Espoo, Finland – October 29, 2013

Q3 2013 Net Sales of EUR 2.6 billion and Operating Margin Before Specific Items of 8.4%

Financial Highlights:

  • Third quarter 2013 net sales of EUR 2 591 million, declined 24.0%2 year-on-year. Excluding divestments of businesses not consistent with NSN’s strategic focus as well as the exiting of certain customer contracts and countries, net sales year-on-year declined by approximately 20%. This was primarily due to reduced wireless infrastructure deployment activity and a negative impact related to foreign currency fluctuations. Net sales decreased 6.1% quarter-on-quarter primarily reflecting seasonality and NSN’s strategic focus.
  • Gross margin before specific items3 was 36.6% in the third quarter 2013, the second highest in our history, and an improvement of 4.2 percentage points from the third quarter 2012, primarily due to a higher gross margin in Global Services. Sequentially this represented a decrease of 1.8 percentage points from the second quarter 2013.
  • Operating expenses before specific items3 in the third quarter 2013 were EUR 732 million, down from EUR 762 million in the third quarter 2012 and slightly up from EUR 722 million in the second quarter 2013. Investment in research and development was reduced in areas not consistent with our strategy and increased in areas that are, most notably LTE. Operating margin before specific items3 was 8.4%, down from 10.1% in the third quarter 2012 and 12.2% in the second quarter 2013.
  • Underlying profitability for the sixth consecutive quarter, with the third quarter operating margin before specific items of 8.4%, reflecting the strong gross margin and continued progress relative to the NSN strategy in a seasonally weak quarter.
  • Free cash flow was EUR 158 million in the third quarter of 2013, compared to EUR 273 million in the third quarter 2012 and EUR 5 million in the second quarter 2013. In the third quarter of 2013, NSN’s free cash flow was affected negatively by approximately EUR 140 million of restructuring-related outflows.
  • On August 7, 2013, Nokia Corporation announced that it had completed the acquisition of Siemens’ stake in NSN1, and as a result, NSN is now wholly owned by Nokia. The transaction was originally announced on July 1, 2013.

Rajeev Suri, Chief Executive Officer of NSN:

“I’m delighted with NSN’s continued strong performance in profitability and cash generation. In 2014, we will focus on strengthening our topline performance, with a particular focus on growth in LTE and Global Services.”

For the full content of NSN’s Interim Report for Q3 2013 and January – September 2013, please visit: http://nsn.com/about-us/company/financial

1 Nokia Siemens Networks was renamed as Nokia Solutions and Networks, also referred to as NSN, and the terms “Nokia Solutions and Networks”, “NSN” and “Nokia Siemens Networks” can be used interchangeably in this interim report.

2 The figures presented on an NSN standalone basis in this Interim Report may differ from those reported by Nokia Corporation (‘Nokia’) due to the treatment of discontinued operations and certain accounting presentation differences. In addition, the presentation of underlying business performance information by Nokia and NSN differs due to presentation differences adopted by Nokia (non-IFRS information) and NSN (information before specific items) and the items excluded by each in their respective presentations.

3 The before specific items financial measures exclude specific items for all periods: restructuring charges, country/contract exit charges, purchase price accounting related charges and other one-time charges. For an analysis of specific items, refer to page 20 of the NSN Q3 2013 interim report.

Operating and Financial Review:

Key financials

The figures presented on an NSN standalone basis in this Interim Report may differ from those reported by Nokia due to the treatment of discontinued operations and certain accounting presentation differences. In addition, the presentation of underlying business performance information by Nokia and NSN differs due to presentation differences adopted by Nokia (non-IFRS information) and NSN (information before specific items) and the items excluded by each in their respective presentations.

The following table sets forth a summary of our results for the quarters indicated, in addition to the year-on-year and sequential growth rates.

