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Nokia Corporation Interim Report for Q2 2014 and January-June 2014

Nokia Corporation
Interim Report
July 24, 2014 at 08.00 (CET+1)

This is a summary of the Nokia Corporation Interim Report for Q2 2014 and January-June 2014 published today. The complete Interim Report with tables for Q2 2014 and January-June 2014 is available at http://company.nokia.com/financials. Investors should not rely on summaries of Nokia's interim reports only, but should review the full interim reports with tables.

Nokia Corporation Interim Report for Q2 2014 and January-June 2014

FINANCIAL AND OPERATING HIGHLIGHTS

Second quarter 2014 highlights for continuing operations:

- Non-IFRS diluted EPS in Q2 2014 of EUR 0.06 (EUR 0.05 in Q2 2013); reported diluted EPS of EUR -0.01 (EUR -0.02 in Q2 2013)
- Net sales in Q2 2014 of EUR 2.9 billion (EUR 3.2 billion in Q2 2013)

Nokia Networks
- In Q2 2014, Nokia Networks achieved strong underlying operating profitability with non-IFRS operating profit of EUR 281 million, or 11.0% of net sales, compared to EUR 328 million, or 11.8% of net sales, in Q2 2013. The strong level of profitability for Nokia Networks in Q2 2014 and Q2 2013 was primarily due to operational efficiency which benefitted both gross margin and operating profit.
- Nokia Networks net sales in Q2 2014 were EUR 2.6 billion, compared to EUR 2.8 billion in Q2 2013.
- Excluding foreign currency fluctuations and the divestments of businesses not consistent with its strategic focus, as well as the exiting of certain customer contracts and countries, Nokia Networks net sales would have increased 1% year-on-year.

HERE
- HERE net sales in Q2 2014 were approximately flat on a year-on-year basis. Excluding foreign currency fluctuations, HERE net sales in Q2 2014 would have increased 2% year-on-year.
- In Q2 2014, HERE sold map data licenses for the embedded navigation systems of 3.3 million new vehicles globally, compared to 2.7 million vehicles in Q2 2013.
- HERE continued to focus on investing in longer term transformational growth opportunities, and announced the acquisitions of Medio and Desti.

Nokia Technologies
- Nokia Technologies net sales increased sequentially in Q2 2014, primarily due to Microsoft becoming a more significant intellectual property licensee in conjunction with the sale of substantially all of the Devices & Services business to Microsoft.

Balance sheet highlights:
- Nokia ended Q2 2014 with a strong balance sheet and solid cash position with gross cash of EUR 9.0 billion and net cash of EUR 6.5 billion compared to EUR 6.9 billion and EUR 2.1 billion, respectively, at the end of Q1 2014.
- In Q2 2014, Nokia completed the sale of substantially all of the Devices & Services business to Microsoft. Of the approximately EUR 5.0 billion of net cash impact from the proceeds, approximately EUR 4.8 billion benefitted Q2 2014 with the balance expected to be received in the second half 2014. In connection with the completion of the transaction the EUR 1.5 billion Microsoft convertible bonds were repaid.
- During Q2 2014 we started the capital structure optimization program with the redemption of approximately EUR 950 million of Nokia Networks debt. As a result of this, Nokia no longer has material financial covenants.

January-June 2014 highlights for continuing operations:
Nokia continuing operations net sales in January-June 2014 were EUR 5.6 billion
-
Nokia continuing operations net sales for the first half 2014 decreased 11% year-on-year.
- Reported EPS for the first half 2014 was EUR 0.02, compared to EUR -0.04 in the first half 2013.

Commenting on the second quarter results, Rajeev Suri, Nokia President and CEO, said:

Nokia's second quarter performance shows the strength of the company today. 

In Nokia Networks, our unique operating model has allowed us to deliver strong profitability while improving our topline trend. Maintaining this balance will remain a clear priority in the second half of the year, when we expect Networks to return to year-on-year growth. Our expectations for the full year 2014 have improved and we now expect full year underlying profitability for Networks to be at or slightly above our long term target range of 5 to 10 percent.

