Nokia Brand Valuation

Praxis Business School

Assignment on

Brand Tracker for Nokia: Stage 3

A report

Submitted to

Prof. Srinivas Govindrajan

In partial fulfillment of the requirements of the course

Product and Brand Management

On September 19, 2008

By

Arihant Singhi B07009

Richika Sureka B07032

Rohit Bhardwaj B07034

Varun Mittal B07046

Brand Tracker: Stage 3 Product and Brand Management

2 Executive Summary

Executive Summary

“Nokia: Expressive, Human, Storied, Emotional, Consistent”

Long-term solid growth and dominance are determined by myriad factors of markets, marketing,

product development, partnerships and alliances and, not-least-of-all, vision. In sectors that are driven

largely by technology and research, brands play a vital role in translating a company’s technical

competencies into market success. Effective management of brands is therefore an increasingly

important element of business strategy and determinant of the valuation accorded to a business by

investors.

Nokia has been steadily working on its corporate brand name and the management of consumer

perceptions over the last few years. Its efforts have paid off. Nokia has succeeded in lending personality

to its products, without even giving those names. It has not created any sub-brands but has

concentrated on the corporate brand. Only numeric descriptors are used for the products, which do not

even appear on the products. Such is the strength of the corporate brand.

“Valuation is neither the science that some of its proponents do not make it out to be nor the objective

search for true value that idealists would like it to become. The models that we use in valuation may be

quantitative, but there is a great reliance on subjective inputs and judgments. “Thus the final value that

is obtained from these models is colored by the bias that we bring into the process.”

Nokia brand value has always been in the World Top10 position since early 2000’s, which is vouched by

the valuation results by Brandz and Interbrand. The Book to Market Model gives a valuation of Nokia

which at 65274 million Euros. The model helps us to understand the strength of the company’s brand.

The Price Premia Model shows brand premium of Nokia which is 45.32%. Thus, Nokia has the ability to

charge a premium of about 45% for the same product vis-à-vis unbranded or equivalents which shows

that its marketing and branding strategy has reaped its fruits.

The Brand Value Added Model gives a valuation of Brand Nokia which is 27112 million Euros. The

model provides an accurate assessment of the value of the brand in use. This information is useful for

making investment decisions related to brand renewal and positioning. A strong correlation exists

between the brand value and the innovation factor, i.e. their innovative efforts were correctly

communicated and have led to successful creation of Brand.

What makes the difference between the most successful and less successful brands? It certainly is not

what product features are offered. How, then, do consumers choose? The answer seems to be what the

brand names mean to them.

“Brand value is very much like an onion. It has layers and a core.

The core is the user who will stick with you until the very end.”


3 Contents

Contents

Stage 3 – Brand Valuation ............................................................................................................... 4

Introduction .................................................................................................................................... 5

Book to Market Model .................................................................................................................... 7

Price Premia Model ....................................................................................................................... 12

Discounted Cash Flow Model ....................................................................................................... 16

Net Take Away .............................................................................................................................. 23

References .................................................................................................................................... 25

Bibliography .................................................................................................................................. 26

Annexure ....................................................................................................................................... 27


4 Brand Valuation

Brand Valuation

STAGE 3 – BRAND VALUATION


5 Introduction

Introduction

Mobile Market

It took the fixed telecommunications network 125 years to reach 1 billion subscribers, but it only took

around 20 years for the cellular mobile industry to reach the same number of subscriptions and

overtake the number of fixed phones in 2002. Even more remarkably the global mobile total had

reached 2 billion in late 2005, and 3 billion at late 2007.

Mobile subscriptions now equate to half the world’s population and there is every indication that the 4

billion mark will be reached by the end of 2009!

While mobile statistics are complicated by the use of “connections” and “subscriptions” rather than

actual “users” or “subscribers”, which can lead to numbers 10-20% greater due to users having multiple

subscriptions and the inclusion of inactive pre-paid users, there can be little doubt that wireless access is

taking over the Telecom World.

Mobile phones have been particularly effective in improving telecommunications in developing

countries, which previously had limited reliable means to communicate, and most developed markets

are nearing saturation with some reaching more than 100% penetration based on “connections/

subscriptions”.

Source: Informa Telecoms and Media Global Mobile Subscriptions-November 2007

With over 6 billion potential users (90% of the world’s population) within the coverage areas of existing

terrestrial cellular networks, the global penetration of reachable users is currently only around 55% so

there is plenty of growth potential in the developing world, if appropriate cost structures can be

achieved. Wireless access clearly offers a very promising technology to address the Digital Divide.