From continuing operations

Unaudited

EURm, except percentage data

Q3/2013

Q3/2012

YoY

change

Q3/2013

QoQ

change

Net sales

Gross profit

Gross profit before specific items

Gross margin before specific items

Operating expenses

Operating expenses before specific items

Operating profit (EBIT)

Operating profit (EBIT) margin

EBIT before specific items

EBIT before specific items margin

Profit for the period

Depreciation and amortization (excluding PPA)

EBITDA before specific items1

EBITDA before specific items margin1

2 591

935

949

36.6%

(769)

(732)

166

6.4%

217

8.4%

97

49

266

10.3%

3 408

1 064

1 105

32.4%

(843)

(762)

221

6.5%

343

10.1%

73

67

410

12.0%

(24.0)%

(12.1)%

(14.1)%

4.2pp

(8.8)%

(3.9)%

(24.9)%

(0.1)pp

(36.7)%

(1.7)pp

32.9%

(26.9)%

(35.1)%

(1.7)pp

2 758

956

1 059

38.4%

(820)

(722)

136

4.9%

337

12.2%

15

55

392

14.2%

(6.1)%

(2.2)%

(10.4)%

(1.8)pp

(6.2)%

1.4%

22.1%

1.5pp

(35.6)%

(3.8)pp

546.7%

(10.9)%

(32.1)%

(3.9)pp

1 References to EBITDA are to profit/loss for the period from continuing operations, before income tax expense, financial income and expenses, depreciation, amortization and share of results of associates. Accordingly, EBITDA can be extracted from the Consolidated Financial Statements by taking profit/(loss) for the period and adding back income tax expense, financial income and expenses, depreciation, amortization and share of results of associates.

We are not presenting EBITDA or EBITDA-based measures as measures of our results of operations. EBITDA and EBITDA-based measures have important limitations as an analytical tool, and they should not be considered in isolation or as substitutes for analysis of our results of operations.

Percentage point changes are denoted by ‘pp’ in the above table.

Net sales

The following table sets forth our net sales for the quarters presented in addition to the year-on-year and sequential growth rates by geographic area by location of customer:

Net sales from continuing operations

Unaudited

EURm

Q3/2013

Q3/2012

YoY

change

Q2/2013

QoQ

change

Asia, Middle East and Africa

Europe and Latin America

North America

1 294

998

299

1 846

1 286

276

(29.9)%

(22.4)%

8.3%

1 292

1 123

343

0.2%

(11.1)%

(12.8)%

Total

2 591

3 408

(24.0)%

2 758

(6.1)%

The following tables set forth our net sales and operating profit/loss before specific items by segment for the quarters presented:

Net sales from continuing operations

Unaudited

EURm, except percentage data

Q3/2013

Q3/2012

YoY

change

Q2/2013

QoQ

change

Mobile Broadband

Global Services

All Other Segments

1 259

1 331

1

1 625

1 701

82

(22.5)%

(21.8)%

(98.8)%

1 281

1 459

1

(1.7)%

(8.8)%

0.0%

Total segments

Other

2 591

3 408

(24.0)%

2 741

17

(5.5)%

n/a

Total

2 591

3 408

(24.0)%

2 758

(6.1)%

Operating profit/(loss) before specific items

from continuing operations

Unaudited

EURm, except percentage data

Q3/2013

Q3/2012

YoY

change

Q2/2013

QoQ

change

Mobile Broadband

Global Services

All Other Segments

62

164

(9)

297

46

(79.1)%

256.5%

(100.0)%

112

215

(6)

(44.6)%

(23.7)%

(50.0)%

Total segments

Other

217

343

(36.7)%

321

16

(32.4)%

n/a

Total

217

343

(36.7)%

337

(35.6)%

Operating profit/(loss)% before specific items

from continuing operations

Unaudited

EURm, except percentage data

Q3/2013

Q3/2012

YoY

change

Q2/2013

QoQ

change

Mobile Broadband

Global Services

All Other Segments

4.9%

12.3%

n/a

18.3%

2.7%

n/a

(13.4)pp

9.6pp

n/a

8.7%

14.7%

n/a

(3.8)pp

(2.4)pp

n/a

Total segments

8.4%

10.1%

(1.7)pp

12.2%

(3.8)pp

Percentage point changes are denoted by ‘pp’ in the above table.

