Good morning, ladies and gentlemen, and welcome to Nokia's Fourth Quarter 2022 Results Call and Group Progress Update. I'm David Mulholland, Head of Nokia Investor Relations. And today, with me in Espoo is Pekka Lundmark, our President and CEO; along with Marco Wiren, our CFO. Before we get started, a quick disclaimer. During this call, we will be making forward-looking statements regarding our future business and financial performance, and these statements are predictions that involve risks and uncertainties. Actual results may, therefore, differ materially from the results we currently expect. Factors that could cause such differences can be both external as well as internal operating factors, and we've identified such risks in the Risk Factors section of our annual report on Form 20-F, which is available on our Investor Relations website. Within today's presentation, references to growth rates will mostly be on a constant currency basis, and margins will be related to our comparable reporting. And our Q4 report and results presentation are both published on our website, and they include both reported and comparable results and a reconciliation between the two. The progress update portion of today should be considered as part of the regular series of progress update events we've been doing. The presentation for that will be available online after the presentation is finished. In terms of the agenda for today, Pekka and Marco will give a quick overview of our financial results for 2022 before moving into the progress update. We will be aiming for the call to last for around 90 minutes, but if the presentation runs slightly longer than planned, we will make sure to allow some time for Q&A. With that, let me hand over to Pekka.

Thank you, David, and hello, everyone, and thank you very much for joining us today. So as you have seen in the results, fourth quarter was a solid end to a year of acceleration. We pretty much delivered what we promised at the beginning of the year. For the full-year, we had €24.9 billion sales, which was 6% growth year-over-year, and great fourth quarter, which ended the year €7.4 billion, 11% growth year-over-year. And this is really important because we said in the beginning of the year that this would be a year of acceleration. We had declining revenue in 2020, 3% growth in 2021, and now we had 6% growth in 2022. In terms of profitability, first of all, full-year comparable gross margin, which is not here on the screen, increased by 100 basis points to 41.4%. The full-year operating margin was stable at 12.5%, which was a very strong result, considering the 150 basis points of one-offs that we benefited from in 2021, as we reported a year ago. Q4 was strong. Comparable operating margin was 15.5%, up from 14.2% year-on-year. This was partly due to Nokia Technologies, which I will turn to in a moment. So in summary, this chart here show the progress we made through the year. When we talk about the acceleration, here, you see for each quarter, our topline growth compared to the same quarter the year before, and you can certainly see acceleration here. Then down here, I hope this is readable, first of all, you have here four quarter rolling comparable gross margin for the whole group. And then this curve here is basically the same trend line without Nokia Technologies. And then here, you have the same graph for comparable operating margin. What I do want to note is that…

Thank you, Pekka. Good morning from my side as well and I will briefly go through some financial performance bridges and cash flow and then also touch upon our targeted addressable market and outlook. So starting with growth, just like Pekka mentioned, we had a very good growth in quarter four, 11% in constant currencies. And if you look, you can see that most of the geographies actually had a very good positive growth. And North America, just like we expected because of the very front-end heavy load investments in our CSP customers, we expect that the quarter four will be a little bit muted and exactly what happened. Just a couple of words about a few regions. Starting with Europe, you can see a very good growth, but as we report the whole technologies here. So even excluding that, you can see that we had a 13% growth in Europe, and this is actually coming both from NI and MN had double-digit growth in Europe. When it comes to India, this is, of course, propelled by the heavy deployments of 5G. And here, we see a very heavy growth in Mobile Networks. But I must say that also Network Infrastructure had a very high double-digit growth rates in India. And in Asia Pacific, actually, all businesses had a good growth. Then looking to our comparable operating profit bridge from quarter four last year and seeing what has happened. And of course, you can see that Nokia Technologies had a very big impact in quarter four. But also I want to highlight the 560 basis points improvement that network infrastructure had in quarter four compared to same quarter in 2021. And Mobile Networks, of course, this regional shift, but also the fact that their OpEx increased slightly because of R&D…

