Nokia 2014 Annual Report Download - page 60

58 NOKIA IN 2014
Operating expenses
Nokia Networks R&D expenses decreased 11% year-on-year in 2013
to EUR 1 822 million from EUR 2 046 million in 2012, primarily due to
business divestments and reduced investment in business activities
not in line with Nokia Networks focused strategy as well as increased
R&D eciency, partially oset by higher investments in business
activities that are in line with Nokia Networks focused strategy,
most notably LTE.
Nokia Networks sales and marketing expenses decreased 29%
year-on-year in 2013 to EUR 821 million from EUR 1 158 million in
2012, primarily due to structural cost savings from Nokia Networks
restructuring program and a decrease in purchase price accounting
related items arising from the formation of Nokia Networks, which
were fully amortized at the end of the rst quarter of 2013.
Nokia Networks administrative and general expenses increased 4%
year-on-year in 2013 to EUR 489 million from EUR 470 million in 2012,
primarily due to consultancy fees related to nance and information
technology related projects, partially oset by structural cost savings.
Nokia Networks other income and expenses decreased in 2013 to an
expense of EUR 582 million from an expense of EUR 1 290 million in
2012. In 2013, other income and expenses included restructuring
charges of EUR 570 million, including EUR 52 million related to country
and contract exits and EUR 157 million related to divestments of
businesses, and in 2012 included restructuring charges and associated
charges of EUR 1 226 million, including EUR 42 million related to
country and contract exits, divestment of businesses EUR 50 million,
impairment of assets of EUR 2 million, a negative adjustment of
EUR 4 million to purchase price allocations related to the nal payment
from Motorola, as well as amortization of acquired intangible assets
of EUR 23 million.
Operating prot/loss
Nokia Networks operating prot in 2013 was EUR 420 million,
compared with an operating loss of EUR 795 million in 2012. Nokia
Networks operating margin in 2013 was 3.7%, compared with a
negative 5.8% in 2012. The increase in operating prot was primarily
aresult of an increase in the contribution of Global Services and a
reduction in costs associated with Nokia Networks transformation,
consisting mainly of restructuring charges. Further, the purchase price
accounting related items arising from the formation of Nokia Networks
were fully amortized at the end of the rst quarter of 2013.
The contribution of Mobile Broadband declined from EUR 490 million
in 2012 to EUR 420 million in 2013, primarily as a result of lower net
sales, which was partially oset by an improved gross margin and a
reduction in operating expenses.
The contribution of Global Services increased from EUR 334 million in
2012 to EUR 693 million in 2013, as the increase in gross margin more
than compensated for the decline in net sales, and the contribution
in 2013 was further supported by a reduction in operating expenses.
Strategy and restructuring program
In November 2011, Nokia Networks announced its strategy to focus
onmobile broadband and related services, and also launched an
extensive global restructuring program, targeting a reduction of its
annualized operating expenses and production overhead, excluding
special items and purchase price accounting related items, by
EUR 1 billion by the end of 2013, compared to the end of 2011. In
January 2013, this target was raised to EUR 1.5 billion, and in July
2013 this target was further raised to “more than EUR 1.5 billion”.
While these savings were expected to come largely from organizational
streamlining, the program also targeted areas such as real estate,
information technology, product and service procurement costs,
overall general and administrative expenses, and a signicant
reduction of suppliers in order to further lower costs and improve
quality. In 2013, Nokia Networks achieved its target to reduce
operating expenses and production overhead, excluding special items
and purchase price accounting items, by more than EUR 1.5 billion
by the end of 2013, compared to the end of 2011.
During 2013, Nokia Networks recognized restructuring charges and
other associated items of EUR 550 million related to this restructuring
program, resulting in cumulative charges of approximately EUR 1 850
million. By the end of 2013, Nokia Networks had cumulative
restructuring related cash outows of approximately EUR 1 250 million
relating to this restructuring program. Nokia Networks expects
restructuring related cash outows to be approximately EUR 450
million for the full year 2014 relating to this restructuring program.
Results of segments continued