HERE demonstrated good year-on-year growth in its automotive business, and we continue to invest to expand in this area, as well as in the enterprise and consumer markets. The licensing and innovation engine of Nokia Technologies remains very much on track. We see opportunities to expand this business with both new and existing licensees, and the Technologies team continues to increase its industry-leading patent portfolio.

This performance, along with the many conversations I have had with customers, partners, employees and others in my first quarter as CEO, gives me a high degree of confidence about our future.

SUMMARY FINANCIAL INFORMATION

Reported and Non-IFRS second quarter 2014 results1 Reported and Non-IFRS January - June 2014 results1
EUR million Q2/14 Q2/13 YoY
Change
Q1/14 QoQ
Change
Q1-Q2/2014 Q1-Q2/2013 YoY
Change
Continuing Operations
Net sales 2 942 3 155 -7 % 2 664 10 % 5 606 6 295 -11 %
Gross margin % (non-IFRS) 44.0 % 43.6 % 45.7 % 44.8 % 41.4 %
Operating expenses (non-IFRS) -940 -1 009 -7 % -925 2 % -1 865 -2 013 -7 %
Operating profit (non-IFRS)  347  430 -19 % 304 14 %  651  684 -5 %
Non-IFRS exclusions  62  419 62  125  702
Operating profit  284  12 242 17 %  526 -18
EPS, EUR diluted (non-IFRS) 0.06 0.05 20 % 0.04 50 % 0.10 0.06 67 %
EPS, EUR diluted (reported) -0.01 -0.02 0.03 0.02 -0.04
Net cash from operating activities 1 455 - - 198 1 653 -
Net cash and other liquid assets 6 497 4 067 60 % 2 075 213 % 6 497 4 067 60 %
Discontinued Operations
Net sales  497 2 579 -81 % 1 929 -74 % 2 426 5 344 -55 %
Operating profit (non-IFRS) -110 -127 -306 -416 -200
Operating profit 3 075 -126 -326 2 749 -246
Net cash from operating activities -664 - -336 -1 001 -
Nokia Group (continuing and discontinued operations)
EPS, EUR diluted (non-IFRS) 0.03 0.00 -0.04 -0.01 -0.01
EPS, EUR diluted (reported) 0.61 -0.06 -0.06 0.54 -0.13
Net cash from operating activities 790 -196 -138 652 10
Net cash and other liquid assets 6 497 4 067 60 % 2 075 213 % 6 497 4 067 60 %

Note 1 relating to results information and non-IFRS (also referred to as "underlying") results: The results information in this report is unaudited. Percentages and figures presented herein may include rounding differences and therefore may not add up precisely to the totals presented and may vary from previously published financial information. In addition to information on our reported IFRS results, we provide certain information on a non-IFRS, or underlying business performance, basis. Non-IFRS results exclude all material special items for all periods. In addition, non-IFRS results exclude intangible asset amortization, other purchase price accounting related items and inventory value adjustments arising from (i) the formation of Nokia Networks (formerly NSN) and (ii) all business acquisitions completed after June 30, 2008. Nokia believes that our non-IFRS results provide meaningful supplemental information to both management and investors regarding Nokia's underlying business performance by excluding the above-described items that may not be indicative of Nokia's business operating results. These non-IFRS financial measures should not be viewed in isolation or as substitutes to the equivalent IFRS measure(s), but should be used in conjunction with the most directly comparable IFRS measure(s) in the reported results. More information, including a reconciliation of our Q2 2014 and Q2 2013 non-IFRS results to our reported results, can be found in our complete Q2 2014 report with tables on pages 22-27. A reconciliation of our Q1 2014 non-IFRS results to our reported results can be found in our complete Q1 2014 interim report with tables on pages 19-23 published on April 29, 2014.

