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Nokia mobile phones are pictured inside a mobile phone repair service store in the western Austrian city of Innsbruck October 16, 2012.

DOMINIC EBENBICHLER/REUTERS

Nokia Corp. will not pay a dividend for the first time in more than a century as the struggling Finnish group looks to strengthen its cash position in spite of a better-than-expected end to its financial year.

The company returned to an underlying profit in the fourth quarter in its key handset business on the back of improved sales of its fledgling Windows smartphone platform, although it warned on Thursday that the beginning of 2013 would be weaker after a better than expected Christmas period.

Nokia shares, which have gained more than 16 per cent since a sales update earlier in January, dropped by 3 per cent to trade at €3.40 ($4.53 (U.S.).

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The group pre-announced sales numbers earlier this month, in part because of surprisingly good results at Nokia Siemens Networks (NSN), the telecoms equipment joint venture, which easily exceeded expectations with a non-IFRS operating margin of 14.4 per cent.

NSN contributed an additional €650-million to the group in the fourth quarter, which helped boost previously dwindling cash reserves to €4.4-billion by the end of the year. A drop to €3.5bn in the third quarter had worried analysts, given the high level of restructuring costs.

Even so, Nokia said it would propose that no dividend payment be made for 2012 "to ensure strategic flexibility" and "further solidify the company's strong liquidity position".

Stephen Elop, chief executive, said: "We remain focused on moving through our transition, which includes continuing to improve our product competitiveness, accelerate the way we operate and manage our costs effectively. All of these efforts are aimed at improving our financial performance and delivering more value to our shareholders."

Nokia said that it had regained underlying operating profitability overall, with fourth- quarter non-IFRS operating margin of 7.9 per cent, based in part on the return to profitability of 1.3 per cent for the first time in a year at its devices division.

The handset maker shipped 4.4 million Lumia smart phones, which although broadly in-line with analyst estimates was still taken by investors as the first sign that the group's gamble on Microsoft's Windows phones platform could yet pay off after a slow start.

However, Nokia said that profit margins at its mobile division would fall back to minus 2 per cent in the first quarter, plus or minus four percentage points, a period when the group is also expected to unveil its latest devices at the Mobile World Congress event in Barcelona in February.

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The company is expected to reveal at least two new handsets, including one with an advanced PureView camera. Nokia hopes to build up large franchise of Windows phones across a number of price points to compete in the intensely competitive smart phone market dominated by Apple and Samsung.

Analysts warned against reading too much into the handset numbers, with some estimates still putting Nokia's market share in the key smartphone market at below 5 per cent.

There was only a modest 5 per cent rise in smartphone sales in the fourth quarter, which barely mitigated a drop of two-thirds from a year earlier, and a 4 per cent rise in sales in its far larger feature phone division against a year-on-year fall of 15 per cent.

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