     1 422     3 213  

Tax credits

              

Within 10 years

   434     14     448       536     13     549  

Thereafter

   42     –     42       33     –     33  

No expiry

   –     7     7        –     –     –  

Total

   476     21     497        569     13     582  

The Group has undistributed earnings of EUR 769 million (EUR 732 million in 2014) for which no deferred tax liability has been recognized as these earnings will not be distributed in the foreseeable future.

172NOKIA ANNUAL REPORT ON FORM 20-F 2015

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15. Earnings per share

                                 2015                                2014                                2013 
    EURm   EURm   EURm 

Basic

      

Profit/(loss) attributable to equity holders of the parent

      

Continuing operations

   1 192     2 710     273  

Discontinued operations

   1 274     752     (888) 

Total

   2 466     3 462     (615) 

Diluted

      

Elimination of interest expense, net of tax, on convertible bonds, where dilutive

   36     60     –  

Profit/(loss) attributable to equity holders of the parent adjusted for the effect of dilution

      

Continuing operations

   1 228     2 770     273  

Discontinued operations

   1 274     752     (888) 

Total

   2 502     3 522     (615) 
    000s shares   000s shares   000s shares 

Basic

      

Weighted average number of shares in issue

   3 670 934     3 698 723     3 712 079  

Effect of dilutive securities

      

Restricted shares and other

   4 253     14 419     19 307  

Performance shares

   3 179     1 327     –  

Stock options

   1 971     3 351     1 978  
   9 403     19 097     21 285  

Assumed conversion of convertible bonds

   268 975     413 782     –  
    278 378     432 879     21 285  

Diluted

      

Adjusted weighted average number of shares and assumed conversions

      

Continuing operations

   3 949 312     4 131 602     3 733 364  

Discontinued operations

   3 949 312     4 131 602     3 712 079  

Total

   3 949 312     4 131 602     3 712 079  
      
Earnings per share to equity holders of the parent  EUR   EUR   EUR 

Basic earnings per share

      

Continuing operations

   0.32     0.73     0.07  

Discontinued operations

   0.35     0.20     (0.24) 

Profit/(loss) for the year

   0.67     0.94     (0.17) 

Diluted earnings per share

      

Continuing operations

   0.31     0.67     0.07  

Discontinued operations

   0.32     0.18     (0.24) 

Profit/(loss) for the year

   0.63     0.85     (0.17) 

Basic earnings per share is calculated by dividing the profit/loss attributable to equity holders of the parent by the weighted average number of shares outstanding during the year, excluding shares purchased by the Group and held as treasury shares. Diluted earnings per share is calculated by adjusting the profit/loss attributable to equity holders of the parent to eliminate the interest expense of dilutive convertible bonds and by adjusting the weighted average number of shares outstanding with the dilutive effect of stock options, restricted shares and performance shares outstanding during the period as well as the assumed conversion of convertible bonds.

There are no restricted shares outstanding in 2015 and 2014 (19 million in 2013) that could potentially have a dilutive impact in the future but are excluded from the calculation as they are determined to be anti-dilutive.

4 million performance shares (fewer than 1 million in 2014 and 4 million in 2013) have been excluded from the calculation of diluted shares as contingency conditions have not been met.

Stock options equivalent to fewer than 1 million shares (2 million in 2014 and 16 million in 2013) have been excluded from the calculation of diluted shares as they are determined to be anti-dilutive.

NOKIA ANNUAL REPORT ON FORM 20-F 2015173

Notes to consolidated financial statementscontinued

In 2014, convertible bonds issued to Microsoft in September 2013 were fully redeemed as a result of the closing of the Sale of the D&S Business. 116 million potential shares were included in the calculation of diluted shares to reflect the part-year effect of these convertible bonds. In 2013, the potential shares were excluded from the calculation of diluted shares as they were determined to be antidilutive. If fully converted, these potential shares would have resulted in the issuance of 368 million shares.

In 2015, the Group exercised its option to redeem the EUR 750 million convertible bonds at their original amount plus accrued interest. Virtually all bondholders elected to convert their convertible bonds into Nokia shares before redemption. 269 million potential shares have been included in the calculation of diluted shares to reflect the part-year effect of these convertible bonds. In 2014, the conversion price was increased and 298 million potential shares were included in the calculation of diluted shares as they were determined to be dilutive. Voluntary conversion of the entire bond would have resulted in the issue of 307 million shares in 2014. In 2013, 287 million potential shares were excluded from the calculation of diluted shares because they were determined to be antidilutive.

16. Intangible assets

EURm                               2015                               2014 

Goodwill

   

Acquisition cost at January 1

   5 770    5 293  

Translation differences

   350    401  

Acquisitions through business combinations

   7    76  

Disposals(1)

   (4 982)   –  

Acquisition cost at December 31

   1 145    5 770  

Accumulated impairment charges at January 1

��  (3 207)   (1 998) 

Disposals(1)

   2 299    –  

Impairment charges

   –    (1 209) 

Accumulated impairment charges at December 31

   (908)   (3 207) 

Net book value at January 1

   2 563    3 295  

Net book value at December 31

   237    2 563  

Other intangible assets

   

Acquisition cost at January 1

   5 646    5 214  

Translation differences

   382    334  

Additions

   26    32  

Acquisitions through business combinations

   56    77  

Disposals and retirements(1)

   (2 973)   (11) 

Acquisition cost at December 31

   3 137    5 646  

Accumulated amortization at January 1

   (5 296)   (4 918) 

Translation differences

   (350)   (290) 

Disposals and retirements(1)

   2 934    10  

Amortization

   (102)   (98) 

Accumulated amortization at December 31

   (2 814)   (5 296) 

Net book value at January 1

   350    296  

Net book value at December 31

   323    350  

(1)In 2015, disposals and retirements include goodwill with acquisition cost of EUR 4 982 million and accumulated impairment of EUR 2 299 million and other intangible assets with acquisition cost of EUR 2 892 million and accumulated amortization of EUR 2 853 million disposed as part of the Sale of the HERE Business.

Other intangible assets include customer relationships with a net book value of EUR 132 million (EUR 177 million in 2014), developed technology with a net book value of EUR 126 million (EUR 99 million in 2014), and licenses to use tradename and trademark with a net book value of EUR 9 million (EUR 10 million in 2014). The remaining amortization periods range from approximately two to six years for customer relationships, two to seven years for developed technology and six years for licenses to use tradename and trademark.

174NOKIA ANNUAL REPORT ON FORM 20-F 2015

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17. Property, plant and equipment

    Buildings and  Machinery and  Other tangible  Assets under     
EURm  constructions  equipment  assets  construction                   Total 

Acquisition cost at January 1, 2014

   336    1 748    40    24    2 148  

Transfer from assets held for sale

   76    3    4    –    83  

Translation differences

   25    103    –    1    129  

Additions

   28    205    –    15    248  

Acquisitions through business combinations

   –    2    –    –    2  

Reclassifications

   12    6    1    (21)   (2) 

Disposals and retirements

   (39)   (213)   (4)   –    (256) 

Acquisition cost at December 31, 2014

   438    1 854    41    19    2 352  

Accumulated depreciation at January 1, 2014

   (157)   (1 404)   (21)   –    (1 582) 

Translation differences

   (13)   (75)   1    –    (87) 

Disposals and retirements

   30    202    –    –    232  

Depreciation

   (40)   (157)   (2)   –    (199) 

Accumulated depreciation at December 31, 2014

   (180)   (1 434)   (22)   –    (1 636) 

Net book value at January 1, 2014

   179    344    19    24    566  

Net book value at December 31, 2014

   258    420    19    19    716  

Acquisition cost at January 1, 2015

   438    1 854    41    19    2 352  

Translation differences

   32    134    1    –    167  

Additions

   62    186    15    16    279  

Acquisitions through business combinations

   2    5    –    –    7  

Reclassifications

   12    4    –    (16)   –  

Disposals and retirements(1)

   (119)   (437)   (16)   (4)   (576) 

Acquisition cost at December 31, 2015

   427    1 746    41    15    2 229  

Accumulated depreciation at January 1, 2015

   (180)   (1 434)   (22)   –    (1 636) 

Translation differences

   (18)   (114)   (1)   –    (133) 

Disposals and retirements(1)

   71    365    16    –    452  

Depreciation

   (47)   (168)   (2)   –    (217) 

Accumulated depreciation at December 31, 2015

   (174)   (1 351)   (9)   –    (1 534) 

Net book value at January 1, 2015

   258    420    19    19    716  

Net book value at December 31, 2015

   253    395    32    15    695  

(1)In 2015, disposals and retirements include buildings and constructions with acquisition cost of EUR 81 million and accumulated depreciation of EUR 35 million, machinery and equipment with acquisition cost of EUR 305 million and accumulated depreciation of EUR 239 million and assets under construction with acquisition cost of EUR 3 million disposed as part of the Sale of the HERE Business.

In 2014, the tax authorities in India placed a lien which prohibited the Group from transferring the mobile devices-related facility in Chennai to Microsoft as part of the Sale of the D&S Business.

NOKIA ANNUAL REPORT ON FORM 20-F 2015175

Notes to consolidated financial statementscontinued

18. Investments in associated companies and joint ventures

EURm                               2015                               2014 

Net carrying amount at January 1

   51    65  

Translation differences

   6    5  

Deductions

   –    (7) 

Share of results(1)

   29    (12) 

Dividends

   (2)   –  

Net carrying amount at December 31

   84    51  

(1)In 2015, the Group recorded a correction which increased the results of associated companies and joint ventures by EUR 25 million. The correction related to the results of a joint venture for the fourth quarter of 2014. The Group had historically accounted for the results of the joint venture in arrears as the results have not been material. The Group evaluated these items in relation to the current period as well as the periods in which they originated and determined that the corrections are immaterial to the consolidated financial statements in all periods.

Shareholdings in associated companies and joint ventures comprise investments in unlisted companies.

19. Fair value of financial instruments

                                      Fair 
   Carrying amounts       value(1) 
           Financial                    
   Current   Non-current   instruments at   Loans and   Financial            
   available-   available-   fair value   receivables   liabilities            
   for-sale   for-sale   through profit   measured at   measured at            
EURm  financial assets   financial assets   or loss   amortized cost   amortized cost   Total       Total 

2015

                

Available-for-sale investments, publicly quoted equity shares

     16           16       16  

Available-for-sale investments, carried at fair value

     703           703       703  

Available-for-sale investments, carried at cost less impairment

     285           285       285  

Long-term loans receivable

         49       49       39  

Accounts receivable

         3 913       3 913       3 913  

Current portion of long-term loans receivable

         21       21       21  

Other current financial assets

       96     11       107       107  

Investments at fair value through profit and loss, liquid assets

       687         687       687  

Available-for-sale investments, liquid assets carried at fair value

   2 167             2 167       2 167  

Cash and cash equivalents carried at fair value

   6 995                         6 995        6 995  

Total financial assets

   9 162     1 004     783     3 994     –     14 943        14 933  

Long-term interest-bearing liabilities

           2 023     2 023       2 100  

Current portion of long-term interest-bearing liabilities

           1     1       1  

Short-term borrowings

           50     50       50  

Other financial liabilities

       114       8     122       122  

Accounts payable

                       1 910     1 910        1 910  

Total financial liabilities

   –     –     114     –     3 992     4 106        4 183  

(1)For items not carried at fair value, the following fair value measurement methods are used. The fair value is estimated to equal the carrying amount for available-for-sale investments carried at cost less impairment for which it is not possible to estimate fair value reliably as there is no active market for these private fund investments. These assets are tested for impairment annually using a discounted cash flow analysis. The fair value of loans receivable and loans payable is estimated based on the current market values of similar instruments (level 2). The fair values of long-term interest bearing liabilities are based on discounted cash flow analysis (level 2) or quoted prices (level 1). The fair value is estimated to equal the carrying amount for short-term financial assets and financial liabilities due to limited credit risk and short time to maturity. Refer to Note 1, Accounting principles.

176NOKIA ANNUAL REPORT ON FORM 20-F 2015

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                                      Fair 
   Carrying amounts       value(1) 
           Financial                    
   Current   Non-current   instruments at   Loans and   Financial            
   available-   available-   fair value   receivables   liabilities            
   for-sale   for-sale   through profit   measured at   measured at            
EURm  financial assets   financial assets   or loss   amortized cost   amortized cost   Total       Total 

2014

                

Available-for-sale investments, publicly quoted equity shares

     14           14       14  

Available-for-sale investments, carried at fair value

     570           570       570  

Available-for-sale investments, carried at cost less impairment

     244           244       244  

Long-term loans receivable

         34       34       28  

Accounts receivable

         3 430       3 430       3 430  

Current portion of long-term loans receivable

         1       1       1  

Other current financial assets

       241     25       266       266  

Investments at fair value through profit and loss, liquid assets

       418         418       418  

Available-for-sale investments, liquid assets carried at fair value

   2 127             2 127       2 127  

Cash and cash equivalents carried at fair value

   5 170                         5 170        5 170  

Total financial assets

   7 297     828     659     3 490     –     12 274        12 268  

Long-term interest-bearing liabilities

           2 576     2 576       4 058  

Current portion of long-term interest-bearing liabilities

           1     1       1  

Short-term borrowings

           115     115       115  

Other financial liabilities

       174         174       174  

Accounts payable

                       2 313     2 313        2 313  

Total financial liabilities

   –     –     174     –     5 005     5 179        6 661  

(1)For items not carried at fair value, the following fair value measurement methods are used. The fair value is estimated to equal the carrying amount for available-for-sale investments carried at cost less impairment for which it is not possible to estimate fair value reliably as there is no active market for these private fund investments. These assets are tested for impairment annually using a discounted cash flow analysis. The fair value of loans receivable and loans payable is estimated based on the current market values of similar instruments (level 2). The fair values of long-term interest bearing liabilities are based on discounted cash flow analysis (level 2) or quoted prices (level 1). The fair value is estimated to equal the carrying amount for short-term financial assets and financial liabilities due to limited credit risk and short time to maturity. Refer to Note 1, Accounting principles.

NOKIA ANNUAL REPORT ON FORM 20-F 2015177

Notes to consolidated financial statementscontinued

Fair value hierarchy

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 an increasing amount of judgment associated with the inputs used to derive fair value for these assets and liabilities, level 1 being market values and level 3 requiring most management judgment. At the end of each reporting period, the Group categorizes its financial assets and liabilities to appropriate level of fair value hierarchy.

Items measured at fair value on a recurring basis at December 31:

    Instruments with   Valuation   Valuation      
   quoted prices in   technique using   technique using     
   active markets   observable data   non-observable     
EURm  (level 1)   (level 2)   data (level 3)                        Total 

2015

        

Available-for-sale investments, publicly quoted equity shares

   16     –     –     16  

Available-for-sale investments, carried at fair value

   1     14     688     703  

Other current financial assets, derivatives(1)

   –     96     –     96  

Investments at fair value through profit and loss, liquid assets

   687     –     –     687  

Available-for-sale investments, liquid assets carried at fair value

   2 156     11     –     2 167  

Cash and cash equivalents carried at fair value

   6 995     –     –     6 995  

Total assets

   9 855     121     688     10 664  

Other financial liabilities, derivatives(1)

   –     114     –     114  

Total liabilities

   –     114     –     114  

2014

        

Available-for-sale investments, publicly quoted equity shares

   14     –     –     14  

Available-for-sale investments, carried at fair value

   1     13     556     570  

Other current financial assets, derivatives(1)

   –     241     –     241  

Investments at fair value through profit and loss, liquid assets

   418     –     –     418  

Available-for-sale investments, liquid assets carried at fair value

   2 116     11     –     2 127  

Cash and cash equivalents carried at fair value

   5 170     –     –     5 170  

Total assets

   7 719     265     556     8 540  

Other financial liabilities, derivatives(1)

   –     174     –     174  

Total liabilities

   –     174     –     174  

(1)Refer to Note 20, Derivative financial instruments for the allocation between hedge accounted and non-hedge accounted derivatives.

The level 1 category includes financial assets and liabilities that are measured in whole or in significant part by reference to published quotes in an active market. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s-length basis. This category includes listed bonds and other securities, listed shares and exchange-traded derivatives.

The level 2 category includes financial assets and liabilities measured using a valuation technique based on assumptions that are supported by prices from observable current market transactions. These include assets and liabilities for which pricing is obtained via pricing services, but where prices have not been determined in an active market, financial assets with fair values based on broker quotes and assets that are valued using the Group’s own valuation models whereby the material assumptions are market observable. The majority of the Group’s over-the-counter derivatives and certain other instruments not traded in active markets are included within this category.

The level 3 category includes a large number of investments in unlisted equities and unlisted venture funds, including investments managed by Nokia Growth Partners specializing in growth-stage investing and by BlueRun Ventures focusing on early stage opportunities. The level 3 fair value is determined using one or more valuation techniques where the use of the market approach generally consists of using comparable market transactions, while the use of the income approach generally consists of calculating the net present value of expected future cash flows. For unlisted funds, the selection of appropriate valuation techniques by the fund managing partner may be affected by the availability and reliability of relevant inputs. In some cases, one valuation technique may provide the best indication of fair value while in other circumstances multiple valuation techniques may be appropriate.

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The inputs generally considered in determining the fair value include the original transaction price, recent transactions in the same or similar instruments, completed or pending third-party transactions in the underlying investment or comparable issuers, subsequent rounds of financing, recapitalizations or other transactions undertaken by the issuer, offerings in the equity or debt capital markets, and changes in financial ratios or cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors. The level 3 investments are valued on a quarterly basis taking into consideration any changes, projections and assumptions, as well as any changes in economic and other relevant conditions. The fair value may be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the managing partner in the absence of market information. Assumptions used by the managing partner due to the lack of observable inputs may impact the resulting fair value of individual investments, but no individual input has a significant impact on the total fair value of the level 3 investments.

Reconciliation of the opening and closing balances on level 3 financial assets:

      Other  available-for-sale
investments carried
EURmat fair value

At January 1, 2014

429

Net gain in income statement

5

Net gain in other comprehensive income

72

Purchases

78

Sales

(58) 

Other transfers

30

At December 31, 2014

556

Net gain in income statement

96

Net gain in other comprehensive income

83

Purchases

70

Sales

(146) 

Other transfers

29

At December 31, 2015

688

The gains and losses from financial assets categorized in level 3 are included in other operating income and expenses as the investment and disposal objectives for these investments are business-driven. In other cases, the gains and losses are included in financial income and expenses. A net gain of EUR 4 million (net loss of EUR 2 million in 2014) related to level 3 financial instruments held at December 31, 2015 has been recognized in the consolidated income statement.

