NOKIA 2Q PROFITS AND MARGINS UP — REVENUES IN LINE WITH GUIDANCE

 Second quarter 2002 compared with second quarter 2001:

-  Net sales decreased 6% to EUR 6 935 million (EUR 7 346 million in 2Q 2001)

-  Pro forma operating profit increased to EUR 1 260 million (EUR 1 137 million); pro forma operating margin increased to 18.2% (15.5%)

-  Reported operating profit increased to EUR 1 221 million (EUR 856 million): reported operating margin increased to 17.6% (11.7%)

-  Pro forma adjustments: EUR 52 million in goodwill amortization and a EUR 13 million positive adjustment related to the earlier Dolphin write-off in 3Q 2001

-  Pro forma earnings per share (diluted) increased to EUR 0.19 (EUR 0.17)

-  Reported (IAS) net profit increased to EUR 862 million (EUR 589 million) and reported earnings per share (diluted) increased to EUR 0.18 (EUR 0.12)

-  Operating cash flow increased to EUR 1 410 million (EUR 790 million)

 

JORMA OLLILA, CHAIRMAN AND CEO:

Thanks to our consistent record of strong execution and tight cost control, we were able to put in a solid second quarter. Pro forma operating profit, in particular, showed year-on-year growth of 11%, generating a very strong operating cash flow of EUR 1.4 billion. In mobile phones, we saw pro forma operating profit grow by 22%. For these achievements in a difficult environment my thanks go to the whole Nokia team.

 

During the quarter, our winning product portfolio brought further gains in mobile phone market share, which rose both sequentially and year on year to over 38%. We also expect our full-year 2002 market share to show an increase on last year's 37%.

 

Shipments of the new Symbian-based Nokia 7650 camera and PDA phone began in Europe and Asia Pacific, with priority given to markets where operators have already launched their MMS services. Initial feedback from customers and users across the board has been extremely positive.

 

As we enter the second half we are seeing a clear and concrete shift. Feature-rich multimedia products with color screens offering compelling new services are now in the hands of consumers. We also see this driving demand as consumers and business people, motivated by new communications possibilities, move to upgrade their existing phones or even look towards owning more than one device. 

 

Nokia is preparing for a string of new product launches for the remainder of the year, including a major step in September with the introduction of our first dual-mode WCDMA/GSM phone and our first 3G network. Depending on operator schedules in WCDMA networks, we expect the 3G business system to be mature enough for commercial handset shipments by early 2003.

Interoperability is requisite for the success of advanced mobile services and our industry is supporting this through the Open Mobile Alliance. In the last few months, a lot of progress has been made to ensure that technologies and services function together for consumers on any network and terminal.

 

Economic conditions in the latter part of the year will continue to be hard. We see ourselves as very competitively positioned to lead the industry into the next mobile communications growth phase.

 

 

 

2Q 2002	PRO FORMA  (excludes goodwill amortization and non-recurring items)			REPORTED
EUR (million)	2Q/2002	2Q/2001	Change (%)	2Q/2002	2Q/2001	Change (%)
Net sales	6 935	7 346	-6	6 935	7 346	-6
Nokia Mobile Phones	5 398	5 349	1	5 398	5 349	1
Nokia Networks	1 474	1 896	-22	1 474	1 896	-22
Nokia Ventures Organization	106	134	-21	106	134	-21
Operating profit	1 260	1 137	11	1 221	856	43
Nokia Mobile Phones	1 171	960	22	1 148	902	27
Nokia Networks	171	300	-43	161	240	-33
Nokia Ventures Organization	-63	-92	32	-69	-255	73
Common Group Expenses	-19	-31		-19	-31
Operating Margin (%)	18.2	15.5		17.6	11.7
Nokia Mobile Phones (%)	21.7	17.9		21.3	16.9
Nokia Networks (%)	11.6	15.8		10.9	12.7
Nokia Ventures Organization (%)	-59.4	-68.7		-65.1	-190.3
Financial income and expenses	39	27	44	39	27	44
Profit before tax and   minority interests	1 292	1 166	11	1 253	885	42
Net profit	905	830	9	862	589	46
EPS, EUR
Basic	0.19	0.18	6	0.18	0.13	38
Diluted	0.19	0.17	12	0.18	0.12	50

