Nokia in 2006 Review by the Board of Directors and Nokia Annual Accounts 2006 Key data 2006 ....................................................................................................................................... 2 Review by the Board of Directors ............................................................................................... 3 Annual Accounts 2006 Consolidated profi t and loss accounts, IFRS ..................................................................................... 8 Consolidated balance sheets, IFRS ...................................................................................................... 9 Consolidated cash fl ow statements, IFRS ....................................................................................... 10 Consolidated statements of changes in shareholders’ equity, IFRS ........................................ 12 Notes to the consolidated fi nancial statements ........................................................................... 13 Profi t and loss accounts, parent company, FAS ............................................................................. 42 Balance sheets, parent company, FAS .............................................................................................. 42 Cash fl ow statements, parent company, FAS ................................................................................. 43 Notes to the fi nancial statements of the parent company ........................................................ 44 Nokia shares and shareholders ......................................................................................................... 48 Nokia Group 2002 – 2006, IFRS ........................................................................................................... 52 Calculation of key ratios ...................................................................................................................... 54 Proposal by the Board of Directors to the Annual General Meeting ........................................ 55 Auditors’ report ..................................................................................................................................... 56 Additional information US GAAP .................................................................................................................................................... 58 Critical accounting policies ................................................................................................................ 62 Group Executive Board ........................................................................................................................ 66 Board of Directors ................................................................................................................................. 68 Corporate governance ......................................................................................................................... 70 Investor information ............................................................................................................................ 87 Contact information ............................................................................................................................. 88 Key data Based on fi nancial Nokia, EURm 2006 2005 Change, % statements according to International Financial Net sales 41 121 34 191 20 Reporting Standards, IFRS Operating profi t 5 488 4 639 18 Profi t before taxes 5 723 4 971 15 Net profi t 4 306 3 616 19 Research and development 3 897 3 825 2 Return on capital employed 45.8 36.3 Net debt to equity (gearing) – 68 – 76 EUR Earnings per share, basic 1.06 0.83 28 Dividend per share 0.43 * 0.37 16 Average number of shares (1 000 shares) 4 062 833 4 365 547 * Board’s proposal Business Groups, EURm 2006 2005 Change, % Mobile Phones Net sales 24 769 20 811 19 Operating profi t 4 100 3 598 14 Multimedia Net sales 7 877 5 981 32 Operating profi t 1 319 836 58 Enterprise Solutions Net sales 1 031 861 20 Operating profi t – 258 – 258 Networks Net sales 7 453 6 557 14 Operating profi t 808 855 – 5 Personnel, December 31 2006 2005 Change, % Mobile Phones 3 409 2 716 26 Multimedia 3 397 2 799 21 Enterprise Solutions 2 308 2 092 10 Networks 21 061 18 332 15 Common Group Functions 38 308 32 935 16 Nokia Group 68 483 58 874 16 10 major markets, net sales, EURm 2006 2005 China 4 913 3 403 USA 2 815 2 743 Main currencies, rates India 2 713 2 022 at the end of 2006 UK 2 425 2 405 Germany 2 060 1 982 Russia 1 518 1 410 1 EUR USD 1.3123 Italy 1 394 1 160 GBP 0.6703 Spain 1 139 923 SEK 9.0504 Indonesia 1 069 727 JPY 155.18 Brazil 1 044 614 10 major countries 2006 2005 Personnel, December 31 Finland 23 894 23 485 China 7 191 5 860 India 6 494 1 609 United States 5 127 5 883 