NOKIA ANNUAL REPORT ON FORM 20-F 2015179

Notes to consolidated financial statementscontinued

20. Derivative financial instruments

    Assets      Liabilities 
EURm           Fair  value(1)            Notional(2)              Fair  value(1)       Notional(2) 

2015

       

Hedges on net investment in foreign subsidiaries:

       

Forward foreign exchange contracts

   2    223      (5)   464  

Currency options bought

   –    106      –    –  

Currency options sold

   –    –      –    114  

Cash flow hedges:

       

Forward foreign exchange contracts

   4    844      (19)   880  

Fair value hedges:

       

Interest rate swaps

   52    301      –    –  

Cash flow and fair value hedges:(3)

       

Cross-currency interest rate swaps

   17    355      (5)   646  

Derivatives not designated in hedge accounting relationships carried at fair value through profit and loss:

       

Forward foreign exchange contracts

   17    2 117      (31)   2 296  

Currency options bought

   4    350      –    –  

Currency options sold

   –    –      –    48  

Interest rate swaps

   –    –      (50)   646  

Other derivatives

   –    –       (4)   37  

Total

   96    4 296       (114)   5 131  

2014

       

Hedges on net investment in foreign subsidiaries:

       

Forward foreign exchange contracts

   3    217      (56)   1 813  

Currency options bought

   –    78      –    –  

Currency options sold

   –    –      (1)   83  

Cash flow hedges:

       

Forward foreign exchange contracts

   –    –      (14)   742  

Fair value hedges:

       

Interest rate swaps

   72    382      –    –  

Cash flow and fair value hedges:(3)

       

Cross-currency interest rate swaps

   63    378      –    –  

Derivatives not designated in hedge accounting relationships carried at fair value through profit and loss:

       

Forward foreign exchange contracts

   101    3 779      (68)   2 364  

Currency options bought

   2    397      –    –  

Currency options sold

   –    –      –    62  

Interest rate swaps

   –    –       (35)   372  

Total

   241    5 231       (174)   5 436  

(1)Included in other financial assets and other financial liabilities in the consolidated statement of financial position.
(2)Includes the gross amount of all notional values for contracts that have not yet been settled or cancelled. The amount of notional value outstanding is not necessarily a measure or indication of market risk as the exposure of certain contracts may be offset by that of other contracts.
(3)Cross-currency interest rate swaps have been designated partly as fair value hedges and partly as cash flow hedges.

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21. Inventories

EURm                               2015                                2014 

Raw materials, supplies and other

   102     228  

Work in progress

   404     441  

Finished goods

   508     606  

Total

   1 014     1 275  

The cost of inventories recognized as an expense during the year, included in cost of sales, is EUR 3 132 million (EUR 3 156 million in 2014 and EUR 2 875 million in 2013).

Movements in allowances for excess and obsolete inventory for the years ended December 31:

EURm                               2015                               2014                               2013 

At January 1

   204    178    471  

Transfer to assets of disposal groups classified as held for sale

   –    –    (192) 

Charged to income statement

   71    107    39  

Deductions(1)

   (80)   (81)   (140) 

At December 31

   195    204    178  

(1)Deductions include utilization and releases of allowances.

22. Allowances for doubtful accounts

Movements in allowances for doubtful accounts for the years ended December 31:

EURm                               2015                               2014                               2013 

At January 1

   103    124    248  

Transfer to Discontinued operations

   (7)   –    –  

Transfer to assets of disposal groups classified as held for sale

   –    –    (120) 

Charged to income statement

   13    24    40  

Deductions(1)

   (47)   (45)   (44) 

At December 31

   62    103    124  

(1)Deductions include utilization and releases of allowances.

23. Prepaid expenses and accrued income

EURm                               2015                                2014 

Social security, VAT and other indirect taxes

   258     362  

Divestment-related receivables

   160     206  

Deposits

   83     59  

Deferred cost of sales

   28     30  

Accrued revenue

   21     2  

Prepaid insurances

   21     22  

Accrued and prepaid interest

   17     37  

Prepaid rental expenses

   15     20  

Other

   146     175  

Total

   749     913  

NOKIA ANNUAL REPORT ON FORM 20-F 2015181

Notes to consolidated financial statementscontinued

24. Shares of the Parent Company

Shares and share capital

Nokia Corporation (“Parent Company”) has one class of shares. Each share entitles the holder to one vote at General Meetings. At December 31, 2015, the share capital of Nokia Corporation is EUR 245 896 461.96 and the total number of shares issued is 3 992 863 716. At December 31, 2015, the total number of shares includes 53 668 695 shares owned by Group companies representing 1.3% of share capital and total voting rights. Under the Nokia Articles of Association, Nokia Corporation does not have minimum or maximum share capital or share par value.

On February 4, 2015, the Parent Company cancelled 66 903 682 shares.

In 2015, under the authorization held by the Board of Directors and in line with the capital structure optimization program, the Parent Company repurchased 24 516 089 shares representing approximately 0.6% of share capital and total voting rights. The price paid for the shares was based on the current market price of the Nokia share on the securities market at the time of the repurchase.

On January 7, 2016, in connection with the transaction with Alcatel Lucent, the Parent Company issued, under the authorization granted to the Board of Directors in the Extraordinary General Meeting held on December 2, 2015, a total of 1 455 678 563 new Nokia shares as consideration for the Alcatel Lucent securities tendered into the initial Public Exchange Offers made in France and the United States. On February 12, 2016, after the offers were reopened and settled in France and the United States, the Parent Company issued, under the authorization granted to the Board of Directors in the Extraordinary General Meeting held on December 2, 2015, a total of 320 701 193 new Nokia shares as consideration for the Alcatel Lucent securities tendered into the reopened Public Exchange Offers.

Authorizations

Authorization to issue shares and special rights entitling to shares

At the Annual General Meeting held on June 17, 2014, the shareholders authorized the Board of Directors to issue a maximum of 740 million shares through one or more issues of shares or special rights entitling to shares. The Board of Directors may issue either new shares or shares held by the Parent Company. The authorization includes the right for the Board of Directors to resolve on all the terms and conditions of such share and special rights issuances, including issuance in deviation from the shareholders’ pre-emptive rights. The authorization may be used to develop the Parent Company’s capital structure, diversify the shareholder base, finance or carry out acquisitions or other arrangements, settle the Parent Company’s equity-based incentive plans, or for other purposes resolved by the Board of Directors. The authorization that would have been effective until December 17, 2015 was terminated by the resolution of the Annual General Meeting on May 5, 2015.

At the Annual General Meeting held on May 5, 2015, the shareholders authorized the Board of Directors to issue a maximum of 730 million shares through one or more issues of shares or special rights entitling to shares. The Board of Directors may issue either new shares or shares held by the Parent Company. The authorization includes the right for the Board of Directors to resolve on all the terms and conditions of such share and special rights issuances, including issuance in deviation from the shareholders’ pre-emptive rights. The authorization may be used to develop the Parent Company’s capital structure, diversify the shareholder base, finance or carry out acquisitions or other arrangements, settle the Parent Company’s equity-based incentive plans, or for other purposes resolved by the Board of Directors. The authorization is effective until November 5, 2016.

At the Extraordinary General Meeting held on December 2, 2015, the shareholders authorized the Board of Directors to issue, in deviation from the shareholders’ pre-emptive right, a maximum of 2 100 million shares through one or more share issues. The authorization includes the right for the Board of Directors to resolve on all the terms and conditions of such share issuances. The authorization may be used to issue Parent Company shares to the holders of Alcatel Lucent shares, American depositary shares and convertible bonds as well as to beneficiaries of Alcatel Lucent employee equity compensation arrangements for the purpose of implementing the transaction with Alcatel Lucent, including the consummation of the public Exchange Offers made to Alcatel Lucent shareholders as well as other transactions contemplated by the memorandum of understanding between the Group and Alcatel Lucent, and/or otherwise to effect the combination of the Group and Alcatel Lucent. The authorization is effective until December 2, 2020.

In 2015, the Parent Company issued 1 042 016 new shares following the holders of stock options issued in 2011 and 2012 exercising their options.

On October 26, 2012, the Group issued a EUR 750 million convertible bond based on an authorization to issue shares and special rights entitling to shares, granted by the Annual General Meeting on May 6, 2010 and terminated by a resolution in the Annual General Meeting on May 7, 2013. The bonds had a five-year maturity and a 5.0% per annum coupon payable semi annually. The initial conversion price was EUR 2.6116, which was adjusted to EUR 2.44 per share on June 18, 2014 due to the distribution of ordinary and special dividends, as resolved by the Annual General Meeting on June 17, 2014. The conversion price was further adjusted to EUR 2.39 per share on May 6, 2015 due to the distribution of ordinary dividends, as resolved by the Annual General Meeting on May 5, 2015. The right to convert the bonds into shares commenced on December 6, 2012 and ends on October 18, 2017. Bond terms and conditions require conversion price adjustments following dividend distributions.

182NOKIA ANNUAL REPORT ON FORM 20-F 2015

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In 2015 and until October 2015, due to the bondholders exercising their conversion rights, a total of 40 983 Nokia shares were subscribed for and issued in deviation from the pre-emptive subscription right of the shareholders under the authorization held by the Board of Directors.

On October 8, 2015, the Group announced that it had decided to exercise its option to redeem the EUR 750 million convertible bond on November 26, 2015 at the principal amount outstanding plus accrued interest. Prior to the redemption, the bondholders had the option to convert their convertible bonds into Nokia shares at a conversion price of EUR 2.39. Due to the bondholders using their conversion right, a total of 313 640 153 Nokia shares were subscribed for and issued in deviation from the pre-emptive subscription right of the shareholders under the authorization held by the Board of Directors. On the redemption date, November 26, 2015, the outstanding amount of convertible bonds, EUR 200 000, was redeemed at their principal amount plus accrued unpaid interest.

At December 31, 2015, the Board of Directors had no other authorizations to issue shares, convertible bonds, warrants or stock options.

Other authorizations

At the Annual General Meeting held on June 17, 2014, the shareholders authorized the Board of Directors to repurchase a maximum of 370 million Nokia shares. The amount corresponds to less than 10% of the total number of Nokia shares. The shares may be repurchased in order to develop the capital structure of the Parent Company and are expected to be cancelled. In addition, the shares may be repurchased in order to finance or carry out acquisitions or other arrangements, to settle the Parent Company’s equity-based incentive plans, or to be transferred for other purposes. The authorization that would have been effective until December 17, 2015 was terminated by the resolution of the Annual General Meeting on May 5, 2015.

At the Annual General Meeting held on May 5, 2015, the shareholders authorized the Board of Directors to repurchase a maximum of 365 million shares. The amount corresponds to less than 10% of the total number of Parent Company’s shares. The shares may be repurchased in order to optimize the capital structure of the Parent Company, to finance or carry out acquisitions or other arrangements, to settle the Parent Company’s equity-based incentive plans or to be transferred for other purposes. The authorization is effective until November 5, 2016.

25. Share-based payment

The Group has several equity-based incentive programs for employees. The plans include performance share plans, restricted share plans, employee share purchase plans, and stock option plans. Both executives and employees participate in these programs. The global equity-based incentive programs are offered to employees of Nokia Networks (from 2014), Nokia Technologies and Group Common Functions. The global equity-based incentive programs were offered to the employees of HERE until 2015 and Devices & Services until 2013. The equity-based incentive grants are generally conditional on continued employment as well as the fulfillment of the performance, service and other conditions determined in the relevant plan rules. The share-based payment expense for all equity-based incentive grants for Continuing operations amounts to EUR 67 million (EUR 53 million in 2014 and EUR 37 million in 2013). The share-based payment expense for all equity-based incentive grants related to Discontinued operations is EUR 10 million (EUR 20 million for 2014 and EUR 20 million in 2013). In 2015, at the closing date of the Sale of the HERE Business, all unvested equity grants held by HERE employees were forfeitted. In 2015, the share-based payment expense for Discontinued operations includes a separately agreed liability for the cash settlement of HERE equity grants that were to vest in January 2016.

Performance shares

In 2015, the Group administered four global performance share plans, the Performance Share Plans of 2012, 2013, 2014 and 2015. The performance shares represent a commitment by the Group to deliver Nokia shares to employees at a future point in time, subject to the fulfillment of predetermined performance criteria. In the Performance Share Plan of 2015, performance shares were granted with defined performance criteria and included a minimum payout amount guarantee. As a result of the minimum payout amount defined in the terms and conditions of the 2015 Plan, at the end of the performance period, the number of shares to be settled following the restriction period will start at a minimum of 50% of the granted amount at threshold. The threshold number of performance shares at threshold is the amount of performance shares granted to an individual that will be settled if the threshold performance with respect to one performance criterion is achieved. Any additional payout beyond the minimum amount will be determined based on the financial performance against the established performance criteria during the two-year performance period. At maximum performance, the settlement amounts to four times the amount at threshold.

NOKIA ANNUAL REPORT ON FORM 20-F 2015183

Notes to consolidated financial statementscontinued

Global performance share plans at December 31:

    Performance shares   Confirmed payout               
Plan   outstanding at threshold     (% of threshold)         Performance period         Restriction period(1)       Settlement year  

2012

   –         0%, no settlement     2012-2013     2014    2015  

2013

   569 829     173%     2013-2014     2015    2016  

2014

   5 282 838     251%     2014-2015     2016    2017  

2015

   5 611 758          2015-2016     2017    2018  

(1)Restriction period ends on the first day of the year following the restriction period.

Performance criteria for the year ended December 31:

Performance criteriaThreshold performanceMaximum performance      Weight

2015 Plan

Nokia Group employees

Average annual non-IFRS(1)net sales (Nokia Group)EURm 12 389EURm 14 73650%
Average annual diluted non-IFRS(1)EPS (Nokia Group)EUR 0.23EUR 0.3750%

HERE employees(2)

Average annual non-IFRS(1)net sales (HERE)EURm 954EURm 1 13450%
Average annual non-IFRS(1)operating profit (HERE)EURm 67EURm 17225%
Average annual diluted non-IFRS(1)EPS (Nokia Group)EUR 0.23EUR 0.3725%

2014 Plan

Nokia Group employees

Average annual non-IFRS(1)net sales (Nokia Group)EURm 11 135EURm 15 06550%
Average annual diluted non-IFRS(1)EPS (Nokia Group)EUR 0.11EUR 0.3850%

HERE employees(2)

Average annual non-IFRS(1)net sales (HERE)EURm 950EURm 1 15050%
Average annual non-IFRS(1)operating profit (HERE)EURm 0EURm 13025%
Average annual diluted non-IFRS(1)EPS (Nokia Group)EUR 0.11EUR 0.3825%

(1)Non-IFRS measures exclude goodwill impairment charges, intangible asset amortization and items related to purchase price allocation, as well as restructuring-related costs, costs related to the Alcatel Lucent transaction and certain other items that may not be indicative of the Group’s underlying business.
(2)In 2015, Performance Share Plans for HERE employees were forfeited as a result of the Sale of the HERE Business.

Until the shares are delivered, the participants do not have any shareholder rights, such as voting or dividend rights, associated with the performance shares. The performance share grants are generally forfeited if the employment relationship with the Group terminates prior to vesting. Unvested performance shares for employees transferred with the Sale of the HERE Business in 2015 and for employees who were transferred to Microsoft following the Sale of the D&S Business in 2014 have been forfeited.

Restricted shares

In 2015, the Group administered four global restricted share plans: the Restricted Share Plan 2012, 2013, 2014 and 2015. The Restricted Share Plan 2015 introduced a new vesting schedule for the 2015 Plan year as well as any future plans. The vesting schedule for plans prior to the 2015 Plan was 36 months following the grant quarter. The new vesting schedule for the 2015 Plan introduces tranche vesting with one third of granted instruments vesting in each of the plan’s 3-year duration. Restricted shares are granted for exceptional retention and recruitment purposes to ensure the Group is able to retain and recruit talent critical to its future success. Until the shares are delivered, the participants do not have any shareholder rights, such as voting or dividend rights, associated with the restricted shares. The restricted share grants are generally forfeited if the employment relationship with the Group terminates prior to vesting. Unvested restricted shares for employees transferred with the Sale of the HERE Business in 2015 and employees that were transferred to Microsoft following the Sale of the D&S Business in 2014 have been forfeited.

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Active share-based payment plans by instrument

    Performance shares outstanding at threshold(1)      Restricted shares outstanding(1) 
   Number of  Weighted average grant     Number of  Weighted average grant 
   performance  date fair value     restricted  date fair value 
    shares at threshold    EUR(2)      shares outstanding    EUR(2) 

At January 1, 2013

   8 574 085           23 680 532      

Granted

   6 696 241    2.96      12 347 931    3.05  

Forfeited

   (1 512 710)      (3 490 913)  

Vested(3)

   (2 767 412)          (2 180 700)     

At December 31, 2013

   10 990 204           30 356 850      

Granted

   6 967 365    6.07      1 013 466    5.62  

Forfeited

   (9 338 036)      (19 546 605)  

Vested

   (2 500)          (4 228 306)     

At December 31, 2014

   8 617 033           7 595 405      

Granted

   6 776 996    5.78      342 200    6.22  

Forfeited

   (3 929 604)      (3 880 221)  

Vested

   –           (1 952 910)     

At December 31, 2015(4)

   11 464 425           2 104 474      

(1)Includes performance and restricted shares granted under other than global equity plans.
(2)The fair valuesutilization of performance and restricted shares are estimated based on the grant date market pricerestructuring provision includes items transferred to accrued expenses, of the Nokia share less the present valuewhich EUR 62 million remained in accrued expenses as of dividends expected to be paid during the vesting period.
(3)Shares vested at 0% payout.
(4)Includes 569 829 performance shares for the Performance Share Plan 2013 that vested on January 1, 2016, and 216 304 restricted shares granted in the fourth quarter under the Restricted Share Plan 2012.

Employee share purchase plan

The Group offers a voluntary Employee Share Purchase Plan to employees working for Nokia Networks (from 2015), Nokia Technologies and Group Common Functions. The voluntary Employee Share Purchase Plan was offered to employees of HERE until 2015 and Devices & Services until 2013. Employees make contributions from their salary to purchase Nokia shares on a monthly basis during a 12-month savings period. One matching share is issued for every two purchased shares the employee still holds after the last monthly purchase has been made following the savings period. In 2015, 140 436 matching shares were issued as settlement to the participants of the Employee Share Purchase Plan 2014 (133 341 matching shares issued in 2014). Employees participating in the 2015 Plan who have transferred with the Sale of the HERE Business will receive a cash settlement in 2016 according to their accrued share purchases under the 2015 Plan. Employees who participated in the 2013 Plan who have transferred to Microsoft following the Sale of the D&S Business received a cash settlement in 2014 for their accrued share purchases under the 2013 Plan.

Legacy equity compensation programs

Stock options

In 2015, the Group administered two global stock option plans, the Stock Option Plans 2007 and 2011, approved by the shareholders at the Annual General Meeting in the year when the plan was launched. Stock option plans have not been granted since 2013 as compensation to Group employees.

Each stock option entitles the holder to subscribe for one new Nokia share. The stock options are not transferable and may be exercised for shares only. Shares will be eligible for dividends for the financial year in which the share subscription takes place. Other shareholder rights will commence on the date on which the subscribed shares are entered in the Trade Register. The stock option grants are generally forfeited if the employment relationship with the Group is terminated. Unvested stock options held by employees transferred with the Sale of the HERE Business in 2015 and the employees who were transferred to Microsoft following the Sale of the D&S Business in 2014 have been forfeited.

NOKIA ANNUAL REPORT ON FORM 20-F 2015185

Notes to consolidated financial statementscontinued

Reconciliation of stock options outstanding and exercisable:

        Weighted   Weighted   Weighted       Weighted 
      average exercise   average share   average grant  Number of   average exercise 
   Number  price   price   date fair value  options   price 
Shares under option(1)   of shares    EUR     EUR     EUR(2)   exercisable     EUR  

At January 1, 2013

   25 846 368    5.95              5 616 112     11.96  

Granted

   8 334 200    2.77       1.23     

Forfeited

   (3 705 512)   4.06         

Expired

   (2 474 864)   14.78                     

At December 31, 2013

   28 000 192    4.47              4 339 341     9.66  

Exercised

   (56 623)   5.75     6.69       

Forfeited

   (16 839 593)   3.39         

Expired

   (3 759 953)   9.94                     

At December 31, 2014

   7 344 023    4.81              1 913 537     10.43  

Exercised

   (1 242 381)   3.79     6.44       

Forfeited

   (2 215 216)   2.48         

Expired

   (246 140)   8.07                     

At December 31, 2015

   3 640 286    4.67              2 318 911     5.97  

(1)Includes stock options granted under other than global equity plans, excluding the Nokia Networks Equity Incentive Plan.
(2)Fair value of stock options is calculated using the Black-Scholes model.