All right. Thanks, Marco. As you saw, we went through the Q4 result pretty quickly this time because we want to leave time for the main part of this call, which is really to give you an update on where we are in our different businesses, what are the key strategic drivers that are going to be guiding and informing their growth and development over the coming years. I will briefly summarize the progress we have made since our 2021 CMD, talk about our purpose a little bit, how it combines with our technology and the ESG strategy. And then, of course, I will, after that, zoom into the technology strategies and business strategies of each of our business. And finally, I will then go through some of the aspirations, including financial aspirations we have across each of the businesses. And then after that, Marco will update you on the progress we have made with implementing our operational model, our capital allocation policy and give you some pointers and things to consider in modeling Nokia for the long-term. So let's first take a look at our longer-term financials history. As this slide shows, the key trends have all improved. So first of all, three years ago, back here, this is our annual sales growth between 2017 and 2022. Here, we have several years of either negative or extremely low growth, then 2021 3% growth and 2022 6% growth. So that's really a great achievement. And it again just shows that our goal to accelerate sales growth has been successful. So when we move to the margin side, you can also see that we have been able to turn the gross margin development to the positive actually from the bottom here in 2019, we now have 500 basis points improvement in…

Thank you. Hi, again. I will give a short update on the operational model and then also capital allocation policy and then finally give you insight into long-term modeling assumptions that we have. So starting with some key enablers that I believe were extremely important when we started the transformation of the company and securing how we can perform financially going forward. And the main thing that I want to highlight there is the new operational model. And this was quite a big difference in Nokia actually, we had a quite complex matrix organization, and we wanted to change that and make it more simple, so it's easy to work with us from our customer side. And that's why we created these four individual fully accountable businesses, as you can see here as well, and each of them have very clear responsibility for their own success. And this means accountability for strategy, growth, profitability and portfolio. And portfolio, of course, they have to continuously assess, what is the best offerings, where do we have the leadership position, where we aim to be the leader and take actions based on that. Then also, I must say that I'm extremely proud of my colleagues how fast Nokia adopted this new model. We did it basically in six months. And many companies, it takes actually a couple of years to do this. Another area that I want to highlight is as well that we were very clear on that we want to be a technology leader. And I remember when Pekka said this, it wasn't only towards our customers. It was all important internally that we do whatever it takes to secure technology leadership, and this was in Mobile Networks side, but this is valid for the whole company. And that's why we…

Yes. Thank you, Marco. Now I will be very brief because I want to leave time for your questions. Only one message, this is a quick summary slide on the cornerstone. So six pillars of our strategy to deliver our targets. Number one, grow CSP business faster than the market. There's a lot of opportunities to take market share with the help of technology leadership that we now have. In many cases, the geopolitical development in the world is actually helping to us achieve that. Number two, expand the share of Enterprise to double-digit. Number three, take leadership position in every area where we compete, technology-driven target. Number four, secure business longevity in Nokia Technologies. Number five, build new business models such as software-as-a-service, network monetization platforms; and number six, develop ESG into a competitive advantage. So with that, I think we are ready for Q&A.

Thank you, Pekka thank you, Marco, as well for the presentations. Before we move into the Q&A session, I just wanted to give you a quick overview of some of our plans through 2023. We do hope to see as many of you as possible at Mobile Congress at the end of February. We will have an event on the Sunday. We hope you can join us. And then we will resume our progress update series with our business groups in the second quarter most likely in May with Network Infrastructure. So stay tuned, and you'll get the invite too about that as soon as possible. With that, let's start the Q&A. As a courtesy to others in the queue, if you could please limit yourself to one question, and with that, Alice, could you please give the instructions.

We will now begin the question-and-answer session. [Operator Instructions] I will now hand the call back to Mr. David Mulholland.

Thank you, Alice. We'll take our first question from Alex Duval from Goldman Sachs. Alex, please go ahead.

Yes. Thank you very much for the very illuminating presentation and congrats on the results. Quick question on the sustainability of your Infrastructure business. Can you help us understand how sustainable the impressive growth is that you've been showing? You gave some great color in your presentation on investments and focus areas for improving products and you also talked about some penetration opportunities in areas like fiber. But historically, this has been a relatively cyclical part of the business. So what do you think are the most important factors giving you confidence that the recent strong performance is not just about leapfrogging competition temporarily, especially given the challenging macro backdrop? Many thanks.

