Nokia Corporation Financial Report for Q3 and January-September 2019

Nokia Corporation Financial Report for Q3 and January-September 2019

Nokia Corporation

Interim report

October 24, 2019 at 08:00 (CET 1)

Nokia Corporation Financial Report for Q3 and January-September 2019

Solid Q3 and expected strong Q4; Lowering full year 2019 and full year 2020 outlook due to margin pressure and additional investment needs

Strong performance in Nokia Software, Nokia Enterprise and IP routing

5G momentum continues; 48 deals and 15 live networks launched

Dividend payments paused to increase investments in 5G and strategic focus areas and to strengthen cash position

Long term target operating margin of 12-14% supported by our end-to-end portfolio, diversification and patent licensing

This is a summary of the Nokia Corporation financial report for Q3 and January-September 2019 published today. The complete financial report for Q3 and January-September 2019 with tables is available at www.nokia.com/financials. Investors should not rely on summaries of our financial reports only, but should review the complete financial reports with tables.

RAJEEV SURI, PRESIDENT AND CEO, ON Q3 2019 RESULTS

Nokia delivered a solid third quarter, with positive free cash flow; widespread sales growth; solid operating margin; strong performances in Nokia Enterprise, Nokia Software and IP Routing; and good progress towards meeting our 2019 cost reduction goals. We are proud to have launched 15 live 5G networks with customers, including Sprint, Verizon, AT&T and T-Mobile in the US; Vodafone Italy and Zain in Saudi Arabia; as well as SKT, KT and LGU in Korea.

Many of our businesses are performing well and we expect Q4 to be strong, with a robust operating margin and an increase in net cash of approximately EUR 1.2 billion. At the same time, some of the risks that we flagged previously related to the initial phase of 5G are now materializing. In particular, our Q3 gross margin was impacted by product mix; a high cost level associated with our first generation 5G products; profitability challenges in China; pricing pressure in early 5G deals; and uncertainty related to the announced operator merger in North America.

We expect that we will be able to progressively mitigate these issues over the course of next year. To do so, we will increase investment in 5G in order to accelerate product roadmaps and product cost reductions, and in the digitalization of internal processes to improve overall productivity. We will also continue to invest in our enterprise and software businesses, which are developing rapidly and performing well. Given these investments and the risks we see materializing, we are adjusting our targets for full-year 2019 and 2020; and we expect our recovery to drive improvement in our 2021 financial performance relative to 2020.

I am confident that our strategy remains the right one. We continue to focus on leadership in high-performance end-to-end networks with Communication Service Providers; strong growth in enterprise; strengthening our software business; and diversification of licensing into IoT and consumer electronics.

As I look to the future, it is clear to me that Nokia has some unique advantages. We have a powerful, end-to-end portfolio that allows us to benefit from 5G investments across all network domains. We have a demonstrated ability to drive value and cash flow through product leadership. We have successful diversification into enterprise and software well underway. We have a large patent licensing business that is sustainable and cash generative over time, with opportunities to enter new growth segments. We have meaningful opportunities to drive further cost reductions through digitalization and automation.

These advantages give me confidence in our ability to create value for our shareholders and achieve our longer-term operating margin target.

Q3 2019 and January-September 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) Q319 Q318 YoY change Constant currency YoY change Q1-Q319 Q1-Q318 YoY change Constant currency YoY change

Net sales 5 686 5 458 4% 1% 16 412 15 695 5% 2%

Operating profit/(loss) 264 (54) (318) (611)

Operating margin % 4.6% (1.0)% 560bps (1.9)% (3.9)% 200bps

EPS, diluted 0.01 (0.02) (0.10) (0.13)

Operating profit/(loss) (non-IFRS) 478 487 (2)% 869 1 060 (18)%

Operating margin % (non-IFRS) 8.4% 8.9% (50)bps 5.3% 6.7% (140)bps

EPS, diluted (non-IFRS) 0.05 0.06 (17)% 0.07 0.10 (30)%

Net cash and current financial investments1 344 1 879 (82)% 344 1 879 (82)%

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

Net sales in Q3 2019 were EUR 5.7 billion, compared to EUR 5.5 billion in Q3 2018. On a constant currency basis, net sales increased 1%. Our solid overall topline performance was driven by improved industry demand and the competitiveness of our end-to-end portfolio, with growth across four out of six regions and all customer types.

Non-IFRS diluted EPS in Q3 2019 was EUR 0.05, compared to EUR 0.06 in Q3 2018, primarily driven by lower gross profit in Networks and a net negative fluctuation in financial income and expenses. This was partially offset by higher gross profit in Nokia Software and continued progress related to Nokia's cost savings program, which resulted in lower operating expenses across Networks, Nokia Software and Nokia Technologies.

Reported diluted EPS in Q3 2019 was EUR 0.01, compared to negative EUR 0.02 in Q3 2018, primarily driven by continued progress related to Nokia's cost savings program and a gain on defined benefit plan amendments, partially offset by higher income taxes.

In Q3 2

LINK:	https://www.nokia.com/about-us/news/releases/2019/10/24/nokia-corporat...
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