The year-on-year decrease of 24.0% in our net sales in the third quarter 2013 was partially due to divestments of businesses not consistent with our strategic focus as well as the exiting of certain customer contracts and countries. Excluding these two factors, our net sales in the third quarter 2013 declined by approximately 20% due to reduced wireless infrastructure deployment activity, which affected both Mobile Broadband and Global Services, and the negative effect of foreign currency fluctuations. The year-on-year decrease in Mobile Broadband was primarily due to lower sales in WCDMA, GSM and CDMA. Within Mobile Broadband, LTE was approximately flat year-on-year as higher sales in North America, Europe and Latin America offset lower LTE sales in Japan and Korea. On a constant currency basis*, our LTE net sales grew year-on-year. The year-on-year decrease in Global Services was primarily due to a reduction in network implementation activity, which is consistent with lower levels of large scale Mobile Broadband deployments, and the exiting of certain customer contracts in line with our strategic focus.

On a regional basis, we had lower cyclical sales in Asia following high levels of operator spending a year ago. The year-on-year decline in Middle East and Africa was primarily due to country exits. The lower year-on-year sales in Europe were primarily related to network modernization and divestments in line with our strategy. The year-on-year sales decline in Latin America was driven by constrained operator spending and certain customer contract exits in line with our strategy.

The sequential decrease of 6.1% in our net sales in the third quarter 2013 was partially due to the exiting of certain customer contracts and countries as well as the divestments of businesses not consistent with our strategic focus. Excluding these two factors, our net sales in the third quarter 2013 decreased by approximately 4%, primarily due to seasonality, which affected both Global Services and Mobile Broadband, and the negative effect of foreign currency fluctuations. The sequential decrease in Global Services net sales was primarily due to lower sales in professional services and customer care services, partially offset by higher sales in network implementation activity. The slight sequential decrease in Mobile Broadband net sales was primarily due to lower seasonal sales. On a regional basis, our net sales decline was primarily related to lower seasonal spending in Europe and lower investments from operators in Latin America.

In the third quarter 2013, Global Services represented 51% of our net sales, compared to 50% in the third quarter 2012 and 53% in the second quarter 2013. In the third quarter 2013, Mobile Broadband represented 49% of our net sales, compared to 48% in the third quarter 2012 and 46% in the second quarter 2013.

At constant currency*, our net sales would have decreased approximately 19% year-on-year and approximately 4% sequentially.

*Excluding the impact of changes in exchange rates in comparison to the Euro, our reporting currency.

Gross margin

On a year-on-year basis, the increase in our gross margin before specific items in the third quarter 2013 was primarily due to a higher gross margin in Global Services related to significant efficiency improvements as a result of our restructuring program and the positive impact related to certain customer contract exits and the divestment of businesses which carried lower gross margin, partially offset by slightly lower gross margin in Mobile Broadband.

On a sequential basis, the decrease in our gross margin before specific items in the third quarter 2013 was primarily due to lower gross margin in both Global Services and Mobile Broadband and the absence of non-recurring IPR income of EUR 17 million that was recognized in the second quarter 2013, partially offset by a better product mix due to a higher proportion of Mobile Broadband net sales. The lower gross margin in Global Services was primarily driven by lower seasonal sales and the absence of the revenue triggered by certain project acceptances which was recognized in the second quarter 2013.  The gross margin decline in Mobile Broadband was primarily due to costs incurred in anticipation of a technology shift to TD-LTE related to major projects in China and lower seasonal sales.

Operating expenses

On a year-on-year and sequential basis, our research and development expenses before specific items were approximately flat in the third quarter 2013.

On a year-on-year and sequential basis, our sales and marketing expenses before specific items decreased 17.8% and 9.5%, respectively, in the third quarter 2013 primarily due to personnel related and other structural cost savings from our transformation and restructuring program.

Our general and administrative expenses before specific items increased 13.0% year-on-year and 0.8% sequentially in the third quarter 2013. On a year-on-year basis, general and administrative expenses before specific items were higher, primarily due to consultancy fees related to information technology and other projects.