Yes, thanks. Well, first of all, I do not believe that the market share gains that we have had are in any way, temporary. On the contrary, as I explained in the deep dive, I do believe that there is potential to take more market share going forward. So that's one. I think then the question is that how will the overall market develop. You're absolutely right that fixed taxes, especially in the history has been to some extent, cyclical. It is prudent to expect that, that growth rates would normalize in that business. But again, when you look at the facts and the development that was started by the pandemic, which is clearly increasing and continuing to increase the need for connectivity, permanent shift in working habits where people will not commute every day to their work. There is a lot of kind of underlying demand. This is one comment on the fixed access. And then if I talk about the other two segments, Optical and IP. What we have seen in the past is that actually first come an access wave investment. And now we have seen both fixed access and mobile 5G access investment. Then when there is more penetration, more users who start to add data traffic to the network, then the next wave is then going to happen in the IP and optical layer, which is more in the core part of the network to be able to deal with all the traffic that these new access networks generate. So this is something that could very well be driving the IP and Optical markets going forward. So I mean, it's impossible to give you a scientifically correct 100% answer, but we have reasons to be optimistic about the market development despite the fact that, of course, we recognize the overall macroeconomic uncertainties in the world.

Thank you, Alex. We'll take our next question from Aleks Peterc from Societe General. Aleks, please go ahead.

Hey, good morning and thank you for taking my question. Congratulations to the strong results across the board. I just like to understand in Mobile Networks, how the year will shape out. There's obviously some margin pressure from the geographical mix changes here. So presumably, you will see a better second half than the first half. If you could comment on that a little bit. And then just today briefly, if you could also tell us if in 2024, 2025, you think you can still marginally grow revenue in mobile networks despite what you see being a market contraction in those two years? Thank you.

Well, first of all, the market contraction that we had on that slide if you take into account the overall 2022, 2025 market expectation, which is 5%, it is actually quite small. So then it comes all the way back to the market share question. We do believe that Mobile Networks can grow this year, we believe that it will actually be our fastest-growing business group this year. But it's too early to give any guidance on topline for 2024, 2025 other than we have a general ambition to continue to grow. Then the margin pressure, it is likely that when we look into 2023, that we will, in Mobile Networks, go back to earlier type of seasonality where the first half of the year is weaker and then the second half of the year is stronger. So we are, of course, expecting the full-year to be largely stable, weaker first half, stronger second half. Remember that we did say after Q3 last year, that we are still keeping the 6.5% and 9.5% guidance for the full-year despite the fact that we were ahead of it after three quarters. So we saw this coming. It was not a surprise and we have built all this into our assumption for 2023 as well when we are giving this 7% to 10% assumption for the full-year.

Thank you, Aleks. We'll take our next question from Frank Maao from DNB. Frank, please go ahead.

Yes. Hello and thanks for taking the question. On the thorough business update earlier, so a couple of my questions have been answered. Let me see here. Yes, I think a key question for me is really on the margin side. I mean, do you see any – do you expect to be able to offset the inflation pressures that we're seeing, especially on the salary side short-term now and going into the medium term? Or do you need to – with just ordinary measures? Or do you need to potentially take new measures to sustain the kind of cost efficiency and productivity momentum that you had? Thank you.

Yes. Thank you. We – first of all, we believe that to be able to mitigate inflation, and there's several different parts of that, cost productivity and cost – and on products improvements there. We are working continuously on those. And in this new operational model that we have, so it is very important that, as we said, that responsibility lies in different businesses as different businesses and their end markets are developing quite differently in different times that each business have to look into their end market development and what actions and measures they are taking to secure that they can continuously create value and perform in a better way.

Precisely, Marco, and then maybe to add one additional point is that, of course, when we talk about things like inflation – inflation, we have taken that into account in our guidance, when we estimated that this year's margin would be between 11.5% and 14%. Of course, it includes all our inflation assumptions as we see them.

Thank you, Frank. We'll take the next question from Simon Leopold from Raymond James. Simon, please go ahead.

