Nokia Corporation Interim Report for Q1 2019

Nokia Corporation

Interim Report

April 25, 2019 at 08:00 (CET 1)

Nokia Corporation Interim Report for Q1 2019

Particularly weak Q1, consistent with our outlook; Full year 2019 guidance maintained due to expected 5G ramp up

This is a summary of the Nokia Corporation interim report for Q1 2019 published today. The complete interim report for Q1 2019 with tables is available at www.nokia.com/financials. Investors should not rely on summaries of our interim reports only, but should review the complete interim reports with tables.

RAJEEV SURI, PRESIDENT AND CEO, ON Q1 2019 RESULTS

Q1 was a weak quarter for Nokia. We expected that it would be, and the outcome has not changed our perspective on the full year. We are confident that those issues that drove weakness in our results will ease over the remainder of the year. While overall risks have increased slightly, we continue to see positive developments and are maintaining our guidance for the full year.

As the year progresses, we expect meaningful topline and margin improvements. 5G revenues are expected to grow sharply, particularly in the second half of the year, driven by our 36 commercial wins to date. Global services profitability should improve as we recover in a handful of large rollout projects, IP routing is now firmly back to growth given our product leadership, and optical networks continues its long run of growth. We are also seeing good underlying momentum in our strategic focus areas of software and enterprise, and we are moving steadily forward on our path to build a strong licensing business that is sustainable for the long-term.

In terms of risks, one factor is our slow start to the year. In addition, competitive intensity has slightly increased in certain accounts as some competitors seek to be more commercially aggressive in the early stages of 5G and as some customers reassess their vendors in light of security concerns, creating near-term pressure but longer-term opportunity. We will continue to take a balanced view, and are prepared to invest prudently in cases where there is the right longer-term profitability profile. We are also progressing well with our previously announced EUR 700 million cost savings program.

In short, an expectedly weak Q1, but continued reason for optimism as the year progresses.

Q1 2019 reported and non-IFRS results. Refer to note 1, Basis of Preparation, note 2, Non-IFRS to reported reconciliation and note 13, Performance measures, in the Financial statement information section for details.

EUR million (except for EPS in EUR) Q119 Q118 YoY change Constant currency YoY change

Net sales 5 032 4 924 2% (2)%

Operating profit/(loss) (524) (336) 56%

Operating margin % (10.4)% (6.8)% (360)bps

EPS, diluted (0.08) (0.06)

Operating profit/(loss) (non-IFRS) (59) 239

Operating margin % (non-IFRS) (1.2)% 4.8% (600)bps

EPS, diluted (non-IFRS) (0.02) 0.02

Net cash and current financial investments1 1 991 4 179 (52)%

1Net cash and current financial investments does not include lease liabilities.

Non-IFRS net sales in Q1 2019 were EUR 5.1bn, compared to EUR 4.9bn in Q1 2018. Reported net sales in Q1 2019 were EUR 5.0bn, compared to EUR 4.9bn in Q1 2018. On a constant currency basis, non-IFRS net sales decreased 1% and reported net sales decreased 2%. Our solid topline reflects the competitiveness of our offerings, as well as an improving industry environment. We continue to see positive momentum building for our end-to-end strategy, with strong customer engagement in all key markets and across our portfolio. Due to the evolving readiness of the 5G ecosystem, in Q1 2019, we were unable to recognize approximately EUR 200 million of net sales related to 5G deliveries mainly in North America, which we expect to recognize in full before the end of 2019.

Non-IFRS diluted EPS in Q1 2019 was negative EUR 0.02, compared to EUR 0.02 in Q1 2018, primarily driven by lower gross profit, partially offset by income tax benefits compared to income tax expenses in the year-ago quarter.

Reported diluted EPS in Q1 2019 was negative EUR 0.08, compared to negative EUR 0.06 in Q1 2018, primarily driven by lower gross profit, partially offset by a net positive fluctuation in financial income and expenses, higher income tax benefits and lower operating expenses.

In Q1 2019, net cash and current financial investments decreased sequentially by approximately EUR 1.1bn, primarily due to weak seasonality and changes in net working capital.

Full year 2019 guidance maintained. Nokias cash performance in the second quarter of 2019 is expected to include the payment of 2018 performance-related incentives to employees and a quarterly dividend. We expect substantially stronger financial performance in the second half of 2019 as large scale 5G deployments accelerate meaningfully.

NEW FINANCIAL REPORTING STRUCTURE BEGINNING Q1 2019

Nokia announced organizational changes to accelerate its strategy execution during the fourth quarter of 2018. In line with financial regulations, Nokia revised its financial reporting structure to better reflect its strategy, organizational structure and the way it evaluates operational performance and allocates resources. As of the first quarter 2019, Nokia has three reportable segments: (i) Networks, (ii) Nokia Software and (iii) Nokia Technologies. In addition, Nokia discloses segment-level data for Group Common and Other.

For each reportable segment, Nokia provides detailed financial disclosure, including net sales and operating profit. Additionally, Nokia provides adjusted financial disclosure for its Networks and Nokia Software reportable segments, with amounts related to licensing and Nokia Bell Labs allocated 85% to Networks and 15% to Nokia Software.

In addition, Nokia provides net sales disclosure for the following businesses: (i) Mobile Acce

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