Nokia 2014 Annual Report Download - page 62

60 NOKIA IN 2014
Gross margin
HERE gross margin in 2014 was 75.4% compared to 77.2% in 2013.
The decrease in HERE gross margin was primarily attributable to
certain ongoing expenses that are now recorded as HERE cost of sales,
which were previously recorded as cost of sales by our former Devices
& Services business.
Operating expenses
HERE R&D expenses in 2014 were EUR 545 million, a decrease of
EUR103 million, or 16%, compared to EUR 648 million in 2013.
The decrease was primarily attributable to signicant purchase price
accounting related items of EUR 168 million in 2013 arising from
the purchase of NAVTEQ, the majority of which were fully amortized
in 2013. The decrease was partially oset by higher investments
in targeted growth areas.
HERE selling, general and administrative expenses were
EUR 181 million in 2014, a decrease of EUR 7 million, or 4%,
compared to EUR188 million in 2013. The decrease was primarily
attributable to purchase price accounting related items in 2013
arising from the purchase of NAVTEQ, the majority of which were
fully amortized in 2013.
A goodwill impairment charge of EUR 1 209 million was recorded in
the third quarter 2014. The impairment charge was the result of an
evaluation of the projected nancial performance and net cash ows
resulting in reduced net sales projections. The evaluation incorporated
the slower than expected increase in net sales directly to consumers,
and our plans to curtail our investment in certain higher-risk and
longer-term growth opportunities. It also reected the current
assessment of risks related to the growth opportunities that we
plan to continue pursuing. Refer to Note 10, Impairment, of our
consolidated nancial statements included in this annual report.
HERE other income and expenses increased in 2014 to a net expense
of EUR 37 million from a net expense of EUR 24 million in 2013. The
increase was primarily attributable to higher charges related to the
cost reduction program.
Operating prot/loss
HERE operating loss was EUR 1 241 million in 2014, an increase of
EUR 1 087 million compared to an operating loss of EUR 154 million
in 2013. HERE operating margin in 2014 was negative 127.9%
compared to negative 16.8% in 2013. The increase in operating loss
was primarily attributable to EUR 1 209 million goodwill impairment
charge recorded in the third quarter 2014. Refer to Note 10,
Impairment, of our consolidated nancial statements included in
this annual report. The charge was partially oset by the absence
of signicant purchase price accounting related items arising from
the purchase of NAVTEQ, the majority of which were fully amortized
in 2013.
Global cost reduction program
In 2014, Nokia announced the sharpening of the HERE strategy and
an adjustment to the related long-range plan. As part of its decision
to curtail investments in certain higher risk longer term growth
opportunities, HERE initiated a cost reduction program during the
fourth quarter 2014. Related to this program, HERE recorded charges
of approximately EUR 36 million and had related cash outows of
approximately EUR 12 million in 2014. In total, we estimate the
cumulative charges will amount to approximately EUR 36 million and
related cash outows will amount to approximately EUR 24 million.
Changes in estimates regarding the timing or amount of costs to be
incurred and associated cash ows may become necessary as the
program is being completed.
For the year ended December 31, 2013 compared to the year ended December 31, 2012
The following table sets forth selective line items and the percentage of net sales that they represent for years indicated.
For the year ended December 31
2013
EURm % of net sales
2012
EURm % of net sales
Year-on-year
change %
Net sales 914 100.0 1 103 100.0 (17)
Cost of sales (208) (22.8) (228) (20.7) (9)
Gross prot 706 77.2 875 79.3 (19)
Research and development expenses (648) (70.9) (883) (80.0) (27)
Selling and marketing expenses (119) (13.0) (186) (16.9) (36)
Administrative and general expenses (69) (7.5) (77) (7.0) (10)
Other income and expenses (24) (2.6) (30) (2.7) (20)
Operating loss (154) (16.8) (301) (27.3) (49)
Results of segments continued