Nokia Networks equity incentive plan

Nokia Networks established in 2012 the Nokia Networks Equity Incentive Plan (“the Plan”), a share-based incentive program under which options for Nokia Solutions and Networks B.V. shares were granted to selected key employees and Nokia Networks’ senior management, some of whom became members of the Group Leadership Team in 2014. Following the Group’s acquisition of Siemens’ stake in Nokia Networks and the Sale of the D&S Business, the Board of Directors approved a modification to the Plan in 2014 to allow 30% of the options to vest on the third anniversary of the grant date, with the remainder of the options continuing to become exercisable on the fourth anniversary of the grant date, or earlier, in the event of a corporate transaction as defined in the Plan. The exercise price of the options is based on a per share value on grant as determined for the purposes of the Plan. The options are accounted for as a cash-settled share-based payment liability at December 31, 2015. The fair value of the liability is determined based on the estimated fair value of shares less the exercise price of the options on the reporting date. The total carrying amount of the Plan is EUR 73 million (EUR 80 million in 2014) and is included in accrued expenses and other liabilities in the consolidated statement of financial position.

26. Translation differences

    Translation differences      Net investment hedging      Total 
EURm  Gross          Tax   Net      Gross  Tax  Net      Gross  Tax  Net 

At January 1, 2013

   961    3     964       (269)   51    (218)      692    54    746  

Exchange differences on translating foreign operations

   (496)     (496)       –      (496)   –    (496) 

Net investment hedging gains

      –      114     114      114    –    114  

Acquisition of non-controlling interests

   42      42        –      42    –    42  

Movements attributable to non-controlling interests

   28         28               –       28    –    28  

At December 31, 2013

   535    3     538       (155)   51    (104)      380    54    434  

Exchange differences on translating foreign operations

   628      628        –      628    –    628  

Transfer to income statement(1)

   192      192        –      192    –    192  

Net investment hedging losses

      –      (187)   34    (153)     (187)   34    (153) 

Transfer to income statement(1)

      –      20    (15)   5      20    (15)   5  

Movements attributable to non-controlling interests

   (7)        (7)              –       (7)   –    (7) 

At December 31, 2014

   1 348    3     1 351       (322)   70    (252)      1 026    73    1 099  

Exchange differences on translating foreign operations

   671    1     672        –      671    1    672  

Transfer to income statement(2)

   (1 727)     (1 727)       –      (1 727)   –    (1 727) 

Net investment hedging losses

      –      (260)   53    (207)     (260)   53    (207) 

Transfer to income statement(2)

      –      582    (123)   459      582    (123)   459  

Movements attributable to non-controlling interests

   (4)        (4)              –       (4)   –    (4) 

At December 31, 2015

   288    4     292       –    –    –       288    4    292  

(1)Reclassified from other comprehensive income to the consolidated income statement primarily due to the Sale of the D&S Business.
(2)Reclassified from other comprehensive income to the consolidated income statement primarily due to the Sale of the HERE Business.

186NOKIA ANNUAL REPORT ON FORM 20-F 2015

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27. Fair value and other reserves

    Pension remeasurements      Hedging reserve      

Available-for-sale

investments

      Total 
EURm  Gross  Tax  Net      Gross  Tax  Net      Gross  Tax  Net      Gross  Tax  Net 

At January 1, 2013

   (147)   19    (128)      (10)   –    (10)      131    2    133       (26)   21    (5) 

Pension remeasurements:

                   

Transfer to assets of disposal groups classified as held for sale(1)

   31    (11)   20                31    (11)   20  

Remeasurements of defined benefit plans

   114    (6)   108                114    (6)   108  

Cash flow hedges:

                   

Transfer to assets of disposal groups classified as held for sale(1)

        48     48           48    –    48  

Net fair value gains

        124     124           124    –    124  

Transfer of gains to income statement as adjustment to net sales

        (130)    (130)          (130)   –    (130) 

Transfer of gains to income statement as adjustment to cost of sales

        (23)    (23)          (23)   –    (23) 

Available-for-sale investments:

                   

Net fair value gains

             139     139      139    –    139  

Transfer to income statement on impairment

             5     5      5    –    5  

Transfer to income statement on disposal

             (95)    (95)     (95)   –    (95) 

Acquisition of non-controlling interest

   (63)   3    (60)     44     44      (1)    (1)     (20)   3    (17) 

Movements attributable to non-controlling interests

   (28)   3    (25)      (6)       (6)                     (34)   3    (31) 

At December 31, 2013

   (93)   8    (85)      47    –    47       179    2    181       133    10    143  

Pension remeasurements:

                   

Remeasurements of defined benefit plans

   (290)   111    (179)               (290)   111    (179) 

Cash flow hedges:

                   

Net fair value losses

        (20)   (5)   (25)          (20)   (5)   (25) 

Transfer of (gains)/losses to income statement as adjustment to net sales

        (25)   5    (20)          (25)   5    (20) 

Available-for-sale investments:

                   

Net fair value gains/(losses)

             121    (4)   117      121    (4)   117  

Transfer to income statement on impairment

             15     15      15    –    15  

Transfer to income statement on disposal

                                 (29)       (29)      (29)   –    (29) 

At December 31, 2014

   (383)   119    (264)      2    –    2       286    (2)   284       (95)   117    22  

Pension remeasurements:

                   

Disposal of businesses(1)

   11    (3)   8                11    (3)   8  

Remeasurements of defined benefit plans

   109    (25)   84                109    (25)   84  

Cash flow hedges:

                   

Net fair value (losses)/gains

        (66)   13    (53)          (66)   13    (53) 

Transfer of losses/(gains) to income statement as adjustment to net sales

        61    (12)   49           61    (12)   49  

Available-for-sale investments:

                   

Net fair value gains/(losses)

             246    (21)   225      246    (21)   225  

Transfer to income statement on impairment

             11     11      11    –    11  

Transfer to income statement on disposal

                                 (144)   2    (142)      (144)   2    (142) 

At December 31, 2015

   (263)   91    (172)      (3)   1    (2)      399    (21)   378       133    71    204  

(1)Movements after transfer to Discontinued operations represent movements for Continuing operations. The balance at December 31, 2013 represents the balance for Continuing operations.

The Group has defined benefit pension plans. Actuarial gains and2016. The utilization of project losses arising from experience adjustments and changes in actuarial assumptions for these defined benefit plans are charged or credited to the pension remeasurements reserve. Refer to Note 1, Accounting principles, and Note 8, Pensions. The movement in pension remeasurements, tax, includes EUR 6 million (EUR 10 million in 2014) tax credit for withholding taxes on plan assets.

The Group applies hedge accounting on certain forward foreign exchange contracts that are designated as cash flow hedges. The change in fair value that reflects the change in spot exchange rates is deferred to the hedging reserve to the extent that the hedge is effective. Refer to Note 1, Accounting principles.

The Group invests a portion of cash needed to cover the projected cash needs of its ongoing business operations in highly liquid, interest-bearing investments and certain equity instruments. Changes in the fair value of these available-for-sale investments are recognized in the fair value and other reserves as part of other comprehensive income, with the exception of interest calculated using the effective interest method and foreign exchange gains and losses on current available-for-sale investments recognized directly in the consolidated income statement. Refer to Note 1, Accounting principles.

NOKIA ANNUAL REPORT ON FORM 20-F 2015187

Notes to consolidated financial statementscontinued

28. Provisions

        Divestment-          Project      Material         
EURm  Restructuring  related  Warranty  losses          Litigation        liability          Other              Total 

At January 1, 2014

   443    –    94    152    70    19    144    922  

Translation differences

   2    –    3    –    (1)   –    3    7  

Reclassification(1)

   7    94    –    17    (7)   –    (17)   94  

Charged to income statement:

         

Additional provisions

   116    72    70    64    15    28    87    452  

Changes in estimates

   (56)   (5)   (10)   (30)   (6)   (9)   (15)   (131) 
   60    67    60    34    9    19    72    321  

Utilized during year

   (265)   (24)   (40)   (96)   (3)   (14)   (29)   (471) 

At December 31, 2014

   247    137    117    107    68    24    173    873  

Disposal of businesses

   –    –    –    –    (3)   –    (2)   (5) 

Translation differences

   (4)   (12)   2    –    (11)   –    7    (18) 

Reclassification(2)

   (33)   (6)   –    –    15    –    (9)   (33) 

Charged to income statement:

         

Additional provisions

   105    49    31    5    24    46    42    302  

Changes in estimates

   (14)   (22)   (21)   (25)   (11)   (20)   (18)   (131) 
   91    27    10    (20)   13    26    24    171  

Utilized during year

   (107)   (17)   (35)   (25)   (13)   (21)   (45)   (263) 

At December 31, 2015

   194    129    94    62    69    29    148    725  

(1)The reclassification from other provisions consists of EUR 17 million to project losses. The reclassification from litigation consists of EUR 7 million transferred to restructuring.inventory write-downs. The reclassificationutilization of EUR 94 million was fromother provisions includes items transferred to accrued expenses, to divestment-related provisions.
(2)The reclassification from restructuring consists of which EUR 187 million to accruals and EUR 15 million to litigation. VAT depositsremained in accrued expenses as of EUR 6 million were reclassified to partially offset divestment-related provisions. The reclassification of EUR 9 million from other provisions consists of EUR 5 million to allowance for excess and obsolete inventory and EUR 4 million to accrued expenses.December 31, 2016.

The restructuring provision includes EUR 194 million (EUR 247 million in 2014) relating to restructuring activities in Nokia Networks including personnel and other restructuring-related costs, such as real estate exit costs. On April 6, 2016, the Group expanded its restructuring activities and launched a new cost savings program, recognizing a EUR 677 million restructuring provision. The utilization during the year was EUR 210 million, of which EUR 58 million remained in accrued expenses as of December 31, 2016. In 2015, Nokia Networks recognized aaddition, the restructuring provision ofincludes EUR 71257 million relating to certain new cost reduction and efficiency improvement initiatives in Germany, the United States, China and Japan.previously announced restructuring programs. The majority of restructuring-relatedthe restructuring related cash outflows isare expected to occur over the next two years.

Divestment-related provisions relateThe warranty provision relates to the Sale of the HERE Business and the Sale of the D&S Business and include certain liabilities for which the Group is required to indemnify the consortium of leading automotive companies and Microsoft, respectively. Outflowssold products. Cash outflows related to the indemnifications are inherently uncertain.

The warranty provisions relate to products sold. Outflows of warranty provisionsprovision are generally expected to occur within the next 18 months.

Provisions for project losses relate to Nokia Networks’ onerous contracts. Utilization of provisions for project losses is generally expected to occur over the next 12 months.

The litigation provision includes estimated potential future settlements for litigation. OutflowsCash outflows related to litigationsthe litigation provision are inherently uncertain and generally occur over several periods.

The environmental provision includes estimated costs to sufficiently clean and refurbish contaminated sites, to the extent necessary, and where necessary, continuing surveillance at sites where the environmental remediation exposure is less significant. Cash outflows related to the environmental liability are inherently uncertain and generally occur over several periods.

The project loss provision is based on IAS 11, Construction Contracts, and relates to onerous customer contracts. Cash outflows related to the project loss provision are generally expected to occur over the next 12 months.

The divestment-related provision relates to the sale of businesses, and includes certain liabilities where the Group is required to indemnify the buyer. Cash outflows related to the divestment-related provision are inherently uncertain.

The material liability provision relates to non-cancellable purchase commitments with suppliers. OutflowsCash outflows related to the material liability provision are expected to occur over the next 12 months.

Other provisions include provisions for various contractual obligations and other obligations. OutflowsCash outflows related to other provisions are generally expected to occur over the next two years.

NOKIA ANNUAL REPORT ON FORM 20-F 2016199

Notes to consolidated financial statementscontinued

Legal matters

A number of Group companies are and will likely continue to be subject to various legal proceedings and investigations that arise from time to time, including proceedings regarding intellectual property, product liability, sales and marketing practices, commercial disputes, employment, and wrongful discharge, antitrust, securities, health and safety, environmental, tax, international trade, and privacy matters. As a result, the Group may incur substantial costs that may not be covered by insurance and could affect business and reputation. While management does not expect any of these legal proceedings to have a material adverse effect on the Group’s financial position, litigation is inherently unpredictable and the Group may in the future incur judgments or enter into settlements that could have a material adverse effect on itsthe results of operations and cash flows.

188NOKIA ANNUAL REPORT ON FORM 20-F 2015

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Litigation and proceedings

Beijing Capital

In 2010, Beijing Capital Co., Ltd. (“Beijing Capital”), a former shareholder in a Chinese joint venture, Nokia Capital Telecommunications Ltd., initiated an arbitration against Nokia China Investment Co., Ltd. (“Nokia China”) in respect of dividends it claims are owed. The Group disputes that dividends are owed to Beijing Capital or otherwise payable by Nokia China. The Group prevailed in the arbitration. Beijing Capitel challenged the award before the Beijng Second Intermediary People’s Court. On February 19, 2016, the Court dismissed the challenge in a reasoned opinion.

Irish Broadband

In 2010, the Imagine group (IBB Internet Services & Irish Broadband Internet Services trading as Imagine Networks) (“IBB”) served a claim in the commercial court of Ireland for breach of contract and tort against Motorola Limited. The claim was later amended to add Imagine Communications Group as an additional plaintiff. In 2011, Nokia Siemens Networks acquired certain assets and liabilities including this matter from Motorola Solutions Inc. (“Motorola”). Among other things, IBB claims that WiMax network equipment purchased from Motorola failed to perform as promised. The Group disputes these allegations. In 2015, the same claim was made against the Group directly for any amount of the claim that is deemed irrecoverable against Motorola by virtue of the assignment. The case is stillwas settled in the discovery phase and no date for trial has been set.2016.

Vertu

Vertu was a United Kingdom-based business division of the Group that specialized in the provision of luxury mobile phones. The Group divested the United Kingdom-based luxury handset business, Vertu, business to Crown Bidco Ltd in 2013. In 2014, Crown Bidco Ltd served a claim in the commercial courtCommercial Court in London alleging breach of contract in relation to the transfer of IT assets and breach of warranties under the sale agreement. The Group disputes these allegations. During the process certain counter claims have arisen and the trial is not expected until 2017 in order to accommodate these claims.

Pars Iratel

In 2005, Pars Iratel was contracted as a general contractor to the Mobile Communications Company of Iran (“MCCI”) to deliver and implement part of a network expansion in Iran. The Group provided equipment and certain services to Pars Iratel. Pars Iratel became liable for damages to MCCI and suffered other losses. Pars Iratel owes the Group for some of the equipment and services provided and has made claims against the Group for losses it claims to have suffered. In 2010, Nokia Siemens Tietoliikenne Oy (“NSTL”) commenced ICC arbitration against Pars Iratel. The matter was heard in Zurich in 2013. On the request of the parties, the arbitration tribunal stayed the proceedings to allow for settlement discussions. In March 2016, the parties entered into a binding settlement agreement and asked the arbitration tribunal to issue an award by consent.

Intellectual property rights litigation

Samsung

In 2013, the Group and Samsung agreed to extend their existing patent license agreement for five years from December 31, 2013. According to the agreement, Samsung will pay additional compensation to the Group from January 1, 2014. In January 2016, the International CourtGroup discovered material which allowed it to serve a counterclaim naming Crown Bidco and other third parties from EQT (the financier behind Crown Bidco) as defendants. The trial is expected in 2017.

Mass labor litigation Brazil

The Group is defending against a substantial number of Arbitrationlabor claims in various Brazilian labor courts. Plaintiffs are former employees whose contracts were terminated after the Group exited from certain managed services contracts. The claims mainly relate to payments made under, or in connection with, the terminated labor contracts. The Group has closed the majority of the International Chambercourt cases through settlement or judgement. Closure of Commerce issued its awardthe remaining open cases is expected to occur within the next several years.

Asbestos litigation in the United States

The Group is defending approximately 400 asbestos-related matters, at various stages of litigation, originating from Alcatel Lucent entities. The claims are based on premises liability, products liability, and contractor liability. The claims also involve plaintiffs allegedly diagnosed with various diseases, including but not limited to asbestosis, lung cancer, and mesothelioma.

Intellectual property rights litigation

Apple

On December 21, 2016 , the Group commenced patent infringement proceedings against Apple in Asia, Europe and the United States. Across actions in 11 countries, more than 50 Nokia patents are now in suit, covering a range of technologies, such as display, user interface, software, antenna, chipsets and video coding as well as 3G and 4G cellular standards. Schedules for the arbitration between the Group and Samsung. The award covers part of the Nokia Technologies patent portfolio until December 31, 2018. The full terms of the agreementvarious actions are confidential.yet to be set.

LG Electronics

In June 2015, LG Electronics agreed to take a royalty-bearing smartphone patent license from Nokia Technologies. The detailed royalty payment obligations are subject to arbitration, which is expected to conclude within one to two years.by the end of 2018. Terms of the agreement are confidential.

 

NOKIA ANNUAL REPORT ON FORM 20-F 2015189

Notes to consolidated financial statementscontinued

29. Accrued expenses, deferred revenue and other liabilities

Non-current liabilities

EURm                               2015                                2014 

Advance payments and deferred revenue(1)(2)

   1 235     1 632  

Other(2)

   19     35  

Total

   1 254     1 667  

(1)Includes a prepayment of EUR 1 235 million (EUR 1 390 million in 2014) relating to a ten-year mutual patent license agreement with Microsoft. Refer to Note 3, Disposals treated as Discontinued operations.
(2)In 2014, EUR 59 million has been reclassified from other to advance payments and deferred revenue to conform to current year presentation.

Current liabilities

EURm                               2015                                2014 

Deferred revenue(1)

   1 286     1 093  

Salaries and wages

   741     807  

Advance payments(1)

   571     736  

Social security, VAT and other indirect taxes

   314     282  

Expenses related to customer projects

   184     202  

Other

   299     512  

Total

   3 395     3 632  

(1)In 2014, EUR 133 million has been reclassified from advance payments to deferred revenue to conform to current year presentation.

Other accruals include accrued discounts, royalties, research and development expenses, marketing expenses and interest expenses, as well as various amounts which are individually insignificant.

30. Commitments and contingencies

EURm                               2015                                2014 

Collateral for own commitments

    

Assets pledged

   7     10  

Contingent liabilities on behalf of Group companies

    

Other guarantees

   601     673  

Contingent liabilities on behalf of associated companies and joint ventures

    

Financial guarantees on behalf of associated companies and joint ventures

   15     13  

Contingent liabilities on behalf of other companies

    

Financial guarantees on behalf of third parties(1)

   6     6  

Other guarantees

   137     165  

Financing commitments

    

Customer finance commitments(1)

   180     155  

Venture fund commitments

   230     274  

(1)Refer to Note 35, Risk management.

The amounts represent the maximum principal amount for commitments and contingencies.

