Hello and welcome to the Nokia Fourth Quarter and Full Year 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Matt Shimao, Head of Investor Relations. Sir, you may begin.

Ladies and gentlemen, welcome to Nokia’s fourth quarter and full year 2019 conference call. I am Matt Shimao, Head of Nokia Investor Relations. Rajeev Suri, President and CEO of Nokia and Kristian Pullola, CFO of Nokia are here in Espoo with me today. During this call, we will be making forward-looking statements regarding the future 0performance of Nokia and its industry. 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 such as general economic and industry conditions as well as internal operating factors. We have identified such risks in more detail on Pages 60 through 75 of our 2018 Annual Report on Form 20-F, our financial report for Q4 and full year 2019 issued today as well as our other filings with the U.S. Securities and Exchange Commission. Please note that our results release, the complete interim report with tables and the presentation on our website include non-IFRS results information in addition to the reported results information. Our complete financial report with tables available on our website includes a detailed explanation of the content of the non-IFRS information and reconciliation between the non-IFRS and the reported information. With that, Rajeev over to you.

Thanks, Matt and thanks to all of you for joining. I would like to start my remarks today by talking about the two areas, where we will have a particularly sharp focus this year, executing in mobile access and strengthening cash generation. I will then come back to an overview of our fourth quarter and give you some more color on our results in what we see going forward. Executing in mobile access and strengthening cash generation are the two most pressing issues that we face. Since we announced our third quarter results, we have listened carefully to you, our investors and many other stakeholders. We are committed to improving our performance and based on the feedback we have received are taking steps to provide greater transparency on progress against the commitments that we have made. Before going into the details however, let me make two additional upfront comments. First, despite our strong fourth quarter results, we still have plenty of work to do, particularly in mobile access. We expect to make meaningful progress over the course of the year and as I said a few months ago expect our turnaround to have firmly taken hold by the end of this year. Second, while we are very focused on addressing the areas where we need to improve, we saw robust performance in many other parts of the company in both the fourth quarter and full year 2019. On a full year basis, IP routing continued its strong momentum, gaining significant market share and improving profitability. Nokia Software delivered on its promise with an operating margin that was up sharply from 2018. Nokia Enterprise also delivered exceedingly well, hitting its double-digit sales growth target and considerably outperforming the market. And Nokia Technologies increased its already excellent profitability. While all of this…

Thank you, Rajeev. I will take a decent approach today than in previous quarters. I will start with cash as this is what we do internally nowadays in all our meetings to remind the organization of the focus needed. I will then continue with a brief summary of our financial results for Nokia Technologies and Group Common and Other then take a look at group level results in Q4 and full year ‘19. And finally, I will quickly provide an update on our cost savings program and close with some remarks on our guidance. Okay, let’s start with our cash performance in Q4. On a sequential basis, Nokia’s net cash increased approximately €1.4 billion to a quarter end balance of approximately €1.7 billion. The higher than expected cash balance was partly driven by lower than expected restructuring cash outflows where approximately €100 million moved from ‘19 to ‘20. Free cash flow was positive €1.4 billion in Q4 primarily driven by operating cash flow which benefited from a solid adjusted net profit, net cash inflows from net working capital and a one-time benefit as a result of settling certain interest rate derivatives. This one-time benefit totaled €190 million, of which €160 million positively impacted free cash flow and €30 million positively impacted cash from financing activities. These inflows were partly offset by outflows related to CapEx, restructuring, cash taxes and our convertible loan to one of our partners. To give a bit deeper – to dive a bit deeper into net working capital, excluding restructuring cash outflows, we generated €320 million from net working capital, primarily driven by a €680 million decrease in inventories as expected. There were two key parts to achieving this. First, our solid Q4 net sales enabled us to reduce our previously existing inventories in accordance with…

Thank you, Kristian. For the Q&A session, please limit yourself to one question only as a courtesy to everyone else in the queue. Carrie, please go ahead.

[Operator Instructions] The first question will come from Alexander Peterc of Societe Generale CIB.

Yes, good afternoon and thanks for taking my question. Can I come first on your new KPI here, the 35% targets that you have for the 5G powered by ReefShark. Is this target constrained by the supply of SoC components by the timing of supply? Can this improve meaningfully in the course of 2020 I mean is this a minimum or is there any downside risk to this target? Thanks.

Thank you, Alexander. So, the nature of the risk is very conventional rather then unique. We are now executing on a normal SoC development paths with multiple partners instead of only one as we said last time. Yes, there are both internal risks and external risks that we need to track and manage. While I don’t think the timeline can necessarily be accelerated, we have improved our capability to track and manage the risks. We have increased our SoC R&D capacity by about 60% over the past year and we continue ramp up in 2020 so that we can ensure that we have the capability to track and manage both the internal and external risks. And for 2020, we have 3 ReefShark SoCs under development. As I said, 2 of these have been taped out already which is an important milestone. So, while there remains work ahead, this inherently means that some of the overall risk is now in our rearview mirror.