 

 

1H 2002	PRO FORMA  (excludes goodwill amortization and non-recurring items)			REPORTED
EUR (million)	1H/2002	1H/2001	Change (%)	1H/2002	1H/2001	Change (%)
Net sales	13 949	15 353	-9	13 949	15 353	-9
Nokia Mobile Phones	10 836	11 179	-3	10 836	11 179	-3
Nokia Networks	2 910	3 918	-26	2 910	3 918	-26
Nokia Ventures Organization	263	303	-13	263	303	-13
Operating profit	2 546	2 577	-1	2 455	2 225	10
Nokia Mobile Phones	2 379	2 167	10	2 333	2 085	12
Nokia Networks	317	664	-52	283	585	-52
Nokia Ventures Organization	-93	-194	52	-104	-385	73
Common Group Expenses	-57	-60		-57	-60
Operating Margin (%)	18.3	16.8		17.6	14.5
Nokia Mobile Phones (%)	22.0	19.4		21.5	18.7
Nokia Networks (%)	10.9	16.9		9.7	14.9
Nokia Ventures Organization (%)	-35.4	-64.0		-39.5	-127.1
Financial income and expenses	74	74	-	74	74	-
Profit before tax and   minority interests	2 605	2 651	-2	2 514	2 299	9
Net profit	1 820	1 876	-3	1 725	1 564	10
EPS, EUR
Basic	0.38	0.40	-5	0.36	0.33	9
Diluted	0.38	0.39	-3	0.36	0.33	9

 

Nokia's second-quarter sales declined by 6% compared with the second quarter 2001. Sales for Nokia Mobile Phones grew by 1% compared with the previous year, reflecting growth in Asia Pacific and Europe, offset by lower sales in the Americas. Sales for Nokia Networks showed a year-on-year decline of 22%, with continued lower-than-expected 2G investments in China and Europe, partially offset by steady growth in the US.

Sales for the Nokia group in the third quarter 2002 are anticipated to be in the range of EUR 7.2 billion to EUR 7.6 billion, compared with EUR 7.0 billion in the third quarter 2001. Overall sales growth for the second half is then estimated to be between 3% and 10%. Sales growth will be driven by volume deliveries of a number of advanced high value-added models during the second half and revenue recognized from 3G network sales, assuming the necessary technology milestones are satisfied.

Nokia's profitability outlook remains strong, reflecting the company's operational efficiencies and cost control. Third-quarter pro forma earnings per share (diluted) is expected to be in the range of EUR 0.15 to EUR 0.17. Management expects to see full-year pro forma earnings per share (diluted) in the range of EUR 0.79 to EUR 0.84.

Pro forma operating margins for Nokia Mobile Phones are expected to continue at around 20% for the second half of 2002, with the fourth quarter being stronger than the third. Nokia Networks pro forma operating margins are estimated to remain at approximately the 10% level for the rest of the year, while Nokia Ventures Organization is expected to post a pro forma loss of around EUR 150 million for 2002.

 

Full-year handset market estimate about 400 million

Nokia estimates full-year 2002 market volume at about 400 million units sold. All regions are estimated to show growth of approximately 5% led by the Americas and Asia-Pacific and followed by Europe.

 

Nokia's mobile phone sales volume in the second quarter of 2002 increased year on year by 12% to about 36 million. This clearly outpaced overall market volume, which is estimated to have grown by about 4% to around 93 million units.

 

Year-on-year overall market volume growth was strongest in the Americas followed by Europe, while Asia-Pacific declined slightly, largely due to slow replacement sales in Japan and South Korea. GSM clearly continues to be the largest cellular standard. During the first half, GSM and CDMA showed modest growth, while TDMA remained flat and the Japanese PDC market declined.

 

Based on second-quarter developments, Nokia continues to expect an annual decline in the GSM and overall infrastructure market in 2002. Major operators in Europe and Asia are scheduled to start their multimedia messaging services during the second half 2002.