Other guarantees on behalf of Group companies include commercial guarantees of EUR 400 million (EUR 465 million in 2014) provided to certain Nokia Networks customers in the form of bank guarantees or corporate guarantees. These instruments entitle the customer to claim compensation from the Group for the non-performance of its obligations under network infrastructure supply agreements. Depending on the nature of the guarantee, compensation is either payable on demand or subject to verification of non-performance. Total value of other guarantees has decreased mainly due to expired guarantees.

Contingent liabilities on behalf of other companies, Other guarantees, are EUR 137 million (EUR 165 million in 2014). The balance mainly relates to the guarantees transferred in connection with the disposal of certain businesses where contractual risks and revenues have been transferred but some of the commercial guarantees remain to be re-assigned legally.

Customer financing commitments of EUR 180 million (EUR 155 million in 2014) are available under loan facilities negotiated mainly with Nokia Networks’ customers. Availability of the facility is dependent upon the borrower’s continuing compliance with the agreed financial and operational covenants and compliance with other administrative terms of the facility. The loan facilities are primarily available to fund capital expenditure relating to purchases of network infrastructure equipment and services.

Venture fund commitments of EUR 230 million (EUR 274 million in 2014) are financing commitments to a number of funds making technology-related investments. As a limited partner in these funds, the Group is committed to capital contributions and entitled to cash distributions according to the respective partnership agreements and underlying fund activities.

190200 NOKIA ANNUAL REPORT ON FORM 20-F 20152016

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31. 30. Commitments and contingencies

Contractual obligations

Payments due for contractual obligations atas of December 31, 20152016 by due date:

 

    Within   1 to 3   3 to 5   More than      
EURm          1 year               years               years               5 years                    Total 

Long-term liabilities(1)

   1     9     1 480     554     2 044  

Purchase obligations(2)

   1 019     361     40     –     1 420  

Operating leases(3)

   124     152     78     122     476  

Total

   1 144     522     1 598     676     3 940  
EURm  Within 1 year                                1 to 3 years                                4 to 5 years                    More than 5 years                            Total 

Purchase obligations(1)

   2 075    616    122    3    2 816 

Operating leases(2)

   259    386    236    260    1 141 

Total

   2 334    1 002    358    263    3 957 

 

(1)Includes current maturities. Refer to Note 35, Risk management.
(2)Includes inventory purchase obligations, service agreements and outsourcing arrangements.
(3)(2)Includes leasing costs for office, manufacturing and warehouse space under various non-cancellable operating leases. Certain contracts contain renewal options for various periods of time.

Guarantees and other contingent commitments

EURm                                   2016                            2015 

Collateral for own commitments

    

Assets pledged

   5    7 

Contingent liabilities on behalf of Group companies(1)

    

Guarantees issued by financial institutions

   1 805    398 

Other guarantees

   794    129 

Contingent liabilities on behalf of associated companies and joint ventures

    

Financial guarantees

   11    15 

Contingent liabilities on behalf of other companies

    

Financial guarantees

   –    6 

Other guarantees

   135    137 

Financing commitments

    

Customer finance commitments(2)

   223    180 

Venture fund commitments(3)

   525    230 

(1)Includes guarantees to third parties in the normal course of business. These are mainly guarantees given by financial institutions to the Group’s customers for the performance of the Group’s obligations under supply agreements, including tender bonds, performance bonds, and warranty bonds issued by financial institutions on behalf of the Group. Depending on the nature of the guarantee, compensation is either payable on demand, or subject to verification of non-performance. Additionally, the Group has issued corporate guarantees with primary obligation given directly to customers. These guarantees have been issued by Nokia Corporation for EUR 88 million (EUR 74 million at December 31, 2015), as well as by certain Alcatel Lucent entities for EUR 1 520 million. In Other guarantees, the Group reports guarantees related to non-commercial contracts that support business activities. As a result of internal policies and active management of outstanding guarantee exposure, the Group has not been subject to any material guarantee claims during recent years.
(2)Customer finance commitments are available under loan facilities negotiated with customers. Availability of the facility is dependent upon the borrower’s continuing compliance with the agreed financial and operational covenants, and compliance with other administrative terms of the facility. The loan facilities are primarily available to fund capital expenditure relating to purchases of network infrastructure equipment and services. Refer to Note 36, Risk management.
(3)On February 21, 2016, Nokia Growth Partners announced the closing of a new USD 350 million fund for investments in Internet of Things companies. The Group sponsors the fund and will serve to identify new opportunities to grow the ecosystem in these solutions. As a limited partner in Nokia Growth Partners and certain other funds making technology-related investments, the Group is committed to capital contributions and entitled to cash distributions according to the respective partnership agreements and underlying fund activities.

The amounts represent the maximum principal amount for commitments and contingencies.

NOKIA ANNUAL REPORT ON FORM 20-F 2016201

Notes to consolidated financial statementscontinued

32.31. Notes to the consolidated statement of cash flows

 

EURm                               2015                              2014                              2013                                2016                              2015                              2014 

Adjustments for(1)

        

Depreciation and amortization

   320    297    728     1 594   320   297 

(Profit)/loss on sale of property, plant and equipment and available-for-sale investments

   (132)   (56)   40  

Income tax expense/(benefit)

   338    (1 281)   401  

Share of results of associated companies and joint ventures (Note 18)

   (29)   12    (4) 

Share-based payment

   113   49   37 

Impairment charges

   125   11   1 335 

Restructuring charges(3)

   751   48   115 

Profit on sale of property, plant and equipment and available-for-sale investments

   (82)   (132)   (56) 

Transfer from hedging reserve to sales and cost of sales

   27   61   (10) 

Share of results of associated companies and joint ventures (Note 34)

   (18)   (29)   12 

Financial income and expenses

   211    600    264     308   211   600 

Transfer from hedging reserve to sales and cost of sales

   61    (10)   (87) 

Impairment charges

   11    1 335    20  

Gain on the Sale of the HERE Business, net of tax

   (1 178)   –    –  

Gain on the Sale of the D&S Business(2)

   –    (3 386)   –  

Asset retirements

   6    8    24  

Share-based payment

   49    37    56  

Restructuring-related charges(3)

   48    115    446  

Income tax (benefit)/expense

   (429)   338   (1 281) 

Gain on the sale of businesses(2)

   (14)   (1 178)   (3 386) 

Other income and expenses

   34    67    25     32   40   75 

Total

   (261)  (2 262)  1 913     2 407  (261)  (2 262) 

Change in net working capital

        

(Increase)/decrease in short-term receivables

   (693)   115    1 655  

Decrease/(increase) in short-term receivables

   18   (728)   52 

Decrease/(increase) in inventories

   341    (462)   193     533   341   (462) 

(Decrease)/increase in interest-free short-term liabilities

   (646)   1 500    (2 793)    (2 758)   (990)   1 398 

Total

   (998)  1 153   (945)    (2 207)  (1 377)  988 

 

(1)Adjustments for the Group, includingIncludes Continuing and Discontinued operations. Refer to Note 3,6, Disposals treated as Discontinued operations.
(2)In 2014, impairment charges, foreign exchange differences, taxes and other adjustments relating to the Sale of the D&S Business arewere presented separately from the gain.
(3)Adjustments for restructuring-related charges represent the non-cash portion of the restructuring-relatedrestructuring charges recognized in the consolidated income statement.

In 2016, the purchase consideration in relation to the Acquisition of Alcatel Lucent comprises the issuance of new Nokia shares in addition to cash payments. Refer to Note 5, Acquisitions. In 2015, the Group exercised its option to redeem EUR 750 million convertible bonds at their principal amount outstanding plus accrued interest. Virtually all bondholders elected to convert their convertible bonds into Nokia shares before redemption. The conversion did not have a cash impact. In 2014, the convertible bonds issued to Microsoft in 2013 have been netted against the proceeds from the Sale of the D&S Business.

32. Principal Group companies

The Group’s significant subsidiaries as of December 31, 2016:

Company name 

Country of incorporation

and place of business

 Primary nature of business 

Parent

holding

%

  

Group ownership

interest

%

 

Nokia Solutions and Networks B.V.

 The Hague, Netherlands Holding company  –   100.0 

Nokia Solutions and Networks Oy

 Helsinki, Finland Sales and manufacturing company  –   100.0 

Nokia Solutions and Networks US LLC

 Delaware, USA Sales company  –   100.0 

Nokia Solutions and Networks Japan Corp.

 Tokyo, Japan Sales company  –   100.0 

Nokia Solutions and Networks India Private Limited

 New Delhi, India Sales and manufacturing company  –   100.0 

Nokia Solutions and Networks System Technology (Beijing) Co., Ltd.

 Beijing, China Sales company  –   100.0 

Nokia Solutions and Networks Branch Operations Oy

 Helsinki, Finland Sales company  –   100.0 

PT Nokia Solutions and Networks Indonesia

 Jakarta, Indonesia Sales company  –   100.0 

Nokia Solutions and Networks Taiwan Co., Ltd.

 Taipei, Taiwan Sales company  –   100.0 

Nokia Solutions and Networks Spain S.L.

 Madrid, Spain Sales company   99.9 

Alcatel Lucent SA

 Boulogne-Billancourt, France Holding company  100.0   100.0 

Alcatel-Lucent Participations SA

 Boulogne-Billancourt, France Holding company  –   100.0 

Alcatel-Lucent USA Inc.

 Delaware, USA Sales company  –   100.0 

Alcatel-Lucent Shanghai Bell Co., Ltd(1)

 Shanghai, China Sales and manufacturing company  –   50.0 

Alcatel-Lucent International SAS

 Boulogne-Billancourt, France Sales company  –   100.0 

Alcatel-Lucent Submarine Networks SAS

 Boulogne-Billancourt, France Sales and manufacturing company  –   100.0 

Alcatel-Lucent Bell NV

 Antwerp, Belgium Sales company  –   100.0 

Alcatel-Lucent Telecom Limited

 Bristol, UK Sales company  –   100.0 

Alcatel-Lucent Canada Inc.

 Ottawa, Canada Sales company  –   100.0 

Alcatel-Lucent España S.A.

 Madrid, Spain Sales company  –   100.0 

Alcatel-Lucent Italia SPA

 Milan, Italy Sales company  –   100.0 

Nokia Finance International B.V.

 Haarlem, Netherlands Holding company  100.0   100.0 

Nokia Technologies Oy

 Helsinki, Finland Sales and development company  100.0   100.0 

(1)The Group owns 50% plus one share in Alcatel-Lucent Shanghai Bell Co., Ltd, the other shareholder being China Huaxin, an entity controlled by the Chinese government. Refer to Note 33, Significant partly-owned subsidiaries.

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33. Significant partly-owned subsidiaries

In 2016, the Group did not engageacquired a partly owned consolidated subsidiary, Alcatel-Lucent Shanghai Bell Co., Ltd, which has a non-controlling interest (50% less one share) that is material to the Group. Alcatel-Lucent Shanghai Bell Co., Ltd, a company incorporated in any material non-cash investing activitiesChina, which, with its subsidiaries in 2013.China and in the rest of the world, including the RFS Group, make up the Alcatel-Lucent Shanghai Bell Group.

Financial information for the Alcatel-Lucent Shanghai Bell Group(1):

EURm                                 2016

Summarized income statement

Net sales(2)

1 806

Operating loss

(136) 

Loss for the year

(89) 

Loss for the year attributable to:

Equity holders of the parent

(45) 

Non-controlling interests

(45) 

Summarized statement of financial position

Non-current assets

424

Non-current liabilities

(128) 

Non-current net assets

296

Current assets(3)

2 841

Current liabilities

(1 657) 

Current net assets

1 184

Net assets(4)

1 480

Non-controlling interests

775

Summarized statement of cash flows

Net cash used in operating activities

(182) 

Net cash from investing activities

89

Net cash used in financing activities

(24) 

Net decrease in cash and cash equivalents

(117) 

(1)Financial information for the Alcatel-Lucent Shanghai Bell Group is presented before eliminations of intercompany transactions with the rest of the Group but after eliminations of intercompany transactions between entities within the Alcatel-Lucent Shanghai Bell Group.
(2)Includes EUR 483 million net sales to other Group entities.
(3)Includes a total of EUR 1 284 million of cash and cash equivalents and available-for-sale investments, liquid assets.
(4)The distribution of the profits of Alcatel-Lucent Shanghai Bell Co., Ltd requires the passing of a special resolution by more than two-thirds of its shareholders, subject to a requirement that at least 50% of the after-tax distributable profits are distributed as dividends each year.

34. Investments in associated companies and joint ventures

EURm                                   2016                                   2015 

Net carrying amount as of January 1

   84   51 

Translation differences

   (1)   6 

Acquisitions through business combinations

   20   – 

Disposals

   (4)   – 

Share of results

   18   29 

Dividends

   (1)   (2) 

Net carrying amount as of December 31

   116   84 

Shareholdings in associated companies and joint ventures comprise investments in unlisted companies.

 

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Notes to consolidated financial statementscontinued

    

    

 

33. Principal Group companies

The Group’s significant subsidiaries at December 31, 2015:

                 Group ownership 
   Country of incorporation     Parent holding   interest 
Company name  and place of business  Primary nature of business  %   % 

Nokia Solutions and Networks B.V.

  The Hague, Netherlands  Holding company   –     100.0  

Nokia Solutions and Networks Oy

  Helsinki, Finland  Sales and manufacturing company   –     100.0  

Nokia Solutions and Networks US LLC

  Delaware, USA  Sales company   –     100.0  

Nokia Solutions and Networks Japan Corp.

  Tokyo, Japan  Sales company   –     100.0  

Nokia Solutions and Networks India Private Limited

  New Delhi, India  Sales and manufacturing company   –     100.0  

Nokia Solutions and Networks System Technology (Beijing) Co., Ltd.

  Beijing, China  Sales company   –     100.0  

Nokia Solutions and Networks Branch Operations Oy

  Helsinki, Finland  Sales company   –     100.0  

PT Nokia Solutions and Networks Indonesia

  Jakarta, Indonesia  Sales company   –     100.0  

Nokia Solutions and Networks Taiwan Co., Ltd.

  Taipei, Taiwan  Sales company   –     100.0  

Nokia Solutions and Networks Korea Ltd.

  Seoul, South Korea  Sales company   –     100.0  

Nokia Finance International B.V.

  Haarlem, Netherlands  Holding company   100.0     100.0  

Nokia Technologies Oy

  Helsinki, Finland  Sales and development company   100.0     100.0  

34.35. Related party transactions

The Group has related party transactions with a pension fund, associated companies, and joint ventures and other entities where the Group has significant influence, as well as the management and the Board of Directors. Transactions and balances with companies over which the Group exercises control are eliminated on consolidation. Refer to Note 1, Accounting principles,2, Significant accounting policies, and Note 33,32, Principal Group companies.

Transactions with pension fund

The Group has borrowings amounting toof EUR 69 million (EUR 69 million in 2014)2015) from Nokia Unterstützungsgesellschaft GmbH, the Group’s German pension fund, a separate legal entity. The loan bears interest at the rate of 6% per annum and its duration is pending until further notice by the loan counterparties even though they have the right to terminate the loan with a 90-day notice. The loan is included in long-termshort-term interest-bearing liabilities in the consolidated statement of financial position.

Transactions with associated companies, and joint ventures and other entities where the Group has significant influence

EURm                               2015                               2014                               2013 

Share of results income/(expense)

   29    (12)   4  

Dividend income

   2    –    5  

Share of shareholders’ equity

   84    51    53  

Sales

   (1)   1    6  

Purchases

   (233)   (305)   (178) 

Payables

   (37)   (35)   (12) 

EURm                                   2016                                   2015                                   2014 

Share of results

   18   29   (12) 

Dividend income

   1   2   – 

Share of shareholders’ equity

   116   84   51 

Sales

   62   (1)   1 

Purchases

   (322)   (233)   (305) 

Receivables

   13   –   – 

Payables

   (38)   (37)   (35) 

The Group has guaranteed a loan of EUR 11 million (EUR 15 million (EUR 13 million in 2014)2015) for an associated company.

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Management compensation

Rajeev Suri was appointed the President and CEO of the Group on May 1, 2014. The Chairman of the Board of Directors, Risto Siilasmaa, and the Chief Financial Officer, Timo Ihamuotila, acted as the Interim Chief Executive Officer (“CEO”) and the Interim President, respectively, from September 3, 2013 to May 1, 2014 due to changes in the leadership structure following the Sale of the D&S Business.

The following table presents compensationCompensation information for the President and CEO of the Group:CEO:

 

EUR

Base salary/

fee


(1)


Cash incentive

payments



Share-based

payment

expenses



Pension

            expenses


2015

Rajeev Suri, President and CEO

1 000 0001 922 1954 604 622491 641

2014

Rajeev Suri, President and CEO from May 1, 2014

666 6671 778 1053 896 308366 989

Risto Siilasmaa, Interim CEO from September 3, 2013 to May 1, 2014(2)

1 126 323191 475

Timo Ihamuotila, Interim President from September 3, 2013 to May 1, 2014(3)

100 00072 64317 000

2013

Risto Siilasmaa, Interim CEO from September 3, 2013 to May 1, 2014(2)

500 000

Timo Ihamuotila, Interim President from September 3, 2013 to May 1, 2014(3)

150 00012 10742 500

Stephen Elop, President and CEO until September 3, 2013

753 911769 2172 903 226263 730
EUR   

Base salary/

fee

 

(1) 

  

Cash incentive

payments

 

 

   

Share-based

payment

expenses

 

 

(2) 

  

Pension

expenses

 

 

2016

      

Rajeev Suri, President and CEO

   1 049 044   780 357    5 296 960   469 737 

2015

      

Rajeev Suri, President and CEO

   1 000 000   1 922 195    4 604 622   491 641 

2014

      

Rajeev Suri, President and CEO from May 1, 2014

   666 667   1 778 105    3 896 308   366 989 

Risto Siilasmaa, Interim CEO from September 3, 2013 to May 1, 2014(3)

   1 126 323   –    –   191 475 

Timo Ihamuotila, Interim President from September 3, 2013 to May 1, 2014(4)

   100 000   –    72 643   17 000 

 

(1)Base Salariessalaries are pro-rated for the time in role. Incentive payments represent full-year incentive payment earned under the Group’s short-term incentive programs. For interim roles, the base salary/fee is for role-related responsibilities only.
(2)Represents the expense for all outstanding equity grants recorded during 2016.
(3)Represents the value of 200 000 shares awarded as compensation for additional responsibilities, the balance of which was given in shares after deducting associated taxes and social security contributions.
(3)(4)Includes EUR 100 000 as compensation for additional responsibilities (EUR 150 000 in 2013).responsibilities. Also includes an equity grant with an approximate aggregate grant date value of EUR 250 000 in the form of Nokia stock options and Nokia restricted shares. These grants are subject to the standard terms and conditions and vesting schedules of the Group’s equity plans. Refer to Note 25,26, Share-based payment.

Total remuneration awarded to the Group Leadership Team for their time as members of the Group Leadership Team:

 

EURm                               2015                                2014                              2013                                    2016                                2015                                    2014 

Short-term benefits

   9     8    9     26    9    8 

Post-employment benefits(1)

   1     1    1     1    1    1 

Share-based payment(2)

   9     (3)   8     15    9    (3) 

Termination benefits(3)

   3     36    1     1    3    36 

Total

   22     42   19     43    22    42 

 

(1)The members of the Group Leadership Team participate in the local retirement programs applicable to employees in the country where they reside.
(2)Due to the significant changes in the Group Leadership Team during 2014, following the Sale of the D&S Business, share-based payment for 2014 reflects cumulative expense reversal for lapsed equity awards.
(3)Includes both termination payments and payments made under exceptional contractual arrangements for lapsed equity awards. Includes payments to former leadership members that left the Group in 2015.