Thank you, Alex. Carrie, we will take our next question please.

The next question will come from David Mulholland of UBS.

Thanks very much. Just wanted to follow-up a little bit on the last question, obviously you have talked a little bit about working with other suppliers in terms of your ASIC strategy, but can you just help us to understand how does your break down, particularly in the mobile business this year between your own internal developed products manufactured at foundry with third-party providers and how do you still drive differentiation when you are using the third-party, are you giving your own IP going into those products as well or is it more of an off-the-shelf solution?

Yes. Thanks, David. So, our SoC strategy has all along been a bit like this, we specify a custom SoC with a partner. We developed some IP blocks for it. Our SoC partner has developed some IP blocks and then this SoC partner packages the custom SoC for us using our IP blocks, their IP blocks and third-party IP blocks such as ARM processors and the likes and takes the design to foundry. Now, what has changed is that we no longer work with only one supplier, but with two other SoC partners making custom silicon for us in mobile networks and they all have some unique assets be it in RF or baseband. We have also ramped up significantly our own R&D capacity for specification, design and validation of the chips working with SoC partners. When we selected new partners, we also made sure that we select somebody who already has some knowledge and have done work with somebody else. So, it gives us a running start.

Thank you, David. Carrie, we will take our next question please.

The next question is from Tal Liani of Bank of America.

Hi, guys. First question is just about the coronavirus, so what’s the impact if you see at all? And more importantly, I want to speak about software and about semiconductors, last quarter you spoke about the need for ASIC versus FPGA. You noted it in the prepared remarks you are related to it, would you mind to discuss where you are in the process and how does it help you to bring up gross margins? Thanks.

Yes, I think on the coronavirus as I said, we are monitoring the situation closely. It’s too early to call if this will have a material impact or not if we will be able to mitigate the situation on the other hand, our global supply chain helps us as a starting point here we will update you as we move along here.

And Tal, on the question regarding to System on Chip, so we are transitioning from FPGA to System on Chip and this is the metric that will give you an update and this is that we got to 10% of the 5G product by ReefShark System on Chip portfolio. We started ramping up volumes and that will get to 35% by the end of this year or greater than 35% and then 70% by the end of ‘21 and then this whole thing will be complete about 100% in 2022.

Thank you, Tal. Carrie, next question please.

The next question comes from Richard Kramer of Arete Research.

Thanks very much. Rajeev, potentially turning your back on the China RAN market is a very big move given the volumes that historically have been coming out of that market. So, can you talk a little bit more about how you balance having your supply chain there or the R&D efforts? And specifically, what the fate of Nokia Shanghai Bell might be if you decide that the profit pool in RAN there isn’t worth participating in? Thanks very much.

Thanks, Richard. So we are not turning our back on China I want to be very clear about that we are going to change our strategies change our business mix in china right so we want to sell more to web scale players to state-owned enterprises, and with the service provider value the operators we want to change the business mix towards the higher proportion of core routing fixed access naturally begin the game in 4G as well as transport so, increase the business mix with higher margin components on 5G we expect significant profitability challenges again we will look at the case it needs to make sense for us on a three to four year basis and we don’t know yet because the procurement round is yet to come. But overall, I. would say that we will still be a sizable player in china we want to go with the strategy that allows us to increase the business mix in a way that margins are better as well as cash flow is stronger.

Thank you, Richard. Carrie, next question please.

The next question comes from Alexander Duval of Goldman Sachs

Yes hi all there Alexander Duval speaking. You are guiding to your overall adjustable market to the group not to grow in 2020 and market share to stay stable being I mean interestingly the Nokia wouldn’t grow given that in 2019 the wireless market actually good its fastest rate for some years with Nokia growing 1% and then now we are still in the early innings of 5G into 2020 and you are talking about a lower market growth rate and implicitly a lower growth rate for Nokia. Does that mean that beyond 2021 there is no further growth for next couple of years for the company?

Thanks Alex. So well number one last year excluding China we grew at a much faster rate closed at 5% and then when it comes to this year the main difference between our previous market outlook and our current market outlook is that we are now presenting these numbers excluding the china market excluding china our views on the market have not changed significantly over the past three months I have already added some color on china then when it comes to the market overall with regards to mobile access we expect that this year it will be a number of operative last couple of years was about lead countries lead operators and lead countries and now it is going to be about 80 to 100 operators trying to roll out 5G at some point this year and next year there will be another 50 to 60 operators dealing with 5G expect that 2021 should be the scale phase majority phase the five year

Thank you, Alex. Carrie, we will take our next question.