6 Introduction

Valuation

Brand value is defined as the net present value of future earnings generated by the brand alone. Brands

influence customer choice, but the influence varies depending on the market in which the brand

operates

Intangible assets are crucial to business value and growth and it is important that they are identified

alongside the tangible assets and valued as individual components. From a shareholder’s perspective,

the value of a brand is equal to the financial returns that the brand will generate over its useful life. Any

financial returns attributed to a brand must be discounted to account for market uncertainty and asset-

specific risks. These two principles apply to the valuation of all assets, not just brands.

Brand valuation is a powerful process that captures the present and future value of a brand. Brand

valuation determines how the brand creates value and aligns with customer’s drive for purchases. Brand

valuation becomes a means of communicating about brand and marketing strategy in shareholder value

terms, both internally and externally.

Uses of Brand Valuation

Mergers and Acquisitions Rarely will a corporation pay book value to acquire another business

entity. The difference between book value and the acquisition price

paid is called goodwill. Goodwill is often defined as the value of a

business entity not directly attributable to its tangible assets and/or

liabilities. Estimating the financial value of a brand helps determine the

premium over book value that a buyer should pay.

Licensing One of the ways to cash in on the equity of a strong brand is by

extending or licensing the brand. It is possible for both the licensor and

the licensee to benefit economically from a licensing arrangement. The

licensor benefits from a new source of revenue that requires little

capital investment. The licensee benefits by having lower channel,

advertising and customer acquisition costs.

Financing While corporations do not carry brands on their balance sheets as long-

term assets, financial markets recognize the contribution brands have

on shareholder value. Companies with strong brands regularly obtain

better financial terms than companies with poor brands. The higher the

value of the brand, better the terms.


7 Book to Market Model

Book to Market Model

BOOK TO MARKET MODEL


8 Book to Market Model

Book to Market Model

Introduction

Book to market model embraces the intangible asset that the company possesses as Brand Value, is

calculated by deducting Market Value of company with the Book Value. Nokia Brand valuation includes

the contribution of its brand-intangible asset. It embellishes in their financial statements and by Book to

value method we can measure the performance and management of brands over last five years.

Rationale for choosing Book to Market Model

For most of the century, tangible assets were regarded as the main source of business value. These

included manufacturing assets, land and buildings or financial assets such as receivables and

investments. They would be valued at cost or outstanding value as shown in the balance sheet.

Categories of Intangible asset that support the superior market performance of business are:

Knowledge Intangibles: for example patents, software, recipes, specific knowhow, including

manufacturing and operating guides and manuals, product research etc.

Business Process Intangibles: These include unique ways of organizing the business including

innovative business models, technology, R&D, patents, flexible manufacturing techniques etc.

Brand and Relationship Intangibles: These includes trade names, trademarks and trade

symbols, domain name, design rights, logotypes, associated Goodwill general predisposition of

individuals to do business with brand are included.

Market position intangibles: for example, retail listings and contracts, distribution rights, licenses such as landing slots, production or import quotas, third generation telecom licenses, government permits and authorizations and raw materials sourcing contracts.

Nokia possesses Next Gen. mobile phone technology, Fashionable designs handsets and low-cost

models for the developing world; to calculate value of its intangible asset the Brand value we used Book

to Market value model. Nokia, a single brand company has shown tremendous brand strength and

people regard the brand. Since the brand is so famous we wanted to check out the book value and

difference between its Book value vis-à-vis Market value.


9 Book to Market: Valuation

Book to Market: Valuation

Objective

To measure the brand value of Nokia using Book to Market Model, estimating the total financial value of

the brand. The brand valuation is done on yearly basis.

Methodology

In Millions of Euro

2003 2004 2005 2006 2007

Total Number of Shares 4,761 4,593 4,366 4,063 3,885

Share Price, EUR (HSE) 14.12 12.84 13.20 15.97 20.82

Market Cap 67,227.01 58,976.69 57,625.26 64,883.40 80,894.24

Book Value (Equity + R&S) 18,420.00 12,387.00 12,761.00 14,674.00 15,620.00

Market Value 67,227.01 58,976.69 57,625.26 64,883.40 80,894.24

Value of Brand = MV – BV 48,807.01 46,589.69 44,864.26 50,209.40 65,274.24

Value according to Interbrand

26,285.71 20,034.17 21,861.16 23,539.84 24,595.62

Under this method we have tried to study strength of the company’s brand. Nokia is one of the top

recognized brands in the world, and it is the least expensive large capitalization technology stock, The

Company has a rock solid balance with $10 billion in cash. This lay foundation to large intangible assets

and being a standalone brand we thought of taking Book to Market Model.

Under this model we totaled the Equity part and added Reserves and Surplus then calculated the market

capitalization by multiplying average price during the year Listing HSE (Helsinki Stock Exchange) to

calculate market value and henceforth we subtracted market value with Book value, the figures given in

EURO Millions. The difference between the Market Value and Book Value gives us Value of Intangible

asset or Brand Value of Nokia. From research findings journals and reports, we got the Market

capitalization and compared that value with our method and the values were then converted according

to exchange rates of previous respective years.