Hungary 4 947 4 186 Germany 3 887 3 610 Mexico 2 764 1 901 UK 2 317 1 956 Brazil 1 960 2 184 Denmark 1 377 1 362 2 Nokia in 2006 Review by the Board of Directors 2006 Nokia’s net sales increased 20% to EUR 41 121 million Nokia’s total workforce, and had a strong research » Announcement and fi rst shipments of the (EUR 34 191 million). Sales of Mobile Phones increased and development presence in 11 countries. “L’Amour II” collection of fashion-inspired mobile 19% to EUR 24 769 million (EUR 20 811 million). Sales Administrative and general expenses were EUR phones, in three different form factors and two of Multimedia increased 32% to EUR 7 877 million 0.7 billion in 2006, compared to EUR 0.6 billion in 2005. color schemes, including Nokia’s fi rst fashion 3G (EUR 5 981 million). Sales of Enterprise Solutions Administrative and general expenses were equal to phone. increased 20% to EUR 1 031 million (EUR 861 million). 1.6% of net sales in 2006 (1.8%). » The expansion of Nokia’s range of music-opti- Sales of Networks increased 14% to EUR 7 453 million In 2006, net fi nancial income was EUR 207 million mized devices with the announcement and fi rst (EUR 6 557 million). (EUR 322 million, including EUR 57 million gain for the shipments of the Nokia 5300 XpressMusic, Nokia In 2006, Europe accounted for 38% of Nokia’s net sale of the France Telecom bond in 2005). 5200 and Nokia 3250 XpressMusic. sales (42% in 2005), Asia-Pacifi c 20% (18%), China 13% Profi t before tax and minority interests was » A new edition to Nokia’s ‘active’ product offering (11%), North America 7% (8%), Latin America 9% (8%), EUR 5 723 million (EUR 4 971 million). Net profi t with the announcement and fi rst shipments of and Middle East & Africa 13% (13%). The 10 markets in totaled EUR 4 306 million (EUR 3 616 million). Earnings the Nokia 5500 Sport, a smartphone with a sleek, which Nokia generated the greatest net sales in 2006 per share increased to EUR 1.06 (basic) and EUR 1.05 sporty design and athletic lifestyle appeal. were, in descending order of magnitude, China, the US, (diluted), compared to EUR 0.83 (basic) and EUR 0.83 India, the UK, Germany, Russia, Italy, Spain, Indonesia (diluted) in 2005. » The refreshment of the popular Nokia 1100 series and Brazil, together representing 51% of total net Operating cash fl ow for the year ended De- with the announcement and fi rst shipments of sales in 2006. In comparison, the 10 markets in which cember 31, 2006 was EUR 4.5 billion (EUR 4.1 billion the Nokia 1110i and Nokia 1112 black and white Nokia generated the greatest net sales in 2005 were in 2005) and total combined cash and other liquid display models. China, the US, the UK, India, Germany, Russia, Italy, assets were EUR 8.5 billion (EUR 9.9 billion in 2005). As » Announcement and fi rst shipments of the Nokia Spain, Saudi Arabia and France, together representing of December 31, 2006, our net debt-to-equity ratio 2310, Nokia 2610 and Nokia 2626 color display 52% of total net sales in 2005. (gearing) was – 68% (– 76% as of December 31, 2005). models, widening Nokia’s color screen product Nokia’s operating profi t for 2006 increased 18% In 2006, capital expenditure amounted to EUR 650 offering for entry users. to EUR 5 488 million, including net positive special million (EUR 607 million). items of EUR 87 million (operating profi t of EUR 4 639 million in 2005, including net positive special items of Multimedia EUR 80 million), representing a 2006 operating margin of 13.3% (13.6%). Operating profi t in Mobile Phones In 2006, Multimedia continued to build the Nokia increased 14% to EUR 4 100 million (operating profi t Operating highlights in 2006 Nseries sub-brand and multimedia computer of EUR 3 598 million in 2005), representing a 2006 category by bringing new products and applications operating margin of 16.6% (17.3%). Operating profi t in to the market. Multimedia also continued sales of Multimedia increased to EUR 1 319 million (operating Mobile Phones pre-Nokia Nseries multipurpose mobile devices, such profi t of EUR 836 million in 2005), representing a 2006 as the Nokia 7610 and Nokia 6600. operating margin of 16.7% (14.0%). Enterprise Solu- During 2006, Mobile Phones introduced 39 new mobile tions operating loss was EUR 258 million (operating device models, including 11 CDMA models. Of the total Highlights from 2006 include: loss of EUR 258 million in 2005). Operating profi t in devices introduced, 23 were in the mid range or high » In the third quarter, we announced the acquisi- Networks decreased to EUR 808 million, including net end, while 7 were at the entry level. tions of Loudeye, a global leader in digital music positive special items of EUR 237 million (operating platforms, and gate5, a leading supplier of map- profi t of EUR 855 million in 2005,