Our other income and expenses before specific items for the third quarter 2013 was income of EUR 2 million, compared to expense of EUR 4 million in the third quarter 2012, and income of EUR 29 million in the second quarter 2013. On a year-on-year basis, the change in other income and expenses before specific items was primarily due to a reduction in doubtful account allowances, partially offset by the negative effect of foreign currency fluctuations. On a sequential basis, the change was primarily due to positive impacts in the second quarter 2013 related to the gain on sale of real estate and the reduction in doubtful account allowances.

Operating margin

The year-on-year decrease in our operating margin before specific items, was primarily due to a lower operating margin in Mobile Broadband, partially offset by a higher operating margin in Global Services. On a year-on-year basis, the 13.4 percentage point decline in Mobile Broadband operating margin was primarily due to higher operating expenses as a percentage of net sales, and to a lesser extent by slightly lower gross margin. The year-on-year 9.6 percentage point increase in Global Services operating margin was primarily due to higher gross margin and lower operating expenses as a percentage of net sales.

On a sequential basis, operating margin before specific items decreased due to lower operating margin for both Global Services and Mobile Broadband which declined by 2.4 and 3.8 percentage points, respectively. The sequential decline in Global Services and Mobile Broadband operating margin was primarily due to lower gross margin and, to a lesser extent, higher operating expenses as a percentage of net sales.

On a year-on-year basis, our operating margin after specific items was approximately flat. The other income offset other expenses in the third quarter 2013, compared to an expense of EUR 9 million in the third quarter 2012.

On a sequential basis, operating margin after specific items increased primarily due to lower restructuring related charges in the third quarter 2013. In the second and third quarters 2013, other income offset other expenses.

Financial income and expenses

In the third quarter 2013, we incurred a net gain in financial income and expenses of EUR 5 million compared to a net expense of EUR 96 million in the third quarter 2012 and a net expense of EUR 35 million in the second quarter 2013. Our financial income and expenses consisted of financial expenses of EUR 22 million (EUR 28 million in the third quarter 2012 and EUR 25 million in the second quarter 2013), primarily relating to interest expense on interest-bearing liabilities, and financial income of EUR 6 million (EUR 3 million in the third quarter 2012 and EUR 5 million in the second quarter 2013). Our other financial results consist primarily of net foreign exchange gains of EUR 24 million (losses of EUR 68 million in the third quarter 2012 and EUR 13 million in the second quarter 2013). The decrease in net foreign exchange losses compared to the second quarter 2013 is mainly due to a positive impact from unhedgeable currency risk and movements in foreign exchange rates. The net foreign exchange losses during the third quarter 2012 were mainly due to weakening of currencies that could not be hedged and the cost of hedging.

Income tax expense

In the third quarter 2013, we incurred income tax expense of EUR 78 million compared to EUR 56 million in the third quarter 2012. The income tax expense in the third quarter 2012 was lower due to the profit mix across the various jurisdictions where we pay income tax. In the second quarter 2013, we incurred an income tax expense of EUR 85 million.

We periodically assess our unrecognized deferred tax assets. At the end of the third quarter 2013, we have a total of approximately EUR 1.7 billion unrecognized net deferred tax assets, of which approximately EUR 1.5 billion relate to Finland (calculated at 24.5% tax rate) and have not been recognized in the financial statements due to our history of losses in Finland. Our tax rate may vary significantly period to period and is impacted by the non-recognition of the Finnish deferred tax assets as well as the mix of profitability in our subsidiaries and payments of foreign withholding taxes in certain overseas jurisdictions. The majority of our Finnish deferred tax assets are indefinite in nature and available against future Finnish tax liabilities. There is a draft Government proposal to reduce the Finnish corporate tax rate to 20% from January 1, 2014 which would correspondingly reduce the amount of any recognizable net deferred tax assets in the future.

Net profit

Including the continued restructuring and other one-time charges recorded in the third quarter 2013, we reported net profit of EUR 97 million, up from EUR 34 million in the third quarter 2012 and a net loss of EUR 113 million in the second quarter 2013.

Transformation and restructuring program

Restructuring related charges and cash outflows

The following table sets forth a summary of our cost reduction activities and planned operational adjustments.