Thanks for taking the question. Just first, I wanted to get a quick clarification on your outlook for technology, given the one-off elements in the fourth quarter. I think when you talk about stable, should we be assuming that full-year technology revenue in 2023 is similar to full-year revenue in 2022? And let me just pivot to the question because that's easing it up. There have been some indications that the U.S. operators have been absorbing some inventory of network equipment, and I think that was pretty evident in the fourth quarter. I want to get a sense of what's your view of this situation, particularly the duration of any kind of potential pause in their purchases as they burn down inventory and what products might be affected by that in your business? Thank you.

Yes, I can start with the technology part. And in our guidance, as we said, that's largely stable, of course, there might be small variations, as I said, also in the longer-term as we guide larger stabling technologies. But this is our guidance what we see today. And in our guidance as well for the full-year for the whole company, we have assumed that we will also settle those two outstanding litigations that we have right now.

Then when it comes to the U.S. market and the inventory question, we, of course, saw a couple of years of heavy investment in North America. So after this, yes, it is natural to expect some level of digestion in 2023. And it could also include some inventory digestion. But this is actually also built in our assumptions for 2023 when we said that the first half of the year would potentially be weaker in Mobile Networks than the second half. It's also important to consider that our relative position in the region in North America with the major service providers is not only with major service providers, we have larger base there. We are working with Tier 2 and Tier 3 operators. We are working with enterprise customers, and we have the large network infrastructure business, which in this situation may be a bit less vulnerable. We also need to remember that when you look at the three large carriers in the U.S., their CapEx announcements that they have made, it's not that different from what they said two, three years ago. They increased investments in 2022. There may be a slight change in the plans for 2023 as they have now announced, but the big picture is still very much the same as it was. And we have to remember that the need for new capacity will continue also in North America. So after the dip, there will be a need for new investments again. So that's why we are not expecting anything dramatic to happen in that market. But as we have said, in Mobile Networks, there will be a regional mix shift where, in relative terms, North America will be slightly lower and India will be the fast growth market. And that is then also going to be reflected in margins though so that we expect to be able to compensate that mix change with scale benefits, with normalizing supply chain and very importantly, technology development that is driving down the cost of the product.

Thank you, Simon. And just a reminder, if you could please stick to one question, please. We'll take our next question from Sami Sarkamies from Danske Bank. Sami, please go ahead.

Hi. Thanks for the presentation. I want to dig deeper into your Enterprise aspirations. You mentioned a double-digit share as an interim target, but what could be the level in the long run? Are you planning to make acquisitions in order to strengthen your offering in this area, and can you please provide guidance on how long growth investments will go to margins? And what could be the level in the long run relative to CSP margins? Thanks.

Well, the margin question, Enterprise versus CSPs, we are not opening up at this stage. We are reporting the numbers in our businesses because Enterprise is not a full P&L as such. It is a customer segment, which has its own sales teams, but it's not a full P&L. In terms of the ambition level, it is very clear, we want to continue double-digit growth. The market looks promising in terms of being able to support that. We have now increased to 8%, then we want to go to double-digit. And once we are there, then it's the time to discuss the next steps. But of course, we want that to continue. We do not want it to stop at 10%. So after 10% comes 15% and then comes 20%, but how long that will take, I'm not going to speculate on right now. In terms of priorities, the number one priority is organic development. Then if that is not enough, then bolt-on type of acquisitions would be the second priority. That's really what we are focusing on in terms of this business.

Thank you, Sami. We'll take our next question from Daniel Djurberg from Handelsbanken. Daniel, please go ahead.

Thank you very much, Pekka and Marco, and thanks for the business deep dive. A question on gross profit. It was down 1% in Mobile Networks in Q4, still up 13% year-over-year for the full-year. And obviously, we see large changes in the mix in 2023. And you do expect some 5% growth at constant currency for the Mobile Networks side. But my question is really with regards to – what do you see as triggers for gross profit for Mobile Networks in 2023? And also if you can comment on 2024, 2025 time frame, when we see even lower growth for the Radio Access Network market, should we pencil in a decline in gross profit? Or can you work with other issues, so you can get the gross margin and gross profit growing again? Thanks.

