Nokia Reports Improved Sales, Margins in Q3

ESPOO, Finland --

FINANCIAL AND OPERATING HIGHLIGHTS

Third quarter 2014 highlights:

Non-IFRS diluted EPS in Q3 2014 of EUR 0.09 (EUR 0.06 in Q3 2013); reported diluted EPS of EUR 0.19 (EUR 0.04 in Q3 2013)

Net sales in Q3 2014 of EUR 3.3 billion (EUR 2.9 billion in Q3 2013)

Nokia Networks

Nokia Networks achieved 13% year-on-year growth in net sales, from EUR 2.6 billion in Q3 2013 to EUR 2.9 billion in Q3 2014.

In Q3 2014, Nokia Networks achieved strong underlying operating profitability with non-IFRS operating profit of EUR 397 million, or 13.5% of net sales, compared to EUR 217 million, or 8.4% of net sales, in Q3 2013.

The strong net sales and profitability improvement of Nokia Networks on a year-on-year basis was primarily due to major new LTE network deployments in North America and Greater China, which benefitted Mobile Broadband.

HERE

HERE achieved 12% year-on-year growth in net sales, from EUR 211 million in Q3 2013 to EUR 236 million in Q3 2014.

In Q3 2014, HERE sold map data licenses for the embedded navigation systems of 3.2 million new vehicles globally, compared to 2.6 million vehicles in Q3 2013. Nokia Technologies

Nokia Technologies achieved 9% year-on-year growth in net sales, from EUR 140 million in Q3 2013 to EUR 152 million in Q3 2014, primarily due to Microsoft becoming a more significant intellectual property licensee.

Commenting on the third quarter results on a year-on-year basis, Rajeev Suri, Nokia President and CEO, said:

Nokia's third quarter results demonstrate our strong position in a world where technology is undergoing significant change. We saw growth in all three of our businesses; non-IFRS earnings per share was up 50%; and we moved forward with our capital structure optimization program, returning cash to shareholders.

Performance at Nokia Networks was particularly satisfying, with both growth and improved profitability. Progress was widespread, with four of our six regions increasing sales; Mobile Broadband sales and profitability were up sharply; Global Services delivered its sixth consecutive quarter of double digit profitability; and I was pleased to see a rebound in Europe driven by our robust deal momentum. That said, I also want to be clear that Networks benefited from some unique developments in the quarter, with a business mix weighted towards Mobile Broadband and regional mix that included strong gains in North America.

HERE also delivered a double digit sales increase in the quarter. We are sharpening HERE's strategy in order to better balance growth and profitability while ensuring relentless focus on priority segments such as automotive. I am confident that this strategy, combined with a new focus on efficiency gains, positions HERE well for the future.

Nokia Technologies continued to invest in the innovation and business infrastructure necessary to enable future growth and renewal of our strong patent portfolio. This work, as well as our current licensing activities, will take time to come to fruition, but I believe that we are moving rapidly in the right direction.

Third quarter 2014 material special items:

In Q3 2014, we recorded a charge to operating profit of EUR 1.2 billion for the impairment of HERE goodwill. The impairment charge is based on our estimate that the recoverable amount of HERE is now EUR 2.0 billion. During Q3 2014, we also recognized a non-cash tax expense of EUR 0.3 billion due to valuation allowances related to HERE's Dutch deferred tax assets.

At the end of Q3 2014, due to improved operating performance, Nokia recognized EUR 2.1 billion of deferred tax assets from the reassessment of recoverability of deferred tax assets related to Finland and Germany, of which EUR 2.0 billion was recorded as a non-cash tax benefit in Q3 2014 reported tax expenses.

Balance sheet highlights:

Nokia ended Q3 2014 with a strong balance sheet and solid cash position with gross cash of EUR 7.6 billion and net cash of EUR 5.0 billion compared to EUR 9.0 billion and EUR 6.5 billion, respectively, at the end of Q2 2014.

In Q3 2014, Nokia paid a special dividend of EUR 966 million (EUR 0.26 per share) and an ordinary dividend of EUR 408 million (EUR 0.11 per share). In Q3 2014, Nokia also commenced the share repurchases under its capital structure optimization program and used EUR 220 million for such share repurchases.

The sequential decline in Nokia's gross and net cash balances was primarily due to the payments of special and ordinary dividends during Q3 2014 and the commencement of share repurchasing. In addition, the sequential decline in Nokia's cash position was driven by cash outflows related to acquisitions completed during the quarter, amounting to EUR 159 million, partially offset by positive cash flow from operations of EUR 399 million.

January-September 2014 highlights:
Nokia's continuing operations net sales in January-September 2014 were EUR 8.9 billion

Nokia's continuing operations net sales for the nine months ended September 2014 decreased 3% year-on-year.

Reported diluted EPS for the nine months ended September 2014 was EUR 0.21, compared to EUR 0.00 in the nine months ended September 2013.

NOKIA'S OUTLOOK

Nokia now expects Nokia Networks' non-IFRS operating margin for the full year 2014 to be slightly above 11%. This compares to Nokia's previous outlook for Nokia Networks' non-IFRS operating margin for the full year 2014 to be at or slightly above the higher end of Nokia Networks' targeted long-term non-IFRS operating margin range of 5% to 10%. In addition, Nokia continues to expect Nokia Networks' net sales to grow on a year-on-year basis in the second half 2014. This outlook is based on Nokia's financial performance in the first nine months of 2014, as well as Nokia's expectations regarding a number of factors, including:

competitive industry dynamics;

a sequentially higher proportion of Global Services net sales in the fourth quarter of 2014, following an elevated proportion of Mobile Broadband net sales in the third quarter of 2014, which was primarily due to major new network deployments;

regional mix; and

expected continued operational improvement.

During 2014, Nokia continues to expect HERE to invest to capture longer-term transformational growth opportunities while taking steps to increase our focus on our automotive and enterprise businesses. Nokia continues to expect these investments to negatively affect HERE's 2014 non-IFRS operating margin.

Nokia expects Nokia Technologies' annualized net sales to continue at a run rate of approximately EUR 600 million during 2014.

Nokia currently expects financial income and expenses, including net interest expenses and the impact from changes in foreign exchange rates on certain balance sheet items, to amount to an expense of approximately EUR 40 million on a quarterly basis, subject to changes in foreign exchange rates and the level of interest bearing liabilities.

Nokia now expects full year 2014 capital expenditures for continuing operations to be approximately EUR 250 million, primarily attributable to capital expenditures by Nokia Networks. This compares to Nokia's previous outlook for full year 2014 capital expenditures for continuing operations of approximately EUR 200 million. The increase in expected capital expenditures for continuing operations for the full year 2014 is primarily due to additional operational investments, including capacity enhancements, in Nokia Networks.

On a non-IFRS basis, after having recognized the deferred tax assets related to our operations in Finland and Germany in third quarter 2014, Nokia now expects to record tax expenses at a long-term effective tax rate of approximately 25%. However, Nokia's cash tax obligations are expected to continue to be approximately EUR 250 million annually until Nokia's deferred tax assets have been fully utilized. The cash tax amount may vary depending on profit levels in different jurisdictions and the amount of license income potentially subject to withholding tax.

Nokia Corp. (NYSE: NOK)