Nokia's long-term corporate credit rating affirmed at 'BB+'

Nokia's long-term corporate credit rating has been affirmed at 'BB+' by S&P Global Ratings, which said the company was on track to meet cost-cutting and transformation targets but cautioned on revenue, margin and free-operating cash flow expectations for 2016.

It also affirmed the 'BB+' issue rating on Nokia's senior-unsecured debt, affirmed its issue ratings on the debt issued by Alcatel-Lucent SA and Alcatel-Lucent USA at 'BB+', and raised the short-term rating on Nokia and Alcatel-Lucent SA to 'A-3' from 'B'.

"The rating affirmation primarily reflects our view that Nokia is successfully integrating (acquired-in-January) Alcatel-Lucent and is on track to achieve an adjusted EBITDA margin of 10% or more on a sustainable basis after the 2016 transition year," said S&P Global.

The ratings company's assumptions were based on Nokia's total revenues declining 5%-7% in 2016, compared with proforma revenues in 2015, primarily reflecting its expectation of a mid-single-digit decline in the wireless infrastructure market in 2016.

"In addition, we assume a significant revenue decline in the Nokia Technologies segment, which previously benefited from non-recurring items in 2015, primarily due to the arbitration award related to the licensing agreement with Samsung. Nokia's revenues could also suffer from the integration and harmonisation of product portfolios."

S&P Global Rating anticipated the Finland-based technology company would enjoy relatively stable revenues in 2017, primarily supported by improving demand trends for its Ultra Broadband segment and modestly growing revenues at the IP Networks and Applications segment, which accounted for 25% of the combined revenues in 2015.

"In addition, we expect higher revenues at Nokia Technologies, supported by increased R&D capabilities and investments in some growth businesses."

Its assumption was for restructuring costs of €0.7-€1.0bn in 2016 and less than €0.5 billion in 2017. Annual capital expenditure was calculated at €600-€800m. It also foresaw modest acquisitions, but no material divestments.

S&P Global Ratings expected an ordinary dividend payment of €960m in 2016, modestly increasing thereafter. It further looked for a special dividend of €600m in 2016 and the purchase of shares of about €1.5bn in 2016–2017.

Nokia, in the ratings company's view, was on track to meet its cost cutting and transformation targets.

"However, the group is currently facing tougher-than-expected industry conditions. As a result, we have lowered our revenue, margin, and free operating cash flow expectations in 2016, but kept our assumption of a meaningful margin improvement in 2017 and 2018 thanks to the expected cost synergies."