The next question is from Sandeep Deshpande of JPMorgan.

Yes hi. My question is regarding Nokia Technologies, I mean over the last couple of years the business has gone up and down but it hasn’t been growing very much are there more contracts that we got in terms of the smart phone vendors or is that all essentially done and now we are waiting for whenever the IOT market happens in Nokia Technology or is there a near term growth driver for Nokia Technology? Thank you.

I think it is fair to say that the majority of the smartphone volume is under license there are still opportunities in the smaller players that we are going after and from a smartphone point of view the next thing will be then the renewals which will then also include the 5G patterns that we have and in general kind of going through the discussion on how devices have become less intelligent than the network more intelligent than because of that there is more value in the connectivity then we are kind of a going after the growth opportunities outside of smartphone’s connected cars is one other devices the second and there the team is making progress landing deals and some of that will take time will involve longer discussions and some of those deals we are going off directly and some of that opportunity we are addressing through the established pattern force in the industry.

Thank you, Sandeep. Carrie, we will take our next question please.

The next question comes from Achal Sultania of Credit Suisse.

Yes hi good afternoon. Just trying to understand your comments on China again I guess China revenues are obviously down for you a lot you are saying that ex China, your TAM is flat and you grow in line. So I am just trying to understand if China has the potential to be down again in 2020 for you and can it have an impact on growth assumptions for the networks business, because it’s still about 10% of network sales?

Thanks, Achal. So, it’s hard to predict China at this point, because of the procurement round. It’s gotten delayed. So, we don’t know what the outcome of the procurement round of 5G is the CP1, but I would say that the strategy that I laid out obviously has its longer term strategy, all of it is now going to play out, so, hard to give a sizing of how China will evolve at this point in 2020.

Thank you, Achal. Carrie, we will take our next question.

The next question is from Stefan Slowinski of Exane BNP Paribas.

Yes, hello. Thank you for taking for taking my question. Just a follow-up on the Technologies business, there was already a gap I guess between the non-IFRS profit in the cash generation over the past few years and what was kept for some of the one-offs and now you are saying that gap is going to increase in 2020? I mean, can you give us an idea of how much, what’s the cash conversation going to be like for the Technologies business? And is that specific to 2020 in terms of timing of contracts? Should we expect that to kind of renormalize in 2021? Thank you.

Yes. So as I said in my prepared remarks, this is a business where we from time-to-time related to some of the contracts receive upfront payments or payments that are weighted towards the earlier years rather than paid equally over the life of the contracts. And that is what is now having an impact on 2020. So the conversion will go down relative to ‘19. And then as I said once we get a phase where there will be renewals than depending on how those new renewals pan out, there might be a uptick or we might actually get then large upfront payments again. Let’s see how those renewals go. I will – I am not in a position to quantify this. We just want to give you the puts and takes in terms of the – what is going to drive cash flow development ‘19 to ‘20. And as I said the drivers there are why do we go from a slightly negative to a positive will have an improvement in profitability, will have an improvement in how we manage our net working capital, but then that will somewhat be offset by then the headwind created by the fact that the cash conversion related to Nokia Technologies is slightly worse in 2020 over ‘19.

Thank you, Stefan. Carrie, we will take our next question please.

The next question is from a Dominik Olszewski of Morgan Stanley.

Hello, thank you for taking my question. With regards to the useful KPI date you have given on the proportion of shipments on 5G ReefShark. Maybe could you give us some idea or a sensitivity of how if that accelerates at a fast or slower pace than you expect? So versus let us say that’s 85% how that impacts your good margin. Thank you.

First of all I think it is fair to point out that, when we talk about percentage here it is a shipment based metrics and as a result of that, the financial implications of that will come with a lag over couple of quarters. And of course, if we improve this then will have the product cost improvements coming through earlier and that’s of course, what the team is focused on.

Thank you, Domini. Carrie, next question please.

The next question is from Paul Silverstein with Cowen.

I appreciate you all for talking the question. With respect to the margin improvement on Mobile Access, how much of the improvement if any is beyond the FPGA to SoC transition? What are the other levers and what is the magnitude if any?

Thank you, Paul. So, the other levers are global services improvement and execution, which has already happened to some degree in 2019 but more needs to continue automation, digitalization, better contract management so on. There is the system-on-chip product cost that we talked about and then there is the better commercial deal discipline, centralized pricing war rooms, exiting some contracts or changing contract terms where there might be the ...

And they all are important.

And they are all important absolutely.

Thank you, Paul. Carrie, we will take our next question please.