EURm

Q3/2013 (approximate)

Cumulative up to Q3/2013 (approximate)

Q4/2013 (approximate estimate)

2013 (approximate estimate)

2014 (approximate estimate)

Total (approximate estimate)

Restructuring- related charges

39

1 750

Not provided

1 800

Restructuring- related cash outflows

140

1 100

200

650

300

1 600

We continue to target to reduce annualized operating expenses and production overheads, excluding specific items, by more than EUR 1.5 billion by the end of 2013, compared to the end of 2011. In conjunction with this restructuring program, we continue to estimate total restructuring related charges of approximately EUR 1.8 billion as well as total restructuring related cash outflows of approximately EUR 1.6 billion.

Non-cash charges and timing differences account for the differences between the above charges and the corresponding cash out-flows. Changes in estimates of timing or amounts of costs to be incurred and associated cash flows may become necessary as the transformation and restructuring program is implemented.

At the end of the third quarter 2013, we had approximately 49 100 employees, a reduction of approximately 11 500 compared to the end of the third quarter 2012, and approximately 1 400 compared to the end of the second quarter 2013.

Q3 2013 Operating Highlights:

  • Mobile broadband deal momentum continued and during the quarter we were selected by Tele2 Netherlands to deliver 4G and related services nationwide; appointed by Celcom in Malaysia to supply 4G network infrastructure and services; expanded the 2G network and renewed services contracts in Southern Iraq for Korek Telecom; launched commercial LTE services in Paris for SFR; were appointed by Mobily in Saudi Arabia, to further modernize and expand its 2G, 3G and 4G networks; were chosen by MTS to provide a network upgrade and services in the Ukraine; and deployed FDD-LTE and a full range of services for MTS in the Moscow and Central Russia regions.
  • We continue to lead in 4G technology, and by September, had helped all three major Korean operators – SK Telecom, LG U+ and Korea Telecom – to become the world’s first to launch LTE-Advanced commercially, using the capabilities of our Flexi Multiradio Base Stations. During September, we also demonstrated the world’s first 4G TD-LTE network trial showing that Authorized Shared Access (ASA) is paving the way for future 5G networks. For the live trial, we deployed our network elements – commercial Single RAN Flexi MultiRadio 10 Base Stations, commercial Core Network and commercial NetAct network management system – in three Finnish cities.
  • In August, industry analyst firm, Gartner, positioned us in the ‘Leaders’ quadrant of the Magic Quadrant for LTE Network Infrastructure, for the second consecutive year. The ranking – based on an evaluation of the company’s product development and innovation, financial performance, and customer references – places us among the three global network suppliers best positioned to support a mobile operator’s future in LTE, TD-LTE and LTE-Advanced.
  • We continue to invest in innovation to stay at the forefront of mobile broadband. In July, with CDNetworks, we began working to accelerate the delivery of benefits from Liquid Applications, driving a step change in the mobile broadband experience and opening up new revenue streams for operators. In September, with SK Telecom, we completed the world’s first proof-of-concept of Liquid Applications over LTE, achieving a major milestone for enhancing the mobile broadband experience. The successful testing was conducted with three advanced services over LTE: location-based mobile advertising, augmented reality and premium application delivery.
  • We have completed comprehensive testing of mobile voice core services running in the Telco Cloud and in July we confirmed that our cloud technology is on the brink of commercial deployment. We successfully demonstrated an exhaustive set of use cases covering Voice over LTE (VoLTE) based on IP Multimedia Subsystem (IMS) and full cloud orchestration, including cloud application management capabilities.
  • In July, our Customer Experience Management (CEM) contract with Beijing Mobile was extended, to implement an extensive Quality of Experience solution, further improving our end-user customer experience, linking network performance with subscriber satisfaction and application behavior.

About NSN:

Nokia Solutions and Networks is the world’s specialist in mobile broadband. From the first ever call on GSM, to the first call on LTE, we operate at the forefront of each generation of mobile technology. Our global experts invent the new capabilities our customers need in their networks. We provide the world’s most efficient mobile networks, the intelligence to maximize the value of those networks, and the services to make it all work seamlessly.

With headquarters in Espoo, Finland, we operate in over 120 countries and had net sales of approximately 13.4 billion euros in 2012. NSN is wholly owned by Nokia Corporation. http://www.nsn.com.