 

At the end of June, outstanding long-term customer loans totaled EUR 1 555 million (EUR 1 128 million at December 31, 2001), while guarantees given on behalf of third parties totaled EUR 121 million (EUR 127 million). In addition, Nokia had financing commitments totaling EUR 2 542 million (EUR 2 955 million). Of the total committed and outstanding customer financing at the end of June, EUR 3 569 million (EUR 3 607 million) related to 3G networks.

 

Nokia's German operator customer MobilCom, to which the company has provided long-term financing of EUR 752 million, is currently restructuring its financing. These arrangements may involve vendor participation in the form of rescheduling or other restructuring of financing terms. Discussions are ongoing as to the exact nature of the restructuring. An agreement is expected to lead to a reassessment of the valuation of Nokia's current MobilCom receivables or any alternative security through a charge of a material portion of such receivables against earnings during the third quarter of 2002. This charge would be excluded from pro forma earnings.

 

During the first six months of 2002, Nokia Mobile Phones announced and started shipping a record 20 new mobile phone models. The company plans to announce and ship further new phones during the second half, bringing the full-year total of new products shipping to more than 30.

 

During the second quarter, Nokia started shipping 12 new phones, representing several different product categories in Nokia's mobile phone portfolio, and incorporating a number of key enabling technologies. These included the Nokia 7650, the company's first imaging model with an integrated VGA resolution digital camera for multimedia messaging. Running on the Symbian Operating System, the Nokia 7650 includes both GPRS and HSCSD connections, WAP and email, Bluetooth and infrared, and MIDP Java™ support.

 

Other breakthrough deliveries were the Nokia 6370, the company's first CDMA/1X model for North America, and the first mass-volume GPRS and MMS-enabled GSM model, the Nokia 3510, which began shipping in Europe and Asia Pacific. Another volume GSM model, the Nokia 3410 with Java™, started shipping in Europe. In June, Nokia started deliveries of a new China-specific model, the Nokia 3610, and in July commenced shipments of its first GAIT (GSM/TDMA) model, the Nokia 6340 in the US.

 

The current quarter will bring further key deliveries, such as the tri-band GSM models: the Nokia 7210 and 6610, both with Java™, MMS and color displays, as well as the Nokia 6590 and 3590 for GSM 850/1900/GPRS in the Americas, supporting XHTML.

 

Nokia welcomes the formation of the 200-member Open Mobile Alliance, providing new impetus for the next industry growth phase. The alliance is working to ensure interoperable services across countries, networks and handsets through open standards and platforms.

 

In order to accelerate this unprecedented move towards a global, interoperable mobile services market, Nokia is licensing its Series 60 smartphone software to other manufacturers. During the quarter, Series 60 licensing agreements were signed with Matsushita and Siemens. The Nokia Series 60 incorporates key enabling technologies, such as MMS and Java™.

 

NOKIA NETWORKS

In WCDMA and EDGE network infrastructure, Nokia is delivering 3G equipment in 23 countries to 42 operators, of which 26 are in full commercial volume deliveries. The value of inventory related to work in progress on 3G amounted to EUR 686 million at the end of June. During the quarter, the company was selected as a 3G radio network supplier to mmO2 in the UK, Germany and Ireland. Nokia also signed contracts with Hutchison 3G Austria to supply its 3G core network and with Radiolinja in Finland for its 2G and 3G radio and core networks.

 

Major operators in Europe and Asia are scheduled to start their multimedia messaging services during the second half, 2002. Nokia was selected as a supplier of multimedia messaging infrastructure by several operators, including TIM in Italy, the Telefonica Moviles Group, mmO2 across its European markets and M1 in Singapore.

 

Nokia signed GSM contracts with eight operators, including a GSM/GPRS/EDGE radio network expansion contract with AT&T Wireless, further strengthening the position of GSM technology in the US market.

 

Nokia Ventures Organization continued to identify and develop new business opportunities for Nokia.