 

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Notes to consolidated financial statementscontinued

    

    

 

Board of Directors’ compensation

The annual remuneration structure paid to the members of the Board of Directors, as decided on by the Annual General Meetings in the respective years:

 

    2015       2014       2013 
   Gross annual  Shares      Gross annual  Shares      Gross annual  Shares 
   fee(1)           received       fee(1)           received       fee(1)               received  
    EUR  number       EUR  number       EUR  number 

Risto Siilasmaa, Chairman(2)

   440 000    29 339       440 000    31 186       440 000    77 217  

Jouko Karvinen, Vice Chairman until
January 8, 2016(3)

   175 000    11 667       175 000    12 403       175 000    14 374  

Vivek Badrinath(4)

   140 000    9 333       140 000    9 922       –    –  

Bruce Brown(5)

   155 000    10 333       155 000    10 986       130 000    10 678  

Elisabeth Doherty, Board member until
January 8, 2016(6)

   140 000    9 333       140 000    9 922       140 000    11 499  

Simon Jiang(7)

   130 000    8 666       –    –       –    –  

Henning Kagermann(8)

   –    –       –    –       155 000    12 731  

Helge Lund(8)

   –    –       –    –       130 000    10 678  

Mårten Mickos(9)

   –    –       130 000    9 214       130 000    10 678  

Elizabeth Nelson(10)

   140 000    9 333       140 000    9 922       140 000    11 499  

Kari Stadigh

   130 000    8 666       130 000    9 214       130 000    10 678  

Dennis Strigl(9)

   –    –        130 000    9 214        –    –  

Total

   1 450 000            1 580 000            1 570 000      
    2016        2015        2014 
    

Gross annual

fee

EUR

 

(1) 

 

  

Shares

received

number

 

 

 

        

Gross

annual fee

EUR

 

(1) 

 

  

Shares

received

number

 

 

 

        

Gross

annual fee

EUR

 

(1) 

 

  

Shares

received

number

 

 

 

Risto Siilasmaa, Chair(2)

   440 000   35 001      440 000   29 339      440 000   31 186 

Olivier Piou, Vice Chair(3)

   255 082   19 892      –   –      –   – 

Vivek Badrinath(4)

   175 000   13 921      140 000   9 333      140 000   9 922 

Bruce Brown(5)

   190 000   15 114      155 000   10 333      155 000   10 986 

Elisabeth Doherty(6)

   –   –      140 000   9 333      140 000   9 922 

Louis R. Hughes(7)

   240 410   18 752      –   –      –   – 

Simon Jiang(8)

   –   –      130 000   8 666      –   – 

Jouko Karvinen(9)

   –   –      175 000   11 667      175 000           12 403 

Mårten Mickos(10)

   –   –      –   –      130 000   9 214 

Jean C. Monty(11)

   225 410   17 558      –   –      –   – 

Elizabeth Nelson(12)

   190 000   15 114      140 000   9 333      140 000   9 922 

Carla Smits-Nusteling(13)

   175 000   13 921      –   –      –   – 

Kari Stadigh(14)

   160 000           12 727      130 000           8 666      130 000   9 214 

Dennis Strigl(10)

   –   –         –   –         130 000   9 214 

Total

     2 050 902               1 450 000               1 580 000     

 

(1)Approximately 40% of each Board member’s annual compensation is paid in Nokia shares purchased from the market. Themarket, and the remaining approximately 60% is paid in cash. The meeting fees, as resolved by the Annual General Meeting in 2016, will be paid in cash in 2017 and are not included in the table above.
(2)Represents compensation paid for services as the ChairmanChair of the Board. Excludes compensation paid for services as the Interim CEO during 2013 andin 2014. Refer to the management compensation section of this note.above.
(3)Consists of EUR 150 00070 082 for serviceservices as the Vice ChairmanChair of the Board untilfrom January 8, 2016 until the Annual General Meeting in 2016 and EUR 25185 000 for services as the ChairmanVice Chair of the Audit Committee.Board from the Annual General Meeting in 2016.
(4)Consists of EUR 130160 000 for services as a member of the Board and EUR 1015 000 for serviceservices as a member of the Audit Committee. Mr. Badrinath resigned on July 29, 2016 and has returned the compensation paid to him.
(5)Consists of EUR 130160 000 for services as a member of the Board and EUR 2530 000 for serviceservices as the ChairmanChair of the Personnel Committee.
(6)Served as a member of the Audit Committee and a member of the Board until January 8, 2016.
(7)Consists of EUR 13060 738 for services as a member of the Board and EUR 4 672 for services as a member of the Audit Committee from January 8, 2016 until the Annual General Meeting in 2016; and EUR 160 000 for services as a member of the Board and EUR 1015 000 for serviceservices as a member of the Audit Committee both until January 8, 2016.
(7)Appointed byfrom the Annual General Meeting in 2015.2016.
(8)Served onas a member of the Board until the Annual General Meeting in 2014.2016.
(9)Served onas the Vice Chair of the Board until January 8, 2016, the Chair of the Audit Committee until April 1, 2016, and as a member of the Board until the Annual General Meeting in 2016.
(10)Served as a member of the Board until the Annual General Meeting in 2015.
(10)(11)Consists of EUR 13060 738 for services as a member of the Board and EUR 4 672 for services as a member of the Audit Committee from January 8, 2016 until the Annual General Meeting in 2016; and EUR 160 000 for services as a member of the Board from the Annual General Meeting in 2016.
(12)Consists of EUR 160 000 for services as a member of the Board and EUR 1030 000 for serviceservices as the Chair of the Audit Committee.
(13)Consists of EUR 160 000 for services as a member of the Board and EUR 15 000 for services as a member of the Audit Committee.Committee from the Annual General Meeting in 2016.
(14)Consists of EUR 160 000 for services as a member of the Board.

Transactions with the Group Leadership Team and the Board of Directors

No loans have beenwere granted to the members of the Group Leadership Team and the Board of Directors in 2016, 2015 2014, or 2013.2014.

Terms of termination of employment of the President and CEO

The President and CEO, Rajeev Suri, may terminate his service contract at any time with six months’ prior notice. The Group may terminate his service contract for reasons other than cause at any time with an 18 months’ notice period. If there is a change of control event as defined in Mr. Suri’s service contract and the service contract is terminated either by the Group or its successor without cause, or by him for “good reason”, he would be entitled to a severance payment equaling up to 18 months of compensation and cash payment of the pro-rated value of his outstanding unvested equity awards, may vest pro rata if he is dismissed within 18 months of the change in control event. If before June 30, 2016 a “limited termination event” takes place, as defined in Mr. Suri’s service contract, he will be entitled to the pro-rated value of his Nokia Networks Equity Incentive Plan options, should his employment be terminated within six months of such an event taking place.

Termination benefits of the former President and CEO

The former President and CEO, Stephen Elop, received a severance payment of EUR 24.2 million consisting of a base salary and management incentive of EUR 4.1 million, and equity awards amounting to EUR 20.1 million. According to the terms of the purchase agreement with Microsoft entered into in connection with the Sale of the D&S Business, 30% of the total severance payment amounting to EUR 7.3 million was borne by the Group and the remaining 70% was borne by Microsoft.

 

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Notes to consolidated financial statementscontinued

    

    

 

35.36. Risk management

General risk management principles

The Group has a systematic and structured approach to risk management across business operations and processes. Key risks and opportunities are identified primarily against business targets either in business operations or as an integral part of long- and short-termfinancial planning. Key risks and opportunities are analyzed, managed, monitored and identified as part of business performance management with the support of risk management personnel. The Group’s overall risk management concept is based on managing the key risks that would prevent the Group from meeting its objectives, rather than solely focusing on eliminating risks. The principles documented in the Nokia Enterprise Risk Management Policy, which is approved by the Audit Committee of the Board of Directors, require risk management and its elements to be integrated into key processes. One of the main principles is that the business or function head is also the risk owner, although all employees are responsible for identifying, analyzing and managing risks as appropriate to their roles and duties. Risk management covers strategic, operational, financial and hazard risks. Key risks and opportunities are reviewed by the Group Leadership Team and the Board of Directors in order to create visibility on business risks as well as to enable prioritization of risk management activities. In addition to the principles defined in the Nokia Enterprise Risk Management Policy, specific risk management implementation is reflected in other key policies.

Financial risks

The objective for treasury activities is to guarantee sufficient funding at all times and to identify, evaluate and manage financial risks. Treasury activities support this aim by mitigating the adverse effects on the profitability of the underlying business caused by fluctuations in the financial markets, and by managing the capital structure of the Group by balancing the levels of liquid assets and financial borrowings. Treasury activities are governed by the Nokia Group Treasury Policy approved by the Group President and CEO which provides principles for overall financial risk management and determines the allocation of responsibilities for financial risk management activities. Operating procedures approved by the Group CFO cover specific areas such as foreign exchange risk, interest rate risk, credit and liquidity risk as well as the use of derivative financial instruments in managing these risks. The Group is risk-averserisk averse in its treasury activities.

Financial risks are divided into market risk covering foreign exchange risk, interest rate risk and equity price risk; credit risk covering business-related credit risk and financial credit risk; and liquidity risk.

Market risk

MethodologyForeign exchange risk

The Group operates globally and is exposed to transaction and translation foreign exchange risks. Transaction risk arises from foreign currency denominated assets and liabilities together with foreign currency denominated future cash flows. Transaction exposures are managed in the context of various functional currencies of Group companies. Material transactional foreign exchange exposures are hedged, unless hedging would be uneconomical due to market liquidity and/or hedging cost. Exposures are defined using transaction nominal values. Exposures are mainly hedged with derivative financial instruments, such as forward foreign exchange contracts and foreign exchange options. The majority of financial instruments hedging foreign exchange risk have a duration of less than a year. The Group does not hedge forecast foreign currency cash flows beyond two years.

As the Group has entities where the functional currency is other than the euro, the shareholders’ equity is exposed to fluctuations in foreign exchange rates. Equity changes caused by movements in foreign exchange rates are shown as currency translation differences in the consolidated financial statements. The Group may use forward foreign exchange contracts, foreign exchange options and foreign currency denominated loans to hedge its foreign exchange exposure arising from foreign net investments.

Currencies that represent a significant portion of the currency mix in outstanding financial instruments as of December 31 are as follows:

EURm                       USD                       JPY                       CNY                       GBP 

2016

     

Foreign exchange derivatives used as cash flow hedges, net(1)

   –   (158)   –   – 

Foreign exchange derivatives used as fair value hedges, net(2)

   (397)   –   –   103 

Foreign exchange derivatives used as net investment hedges, net(3)

   (1 418)   –   –   (249) 

Foreign exchange exposure from statement of financial position items, net

   (2 172)   434   (227)   (322) 

Foreign exchange derivatives not designated in a hedge relationship, carried at fair value through profit and loss, net(4)

   1 747   (174)   (587)   259 

Cross-currency/interest rate hedges

   1 051   (328)   –   – 

2015

     

Foreign exchange derivatives used as cash flow hedges, net(1)

   (465)   (262)   –   – 

Foreign exchange derivatives used as net investment hedges, net(3)

   (296)   –   –   – 

Foreign exchange exposure from statement of financial position items, net

   (1 004)   910   32   (97) 

Foreign exchange derivatives not designated in a hedge relationship, carried at fair value through profit and loss, net(4)

   (226)   (559)   18   90 

Cross-currency/interest rate hedges

   1 001   (311)   –   – 

(1)Used to hedge the foreign exchange risk from forecasted highly probable cash flows related to sales, purchases and business acquisition activities. In some currencies, especially the U.S. dollar, the Group has substantial foreign exchange risks in both estimated cash inflows and outflows. The underlying exposures for which these hedges are entered into are not presented in the table as they are not financial instruments.
(2)Used to hedge foreign exchange risk from contractual firm commitments. The underlying exposures for which these hedges are entered into are not presented in the table as they are not financial instruments.
(3)Used to hedge net investment exposure. The underlying exposures for which these hedges are entered into are not presented in the table as they are not financial instruments.
(4)Items on the statement of financial position and some probable forecasted cash flows denominated in foreign currencies are hedged by a portion of foreign exchange derivatives not designated in a hedge relationship and carried at fair value through profit and loss.

206NOKIA ANNUAL REPORT ON FORM 20-F 2016

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The methodology for assessing market risk exposures: Value-at-RiskValue-at-risk

The Group uses the Value-at-Risk (“VaR”) methodology to assess exposures to foreign exchange interest rate, and equity price risks. The VaR-based methodology provides estimates of potential fair value losses in market risk-sensitive instruments as a result of adverse changes in specified market factors, at a specified confidence level over a defined holding period. The Group calculates the foreign exchange VaR using the Monte Carlo method which simulates random values for exchange rates in which the Group has exposures and takes the non-linear price function of certain foreign exchange derivative instruments into account.

The VaR is determined using volatilities and correlations of rates and prices estimated from a sample of historical market data, at a 95% confidence level, using a one-month holding period. To put more weight on recent market conditions, an exponentially weighted moving average is performed on the data with an appropriate decay factor. This model implies that within a one-month period, the potential loss will not exceed the VaR estimate in 95% of possible outcomes. In the remaining 5% of possible outcomes the potential loss will be at minimum equal to the VaR figure and, on average, substantially higher. The VaR methodology relies on a number of assumptions which include the following: risks are measured under average market conditions, changes in market risk factors follow normal distributions, future movements in market risk factors are in line with estimated parameters and the assessed exposures do not change during the holding period. Thus, it is possible that, for any given month, the potential losses at a 95% confidence level are different and could be substantially higher than the estimated VaR.

NOKIA ANNUAL REPORT ON FORM 20-F 2015195

Notes to consolidated financial statementscontinued

Foreign exchange risk

The Group operates globally and is exposed to transaction and translation foreign exchange risks. Transaction risk arises from foreign currency denominated assets and liabilities together with foreign currency denominated future cash flows. Transaction exposures are managed in the context of various functional currencies of foreign Group companies. The Group’s foreign exchange procedures remain the same as in the previous year. Material transactional foreign exchange exposures are hedged unless hedging would be uneconomical due to market liquidity and/or hedging cost. Exposures are defined using transaction nominal values. Exposures are mainly hedged with derivative financial instruments such as forward foreign exchange contracts and foreign exchange options. The majority of financial instruments hedging foreign exchange risk have a duration of less than a year. The Group does not hedge forecast foreign currency cash flows beyond two years.

As the Group has entities where the functional currency is other than the euro, the shareholders’ equity is exposed to fluctuations in foreign exchange rates. Equity changes caused by movements in foreign exchange rates are shown as currency translation differences in the Group’s consolidated financial statements. The Group may, from time to time, use forward foreign exchange contracts, foreign exchange options and foreign currency denominated loans to hedge its foreign exchange exposure arising from foreign net investments.

The Group has certain entities where the functional currency is the currency of a hyperinflationary economy. In 2015, the Group recorded an expense of EUR 7 million (EUR 17 million in 2014, not material in 2013), mainly recognized in financial income and expenses, as a result of the Group’s hyperinflationary accounting assessment for its entity in Venezuela. Business operations in hyperinflationary economies carry a risk of future devaluation of monetary assets and liabilities. This risk cannot be hedged.

Currencies that represent a significant portion of the currency mix in outstanding financial instruments at December 31:

EURm                       USD                       JPY                       CNY                       KRW 

2015

     

Foreign exchange derivatives used as cash flow hedges, net(1)

   (465)   (262)   –    (63) 

Foreign exchange derivatives used as net investment hedges, net(2)

   (296)   –    –    (24) 

Foreign exchange exposure from statement of financial position items, net

   (1 004)   910    32    44  

Foreign exchange derivatives not designated in a hedge relationship, carried at fair value through profit and loss, net(3)

   (226)   (559)   18    (59) 

Cross-currency/interest rate hedges

   1 001    (311)   –    –  

2014

     

Foreign exchange derivatives used as cash flow hedges, net(1)

   (198)   (365)   –    –  

Foreign exchange derivatives used as net investment hedges, net(2)

   (1 808)   –    –    –  

Foreign exchange exposure from statement of financial position items, net

   (2 272)   224    325    127  

Foreign exchange derivatives not designated in a hedge relationship, carried at fair value through profit and loss, net(3)

   1 670    (272)   (371)   (159) 

Cross-currency/interest rate hedges

   440    –    –    –  

(1)Used to hedge the foreign exchange risk from forecasted highly probable cash flows related to sales, purchases and business acquisition activities. In some currencies, especially the US dollar, the Group has substantial foreign exchange risks in both estimated cash inflows and outflows. The underlying exposures for which these hedges are entered into are not presented in the table as they are not financial instruments.
(2)Used to hedge the Group’s net investment exposure. The underlying exposures for which these hedges are entered into are not presented in the table as they are not financial instruments.
(3)The statement of financial position items and some probable forecasted cash flows which are denominated in foreign currencies are hedged by a portion of foreign exchange derivatives not designated in a hedge relationship and carried at fair value through profit and loss.

The VaR figures for the Group’s financial instruments which are sensitive to foreign exchange risks are presented in the table below. The VaR calculation includes foreign currency denominated monetary financial instruments, such as:as available-for-sale investments, loans and accounts receivable, investments at fair value through profit and loss, cash, loans and accounts payable; foreign exchange derivatives carried at fair value through profit and loss which are not in a hedge relationship and are mostly used to hedge the statement of financial position foreign exchange exposure; and foreign exchange derivatives designated as forecasted cash flow hedges and net investment hedges. Most of the VaR is caused by these derivatives as forecasted cash flow and net investment exposures are not financial instruments as defined in IFRS 7, Financial Instruments: Disclosures, and thus not included in the VaR calculation.

 

                                         2015                                            2014 
EURm  VaR from financial instruments 

At December 31

   54       79  

Average for the year

   145       54  

Range for the year

   54-217        30-94  

196NOKIA ANNUAL REPORT ON FORM 20-F 2015

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                                         2016                                             2015 
EURm  VaR from financial instruments 

As of December 31

   83      54 

Average for the year

   111      145 

Range for the year

   73–149         54–217 

Interest rate risk

The Group is exposed to interest rate risk either through market value fluctuations of items on the consolidated statement of financial position items (price risk)(“price risk”) or through changes in interest income or expenses (refinancing(“refinancing” or reinvestment risk)“reinvestment risk”). Interest rate risk mainly arises fromthrough interest-bearing liabilities and assets. Estimated future changes in cash flows and the structure of the consolidated statement of financial position structure also expose the Group to interest rate risk. The objective of interest rate risk management is to mitigate the impact ofadverse impacts arising from interest rate fluctuations on the consolidated income statement, cash flow, and financial assets and liabilities whilstwhile taking into consideration the Group’s target capital structure and the resulting net interest rate exposure.

Interest rate profile of interest-bearing assets and liabilities atas of December 31:

 

  2015      2014   2016       2015 
EURm                           Fixed rate                          Floating rate                            Fixed rate                          Floating rate                             Fixed rate                            Floating rate(1)                              Fixed rate                            Floating rate(1) 

Assets

   3 721    6 160      3 494    4 243     2 107   7 410     3 453   6 428 

Liabilities

   (2 068)   (1)     (2 681)   (1)    (3 845)   (113)     (2 038)   (31) 

Assets and liabilities before derivatives

   1 653    6 159      813    4 242     (1 738)   7 297     1 415   6 397 

Interest rate derivatives

   981    (986)     552    (469)    1 358   (1 328)     981   (986) 

Assets and liabilities after derivatives

   2 634   5 173      1 365   3 773     (380)   5 969     2 396   5 411 

The

(1)All investments and credit support-related liabilities with initial maturity of three months or less are considered floating rate for the purposes of interest rate risk management. Comparatives have been adjusted to conform to current year presentation.