10 Book to Market: Valuation

Limitations

In this approach we have derived earnings that arise from the brand. At the end of the forecast period,

if it has been determined that the brand’s useful life will exceed the period of the forecast, that is

perpetuity value. Also drawback of this method is trying to determine what part is attributable to brand

and not other intangible factors. It also fails to take any balance sheet implications into consideration

only the Equity and reserves are being source of Book Value.

If we compare our Brand value with Interbrand’s value we see a difference in both the values which can

be because Interbrand’s determines the earnings from the brand and capitalizes them after making

suitable adjustments whereas we have just taken book figures which were easy to conceptualize. The

brand is the most loved and admired brand in the world and is perceived differently in different nations.

Observations

Nokia being leader in design innovation and creativity has emerged as highly ranked brand across the

world. The Brand value has grown from year 2005 and has been increasing there after. The reasons for

this could be their belief in Innovation and to create a brand for every segment of society, be it common

man or a high income class corporate. The value proposition offered and right positioning has led to

creation of most loved and admired brand in the world- Brand Nokia.

Conclusion

Above-the-line advertising along with newer forms of brand communication has created the difference

in effectively positioning Nokia as a brand in minds of consumers. Relevance to customer base by the

spread of brand communication through mediums such as entertainment and increased product

placement helped the brand to associate with its customers. The non-brand market share is the factor

of company’s share of patents and research and development (R&D) share. The market share

attributable to the brand is a function of relative advertising share and perceived value derived out of

brand along with product offering.


11 Price Premia Model

Price Premia Model

PRICE PREMIA MODEL


12 Price Premia Model

Price Premia Model

Introduction

In the price premium method, the value of a brand to charge a premium over an unbranded or generic

equivalent can be tracked. The ultimate purpose of the brand is to secure future demand. The value

generation of these brands lies in securing future volumes rather than securing a premium price. The

major advantage of this approach is that it is transparent and easy to understand. It is possible to

determine the market share for a given product at a given price level. The relationship between brand

equity and price is easily explained. For a brand, the model gives the percentage of premium it can

charge its consumers over the generic substitutes. The brands can even compare their value of the

brand vis-à-vis competition.

Rationale for choosing Price Premia Model

The premise of the price premium approach is that a branded product should sell for a premium over a

generic product. The value of the brand is therefore the discounted future sales premium. The ability of

a brand which is an intangible asset is tested. By taking out the brand value, the managers can actually

track the performance over time and in case of insolvency, the brand could act as the most saleable

asset.

A strategic buyer is often willing to pay a premium above the market value. This may be a result of

synergies that they are able to develop which other buyers may not be able to achieve. When an asset

is valued, in the absence of a written offer from the strategic buyer, it cannot be assumed that a buyer

will appear and be prepared to pay a premium price. Each case has to be evaluated on individual merit,

based on how much value the strategic buyer can extract from the market as a result of this purchase,

and how much of this value the seller will be able to obtain from this strategic buyer.

The reason for testing this model is Nokia is serving in a category which is undifferentiated; the value of

a brand will actually signify Nokia’s presence in the category.

Limitations of Price Premia Model

The disadvantages are where a branded product does not command a price premium; the benefit arises

on the cost and market share dimensions. The model may bear little evidence to economic reality or

serve other useful purpose. This method is flawed because there are rarely generic equivalents to which

the premium price of a branded product can be compared. The price difference between a brand and

competing products can be an indicator of its strength, but it does not represent the only and most

important value contribution a brand makes to the underlying business.


13 Price Premia: Valuation

Price Premia: Valuation

Objective

To measure the brand value of Nokia using Price Premia Model

Methodology

A sample of 30 mobile users was taken for the purpose of evaluation. The respondents were asked to

state the price they would think to pay if a low- end; mid market and premium unbranded mobile is

launched. Then they are asked to quote a price for the same phones with brand names attached to it for

the entire three segments namely low end, mid market and premium mobiles.

Limitations

The survey was carried out among the students of Praxis Business School, Kolkata due to limited

resources.

Data Collection

Of the 30 respondents, 7 were girls and 23 were boys. The respondents were in the age group of 21-25

years and were the users of mobile handsets.

