Nokia 2005 Annual Report Download - page 66

In Networks, R&D expenses decreased 2% to EUR 1 170 million compared with EUR 1 194 million
in 2004. In 2005, R&D expenses represented 17.8% of Networks net sales compared with 18.6% in
2004. R&D expenses in 2004 included impairments of capitalized R&D of EUR 115 million due to the
discontinuation of certain products and base station horizontalization projects and an impairment
related to the 3G/WCDMA radio access network project. If these impairments were excluded, R&D
expenses would have increased 8% in 2005. This would have represented 17.8% of Networks net
sales in 2005 compared with 16.8% of its net sales in 2004.
In 2005, Networks selling and marketing expenses decreased by 6% to EUR 475 million compared
with EUR 503 million in 2004. In 2005, selling and marketing expenses represented 7.3% of
Networks net sales compared with 7.8% of its net sales in 2004.
Other operating income and expenses included a gain of EUR 42 million related to the divesture of
the Group’s Tetra business and EUR 18 million gain related to the partial sale of a minority
investment.
Networks 2005 operating profit decreased to EUR 855 million from EUR 884 million in 2004. The
business group’s operating margin for 2005 was 13.0% compared with 13.7% in 2004. The decline
in Networks profitability was primarily due to investments in the growing network services
market, which generally has lower gross margins than equipment sales, as well as intense price
pressure and our ongoing push into markets where historically we have not had a presence.
Common Group Expenses
Common Group expenses totaled EUR 392 million in 2005 compared with EUR 309 million in 2004.
In 2005, this included a EUR 45 million gain for real estate sales and in 2004 a positive item of
EUR 160 million representing the premium return under our multi-line, multi-year insurance
program, which expired during 2004. The return was due to our low claims experience during the
policy period. In 2004, it also included a EUR 12 million negative impact from the divestiture of
our holding in Nextrom Holding S.A.
Net Financial Income
Net financial income totaled EUR 322 million in 2005 compared with EUR 405 million in 2004. Net
financial income included a EUR 57 million gain from the sale of the remaining France Telecom
bond in 2005 and a gain of EUR 106 million from the sale of a portion of the France Telecom bond
in 2004. Interest income decreased due to a lower level of cash and other liquid assets towards
the end of the year due to higher share buybacks. Above mentioned lower gains and lower
interest income were the main reasons for lower net financial income in 2005 than in 2004.
The net debt to equity ratio was negative -77% at December 31, 2005 compared with a net debt to
equity ratio of -79% at December 31, 2004. See ‘‘Item 5.B Liquidity and Capital Resources’’ below.
Profit Before Taxes
Profit before tax and minority interests increased 6% to EUR 4 971 million in 2005 compared with
EUR 4 705 million in 2004. Taxes amounted to EUR 1 281 million and EUR 1 446 million in 2005
and 2004, respectively. Taxes include a tax refund from previous years of EUR 48 million in 2005.
Effective tax rate decreased to 25.8% in 2005 compared with 30.7% in 2004, impacted by the
decrease in the Finnish Corporate tax from 29% to 26%.
Minority Interests
Minority shareholders’ interest in our subsidiaries’ profits totaled EUR 74 million in 2005 compared
with EUR 67 million in 2004.
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