NOKIA ANNUAL REPORT ON FORM 20-F 2016207

Notes to consolidated financial statementscontinued

Interest rate exposure is monitored and managed centrally. The Group uses the VaR methodology complemented by selective shock sensitivity analyses to assess and measure the Group’s interest rate exposure comprising the interest rate risk ofarising from interest-bearing assets, interest-bearing liabilities and related derivatives. Sensitivity analysis determines an estimate of potential fair value changes in market risk-sensitive instruments by varying interest rates in currencies in which the Group has material amounts of financial assets and liabilities while keeping all other variables constant. The VaR for theGroup’s sensitivity to interest rate exposure in the investment and debt portfolios is presented in the table below. Sensitivities to credit spreads are not reflected in the below numbers.

 

EURm                                       2015                                        2014 

At December 31

   23     31  

Average for the year

   29     32  

Range for the year

   23-36     25-54  
    2016       2015 
EURm          Impact on
fair value		  Impact
        on profit		  Impact
          on OCI		               Impact on
fair value		  Impact
        on profit		  Impact
          on OCI		 

Interest rates – increase by 100 basis points

   181   (3)   (2)     6   (8)   (32) 

Interest rates – decrease by 50 basis points

   (99)   2   1        (5)   4   17 

Equity price risk

The Group’sIn 2016, the Group does not have exposure to equity price risk is related to certainas it does not have significant investments in publicly listed equity shares. The fair value of these investments is EURshares (EUR 16 million (EUR 12 million in 2014)2015). The VaR for the Group’s equity investments in publicly traded companies is insignificant. The private venture funds where the Group has investments may, from time to time, have investments in public equity. Such investments have not been included in the above number.

Other market risk

In certain emerging market countries there are local exchange control regulations that restrictprovide for restrictions on making cross-border transfers of funds as well as other regulations that impact the Group’s ability to control its net assets in those countries.

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk arises from credit exposures to customers, including outstanding receivables, financial guarantees and committed transactions, as well as financial institutions, including bank and cash, fixed-incomefixed income and money-market investments, and derivative financial instruments. Credit risk is managed separately for business-related and financial credit exposures.

Except for the first two items in the following table, theThe maximum exposure to credit risk for outstanding customer finance loans is limited to the book value of financial assets as included in the consolidated statement of financial position:

 

EURm                                       2015                                        2014                                        2016                                        2015 

Financial guarantees given on behalf of customers and other third parties

   6     6     –    6 

Loan commitments given but not used

   180     155     223    180 

Outstanding customer finance loans(1)

   33     1     129    33 

Total

   219     162     352    219 

 

(1)
NOKIA ANNUAL REPORT ON FORM 20-F 2015197Includes acquired customer loans on a fair value basis which excludes EUR 33 million considered to be uncollectible.

Notes to consolidated financial statementscontinued

Business-related credit risk

The Group aims to ensure the highest possible quality in accounts receivable and loans due from customers and other third parties. The Credit Policy, approved by the Group President and CEO, and the related procedures approved by the Group CFO, lay out the framework for the management of the business-related credit risks. The Credit Policy and related procedures set out that credit decisions are based on credit evaluation in each business, including credit rating for larger exposures, according to defined rating principles. Material credit exposures require Group-level approval. Credit risks are monitored in each business and, where appropriate, mitigated with the use of letters of credit, collateral, insurance, and the sale of selected receivables.

Credit exposure is measured as the total of accounts receivable and loans outstanding due from customers and committed credits. Accounts receivable do not include any major concentrations of credit risk by customer. The top three customers account for approximately 9.6%3.5%, 3.0% and 2.4% (9.6%, 5.9% and 3.5% (3.5%in 2015) of accounts receivable and loans due from customers and other third parties as of December 31, 2016. The top three credit exposures by country account for approximately 19.1%, 2.9%8.6% and 2.8%7.4% (19.6%, 12.1% and 10.8% in 2014)2015) of the Group’s accounts receivable and loans due from customers and other third parties atas of December 31, 2015.2016. The top three credit exposures by country account for approximately 19.6%, 12.1% and 10.8% (18.0%, 7.4% and 5.6% in 2014) of the Group’s accounts receivable and loans due from customers and other third parties at December 31, 2015. The 19.6%19.1% credit exposure relates to accounts receivable in China (18.0%(19.6% in 2014)2015).

The Group has provided allowances for doubtful accounts on accounts receivable and loans due from customers and other third parties not past due based on an analysis of debtors’ credit ratings and credit histories. The Group establishes allowances for doubtful accounts that represent an estimate of expected losses at the end of the reporting period. All receivables and loans due from customers are considered on an individual basis to determine the allowances for doubtful accounts. The total of accounts receivable and loans due from customers is EUR 7 101 million (EUR 3 946 million (EUR 3 432 million in 2014)2015). The gross carrying amount of accounts receivable, related to customer balances for which valuation allowances have been recognized, is EUR 2 439 million (EUR 1 150 million (EUR 1 200 million in 2014)2015). The allowances for doubtful accounts for these accounts receivable as well as amounts expected to be uncollectible for acquired receivables are EUR 301 million (EUR 62 million (EUR 103 million in 2014)2015). Refer to Note 22, Allowances for doubtful accounts.

Aging of past due receivables not considered to be impaired at December 31:

EURm                               2015                                2014 

Past due 1-30 days

   25     68  

Past due 31-180 days

   53     42  

More than 180 days

   124     35  

Total

   202     145  

Hazard risk

The Group strives to ensure that all financial, reputation and other losses to the Group and its customers are managed through preventive risk management measures. Insurance is purchased for risks which cannot be internally managed efficiently and where insurance markets offer acceptable terms and conditions. The objective is to ensure that hazard risks, whether related to physical assets, such as buildings, intellectual assets, such as the Nokia brand, or potential liabilities, such as product liabilities, are insured optimally taking into account both cost and retention levels. The Group purchases both annual insurance policies for specific risks as well as multi-line and/or multi-year insurance policies where available.

 

198208 NOKIA ANNUAL REPORT ON FORM 20-F 20152016

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Aging of past due receivables not considered to be impaired as of December 31:

EURm                               2016                                2015 

Past due 1-30 days

   102    25 

Past due 31-180 days

   141    53 

More than 180 days

   223    124 

Total

   466    202 

Financial credit risk

Financial instruments contain an element of risk resulting from changes in the market price due to counterparties becoming less creditworthy or risk of loss due to counterparties being unable to meet their obligations. Financial credit risk is measured and monitored centrally by Group Treasury. Financial credit risk is managed actively by limiting counterparties to a sufficient number of major banks and financial institutions, and by monitoring the creditworthiness and the size of exposureexposures continuously. Additionally, the Group enters into netting arrangements with all major counterparties, which give the Group the right to offset in the event that the counterparty would not be able to fulfill its obligations. The Group enters into collateral agreements with certain counterparties, which require counterparties to post collateral against derivative receivables.

Investment decisions are based on strict creditworthiness and maturity criteria as defined in the Treasury-related policies and procedures. As a result of this investment policy approach and active management of outstanding investment exposures, the Group has not been subject to any material credit losses in its financial investments in the years presented.

Breakdown of outstanding fixed-incomefixed income and money-market investments by sector and credit rating gradegrades ranked toas per Moody’s rating categories atas of December 31:

 

EURm  Rating(1)   

 

    Due within

3 months

  

  

   
 		Due between 3
and 12 months		  
  		   
 		Due between
1 and 3 years		  
  		   
 		Due between
3 and 5 years		  
  		   
 		Due beyond
5 years		  
  		               Total(2)    Rating(1)    
    Due within
3 months		 
 		   
Due between 3
and 12 months		 
 		   
Due between
1 and 3 years		 
 		   
Due between
3 and 5 years		 
 		   
Due beyond
5 years		 
 		               Total(2)(3)(4) 

2016

              

Banks

   Aaa    1 054    –    –    –    –    1 054 
   Aa1-Aa3    410    201    35    –    –    646 
   A1-A3    1 405    211    387    116    –    2 119 
   Baa1-Baa3                    893    728    –    –    –    1 621 
   Ba1-Ba3    15    –    –    –    –    15 
   Non-rated    42    –    –    –    –    42 

Governments

   A1-A3    –    –    274    53    –    327 

Other

   Aa1-Aa3    45    30    1    –    –    76 
   A1-A3    52    61    13    –    –    126 
   Baa1-Baa3    6    13    5    –    –    24 

Total

      3 922    1 244    715    169    –    6 050 

2015

                            

Banks

  Aaa   3 269             3 269     Aaa    3 269    –    –    –    –    3 269 
  Aa1-Aa3   93     94           187     Aa1-Aa3    93    94    –    –    –    187 
  A1-A3   280     320       100       700     A1-A3    280    320    –    100    –    700 
  Baa1-Baa3               738     475     90       50     1 353     Baa1-Baa3    738    475    90    –    50    1 353 
  Non-rated   12             12     Non-rated    12    –    –    –    –    12 

Governments

  Aaa     267     252     444     113     1 076     Aaa    –    267    252    444    113    1 076 
  Aa1-Aa3       10     140       150     Aa1-Aa3    –    –    10    140    –    150 
  A1-A3   309     198     257     50       814     A1-A3    309    198    257    50    –    814 
  Baa1-Baa3   12       23         35     Baa1-Baa3    12    –    23    –    –    35 

Other

  Baa1-Baa3            12        12     Baa1-Baa3    –    –    –    12    –    12 

Total

      4 713     1 354     632     746     163     7 608        4 713    1 354    632    746    163    7 608 

2014

              

Banks

  Aaa   1 227             1 227  
  Aa1-Aa3   162             162  
  A1-A3   587       330         917  
  Baa1-Baa3   332     325         1     658  
  Non-rated   108           2     110  

Governments

  Aaa   130     556     423     26     385     1 520  
  Aa1-Aa3   50       421     25     88     584  

Other

  Baa1-Baa3               11     11  

Total

      2 596     881     1 174     51     487     5 189  

 

(1)Bank Parent Company ratings are used here for bank groups. In some emerging markets countries, actual bank subsidiary ratings may differ from the Parent Company rating.
(2)Fixed-incomeFixed income and money-market investments include term deposits, structured deposits, investments in liquidity funds and investments in fixed income instruments classified as available-for-sale investments and investments at fair value through profit and loss. Liquidity funds invested solely in government securities are included under Governments. Other liquidity funds are included under Banks. Fixed-income and money-market investments
(3)Instruments that include a call feature have been presented at their final maturities, if any. Instruments that are contractually due beyond 3 months include EUR 566 million (EUR 510 million in 2015) of instruments that have a call period of less than 3 months.
(4)Includes EUR 5 million of restricted investments (EUR 115 million in 2014).2015) within fixed income and money-market investments. These are restricted financial assets under various contractual or legal obligations.

98%97% (98% in 2014)2015) of the Group’s cash at bank of EUR 3 276 million (EUR 2 242 million (EUR 2 527 million in 2014)2015) is held with banks of investment grade credit rating.

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 199209

    

Notes to consolidated financial statementscontinued

    

    

 

Financial assets and liabilities subject to offsetting under enforceable master netting agreements and similar arrangements atas of December 31:

 

  

Gross amounts of

financial assets/
(liabilities)

  

Gross amounts of
financial liabilities/

(assets) set off in the
statement of financial
position

   

Net amounts of
financial assets/

(liabilities) presented
in the statement of
financial position

  Related amounts not set off in  the
statement of financial position		       

Gross amounts of

financial assets/
(liabilities)

  

Gross amounts of
financial liabilities/

(assets) set off in the
statement of financial
position

   

Net amounts of
financial assets/

(liabilities) presented
in the statement of
financial position

  Related amounts not set off in  the
statement of financial position		     
EURm      

Financial instruments

assets/(liabilities)

 

Cash collateral

received/(pledged)

 Net amount       

Financial instruments

assets/(liabilities)

 

Cash collateral

received/(pledged)

 Net amount 

2016

      

Derivative assets

   235   –    235   153   73   9 

Derivative liabilities

   (236)   –    (236)   (128)   (96)   (12) 

Total

   (1)   –    (1)  25  (23)  (3) 

2015

              

Derivative assets

   96    –     96    67    24    5     96   –    96   67   24   5 

Derivative liabilities

   (114)   –     (114)   (65)   (34)   (15)    (114)   –    (114)   (65)   (34)   (15) 

Total

   (18)   –     (18)  2   (10)  (10)    (18)   –    (18)  2  (10)  (10) 

2014

        

Derivative assets

   241    –     241    124    85    32  

Derivative liabilities

   (174)   –     (174)   (124)   –    (50) 

Total

   67    –     67    –   85   (18) 

The financial instruments subject to enforceable master netting agreements and similar arrangements are not offset in the consolidated statement of financial position where there is no intention to settle net or realize the asset and settle the liability simultaneously.

Liquidity risk

Liquidity risk is defined as financial distress or extraordinarily high financing costs arising from a shortage of liquid funds in a situation where outstanding debt needs to be refinanced or where business conditions unexpectedly deteriorate and require financing. Transactional liquidity risk is defined as the risk of executing a financial transaction below fair market value or not being able to execute the transaction at all within a specific period of time. The objective of liquidity risk management is to maintain sufficient liquidity, and to ensure that it is available fast enough without endangering its value in order to avoid uncertainty related to financial distress at all times.

The Group aims to secure sufficient liquidity at all times through efficient cash management and by investing in short-term liquid interest-bearing securities.securities and money-market investments. Depending on its overall liquidity position, the Group may pre-finance or refinance upcoming debt maturities before contractual maturity dates. The transactional liquidity risk is minimized by entering into transactions where proper two-way quotes can be obtained from the market.

Due to the dynamic nature of the underlying business, the Group aims to maintain flexibility in funding by maintaining committed and uncommitted credit lines. AtAs of December 31, 2015, the Group’s2016 committed revolving credit facilities totaled EUR 1 500579 million (EUR 1 500 million in 2014)2015).

Significant current long-term funding programs atas of December 31, 2015:2016:

 

Issuer: Program:                       Issued  

Nokia Corporation

 Euro Medium-Term Note Program, totaling EUR 5 000 million  –  

 

Significant current short-term funding programs atas of December 31, 2015:2016:

 

Issuer: Program:  Issued  

Nokia Corporation

 Local commercial paper program in Finland, totaling EUR 750 million  –  

Nokia Corporation

US Commercial Paper program, totaling USD 4 000 million–  

Nokia Corporation and Nokia Finance International B.V.

Euro Commercial Paper program, totaling USD 4 000 million–  

Nokia Solutions and Networks Finance B.V.

Local commercial paper program in Finland, totaling EUR 500 million–  

 

200210 NOKIA ANNUAL REPORT ON FORM 20-F 20152016

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The composition of interest-bearing liabilities at December 31:

EURm  Issuer/Borrower  Final Maturity                   2015                    2014 

Revolving Credit Facility (EUR 1 500 million)(1)

  Nokia Corporation  June 2018   –     –  

USD Bond 2039 (USD 500 million 6.625%)

  Nokia Corporation  May 2039   459     412  

USD Bond 2019 (USD 1 000 million 5.375%)

  Nokia Corporation  May 2019   919     824  

EUR Bond 2019 (EUR 500 million 6.75%)

  Nokia Corporation  February 2019           500     500  

EUR Convertible Bond 2017 (EUR 750 million 5%)(2)

  Nokia Corporation  October 2017   –     750  

Differences between Bond nominal and carrying values(3)

  Nokia Corporation     68     21  

Other liabilities(4)

  Nokia Corporation and various subsidiaries      128     185  

Total

         2 074     2 692  

(1)In 2015, the Group refinanced its undrawn EUR 1 500 million Revolving Credit Facility maturing in March 2016 with a new similar size facility maturing in June 2018. The new facility remains undrawn and has two one-year extension options and no financial covenants.
(2)In 2015, the Group exercised its option to redeem the EUR 750 million convertible bonds at their principal amount outstanding plus accrued interest. Virtually all bondholders elected to convert their convertible bonds into Nokia shares before redemption.
(3)Includes mainly fair value adjustments for bonds that are designated under fair value hedge accounting and in 2014 also the difference between convertible bond nominal value and carrying value of the financial liability component.
(4)Includes EUR 4 million (EUR 8 million in 2014) of non-interest bearing payables relating to cash held temporarily due to the divested businesses where Nokia Networks continues to perform services within a contractually defined scope for a specified timeframe.

Nokia Corporation is the issuer or borrower in all material borrowings. All of the borrowings are senior unsecured and have no financial covenants.

NOKIA ANNUAL REPORT ON FORM 20-F 2015201

Notes to consolidated financial statementscontinued

    

    

 

The following table presents an undiscounted cash flow analysis for both financial liabilities and financial assets that are presented on the consolidated statement of financial position, and “off-balance sheet” instruments such as loan commitments, according to their remaining contractual maturity. The line-by-line analysis does not directly reconcile with the consolidated statement of financial position.

 

EURm  Total         Due within
3 months		 

Due between 3

and 12 months

 

Due between

1 and 3 years

 Due between
3 and 5 years		 Due beyond
5 years		                Total       Due within
3 months		 Due between 3
and 12 months		 Due between
1 and 3 years		 Due between
3 and 5 years		 Due beyond
5 years		 

2015

       

2016

       

Non-current financial assets

              

Long-term loans receivable

   58    –    8    28    4    18     150   –   2   86   32   30 

Current financial assets

              

Current portion of long-term loans receivable

   20    2    18    –    –    –  

Short-term loans receivable

   2    2    –    –    –    –     62   32   28   2   –   – 

Investments at fair value through profit and loss

   742    –    256    265    57    164     326   –   1   272   53   – 

Available-for-sale investments, including cash equivalents(1)

   6 938    4 714    1 105    403    663    53     5 753   3 935   1 248   453   117   – 

Bank and cash

   2 242    2 242    –    –    –    –     3 276   3 276   –   –   –   – 

Cash flows related to derivative financial assets net settled:

              

Derivative contracts—receipts

   51    18    (7)   22    18    –     42   18   (6)   30   –   – 

Cash flows related to derivative financial assets gross settled:

              

Derivative contracts—receipts

   4 203    3 441    221    42    295    204     8 221   6 473   492   1 038   13   205 

Derivative contracts—payments

   (4 078)   (3 431)   (209)   (23)   (277)   (138)    (7 942)   (6 404)   (440)   (962)   (5)   (131) 

Accounts receivable(2)

   2628    2014    586    25    3    –     5 895   4 430   1 354   106   5   – 

Non-current financial liabilities

              

Long-term interest-bearing liabilities

   (3 070)   (34)   (84)   (244)   (1 549)   (1 159)    (5 807)   (85)   (140)   (1 955)   (269)   (3 358) 

Current financial liabilities

              

Current portion of long-term interest-bearing liabilities

   (2)   –    (2)   –    –    –  

Short-term borrowings

   (50)   (50)   –    –    –    –     (372)   (255)   (116)   (1)   –   – 

Cash flows related to derivative financial liabilities net settled:

       

Derivative contracts—payments

   (78)   –    (5)   (8)   (6)   (59) 

Cash flows related to derivative financial liabilities gross settled:

              

Derivative contracts—receipts

   4 901    3 114    760    318    709    –     8 948   7 727   925   248   48   – 

Derivative contracts—payments

   (4 924)   (3 162)   (753)   (302)   (707)   –     (9 187)   (7 867)   (995)   (272)   (53)   – 

Accounts payable

   (1 910)   (1 835)   (75)   –    –    –     (3 781)   (3 600)   (152)   (29)   –   – 

Contingent financial assets and liabilities

              

Loan commitments given undrawn(3)

   (180)   (17)   (39)   (124)   –    –     (223)   (30)   (83)   (110)   –   – 

Loan commitments obtained undrawn(4)

   1 487    (1)   (4)   1 492    –    –     1 564   (1)   (3)   1 568   –   – 

 

(1)Instruments that include a call feature have been presented at their final maturities.maturities, if any. Instruments that are contractually due beyond 3 months include EUR 566 million of instruments that have a call period of less than 3 months.
(2)Accounts receivable maturity analysis does not include accrued receivables of EUR 1 285 million (EUR 703 million in 2014).
(3)Loan commitments given undrawn have been included in the earliest period in which they could be drawn or called.
(4)Loan commitments obtained undrawn have been included based on the period in which they expire. These amounts include related commitment fees.