Findings

Low End Phone Unbranded Sony Ericsson Nokia Motorola Samsung

Avg. Price

1000.00 3836.67 4466.67 3350.00 3171.67

Price Premium

284% 347% 235% 217%

No. of Buyers

3 23 3 1

Male77%

Female23%

Gender21 years

13%

22 years27%

23 years33%

24 years20%

25 years7%

Age



Midmarket Phone Unbranded Sony Ericsson Nokia Motorola Samsung

Avg. Price

5000.00 6676.66 7236.67 6181.67 5955.00

Price Premium

34% 45% 24% 19%

No. of Buyers

6 22 1 1

High End Phone Unbranded Sony Ericsson Nokia Motorola Samsung

Avg. Price

10000.00 13833.33 14650.00 12850.00 12403.33

Price Premium

38% 47% 29% 24%

No. of Buyers

14 15 1 0

Data Analysis and Interpretation

Low End Phone:

The price of the unbranded new low end phone was kept at a constant of Rs 1000. The respondents said

that they were willing to pay a price of Rs 4466.67 to buy the same phone if Nokia had come up with the

new product. Nokia has targeted and serviced the low end segment because for a majority of people,

the mobile phone is just a utility. The percentage of premium Nokia can charge its customers is 347%.

The closest competition is Sony Ericsson which is gradually increasing its market share and with the

product attributes it is gaining confidence from customers and they are ready to pay a premium to

purchase a Sony Ericsson mobile phone. The percentage of premium customers are willing to pay is

284%.

Nokia is concentrating on very low ends of the market as growth slows in the saturated regions of the

world. The cheapest of the seven new phones from Nokia, is designed to support entrepreneurs in rural

areas primarily in developing markets who may want to run a business by sharing the phone with

neighbors. Low end phones will give a good margin as they are targeted to mature markets.

Midmarket Phone:

The price of the unbranded new midmarket phone was kept at a constant of Rs 4000. The respondents

said that they were willing to pay a price of Rs 7263.67 to buy the same phone if Nokia had come up

with the new product. This was followed by Sony Ericsson, Motorola, and Samsung. Nokia also had the

highest number of consumers. It also commands the highest premium in this category.

The percentage of premium which the customers are willing to pay for Nokia is 48%. The reason for

which Nokia enjoys such a share is because they try and provide the similar features in comparison with

competition but the customers still wants to pay a higher price because of “ Legacy” which is the trust it

has built in the minds of the customers for itself.

The world mobile market is witnessing a slowdown in demand for midmarket phones and will continue

to drop even more in the future as mobile companies are coming up with premium phones at the price

of midmarket phones to attract more consumers. Midmarket phones use closed operating systems, so



new software can’t be added to the devices.. As the market for such software has begun to grow,

there’s been a surge in new applications. Consumers today can use their phones to watch videos, catch

up on Major League Baseball scores, or blog from pretty much anywhere.

Premium Phone:

The price of the unbranded new midmarket phone was kept at a constant of Rs 10000. The respondents

said that they were willing to pay a price of Rs 14650 to buy the same phone if Nokia had come up with

the new product. This was followed by Sony Ericsson, Motorola, and Samsung. Nokia also had the

highest number of consumers. Sony Ericsson has catered to the premium segment in a good fashion

with the introduction of music enabled phones, touch screen phones. Nokia is already gearing up. The

Finnish company, which is the largest maker of mobile phones in the world, is busily developing phones

to meet high-end demand. Its most advanced phones let people play music, take videos, manage their e-

mail, and navigate through foreign cities with street-by-street guides.

Calculation of Brand Value for Nokia

Weighted Avg. Price Weighted Avg. premium

Market Share

Commodity Nokia Premium Premium %age

Low 16% 160 715 555

Medium 74% 2960 5355 2395

High 10% 1000 1465 465

7534.8 3155 45.32%

Revenue 51058

Brand Value (Revenue * Premium %age) 23139.68

The market share is divided in three segments, low end mobile has a 16% share in the total world mobile

market, the midmarket has 74% and the premium segment has a 10% market share. The forecasted

demand from the industry is midmarket phones are expected to account for 23% of sales, while low-end

phones would be 46% and premium would be 31%.

The group calculated the weighted average price of the commodity and Nokia phones if they come up

with new phones as we had the percentage contribution of all the three segments to mobile market.

The weighted average price for Nokia is Rs 7534.8. The premium is the difference which the consumer is

ready to pay for Nokia and the unbranded commodity for all the three segments. The weighted average

premium is calculated by apportioning the premium for every segment with its market share. The

weighted average price premium is Rs 3155.

The brand value is weighted average premium by weighted average of Nokia. Therefore, the brand

value of Nokia is 45.32% which means that Nokia can charge a premium of about 45% for the same

product vis-à-vis competition. For Nokia, brand value becomes a means of communicating about brand

and marketing strategy in shareholder value terms, both internally and externally.


16 Brand Value Added Model

Brand Value Added Model

BRAND VALUE ADDED MODEL



Introduction

This approach measures the free cash flows and discounts these over an explicit forecast period and the

continuing value beyond this point. This method is particularly useful where the brand represents a

significant proportion of the assets of a business, as separation of economic benefits and cash flows is

made easier. The advantage of this method over the capitalization of profit differentials method is that

discount rates are applied to the cash flows generated in each year as opposed to capitalizing the

economic benefits measured in a single period and which are assumed to be maintainable in perpetuity.