Well, we are, of course, not giving specific guidance on gross profit, but it is clear that the regional mix development will put a pressure on Mobile Networks gross margin in 2023. But as I said, we do expect that we will be able to mitigate that drop with scale benefits, technology development and normalizing supply chain. So the drop will not be that dramatic as if we only took the different – the price differences between different regions. So there are mitigations that we can use. And we have taken all this into account when we have then put together this 7% to 10% operating margins. So once again, gross margin, we are not guiding. We do expect that Mobile Networks will be the fastest-growing one of our four businesses this year. So that obviously is a supporting element to the gross profit that you asked, lower gross margin is then taking some of that away. But the overall result is that we expect 7% to 10% comparable operating margin. Then when it comes to 2024 and 2025, we are not commenting at this stage other than confirming that our aspiration in the Mobile Networks business is to get to double-digit profitability.

And then just building over what Pekka said that also in the aspiration slide that we showed earlier, we have an aspiration to gain market share in the longer run. So even if markets are going up and down, so the market share gain is definitely in our aspirations.

Thank you, Daniel. We'll take our next question from Richard Kramer from Arete Research. Richard, please go ahead.

Thanks folks. If limited to one question, I wanted to ask Pekka. One of the challenges in the last few years has been visibility both on component supply and also in customer demand. I'm wondering if you can talk a little bit about how – whether your raised margin targets in NI and MN are a function of having a clear picture or visibility of customer demand? And can you comment a little bit on your book-to-bill ratio ending 2022 and what you expect in terms of development? I think you mentioned a bit about seasonality, but do you now have a good view of what you expect for the full-year of 2023 with operator spend? Thanks.

Okay. Thanks. That's a great question. We actually start this year in relative terms with a stronger order book than what we started last year when you compare the order book to the stated target. So that gives us confidence on this year's outlook. We had a good book-to-bill in our businesses in 2022, which then helped to build this order backlog for 2023. Now what will help, of course, is then the fact that the supply chain has more or less normalized from availability point of view. Then of course, I do not want to get into details on pricing on semiconductors. There's a lot of negotiations going on. People try to understand where the prices will go. But availability has normalized. What has not normalized is lead times. And that is one of the reasons why we have a lot of inventory. We need to maintain a higher buffer inventory than normally because of the lead times. Will that change during the year? Hopefully, it would gradually start changing. That would then start helping on the networking capital side. When it comes to prices and cost of the supply chain, we have seen some good development on memory prices. But then when it comes to logic and analog, we have not really seen that yet. So that all remains to be seen where the markets will take us.

Thank you, Richard. We'll take our next question from Peter Nielsen from ABG. Peter, please go ahead.

Thanks very much, David. Yes, just one question. Sorry to return to Mobile Networks margins. But as you said, near-term dilution from the changing mix, but still expect a stable margin for the full-year for this year, which would suggest quite a strong finish to the year. Can I just ask, when you talk about the offsetting factors and you highlight scale benefits, is that margins in India that will ramp up significantly towards the second half of the year? Thank you.

Yes. I had a little bit difficulties to hear the question. But if I understood it correctly, you asked about – especially about the scale and benefits as a mitigating factor. And you mentioned India. Absolutely, India is the key driver there, but it's not the only driver. We have also other places where we have growing volumes. So overall, we are – as I said, MN, we expect it to be the fastest growing business in Nokia with a lot of additional scale benefits due to the fast growth, especially in India.

Thank you, Peter. We'll take our next question from Sandeep Deshpande from JPMorgan. Sandeep, please go ahead.

Yes. Hi. Thanks for letting me on. Quick question on network infrastructure. Clearly, you've seen a very good trend in the fourth quarter, and you laid out a good plan in the long term. I'm trying to understand, but historically, the optical business was loss-making and the new chips, et cetera, has turned the growth trajectory around. What, I mean, is it new customers that you're getting on board? Is it the technology that is driving it? Or is it a geopolitical trends that are driving it? I try to understand the longevity of the turnaround in the optical business, given that this has been such a difficult business to turn around over the last decade?