202NOKIA ANNUAL REPORT ON FORM 20-F 2015

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EURm  Total          Due within
3 months		  

Due between 3

and 12 months

  

Due between

1 and 3 years

  

Due between

3 and 5 years

  

Due beyond

5 years

 

2014

       

Non-current financial assets

       

Long-term loans receivable

   38    –    –    22    –    16  

Current financial assets

       

Current portion of long-term loans receivable

   2    1    1    –    –    –  

Short-term loans receivable

   24    24    –    –    –    –  

Investments at fair value through profit and loss

   501    1    5    261    10    224  

Available-for-sale investments, including cash equivalents(1)

   4 806    2 609    904    926    68    299  

Bank and cash

   2 527    2 527    –    –    –    –  

Cash flows related to derivative financial assets net settled:
Derivative contract—receipts

   127    17    (4)   27    34    53  

Cash flows related to derivative financial assets gross settled:
Derivative contracts—receipts

   4 982    4 439    54    44    445    –  

Derivative contracts—payments

   (4 800)   (4 355)   (38)   (17)   (390)   –  

Accounts receivable(2)

   2 727    2 135    592    –    –    –  

Non-current financial liabilities

       

Long-term interest-bearing liabilities

   (3 786)   (34)   (113)   (1 044)   (1 520)   (1 075) 

Current financial liabilities

       

Current portion of long-term interest-bearing liabilities

   –    –    –    –    –    –  

Short-term borrowings

   (115)   (113)   (2)   –    –    –  

Cash flows related to derivative financial liabilities net settled:
Derivative contracts—payments

   (101)   –    (4)   (8)   (8)   (81) 

Cash flows related to derivative financial liabilities gross settled:
Derivative contracts—receipts

   5 065    5 065    –    –    –    –  

Derivative contracts—payments

   (5 203)   (5 203)   –    –    –    –  

Accounts payable

   (2 313)   (2 212)   (101)   –    –    –  

Contingent financial assets and liabilities

       

Loan commitments given undrawn(3)

   (155)   (8)   (49)   (68)   (30)   –  

Loan commitments obtained undrawn(4)

   1 493    (1)   (2)   1 496    –    –  

(1)Instruments that include a call feature have been presented at their final maturities.
(2)Accounts receivable maturity analysis does not include accrued receivables of EUR 1 285 million (EUR 703 million in 2014).077 million.
(3)Loan commitments given undrawn have been included in the earliest period in which they could be drawn or called.
(4)Loan commitments obtained undrawn have been included based on the period in which they expire. These amounts include related commitment fees.

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 203211

    

Notes to consolidated financial statementscontinued

    

    

 

36. Subsequent events

EURm               Total        Due within
3 months		  Due between 3
and 12 months		  Due between
1 and 3 years		  Due between
3 and 5 years		  Due beyond
5 years		 

2015

       

Non-current financial assets

       

Long-term loans receivable

   58   –   8   28   4   18 

Current financial assets

       

Short-term loans receivable

   22   4   18   –   –   – 

Investments at fair value through profit and loss

   742   –   256   265   57   164 

Available-for-sale investments, including cash equivalents(1)

   6 938   4 714   1 105   403   663   53 

Bank and cash

   2 242   2 242   –   –   –   – 

Cash flows related to derivative financial assets net settled:

       

Derivative contracts—receipts

   51   18   (7)   22   18   – 

Cash flows related to derivative financial assets gross settled:

       

Derivative contracts—receipts

   4 203   3 441   221   42   295   204 

Derivative contracts—payments

   (4 078)   (3 431)   (209)   (23)   (277)   (138) 

Accounts receivable(2)

   2 628   2 014   586   25   3   – 

Non-current financial liabilities

       

Long-term interest-bearing liabilities

   (3 070)   (34)   (84)   (244)   (1 549)   (1 159) 

Current financial liabilities

       

Short-term borrowings

   (52)   (50)   (2)   –   –   – 

Cash flows related to derivative financial liabilities net settled:

       

Derivative contracts—payments

   (78)   –   (5)   (8)   (6)   (59) 

Cash flows related to derivative financial liabilities gross settled:

       

Derivative contracts—receipts

   4 901   3 114   760   318   709   – 

Derivative contracts—payments

   (4 924)   (3 162)   (753)   (302)   (707)   – 

Accounts payable

   (1 910)   (1 835)   (75)   –   –   – 

Contingent financial assets and liabilities

       

Loan commitments given undrawn(3)

   (180)   (17)   (39)   (124)   –   – 

Loan commitments obtained undrawn(4)

   1 487   (1)   (4)   1 492   –   – 

Adjusting events after the reporting period

Decision on patent licensing arbitration

On February 1, 2016 the Group announced it had received the decision on patent licensing arbitration with Samsung. The award covers five years from January 1, 2014 until December 31, 2018. The outcome of the arbitration is reflected in the 2015 financial statements as far as it relates to the years presented.

Non-adjusting events after the reporting period

Acquisition of Alcatel Lucent

On April 15, 2015, the Group and Alcatel Lucent announced their intention to combine through a public exchange offer (“exchange offer”) in France and the United States. Alcatel Lucent is a global leader in IP networking, ultra-broadband access and Cloud applications. The combined company will leverage the combined scale of operations, complementary technologies, portfolios and geographical presence; and unparalleled innovation capabilities to lead in the next generation network technology and services and to create access to an expanded addressable market with improved long-term growth opportunities.

Exchange offers

As part of the exchange offers, holders of Alcatel Lucent ordinary shares, Alcatel Lucent American Depositary Shares (“ALU ADS”) and OCEANE convertible bonds (collectively “Alcatel Lucent Securities”) can exchange their Alcatel Lucent Securities for Nokia shares and Nokia American Depositary Shares (“Nokia ADS”) on the basis of 0.55 Nokia share or Nokia ADS for every Alcatel Lucent share or ALU ADS.

The Group obtained control of Alcatel Lucent on January 4, 2016 when the interim results of the successful initial exchange offer were announced by the French stock market authority, Autorité des Marchés Financiers (“AMF”). As part of the initial exchange offer, the Group acquired 76.31% of the share capital and at least 76.01% of the voting rights of Alcatel Lucent, 89.14% of the OCEANEs 2018, 24.34% of the OCEANEs 2019 and 15.11% of the OCEANEs 2020. On January 7, 2016, the Group issued a total of 1 455 678 563 new Nokia shares as consideration for the Alcatel Lucent Securities tendered in the initial public exchange offer.

On January 14, 2016, as required by the AMF general regulation, the Group reopened its exchange offer in France and the United States, based on the same terms and conditions as the initial exchange offer, for the outstanding Alcatel Lucent Securities not tendered during the initial exchange offer period. Following the initial and reopened exchange offer, the Group holds 90.34% of the share capital and at least 90.25% of the voting rights of Alcatel Lucent. The Group holds 99.62% of the OCEANEs 2018, 37.18% of the OCEANEs 2019 and 68.17% of the OCEANEs 2020. On February 12, 2016 the Group issued a total of 320 701 193 new Nokia shares as consideration for the Alcatel Lucent Securities tendered in the reopened exchange offer.

Following the initial and reopened exchange offers, the total number of Parent Company shares outstanding is 5 769 443 837 shares. Assuming the conversion of all remaining outstanding Alcatel Lucent Securities into Nokia shares and Nokia ADSs at the exchange ratio offered in the initial and reopened exchange offers, the total number of Nokia shares outstanding would equal approximately 6 billion shares.

Alcatel Lucent announced on February 11, 2016 that its Board of Directors has resolved to voluntarily delist ALU ADS from the New York Stock Exchange. On March 17, 2016 the Group announced that will issue a maximum of 72 842 811 new shares in deviation from shareholders’ pre-emptive rights based on a resolution by the Board of Directors pursuant to the authorization granted by the Extraordinary General Meeting held on December 2, 2015 to be paid by contribution in kind with the Alcatel Lucent shares purchased from the JPMorgan Chase Bank, N.A., as depositary in the ALU ADS program.

The Group is assessing alternatives to obtain at least 95% of the share capital and voting rights of Alcatel Lucent. With 95% of the share capital and voting rights, the Group can, in accordance with applicable law and following a buy-out offer, squeeze-out the remaining Alcatel Lucent Equity Securities, enabling the Group to obtain 100% of the share capital and voting rights of Alcatel Lucent.

In accordance with the terms of the OCEANEs and subject to applicable law, the Group reserves the right to cause Alcatel Lucent to redeem for cash at par value plus, as applicable, accrued interest, any series of the OCEANEs if less than 15% of the issued OCEANEs of any series remain outstanding at any time.

The Group has determined that the initial and the reopened exchange offers are linked transactions that are to be considered together as a single arrangement given that the reopened exchange offer is required by AMF general regulation and is based on the same terms and conditions as the initial exchange offer.

Alcatel Lucent Equity Securities that may be acquired by the Group in the future (including through the squeeze-out) will be accounted for as equity transactions with the remaining non-controlling interests in Alcatel Lucent. As such, any new Nokia shares or cash consideration paid to obtain the additional Alcatel Lucent Equity Securities will be recorded directly within equity against the carrying amount of non-controlling interests.

(1)Instruments that include a call feature have been presented at their final maturities, if any. Instruments that are contractually due beyond 3 months included EUR 510 million of instruments that have a call period of less than 3 months in 2015.
(2)Accounts receivable maturity analysis did not include accrued receivables of EUR 1 285 million in 2015.
(3)Loan commitments given undrawn have been included in the earliest period in which they could be drawn or called.
(4)Loan commitments obtained undrawn have been included based on the period in which they expire. These amounts include related commitment fees.

 

204212 NOKIA ANNUAL REPORT ON FORM 20-F 20152016

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Purchase consideration37. Subsequent events

The purchase consideration comprisesNon-adjusting events after the fair valuereporting period

Acquisition of Alcatel Lucent Equity Securities obtained through the initial and reopened exchange offers, and the fair value of the portion of Alcatel Lucent stock options and performance shares attributable to pre-combination services that will be settled with Nokia shares. The fair value of the purchase consideration is based on the closing price of Nokia share of EUR 6.58 on Nasdaq Helsinki on January 4, 2016, and the exchange offer ratio of 0.55 Nokia share for every Alcatel Lucent share.

Preliminary estimate of the fair value of the purchase consideration:

EURm

Alcatel Lucent shares or ADSs

10 046

OCEANE convertible bonds

1 570

Consideration attributable to the vested portion of replacement share-based payment awards

6

Preliminary purchase consideration

11 622

Purchase accountingDeepfield Networks Inc.

FollowingOn January 31, 2017 the public announcement of the results of the initial exchange offer on January 4, 2016Group acquired 100% ownership interest in Deepfield Networks Inc., a United States-based leader in real-time analytics for IP network performance management and the mandatory reopened exchange offer on February 10, 2016, purchase accounting of the Alcatel Lucentsecurity. The acquisition was started, including the preparation ofdoes not have a purchase price allocation. As of the date of authorization for issuance of these financial statements, given the size and complexity of the acquired business and the concurrent preparation of the required 2015 annual filings for Alcatel Lucent, the provisional purchase price allocation is incomplete. Accordingly, the amounts which will be recognized for each major class of assets acquired and liabilities assumed, and the resulting non-controlling interest and goodwillmaterial impact to be recognized, have not yet been estimated on a preliminary basis and are not presented.

Acquisition-related costs of EUR 32 million that were not directly attributable to the issue of shares are included in other expenses in the consolidated income statement and in operating cash flows in the consolidated statement of financial position, comprehensive income or cash flows for the year ended December 31, 2015.flows.

Nokia Growth Partners raises USD 350 million investment fund for investments in Internet of ThingsOffer to acquire Comptel Corporation

On February 21, 2016, Nokia Growth Partners8, 2017 the Group and Comptel Corporation entered into a Transaction Agreement whereby the Group undertakes to make a voluntary public cash tender offer to purchase all of the issued and outstanding shares and option rights in Comptel Corporation that are not owned by Comptel Corporation, or any of its subsidiaries. The price offered for each share validly tendered in the Tender Offer will be EUR 3.04 in cash. The Tender Offer values Comptel at approximately EUR 347 million, on a fully diluted basis.

Offer to purchase outstanding notes

On February 22, 2017 the Group announced that it commenced an offer to purchase the closing of a new USD 350outstanding EUR 500 million fund for investments in Internet of Things (loT) companies. The fund is sponsored6.75% notes due February 4, 2019 (the “2019 Euro Notes”) issued by Nokia Corporation; and will serve to identify new opportunities to grow the ecosystem in loT solutions. The fund IV commitment brings NGP’s total assets under management to overoutstanding USD 300 million 6.50% notes due January 15, 2028 (the “2028 Dollar Notes”) and USD 1 billion, including360 million 6.45% notes due March 15, 2029 (the “2029 Dollar Notes”), issued by Lucent Technologies Inc. (the predecessor to Alcatel-Lucent Inc., the Group’s wholly-owned subsidiary), up to a maximum cash consideration of USD 1 000 million (the “Tender Offer”). The purpose of the Tender Offer is to manage the overall indebtedness of the Group. Following the settlement of the Tender Offer, the Group expects to cancel any euro-denominated notes purchased pursuant to the Tender Offer and to hold any US dollar-denominated notes purchased pursuant to the Tender Offer.

On March 21, 2017, the Tender Offer expired. The Group received tenders for 53.76% (EUR 268.8 million) of the 2019 Euro Notes, 28.66% (USD 86.0 million) of the 2028 Dollar Notes and 29.48% (USD 400.9 million) of the 2029 Dollar Notes. The Group expects to settle the Tender Offer on March 23, 2017.

New euro-denominated notes

On March 15, 2017, the Group issued EUR 500 million available1.00% Senior Notes due 2021 and EUR 750 million 2.00% Senior Notes due 2024 under our 5 000 000 000 Euro Medium-Term Note Programme. The proceeds of the new notes are intended to fund the Tender Offer and for new investments.general corporate purposes.

Income taxes

In January 2017, as part of continuing changes to its operating model, the Group transferred certain intellectual property between its operations in Finland and the United States, which is expected to result in approximately EUR 250 million negative non-recurring impact on tax expenses in the first quarter of 2017 but no material cash tax outflow.

Changes in organizational structure

On March 17, 2017, the Group announced changes in the organizational structure, effective from April 1, 2017. The organizational changes include the separation of the current Mobile Networks business group into two distinct, but closely linked, organizations: (1) Mobile Networks, focused on products and solutions and (2) Global Services, focused on services. The Group will continue to report financial information for Ultra Broadband Networks, IP Networks and Applications and Nokia Technologies. Ultra Broadband Networks will be composed of the Mobile Networks, Global Services and Fixed Networks business groups. IP Networks and Applications is composed of the IP/Optical Networks and Applications & Analytics business groups.

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 205213

    

Report of Independent Registered Public Accounting Firmindependent registered

public accounting firm

    

    

 

To the Board of Directors and Shareholdersshareholders of Nokia Corporation

In our opinion, the accompanying consolidated statementsstatement of financial position and the related consolidated income statements,statement, consolidated statementsstatement of comprehensive income, consolidated statementsstatement of changes in shareholders’ equity and consolidated statementsstatement of cash flows present fairly, in all material respects, the financial position of Nokia Corporation and its subsidiaries at December 31, 20152016 and 2014,2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20152016 in conformity 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. Also in our opinion, the Companycompany maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015,2016, based on criteria established in InternalInternal Control—Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’scompany’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Annual Reportannual report on Internal Control Over Financial Reporting”internal control over financial reporting” appearing under Section “Controls and procedures.” Our responsibility is to express opinions on these financial statements and on the Company’scompany’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in “Management’s Annual Report on Internal Control Over Financial Reporting” appearing under Section “Controls and procedures,” management has excluded Alcatel Lucent SA and its subsidiaries from its assessment of internal control over financial reporting as of December 31, 2016 because it was acquired by the company in a purchase business combination during 2016. We have also excluded Alcatel Lucent SA and its subsidiaries from our audit of internal control over financial reporting. Alcatel Lucent SA is a wholly owned subsidiary whose total consolidated assets and net sales represent 42% and 51%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2016.

/s/ PricewaterhouseCoopers Oy

Helsinki, Finland

April 1, 2016March 23, 2017

 

 

206214 NOKIA ANNUAL REPORT ON FORM 20-F 20152016

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Other information

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Other information
Contents    

Contents

Exhibits

   208216 

Glossary of terms

   209217 

Investor information

   212220 

Contact information

   213221 

Signatures

   214222 

    

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 207215

Exhibits

    

    

    

 

 

1  Articles of Association of Nokia Corporation.
4.14(1)Share Purchase Agreement by and among Siemens AG, Siemens International Holding B.V., Nokia Finance International B.V. and Nokia Corporation dated July 1, 2013.
4.2(1)Stock and Asset Purchase Agreement by and between Nokia Corporation and Microsoft International Holdings B.V. dated September 2, 2013.
4.3(2)  Memorandum of Understanding by and between Nokia Corporation and Alcatel Lucent dated as of April 15, 2015.
6  Refer to Note 15,13, Earnings per share, of our consolidated financial statements included in this annual report on Form 20-F, for information on how earnings per share information was calculated.
8  Refer to Note 33,32, Principal Group companies, of our consolidated financial statements included in this annual report on Form 20-F, for more information on our significant subsidiaries.
12.1  Certification of Rajeev Suri, President and Chief Executive Officer of Nokia Corporation, pursuantPursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2  Certification of Timo Ihamuotila,Kristian Pullola, Group Chief Financial Officer of Nokia Corporation, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13  Certification, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
15(a)  Consent of Independent Registered Public Accounting Firm.

 

(1)Incorporated by reference to our annual report on Form 20-F for the fiscal year ended December 31, 2013.
(2)Incorporated by reference to Annex A of our registration statement filed on Form F-4 with the Securities and Exchange Commission on August 14, 2015.

 

208216 NOKIA ANNUAL REPORT ON FORM 20-F 20152016

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Glossary of terms

    

 

    

    

 

3G (Third Generation Mobile Communications):The third generation of mobile communications standards designed for carrying both voice and data generally using WCDMA or close variants.

4G (Fourth Generation Mobile Communications):The fourth generation of mobile communications standards based on LTE, offering IP data connections only and providing true broadband internet access for mobile devices. Refer also to LTE.

