Nokia Corporation (NOK)

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Nokia Corporation (NOK)

Q4 2012 Earnings Call

January 24, 2013 08:00 am ET

Executives

Matt Shimao – Head of Nokia Investor Relations

Stephen A. Elop – Chairman of Nokia Leadership Team, Chief Executive Officer, President and Director

Timo Ihamuotila – Chief Financial Officer, Executive Vice President, Member of Nokia Leadership

Analysts

Gareth Jenkins – UBS Investment Bank, Research Division

Stuart Jeffrey – Nomura Securities International, Inc.

Andrew Gardiner – Barclays Capital

Timothy Long – BMO Capital Markets U.S.

Simon Schafer – Goldman Sachs Group, Inc.

Francois Meunier – Morgan Stanley

Alexander Peterc – Exane BNP Paribas

Didier Scemama – Bank of America/Merrill Lynch

Sandeep S Deshpande – JPMorgan Cazenove

Pierre Ferragu – Bernstein Research

Michael Walkley – Canaccord Genuity

Kulbinder Garcha – Credit Suisse

Mark Sue – RBC Capital Markets

Presentation

Operator

Good morning. My name is Brance, and I will be your conference operator today. At this time, I would like to welcome everyone to the Nokia Fourth Quarter 2012 and Full Year Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instructions)

I would now like to turn the conference over to Matt Shimao, Head of Investor Relations. Sir, you may begin.

Matt Shimao

Ladies and gentlemen, welcome to Nokia’s fourth quarter and full year 2012 conference call. I am Matt Shimao, Head of Nokia Investor Relations. Stephen Elop, President and CEO of Nokia; and Timo Ihamuotila, CFO of Nokia are here in Espoo with me today.

During this call, we’ll be making forward-looking statements regarding the future business and financial performance of Nokia and its industry. These statements are predictions that involve risks and uncertainties. Actual results may, therefore, differ materially from the results we currently expect.

Factors that could cause such differences can be both external, such as general, economic and industry conditions, as well as internal operating factors. We have identified these in more detail on pages 13 through 47 of our 2011 20-F and in our financial results press release issued today.

Please note that our quarterly results press release, the complete interim report with tables and the presentation on our website include non-IFRS results information in addition to the reported results information. A complete interim report with tables available on our website includes a detailed explanation of the content of the non-IFRS information and a reconciliation between the non-IFRS and the reported information.

With that, Stephen, over to you.

Stephen A. Elop

Thank you, Matt. We are very encouraged that Nokia’s execution against our business strategy has started to translate into financial results. Most notably, I’m very pleased that today I can report to you that the Nokia Group reached underlying profitability for both Q4 2012 and the full year of 2012.

While we remain focused on moving through a transition, we’re encouraged that we are increasing our product competitiveness, changing our clock speed, and better managing our costs. All of these efforts are aimed at improving Nokia’s long-term financial performance.

While the first half of 2012 was very challenging for Nokia, we are committed to conserving cash and lowering our operating expenditures. We are doing this while still investing in technologies to differentiate Nokia.

The Nokia Group ended 2012 with gross cash of €9.9 billion and net cash of €4.4 billion. On a sequential basis, this represents a gross cash increase of €1.1 million and a net cash increase of €800 million. And while this represents a decline on a year-over-year basis, we achieved this result while also incurring restructuring related cash outflows of approximately €1.5 billion and paying a dividend of approximately €750 million in 2012. Thus from a liquidity perspective, we further strengthened our profile and ended the year with a solid cash position. We see this as a tremendous accomplishment in the context of Nokia Group’s overall challenges.

At the same time, we are moving through the Devices & Services transition with agility and efficiency. This progress translated into improved Q4 results in which our Devices & Services Q4 non-IFRS operating margin returned to a positive level.

During the fourth quarter of 2012, we shipped 6.6 million Smart Devices units of which 4.4 million were Lumia devices. We are pleased with the initial consumer response to our new Lumia devices during our early ramp-up period, which also experienced some supply and strengths.

The innovation in the Lumia 920, 820 and 620 started to capture consumers’ attention. People are responding positively to our imaging capabilities, navigation features, and our distinct Nokia design. The feedback from operators continues to be very encouraging, as our confidence in Lumia increases. Now more than ever, operators are pushing for a third ecosystem to emerge, and they are committing to more marketing, more training, and more in-store displays to help Windows Phone and Lumia to grow.

At the same time, we continue to improve our Nokia sells and markets our products. This is a key focus area for the team, as we expand Lumia to more price points in markets. Our Smart Devices team moved through a radical transition and they are focused on delivering more competitive devices to people around the globe.

In our Mobile Phones business, we were able to close a competitive gap at the higher end of our portfolio. We saw this represented by a solid Q4 in which Mobile Phones volumes increased quarter-on-quarter to 80 million units, 9.3 million of these units were Asha full-touch smartphones, up from 6.5 million units in Q3.

During the year, we launched more than a dozen Asha devices, including a range of dual SIM products and affordable full-touch products. The positive response from retailers, operators, and consumers has translated into improved sales.

In key markets like India, Russia, and Saudi Arabia, Asha was the number one selling smartphone during certain months. At the same time the markets where we sell Asha products remain highly competitive, we expect a seasonally weak Q1 and we expect competitive pressures to remain intense.

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