Thank you, Sandeep. That's an excellent question, and you actually highlighted the three key levers there quite correctly. It used to be a loss-making business. And when we look into the history, there was one silicon generation that we missed, which we have been recovering from. Now we are in a significantly stronger position. We have excellent feedback from customers in terms of PSC 5. I believe that, as I said, that this is a story that has similarities to mobile networks in many ways. We increased our investment substantially in 2021, 2022. Now we start to be there in terms of technology. And of course, the development does not stop. I mean there is – of course, there is more to come. But now the basic technology competitors now starts to be there. We have excellent feedback from customers. We are accelerating now in terms of the pipeline for new deals, and yes, we are also getting, in some cases, help from the geopolitical situation. It has not been as pronounced as we have seen in Mobile Networks, but gradually, these factors seem to be creeping in into the Optical Business as well.

Thank you, Sandeep. We'll take our next question from Sebastien Sztabowicz from Kepler Chevreux. Sebastien, please go ahead.

Yes. Hello, everyone and thanks for taking my question. How do you see the 5G core projects ramping up right now? Do you see any kind of acceleration in the deployment going forward? Or do you still expect some soft environment there? Thank you.

Sorry, can you clarify 5G project?

5G core.

5G core project, yes. Thank you.

Okay. I mean different trends in the core network business. Obviously, the 5G stand-alone is now the name of the game because you need 5G stand-alone in terms of getting the full benefits of 5G. So there is going to be a lot of investment in 5G core and operators will be implementing some critically important services like slicing which require investments in the 5G core. That is also a market that has been through a lot of changes, and there are different parts of the core, and they are a little bit different stages of development. But overall, when we talk about the core network, it is the key part of CNS. In our case, it's highly profitable, and it is something that we are investing significant amounts of money and the highlight of probably of what I talked about in the deep dive, also is really that we are not only making that core network software that we have cloud native, but we have started to offer it as a service as well, which I believe will be really interesting for Enterprise customers and for smaller operators and then gradually expanding to larger operators. So it is an interesting market. Obviously, that business is much smaller compared to the radio network part. But strategically, it is an important part of the portfolio.

Thank you, Sebastien. We'll take our next question from Rob Sanders from Deutsche Bank. Rob, please go ahead.

Yes. Hi. Thanks for taking my question. I just had a question on India. It looks like it's about perhaps more than 10% of your Mobile Networks business now. I just wanted to ask about the peak because Ericsson is saying that the peak for 5G in India will be in the second half of this year. I just wanted to check if you share that view or do you think it will continue to grow from the second half into 2024? Thanks.

I mean the investments obviously will continue well into 2024. And then, of course, like in 4G, I mean, there will be a certain peak when operators are really, really scrambling to get coverage as fast as possible. Most likely then after that, there will be some kind of a leveling off and then it becomes a steady business where you have gradually an opportunity to improve margins, which is exactly how 4G also went. Look, without revealing what our customers have told us specifically, and it's a highly competitive situation in India right now, I'm not going to speculate when exactly the peak will be. But it is absolutely true that there is going to be a very quick ramp-up. And of course, on that level, the investments cannot continue for many years.

Thank you, Rob. We'll take our last question from Artem Beletski from SEB. Artem, please go ahead.

Yes. Hi and thank you for taking my question as well. So I would like to ask about network infrastructure and basically growth outlook for this year within different subsegments. So where do you see the best momentum currently? And whether do you expect also basically four businesses to grow this year in constant currencies?

Yes, Artem, we do see growth opportunities in all four businesses this year. We expect the overall market to grow this year, and we see opportunities for taking market share through the levers that I discussed in the deep dive. So we continue to have a positive look on the prospects of that business.

Thank you, Pekka. Thank you, Artem, and thank you, everyone, for joining us today. Apologies to those in the queue that we didn't manage to get to, but that does conclude today's call. You'll find the presentations that we used in today's event published on our website, and they should be available now. I would like to remind you that during the call today, we have made a number of forward-looking statements that involve risks and uncertainties. Actual results may, therefore, differ materially from the results currently expected. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the Risk Factors section of our Annual Report on Form 20-F, which is available on our Investor Relations website. Thank you all for joining us.