4.5G Pro: Our next step in a technology path that will optimize the journey to 5G. Powered by the 5G-ready AirScale, 4.5G Pro delivers ten times the speeds of initial 4G networks, enabling operators to offer gigabit peak data rates to meet growing demands from the programmable world. Using extended carrier aggregation techniques across up to five frequency bands, operators will be able to leverage their diverse paired (FDD) and unpaired (TDD) licensed spectrum as well as unlicensed spectrum.

4.9G: Our evolutionary step to enable future service continuity with 5G network fabric. Expected by the end of 2017, 4.9G will provide significant increases in capacity and several gigabits of speed-per-second on the path to 5G. This will include allowing additional numbers of carriers to be aggregated, opening the door to additional licensed and unlicensed spectrum, and advancing the radio systems to allow highly directional antennas to be used and to allow signals sent via multiple transmit/receive paths to be added together.

5G (Fifth Generation Mobile Communications):The next major phase of mobile telecommunications standards. 5G will be the set of technical components and systems needed to handle new requirements and overcome the limits of current systems.

Access network:A telecommunications network between a local exchange and the subscriber station.

ADSL (Asymmetric Digital Subscriber Line):A data communications technology that enables faster data transmission over copper telephone lines rather than a conventional modem can provide; the technology that introduced broadband to the masses.

Airframe: Our 5G-ready, end-to-end data center solution that combines the benefits of Cloud computing technologies with the requirements of the core and radio telecommunications world. It is available in Rackmount and Open Compute Project (OCP) form factors. This enables the solution to be very scalable: from small distributed latency-optimized data centers, all the way to massive centralized hyper scale data center deployment.

AirScale Radio Access: A 5G-ready complete radio access generation that helps operators address the increasing demands of today and tomorrow. The solution comprises: Nokia AirScale Base Station with multiband RF elements and system modules; Nokia AirScale Active Antennas; Cloud RAN with Nokia AirScale Cloud Base Station Server and the Cloud-based AirScale RNC for 3G; Nokia AirScale Wi-Fi; common software; and services which use intelligent analytics and extreme automation to maximize the performance of hybrid networks.

Alcatel Lucent SA:Alcatel Lucent, a subsidiary of Nokia Corporation.

API (Application Programming Interface):A set of routines, protocols, and tools for building software applications, specifying how software components should interact.

Applications & Analytics:Nokia’s Our business group offering carrier-grade software applications and platforms to provide operations and business support systems, build, deliver, and optimize services, enable their monetization, and to improve customer experience.

Bandwidth:The width of a communication channel, which affects transmission speeds over that channel.

Base station:A network element in a mobile network responsible for radio transmission and reception to or from the mobile station.

Bell Labs:Nokia’s research arm discovering and developing the technological shifts needed for the next phase of human existence as well as exploring and solving complex problems to radically redefine networks.

Broadband:The delivery of higher bandwidth by using transmission channels capable of supporting data rates greater than the primary rate of 9.6 Kbps.

CDMA (Code Division Multiple Access):A technique in which radio transmissions using the same frequency band are coded in a way that a signal from a certain transmitter can be received only by certain receivers.

Churn:Churn rate is a measure of the number of customers or subscribers who leave their service provider, e.g. a mobile operator, during a given time period.

Cloud:Cloud computing is a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications and services) that can be rapidly provisioned and released with minimal management effort.

CloudBand:Nokia’s Our Cloud management and orchestration solutions enabling a unified Cloud engine and platform for NFV.

Cloud Native Core:Optimizes Cloud core applications and architecture to support massive IoT, mobile broadband and the 5G programmable world.

Continuing operations:Refers to the Continuing operations following the Acquisition of Alcatel Lucent, the Sale of the HERE Business in 2015 and the Sale of the D&S Business in 2014. Nokia’sOur Continuing operations in 20152016 included two businesses: Nokiaour Networks business and Nokia Technologies.

Converged Core: A business unit of our Mobile Networks business group providing solutions for the core network of the future.

Convergence:The coming together of two or more disparate disciplines or technologies. Convergence types are, for example, IP convergence, fixed-mobile convergence and device convergence.

Converged Core:A business line of Nokia’s Mobile Networks business group providing solutions for the core network of the future.

Core network:A combination of exchanges and the basic transmission equipment that together form the basis for network services.

CSPs: Communication service providers.

Customer Experience Management:Software suite used to manage and improve the customer experience, based on customer, device and network insights.

Devices & Services:Nokia’sOur former mobile device business, substantially all of which was sold to Microsoft.

Digital:A signaling technique in which a signal is encoded into digits for transmission.

Discontinued operations:Mainly refers to the divestment of our HERE business to an automotive consortium.consortium and the sale of substantially all of our Devices & Services business to Microsoft.

Ecosystem:An industry term to describe the increasingly large communities of mutually beneficial partnerships that participants such as hardware manufacturers, software providers, developers, publishers, entertainment providers, advertisers and ecommerce specialists form in order to bring their offerings to market. At the heart of the major ecosystems in the mobile devices and related services industry is the operating system and the development platform upon which services are built.

Engine:Hardware and software that perform essential core functions for telecommunication or application taskstasks.

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ETSI (European Telecommunications Standards Institute):

Standards produced by the ETSI contain technical specifications laying down the characteristics required for a telecommunications product.

FD-LTE (Frequency Division Long-Term Evolution) also known as FDD (Frequency Division Duplex):A standard for LTE mobile broadband networks. Frequency Division means that separate, parallel connections are used to carry data from the base station to the mobile device (‘downlink’(“downlink”) and from the mobile device to the base station (‘uplink’(“uplink”).

Fixed Networks:Nokia’sOur Fixed Networks business group provides copper and fiber access products, solutions, and services.

Global Delivery Center:Future X:A remote service delivery center with network architecture—a pool of services experts, automated toolsmassively distributed, cognitive, continuously adaptive, learning and standardized processes to ensure that services across the entireoptimizing network life cycle are delivered to operators globally.connecting humans, senses, things, systems, infrastructure, processes.

G.fast:A fixed broadband technology able to deliver up to 1Gbps over very short distances (for example, for in-building use, also called “Fiber-to-the-Building”). Launched in 2014, G.fast uses more frequencies and G.fast Vectoring techniques to achieve higher speeds.

Global Delivery Center:A remote service delivery center with a pool of services experts, automated tools and standardized processes to ensure that services across the entire network life cycle are delivered to operators globally.

Global Services:A segmentbusiness unit within Nokiathe Networks in 2015.business, Global Services providedprovides mobile operators with a broad range of services, including professional services, network implementation and customer care services.

GPON (Gigabit Passive Optical Networking):A fiber access technology that delivers 2.5Gbps over a single optical fiber to multiple end points including residential and enterprise sites.

GSM (Global System for Mobile Communications):A digital system for mobile communications that is based on a widely-accepted standard and typically operates in the 900 MHz, 1800 MHz and 1900 MHz frequency bands.

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HERE:A former Nokia company focused on mapping and location intelligence services, which was divested to an automotive consortium in 2015.

IFRS (International Financial Reporting Standards): International Financial Reporting Standards as issued by the International Accounting Standards Board and in conformity with IFRS as adopted by the European Union.

Implementation patents:Implementation patents include technologies used to implement functionalities in products or services which are not covered by commitments to standards-setting organizations, so they typically offer product differentiation by giving competitive advantage, such as increased performance, smaller size or improved battery life, and the patent owner has no obligation to license them to others.

Internet of Things (IoT):All things such as cars, the clothes we wear, household appliances and machines in factories connected to the Internet and able to automatically learn and organize themselves.

ICT:Information and communications technology.

Implementation patents:Implementation patents include technologies used to implement functionalities in products or services which are not covered by commitments to standards setting organizations, so they typically offer product differentiation by giving competitive advantage, such as increased performance, smaller size or improved battery life and the patent owner has no obligation to license them to others.

Industrial design:Design process applied for products that will be manufactured at mass scale.

Internet Protocol:A network layer protocol that offers a connectionless internet work service and forms part of the TCP/IP protocol.

IP (Intellectual Property):Intellectual property results from original creative thought, covering items such as patents, copyright material and trademarks, as well as business models and plans.

IP Multimedia Subsystem (IMS):Architectural framework designed to deliver IP-based multimedia services on telcotelecommunications networks; standardized by 3GPP.

IPR (Intellectual Property Right):Legal right protecting the economic exploitation of intellectual property, a generic term used to describe products of human intellect, for example patents, that have an economic value.

IPR licensing:Generally refers to an agreement or an arrangement where a company allows another company to use its intellectual property (such as patents, trademarks or copyrights) under certain terms.

IPTV (Internet Protocol Television):Television services delivered over Internet protocol infrastructure through a telephone or cable network using a broadband access line.

IP/Optical Networks:Nokia’sOur IP/Optical Networks business group provides the key IP routing and optical transport systems, software and services to build high capacity network infrastructure for the internet and global connectivity.

Labs:The R&D unit of Nokia Technologies, primarily supporting Nokia Technologies’ longer-term Digital Media and Digital Health offering along with advanced concepts, and driving the renewal of our intellectual property portfolio.

LTE (Long-Term Evolution):3GPP radio technology evolution architecture and a standard for wireless communication of high-speed data. Also referred to as 4G, refer to 4G above.

LTE-M:An IoT radio technology addressing demanding IoT applications needs with low to mid-volume data use of up to about 1Mbps. The technology also simplifies modems by about 80%.

Mobile broadband:Refers to high-speed wireless internet connections and services designed to be used from arbitrary locations.

Mobile Broadband:A segment within Nokia Networks in 2015. Mobile Broadband provided mobile operators with radio and core network software together with the hardware needed to deliver mobile voice and data services.

Mobile Networks:Nokia’s Our Mobile Networks business group offers an industry-leading portfolio of end-to-end mobile networking solutions comprising hardware, software, and services for telecommunications operators, enterprises, and related markets/verticals such as public safety and IoT.

Networks business:ComprisesComprised the Mobile Networks, Fixed Networks, Applications & Analytics, and IP/Optical Networks business groups for financial reporting purposes.

Nokia Airframe:Nokia’s 5G-ready data center product that combines the benefits of Cloud computing technologies with the requirements of the core and radio telecommunications world.in 2016.

NFC (Near Field Communication):A short-range wireless technology that enables people to connect one NFC-enabled device with another, or to read an NFC tag. By bringing one NFC-enabled mobile device close to another NFC device, or to an NFC tag, people can easily share content, access information and services, or pay for goods.

NFV (Network Functions Virtualization):Principle of separating network functions from the hardware they run on by using virtual hardware abstraction.

NGOA (Next Generation Optical Access):Nokia Bell Labs:Future telecommunications system based on fiber optic cables capable Our research arm discovering and developing the technological shifts needed for the next phase of achieving bandwidth data rates greater than 100 Mbps.human existence as well as exploring and solving complex problems to radically redefine networks.

Nokia Networks:A NokiaOur former business in 2015 focused on mobile network infrastructure software, hardware and services. After the closing of the public exchange offer for all outstanding Alcatel Lucent securities, this business is conducted through Networks’ four business groups: Mobile Networks, Fixed Networks, Applications & Analytics, and IP/Optical Networks.

Nokia Technologies:A NokiaOur business focused on advanced technology development and licensing.

NSN:Short for NokiaNSN (Nokia Solutions and Networks, theNetworks):The former name of our Nokia Networks business. From 2007, NSN was known as Nokia Siemens Networks until Nokiawe acquired Siemens’ 50% stake in the joint venture in 2013.

Nuage Networks:A wholly owned subsidiary of Alcatel Lucent, delivers a SDN solution to eliminate key data center network constraints that hinder Cloud services adoption.

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Operating system (OS):Software that controls the basic operation of a computer or a mobile device, such as managing the processor and memory. The term is also often used to refer more generally to the software within a device, including, for instance, the user interface.

OZO:Nokia’s Our professional Virtual Reality camera, crafted by Nokia Technologies.

OZO Live:Software product, running on reference hardware, that enables real-time 3D 360 stitching for VR broadcasting at scale.

Packet:Part of a message transmitted over a packet switched network.

Picocell:A small cellular base station typically covering a small area typically up to 200 meters wide. Typically used to extend coverage to indoor areas or to add network capacity in areas with very dense phone usage, such as train stations.

Platform:Software platform is a term used to refer to an operating system or programming environment, or a combination of the two.

PON (Passive Optical Networking):A fiber access architecture in which unpowered Fiber Optic Splitters are used to enable a single optical fiber to serve multiple end-points without having to provide individual fibers between the hub and customer.

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Programmable World:A world where connectivity will expand massively, linking people as well as billions of physical objects—from cars, home appliances and smartphones, to wearables, industrial equipment and health monitors. What distinguishes the Programmable World from the Internet of Things is the intelligence that is added to data to allow people to interpret and use it, rather than just capture it.

RAN (Radio Access Network):A mobile telecommunications system consisting of radio base stations and transmission equipment.

SDN (Software Defined Networking):An approach to computer networking that decouples the network control and forwarding functions enabling the network control to become programmable and the underlying hardware to be abstracted.

SEPs (Standard-Essential Patents):Generally, patents needed to produce products which work on a standard, which companies declare as essential and agree to license on fair, reasonable and non-discriminatory (FRAND) terms.

Service Delivery Hub:Smaller service delivery centers, typically focused on specific technology or language.

Shared Data Layer (SDL):A highly reliable, scalable and readily-available data store in the Cloud. Moving subscribers and session data to SDL and using this shared data in an open ecosystem enable rapid innovations of services and faster revenue growth due to better insight into subscriber behavior.

Single RAN:Single RAN allows different radio technologies to be provided at the same time from a single base station, using a multi-purpose platform.

Small cells:Low-powered radio access nodes (micro cells or picocells) that are a vital element toin handling very dense data traffic demands. 3G and LTE small cells use spectrum licensed by the operator; WiFi uses unlicensed spectrum which is therefore not under the operator’s exclusive control.

SON (Self-Organizing Network):An automation technology designed to make the planning, configuration, management, optimization and healing of mobile radio access networks simpler and faster.

TD-LTE (Time Division Long TermLong-Term Evolution, also known as TDD (Time(Time Division Duplex)):An alternative standard for LTE mobile broadband networks. Time Division means that a single connection

is used alternately to carry data from the base station to the mobile device (‘downlink’(“downlink”) and then from the mobile device to the base station (‘uplink’(“uplink”).

TD-SCDMA (Time Division Synchronous Code Division Multiple Access):An alternative 3G standard.

Technology licensing:Generally refers to an agreement or arrangement where under certain terms a company provides another company with its technology and possibly know-how, whether protected by intellectual property or not, for use in products or services offered by the other company.

Telco Cloud:Applying Cloud computing, SDN and NFV principles in telecommunications environment, e.g. separating application software from underlying hardware with automated, programmable interfaces while still retaining telecommunications requirements such as high availability and low latency.

Transmission:The action of conveying signals from one point to one or more other points.

TWDM-PON (Time Wavelength Division Multiplexing Passive OpticalNetwork):The latest generation fiber access technology, which uses multiple wavelengths to deliver up to 40Gbps total capacity to homes, businesses, and base stations. Also known as NG-PON2.

TXLEs (Technical extra-large enterprises):Technically sophisticated companies, such as banks, that invest heavily in their own network infrastructures to gain a key competitive advantage.

VDSL2 (Very High Bit Rate Digital Subscriber Line 2):A fixed broadband technology, the successor of ADSL. Launched in 2007, it typically delivers a 30Mbps broadband service from a street cabinet (also called a “Fiber-to-the-Node” deployment) over existing telephone lines.

VDSL2 Vectoring:A fixed broadband technology launched in 2011, able to deliver up to 100Mbps over a VDSL2 line by applying noise cancellation techniques to remove cross-talk between neighboring VDSL2 lines.

Virtual Reality (VR):The simulation of a three-dimensional image or environment that can be interacted with in a seemingly real or physical way by a person using special electronic equipment, such as a helmet with a screen inside or gloves fitted with sensors.

VoLTE (Voice over LTE):Required to offer voice services on an all-IP LTE network and generally provided using IP Multimedia Subsystem.

Vplus:A fixed broadband technology, between VDSL2 Vectoring and G.fast in terms of bandwidth and distances, typically used in FTTN (ode) deployments. Launched in 2015, it delivers up to 300Mbps and has been standardized as VDSL2 35b.

WAN (Wide Area Networking): A geographically distributed private telecommunications network that interconnects multiple local area networks.

WCDMA (Wideband Code Division Multiple Access):A third-generation mobile wireless technology that offers high data speeds to mobile and portable wireless devices.

Webscales:Companies—such as Google, Microsoft, and Alibaba—which are investing in Cloud technology and network infrastructure on an increasing scale to fulfill their needs for massive, mission-critical networks.

WLAN (Wireless Local Area Network):A local area network using wireless connections, such as radio, microwave or infrared links, in place of physical cables.

XG-FAST:A Nokia Bell Labs extension of G.fast technology, using even higher frequencies. Capable of delivering over 10Gbps, over 2 bonded telephone lines, over very short distances.

 

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 211219

    

Investor information

    

    

 

Information on the Internetinternet

www.nokia.com

Available on the internet: financial reports, members of the Group Leadership Team, other investor-related materials and events, press releases as well as environmental and social information, including our Sustainability Report, Code of Conduct, Corporate Governance Statement and Remuneration Statement.

Investor Relations contacts

investor.relations@nokia.com

Annual General Meeting

 

Date:Thursday, June 16, 2016May 23, 2017

Place:Helsinki, Finland

Dividend

The Board proposes to the Annual General Meeting an ordinarya dividend of EUR 0.160.17 per share for the year 2015 and a planned special dividend of EUR 0.10 per share.2016.

Financial reporting

Nokia’sOur interim reports in 20162017 are planned for May 10, August 4,to be published on April 27, 2017, July 27, 2017 and October 27.26, 2017. The full-year 20162017 results are planned to be published in January 2017.February 2018.

Information published in 20152016

All Nokia’sour global press releases and statements published in 20152016 are available on the internet at company.nokia.com/en/www.nokia.com/en_int/news/press-releases.releases.

Stock exchanges

The Nokia Corporation share is quoted on the following stock exchanges:

 

    Symbol    Trading currency

Nasdaq Helsinki (since 1915)

  NOKIA    EUR

New York Stock Exchange (since 1994)

  NOK    USD

Euronext Paris (since 2015)

  NOKIA    EUR

Documents on display

The documents referred to in this annual report on Form 20-F can be read at the Securities and Exchange Commission’s public reference facilities at 100 F Street, N.E., Room 1580, Washington, D.C. 20549.

 

 

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Contact information

Nokia Head Office

Karaportti 3

FI-02610 Espoo, Finland

FINLAND

Tel. +358 (0) 10 44 88 000

Fax +358 (0) 10 44 81 002

 

 

NOKIA ANNUAL REPORT ON FORM 20-F 20152016 213221

Signatures

 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on Form 20-F on its behalf.

Nokia Corporation

 

By:  /S/    KRISTIAN PULLOLATARJA SIPILÄ
Name:          Kristian PullolaTarja Sipilä
Title:  Senior Vice President, Corporate Controller
      
      
By:  /S/    RIIKKA TIEAHO
Name:  Riikka Tieaho
Title:  Vice President, Corporate Legal

April 1, 2016March 23, 2017

 

 

214222 NOKIA ANNUAL REPORT ON FORM 20-F 20152016

 

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