RISKS AND FORWARD-LOOKING STATEMENTS

It should be noted that Nokia and its business 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) expectations, plans or benefits related to Nokia's strategies; B) expectations, plans or benefits related to future performance of Nokia's continuing businesses Nokia Networks, HERE and Nokia Technologies; C) expectations, plans or benefits related to changes in leadership and operational structure; D) expectations regarding market developments, general economic conditions and structural changes; E) expectations and targets regarding performance, including those related to market share, prices, net sales and margins; F) the timing of the deliveries of our products and services; G) expectations and targets regarding our financial performance, cost savings and competitiveness, as well as results of operations; H) expectations and targets regarding collaboration and partnering arrangements; I) the outcome of pending and threatened litigation, arbitration, disputes, regulatory proceedings or investigations by authorities; 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, including any expectations, plans or benefits related to or caused by the transaction announced on September 3, 2013 where Nokia sold substantially all of the Devices & Services business to Microsoft on April 25, 2014 ("Sale of the D&S Business"); 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 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 these differences include, but are not limited to: 1) our ability to execute our strategies successfully and in a timely manner, and our ability to successfully adjust our operations; 2) our ability to sustain or improve the operational and financial performance of our continuing businesses and correctly identify business opportunities or successfully pursue new business opportunities; 3) our ability to execute Nokia Networks' strategy and effectively, profitably and timely adapt its business and operations to the increasingly diverse needs of its customers and technological developments; 4) our ability within our Nokia Networks business to effectively and profitably invest in and timely introduce new competitive high-quality products, services, upgrades and technologies; 5) our ability to invent new relevant technologies, products and services, to develop and maintain our intellectual property portfolio and to maintain the existing sources of intellectual property related revenue and establish new such sources; 6) our ability to protect numerous patented standardized or proprietary technologies from third-party infringement or actions to invalidate the intellectual property rights of these technologies; 7) our ability within our HERE business to maintain current sources of revenue, historically derived mainly from the automotive industry, create new sources of revenue, establish a successful location-based platform and extend our location-based services across devices and operating systems; 8) effects of impairments or charges to carrying values of assets, including goodwill, or liabilities; 9) our dependence on the development of the mobile and communications industry in numerous diverse markets, as well as on general economic conditions globally and regionally; 10) Nokia Networks business' dependence on a limited number of customers and large, multi-year contracts; 11) our ability to retain, motivate, develop and recruit appropriately skilled employees; 12) the potential complex tax issues and obligations we may face, including the obligation to pay additional taxes in various jurisdictions and our actual or anticipated performance, among other factors, could result in allowances related to deferred tax assets; 13) our ability to manage our manufacturing, service creation and delivery, and logistics efficiently and without interruption, especially if the limited number of suppliers we depend on fail to deliver sufficient quantities of fully functional products and components or deliver timely services; 14) potential exposure to contingent liabilities due to the Sale of the D&S Business and possibility that the agreements we have entered into with Microsoft may have terms that prove to be unfavorable to us; 15) any inefficiency, malfunction or disruption of a system or network that our operations rely on or any impact of a possible cybersecurity breach; 16) our ability to reach targeted results or improvements by managing and improving our financial performance, cost savings and competitiveness; 17) management of Nokia Networks' customer financing exposure; 18) the performance of the parties we partner and collaborate with, and our ability to achieve successful collaboration or partnering arrangements; 19) our ability to protect the technologies, which we develop, license, use or intend to use from claims that we have infringed third parties' intellectual property rights, as well as, impact of possible licensing costs, restriction on our usage of certain technologies, and litigation related to intellectual property rights; 20) the impact of regulatory, political or other developments on our operations and sales in those various countries or regions where we do business; 21) exchange rate fluctuations, particularly between the euro, which is our reporting currency, and the US dollar, the Japanese yen and the Chinese yuan, as well as certain other currencies; 22) our ability to successfully implement planned transactions, such as acquisitions, divestments, mergers or joint ventures, manage unexpected liabilities related thereto and achieve the targeted benefits; 23) the impact of unfavorable outcome of litigation, arbitration, contract related disputes or allegations of health hazards associated with our business, as well as the risk factors specified on pages 12-35 of Nokia's annual report on Form 20-F for the year ended December 31, 2013 under Item 3D. "Risk Factors." 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. Nokia does 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.

Nokia, Helsinki - July 24, 2014

Media and Investor Contacts:

Corporate Communications, tel. +358 10 448 4900 email: press.services@nokia.com
Investor Relations Europe, tel. +358 4080 3 4080
Investor Relations US, tel. +1 408 663 5685

Planned publication dates for interim reports in 2014
- report for Q3 2014 and January-September 2014: October 23, 2014