The discount rate chosen would need to represent the risks associated with the brand. To the extent

that the brand constitutes a major proportion of the assets of a business, the discount rate should be

fairly similar to the weighted average cost of capital (WACC) determined for the business itself.

An advantage of this method is that it would provide an accurate assessment of the value of the brand

in use. This information is useful for making investment decisions related to brand renewal and

positioning.

The capitalization rate is usually selected on the basis of the rate of return that a prudent investor would

require, given the future growth prospects and risks associated with the business or brand being

invested in. The capitalization rate would be based on the Weighted Average Cost of Capital (WACC) and

anticipated nominal growth rate.

The WACC represents the average cost of equity and debt financing weighted by the respective

proportions of these sources of finance. The average costs would represent the opportunity costs

associated with these sources of finance and indicate the returns required by debt and equity providers

as compensation for providing these sources of finance to the business, in the specified proportions and

being exposed to associated business risks.

The focus is on the return earned as a result of owning the brand – the brand’s contribution to the

business, both now and in the future. This framework is based on a discounted cash flow (DCF) analysis

of forecast financial performance, segmented into relevant components of value.

The DCF approach is consistent with the approach to valuation used by financial analysts to value

equities and by accountants to test for impairment of fixed assets (both tangible and intangible) as

required by new international accounting standards.



Objective

To measure the brand value of Nokia using Discounted Cash Flow Model

Methodology

This method consists of four work streams:

Financial forecasts

Risk factor i.e. WACC calculation

Brand Value Added (BVA) - analysis of the brand's contribution to demand

Company & Brand Valuation

I. Financial Forecasts

Typically, explicit forecasts for periods of 5-10 years are used for the basis of such valuations and should

be identical to internal management planning forecasts. An important part of the brand valuation

process involves ensuring that forecasts are credible.

Forecast Revenue

If the valuer is to estimate likely future sales of the brand, it is vital to understand the historical data

relationships that have affected the performance of the brand in each of its markets. This may be based

on observation, market research, correlation or regression. This can involve econometric modeling or

some other form of statistical analysis of past performance to show how certain causal variables have

affected revenues.

This is of vital assistance in building the business case or cases on which brand valuations are based.

Such analysis gives credibility to the underlying assumptions. It creates the framework within which

dynamic and option valuations can be based. One of the key issues in terms of branding is to understand

the causal relationship between total marketing spend, pricing and sales results.

It is equally important to understand the relative effect of different media on the overall level of sales.

The task of the brand valuation team is therefore to ensure that brand and marketing factors are being

accounted for properly in the modeling and analysis taking place, and that results are used to obtain the

most appropriate forecast sales values.

Forecast costs

It is necessary to understand fully the basis on which forecast costs have been determined. The brand

valuation team will need to confirm that the basis of cost allocation is sensible between each of the

geographic, product or customer segments on a current and forecast basis. The same principle applies

to the allocation of capital to different segments and the resulting charges for capital made against the

segmented brand earnings streams to arrive at forecast Economic Value Added.

Economic Value Added is the starting point for the brand valuation. A proportion of the identified

Economic Value Added is ultimately attributed to the brand in the brand valuation calculation.



II. Risk factor (Discounting Factor) i.e. WACC calculation

The next step in the brand valuation is to determine the appropriate discount rate to use in the DCF

analysis. We have used an approach to discount rate determination, which is an adaptation of the

Capital Asset Pricing Model.

We build up the appropriate discount rate from first principles as follows:

Discount rate (WACC i.e. weighted average cost of capital) = (Ke * equity + kd * debt)/ capital employed

Where,

Ke = Cost of equity

Kd = Cost of financing Debt

Equity is the market cap

Debt is the book value of debts employed

Capital employed = Equity + Debt

To calculate Cost of Equity i.e. Ke, we took the total risks attached with the brand i.e. the beta of the

sector and the beta of the company to arrive at Ke.

Ke = Rf + s * c (Rm-Rf)

Where,

Rf = risk free rate

Rm = market rate

s = beta of the sector

c = beta of the company

The cash flows forecasted would be discounted with the wacc to arrive at the present value. This

discounting factor contains the risk attached as it takes into account both the sector beta as well as

company beta.

III. Brand Value Added (BVA) - analysis of the brand's contribution to demand

This is the heart of any valuation, as it determines the proportion of total Economic Value Added to be

included in the brand valuation. This is the proportion of the total revenue attributed to the intangible

assets such as goodwill, brand name etc.

The BVA factor is calculated by taking into factor the drivers of demand. The parameters or factors

which affect the demand are taken into account and than a survey is conducted in which all the

respondents are asked to award points to the demand drivers on a scale of 100. The following are the

demand drivers taken in our model.