A modest recovery in the VPN and firewall security appliance market continued to carry over into the second quarter for Nokia Internet Communications. The unit was further strengthened by a record number of new product announcements, entry into the small office security appliance segment, the launch of the Nokia Security Developers Alliance program and ongoing solution bundling with strategic partners: Check Point Software Technologies, ISS and F5. Nokia Venture Partners opened an office in South Korea and made its first investment in the Asia Pacific region.

 

 

NOKIA IN JANUARY–June 2002 REPORTED

 

(International Accounting Standards (IAS) comparisons given to the second quarter 2001 results unless otherwise indicated)

 

Nokia's net sales decreased by 6% to EUR 6 935 million (EUR 7 346 million). Sales of Nokia Mobile Phones increased by 1% to EUR 5 398 million (EUR 5 349 million). Sales of Nokia Networks decreased by 22% to EUR 1 474 million (EUR 1 896 million). Sales of Nokia Ventures Organization decreased by 21% and totaled EUR 106 million (EUR 134 million).

 

Operating profit increased by 43% to EUR 1 221 million (EUR 856 million), representing an operating margin of 17.6% (11.7%). Operating profit in Nokia Mobile Phones increased by 27% to EUR 1 148 million (EUR 902 million), representing an operating margin of 21.3% (16.9%). Operating profit in Nokia Networks decreased by 33% to EUR 161 million (EUR 240 million), representing an operating margin of 10.9% (12.7%). Nokia Ventures Organization reported an operating loss of EUR 69 million (operating loss of EUR 255 million). Common Group Expenses, which comprises Nokia Head Office and Nokia Research Center, totaled EUR 19 million (EUR 31 million).

 

Financial income totaled EUR 39 million (EUR 27 million). Profit before tax and minority interests was EUR 1 253 million (EUR 885 million). Net profit totaled EUR 862 million (EUR 589 million). Earnings per share increased to EUR 0.18 (basic) and to EUR 0.18 (diluted) compared with EUR 0.13 (basic) and EUR 0.12 (diluted) in the second quarter 2001.

 

First half 2002

(IAS comparisons given to the first half 2001 results unless otherwise indicated)

 

Nokia's net sales decreased by 9% to EUR 13 949 million (EUR 15 353 million). Sales of Nokia Mobile Phones decreased by 3% to EUR 10 836 million (EUR 11 179 million). Sales of Nokia Networks decreased by 26% to EUR 2 910 million (EUR 3 918 million). Sales of Nokia Ventures Organization decreased by 13% and totaled EUR 263 million (EUR 303 million).

 

Operating profit increased by 10% to EUR 2 455 million (EUR 2 225 million), representing an operating margin of 17.6% (14.5%). Operating profit in Nokia Mobile Phones increased by 12% to EUR 2 333 million (EUR 2 085 million), representing an operating margin of 21.5% (18.7%). Operating profit in Nokia Networks decreased by 52% to EUR 283 million (EUR 585 million), representing an operating margin of 9.7% (14.9%). Nokia Ventures Organization reported an operating loss of EUR 104 million (operating loss of EUR 385 million). Common Group Expenses, which comprises Nokia Head Office and Nokia Research Center, totaled EUR 57 million (EUR 60 million).

 

Financial income totaled EUR 74 million (EUR 74 million). Profit before tax and minority interests was EUR 2 514 million (EUR 2 299 million). Net profit totaled EUR 1 725 million (EUR 1 564 million). Earnings per share increased to EUR 0.36 (basic) and to EUR 0.36 (diluted) compared with EUR 0.33 (basic) and EUR 0.33 (diluted) in the first half 2001.

 

The average number of employees during the first half was 53 028. At June 30, Nokia employed a total of 52 970 people (53 849 people at December 31, 2001).

 

At June 30, 2002, net debt-to-equity ratio (gearing) was -42% (-41% at December 31, 2001). During the January to June period in 2002, capital expenditures amounted to EUR 262 million (EUR 625 million).

 

On June 30, the Group companies owned 1 077 797 Nokia shares. The shares had an aggregate par value of EUR 64 667.82, representing 0.02% of the share capital of the company and the total voting rights. The number of issued shares on June 30 was 4 753 226 997 and the share capital was EUR 285 193 619.82.