Fitch Ratings has downgraded Nokia's long-term issuer default rating and senior unsecured rating to 'BB+' from 'BBB-'. The outlook on the rating remains negative. The downgrade follows the poor performance of Nokia's handset business in Q1 and outlook for results similar or worse in Q2. Fitch said there is a general lack of visibility beyond this point, meaning Nokia's profile is no longer commensurate with an investment grade rating. In order to avoid further negative rating action, Nokia needs to demonstrate substantial improvements over the second half of 2012 and 2013. Fitch believes that Nokia needs to stabilise revenues and be capable of generating low-single digit adjusted operating profit margins and positive pre-dividend free cash flow, if Fitch is to affirm the rating at the 'BB+' rating level. Given the potential headwinds facing the company, Fitch said it's not convinced that Nokia can attain this over the course of 18 months. Nokia had a net cash position of EUR 4.9 billion at the end of Q1. Although this position is currently strong, this could be depleted over the next 18 months by substantial restructuring charges and the potentially negative operating cash flow that could persist unless the company's operating performance improves, Fitch said. Nokia said in response that it's taking action to improve the situation, including an increased focus on lowering the company's cost structure, improving cash flow and maintaining a strong financial position.