Brand Name

Promotional Schemes

Advertising

Product features

Availability i.e. distribution

CRM

Technology

Price

The weighted score is than calculated to find the contribution of each demand drivers. From here, we

take the net contribution of a parameter Brand name which is multiplied with the value of the company

to find the brand value i.e. the value contributed only by the brand name.

The survey was carried out among the students of Praxis Business School, Kolkata, to find out to find out

the perceived proportion of the total expense attributed to the intangible assets such as technology,

brand name etc. The findings of the survey could be skewed towards the brands available in this part of

the world.

IV. Company & Brand Valuation

To arrive at the value of the company the future cash flows are discounted to find the present value.

And the terminal value is added to it. The terminal value is the value taken at the end of the forecasted

period assuming the growth to be same after that year.

Thus, the company value is arrived, which when multiplied by the calculated BVA Index gives the Brand

Value.

Brand Name38%

Promotional Schemes

3%Advertisement

2%

Features24%

Availability2%

CRM2%

Technology13%

Price17%

Survey Findings



Calculations

Nokia: Profit & Loss Valuation Date Estimated (In Millions of Euro)

0 1 2 3 4 5

Year Ending 12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012

Revenue 51,058.00 61,269.60 73,523.52 88,228.22 105,873.87 127,048.64

Total Revenue 51,058.00 61,269.60 73,523.52 88,228.22 105,873.87 127,048.64

Cost of Revenue, Total 33,781.00

Gross Profit 17,277.00 61,269.60 73,523.52 88,228.22 105,873.87 127,048.64

Selling/General/Admin. 5,544.00 6,468.77 7,762.52 9,315.03 11,178.03 13,413.64

Research & Development 5,636.00 6,918.85 8,302.62 9,963.14 11,955.77 14,346.92

Other Operating Expenses (1,888.00) (669.00) (802.80) (963.36) (1,156.03) (1,387.24)

Total Operating Expense 43,073.00 52,149.63 62,579.56 75,095.47 90,114.56 108,137.48

Operating Income 7,985.00 9,119.97 10,943.96 13,132.75 15,759.31 18,911.17

Interest Expense - (49.40) (46.28) (35.14) (34.16) (33.00)

Interest/Invest Income 283.00 362.60 355.32 330.18 321.62 330.54

Interest Income(Exp) 283.00 313.20 309.04 295.05 287.46 297.55

Net Income Before Taxes 8,268.00 9,433.17 11,253.00 13,427.80 16,046.76 19,208.72

Provision for Income Taxes 1,522.00 3,112.95 3,713.49 4,431.17 5,295.43 6,338.88

NOPAT 6,746.00 6,320.22 7,539.51 8,996.63 10,751.33 12,869.84

Discount Rate 19% 6,746.00 5,305.32 5,312.52 5,321.28 5,337.99 5,363.74

NPV (1-6 years) 33,386.85

Long term growth rate 5%

NPV of Terminal Growth 37,959.92

Value of the Firm 71,346.77

BVA Index 38%

Brand Value

(in million Euros)

27,111.77

(in million Dollars) 1.37 37,143.13



Assumptions

Justification of Assumptions

Parameters Rate Justification

Discount Rate 19% This is the risk factor which has been found out by way of

Long term growth rate 5% Estimated growth rate from knowyourmobile.com

BVA Index 38% This was found out by way of surveying 30 mobile users

Euro-USD conversion rate 1.37 As on December 31st, 2007

Growth 20% CAGR over past 5 years

Expenditure ratio 85% As a %age of average revenue over past 5 years

Selling & Distribution 11% As a %age of average revenue over past 5 years

Research & Development 11% As a %age of average revenue over past 5 years

WACC 25% Calculated WACC as described in the Methodology

Till 2012

Growth 20%

Expenditure ratio 85%

Selling & Distribution 11%

Research & Development 11%

Tax Percentage 33%

WC ratio 28%

WACC 25%


23 Net Take Away

Net Take Away

Brand Valuation of Nokia under different models

Valuation date : 31st December, 2007 Denomination: In Million Euros

Model Source Brand Value

Interbrand Secondary 24596

Book to Market Primary 65274

Price Premia Primary 23139

Brand Value Added Model Primary 27112

Interbrand’s valuation for Nokia shows that it has a brand value of 24596 million Euros. The group

tested three models of valuation. The book to market model shows that Nokia has a brand value of

65274 million Euros. This approach has numerous advantages in that it recognizes that it is based on

empirical evidence. The shortcomings are that it assumes a very strong state of the efficient market

hypothesis (EMH), and that all information is included in the share price, number of shareholders, total

equity of the company.

The Price Premia Model reflects a valuation of 23139 million Euros which is around 45% of total value of

Nokia. The disadvantages of this model are where a branded product does not command a price

premium, the benefit arises on cost and market share dimensions.

The Brand Value Added Model reflects the brand value of Nokia to be 27112 million Euros. The

advantages of this approach is that it is widely accepted and it takes all aspects of branding into account;

by using the economic profit figure all additional costs and all marketing spend have been accounted

for. Here two valuation bases are muddled. On the one hand there is an “in use” basis and on the other

hand, there is an “open market” valuation.

The appropriate discount rate is very difficult to determine as parts of the risks usually included in the

discount rate have been factored into the Brand Index score. Even the appropriate rate for the capital

charge is difficult to ascertain.

No single approach will give all the answers to a correct valuation. The starting point is to understand

the purpose of the valuation and what benefits the brand delivers. Due to a lack of transparency of the

workings and the underlying assumptions, some firms are not prepared to accept brand equity

valuations. Provided that information on the assumptions is made available to firms, they can make

their own judgments on what the correct value should be.


24 Net Take Away

Recommendation

When management is embarking on an exercise to value their organization’s brands, it is recommended

that they do the following:

Management must firstly understand the nature of their firm’s intangible assets. If one of the

organization’s intangible assets is marketing related, they must determine on what attribute the brand

derives its benefit. The purpose of the valuation must then be determined. A method must then be

chosen that meets management’s needs in terms of the attribute it measures, the information

requirements and the model’s shortcomings.

Management must also ensure that an appropriate discount rate, growth rate and useful life are used.

They must ensure that the model used is robust enough to deal with the peculiarities of the

organization. A key issue is to check and question the underlying assumptions. Lastly, management

should ensure that the mathematical calculations have been done correctly.


25 References

References

REFERENCES


26 Bibliography

Bibliography

Primary

Price Premia Model The interviews were carried out among the students of Praxis Business

School, Kolkata.

Secondary

en.wikipedia.org/wiki/Nokia

www.nokia.com/

www.nokia.com/NOKIA_COM_1/About_Nokia/Sidebars_new_concept/Annual_Accounts_2007/Nokia%2

0in%202007.pdf

www.knowyourmobile.com/blog/8640/nokia_takes_a_40_share_of_world_mobile_market.html

www.reuters.com/finance/stocks/ratios?symbol=NOK.N#growth

www.bankofcanada.ca/cgi-bin/famecgi_fdps

www.unit-conversion.info/currency.html

www.businessweek.com/technology/content/jul2008/tc2008079_912540_page_2.htm

www.pcworld.com/article/124529/highend_mobile_phones_prove_popular.html

www.brandchannel.com/brand_speak.asp?bs_id=193

http://www.nokia.com/NOKIA_COM_1/About_Nokia/Sidebars_new_concept/Annual_Accounts_2007/Nokia%20in%202007.pdf

http://www.nokia.com/NOKIA_COM_1/About_Nokia/Sidebars_new_concept/Annual_Accounts_2007/Nokia%20in%202007.pdf

http://www.reuters.com/finance/stocks/ratios?symbol=NOK.N#growth

http://www.bankofcanada.ca/cgi-bin/famecgi_fdps

http://www.unit-conversion.info/currency.html

http://www.businessweek.com/technology/content/jul2008/tc2008079_912540_page_2.htm

http://www.pcworld.com/article/124529/highend_mobile_phones_prove_popular.html

http://www.brandchannel.com/brand_speak.asp?bs_id=193


27 Annexure

Annexure

Annexure 1: Profit and Loss Account: Nokia

Nokia: Profit & Loss, Source: Reuters

Actual (In Millions of Euro)

Year Ending 12/31/2003 12/31/2004 12/31/2005 12/31/2006 12/31/2007

Revenue 29,533.00 29,371.00 34,191.00 41,121.00 51,058.00

Other Revenue - - - - -

Total Revenue 29,533.00 29,371.00 34,191.00 41,121.00 51,058.00

Cost of Revenue, Total 17,325.00 18,179.00 22,209.00 27,742.00 33,781.00

Gross Profit 12,208.00 11,192.00 11,982.00 13,379.00 17,277.00

Selling/General/Admin. 3,292.00 3,175.00 3,570.00 3,980.00 5,544.00

Research & Development 3,788.00 3,776.00 3,825.00 3,897.00 5,636.00

Other Operating Expenses 84.00 (181.00) (52.00) 14.00 (1,888.00)

Total Operating Expense 24,489.00 24,949.00 29,552.00 35,633.00 43,073.00

Operating Income 5,044.00 4,422.00 4,639.00 5,488.00 7,985.00

Interest Expense (65.00) (102.00) (40.00) (40.00) -

Interest/Invest Income 399.00 481.00 373.00 277.00 283.00

Interest Income(Exp) 334.00 379.00 333.00 237.00 283.00

Net Income Before Taxes 5,378.00 4,801.00 4,972.00 5,725.00 8,268.00

Provision for Income Taxes 1,697.00 1,446.00 1,281.00 1,357.00 1,522.00

NOPAT 3,681.00 3,355.00 3,691.00 4,368.00 6,746.00


28 Annexure

Annexure 2: Balance Sheet: Nokia

In Millions of Euro 12/31/2003 12/31/2004 12/31/2005 12/31/2006 12/31/2007 Average

Total Current Assets 20,083.00 19,508.00 18,951.00 18,586.00 29,294.00 21,284.40

Property/Plant/Equipment, Total - Net 1,566.00 1,534.00 1,585.00 1,602.00 1,912.00 1,639.80

Goodwill, Net 186.00 90.00 90.00 532.00 1,384.00 456.40

Intangibles, Net 722.00 487.00 471.00 549.00 2,736.00 993.00

Long Term Investments 197.00 369.00 439.00 512.00 666.00 436.60

Note Receivable - Long Term 354.00 - 63.00 19.00 10.00 89.20

Other Long Term Assets, Total 812.00 681.00 853.00 817.00 1,597.00 952.00

Total Assets 23,920.00 22,669.00 22,452.00 22,617.00 37,599.00 25,851.40

Accounts Payable 2,919.00 2,669.00 3,494.00 3,732.00 7,074.00 3,977.60

Accrued Expenses 2,468.00 2,604.00 3,320.00 3,493.00 6,611.00 3,699.20

Notes Payable/Short Term Debt 387.00 215.00 377.00 247.00 898.00 424.80

Current Port. of LT Debt/Capital Leases 84.00 - - - 173.00 51.40

Other Current liabilities, Total 2,422.00 2,488.00 2,479.00 2,689.00 4,220.00 2,859.60

Total Current Liabilities 8,280.00 7,976.00 9,670.00 10,161.00 18,976.00 11,012.60

Long Term Debt 20.00 19.00 21.00 69.00 203.00 66.40

Deferred Income Tax 241.00 179.00 151.00 205.00 963.00 347.80

Minority Interest 164.00 168.00 205.00 92.00 2,565.00 638.80

Other Liabilities, Total 67.00 96.00 96.00 122.00 119.00 100.00

Total Liabilities 8,772.00 8,438.00 10,143.00 10,649.00 22,826.00 12,165.60

Common Stock, Total 288.00 280.00 266.00 246.00 246.00 265.20

Additional Paid-In Capital 2,272.00 2,366.00 2,458.00 2,707.00 644.00 2,089.40

Retained Earnings (Accumulated Deficit) 14,046.00 13,733.00 13,132.00 11,109.00 17,192.00 13,842.40

Treasury Stock - Common (1,373.00) (2,022.00) (3,616.00) (2,060.00) (3,146.00) (2,443.40)

Other Equity, Total (85.00) (126.00) 69.00 (34.00) (163.00) (67.80)

Total Equity 15,148.00 14,231.00 12,309.00 11,968.00 14,773.00 13,685.80

Total Liabilities & Shareholders' Equity 23,920.00 22,669.00 22,452.00 22,617.00 37,599.00 25,851.40


29 Annexure

Annexure 3: Data for finding “Role of Branding Index” for DCF Model

S.No Respondents Divide 100 as a score which you would give to any of the parameters mentioned

Brand Name

Promotional Schemes

Advertisement Features Availability CRM Technology Price Total

1 Tarun Daga 35

40

5 20 100

2 Sandeep Shah 30 10 10 25

25 100

3 Santu Chakraborty 40

30

30 100

4 Govind Prasad 30

15 35 20 100

5 Hardik 25

25

25 25 100

6 Vineet 40

20

20 20 100

7 Piyush 50 10

10 30 100

8 Rohit 25

30

25 20 100

9 Raj 20

10 20 20

20 10 100

10 Uma 35

35

30 100

11 Saurav 40

30

10 20 100

12 Vinay 25

25

25 25 100

13 Priyanka 50

50

100

14 Ankita 20 10 10 20

20 20 100

15 Gunjan 45

35

10 10 100

16 Ruchika Rawat 50

25

25 100

17 Parikshit Ghoshal 40 10 10 10 10

10 10 100

18 Saurav Jalan 40

30

30 100

19 Ritesh 50

20

10 20 100

20 Sahill Shaha 35

15

25 25 100

21 Sourabh Dhariwal 50

25

25 100

22 Sumit Jalan 20 5 10 25

10 20 10 100

23 Nabendu Kar 40

40

10 10 100

24 Harish 35

20 5 20 20 100

25 Yatharth Bhuwalka 50

25

15 10 100

26 Pratik Gupta 30

30

20 20 100

27 Sampat Bhansali 40

30

10 20 100

28 Shabnam Roy 60

20

20 100

29 Donald White 40

20 20

20 100

30 Farhana Chowdhury 50 50 100

Documents

Nokia Brand Valuation