The next question is from Sebastien Sztabowicz with Kepler Cheuvreux.

Hello everyone and thanks for taking my question. Have you quantified the opportunity to swap away the equipment in the core networks in Europe? And, also do you see any opportunity on the RAN market with 35% market share cap potentially on radio access network in Europe for ASIC -- vendor? Thank you.

Sebastien Sztabowicz this is. It is a policymaker to decide we watch the situation closely we are there for our customer when they need us. we have as we said in our conversion rate or the win rate of 5G outside of China it is above 100% we also won a very nice deal in Vodafone Hutchison Australia, which is a sole supplier deal in terms of core yes there is the opportunity in Europe but we will just watch it and we have to be thoughtful about swap costs and things like that in terms of how much share we want to take prudently.

Thank you, Sebastien. Carrie, we will take our next question.

The next question is from Simon Leopold of Raymond James.

Thank you very much for taking the question. I wanted to see if may be you could double click on attaching the changes in the mobility business to overall gross margin specifically the effect of declining presumably profitable 4G business as you are making this transition to the system-on-a-chip in 5G how do we think about how material the effect of that would be on overall gross margin through the year? Thank you.

As we have said the more system and chip deliveries we get the better the cost position of the Nokia 5G product is and that will then all other things equal flow through to an improvement in gross margin. With that we will also be able to get -- as we get to scale in 5G to a situation where 5G gross margins in general are at a level that actually the shifting mix from 4G to 5G will have less of an impact on the gross margin development going forward so I am not sure if I understand the question but that is of course what we manage and then as Rajeev said it is about how do we deal discipline get further improvement how do we get improvements through better operational performance services and those things will also then drive gross margins going forward.

Of course as Simon on mobile access comment and when you step back and say better mix in enterprise and Nokia software and IP routing will also improve gross margins potentially.

Thank you, Simon. Carrie, I think we have time for our final question of the day.

The final question will come from Edward Snyder of Charter Equity

Thanks a lot. Rajeev, I would like to revisit Richard Kramer’s question, I think, correct me if I'm wrong, but he wasn't asking you about leaving China, he was asking maybe about leaving the RAN Market in China which is I think a very valid question given you have already pointed out 60% of the market for this business I mean it is a little confusing on my end because if you rotate to United States but if you look at the lay of the land to many securities T-Mobile and ATT have backed off the discussions with millimeter wave. T-Mobile's going to put 5 TRA has put it on Band 71 which does not require MIMO at all and ATT is talking about putting on FirstNet, which is an established network that may not use MIMO so, I am just curious if you do back out of just of the RAN Market not China completely where do you rotate to gain share especially if the U.S. is it going to be deploying a lot of MIMO Verizon hits a 31 city target but very few sales in many of cities may be a couple of streets and it is struggling to get citing requirement here so can you may be give us a little bit more detail on how that works to keep your costs and your scaling in RAN market competitive if you are not addressing China’s RAN Market? Appreciate it. Thank you.

Thanks Edward. So just quick, in the U.S., there will be low-band build that's starting to be underway now. there will be mid-band that will still take may be a couple of years but the 3.7 to 4.2 CBR etcetera. On the enterprise side, there will be private wireless build, think about utilities, large field area networks. So there are opportunities on the U.S. side, then of course, as I said we expect some 80 to 100 operators starting to rollout 5G in the rest of the world and that’s this year and then next year, we expect another 50 or 60. So it will start to be a scale market in terms of 5G maturity. On China, again, we are not saying we’re backing out of the RAN market we are still there in 4G. We will be prudent in 5G. I do want to point out that even if we say it’s 60% of the global volume it is roughly half of that in terms of revenue market share, i.e., China RAN as a percentage of total market and it’s miniscule in terms of profit contribution over the next three years or so.

Thank you, Ed and thank you all for your questions today. I’d now like to turn the call back to Rajeev.

So, thank you, Matt and Kristian and thanks to all of you for your questions. I’d like to close with a couple of brief thoughts. First, I want to say again that we have heard you, our investors and other stakeholders. We are taking steps to give you some better visibility to the work we have underway. And as part of that effort, Nokia will hold a Capital Markets Day for investors in the second half of this year in order to give you a deeper perspective on our strategy and operational progress. Second, despite the challenges we have faced in mobile access, other parts of our business continue to perform well in 2019. We have closed the year demonstrating sustained momentum with product leadership in areas like our FP4 based routing products and made good progress in our strategic growth areas of enterprise and software. Finally, while I believe that 2020 will present its share of challenges, I remain confident that we are taking the right steps to deliver progressive improvement over the course of this year and to position us for a stronger 2021. With that, I will hand the call back over to Matt.

Ladies and gentlemen, this concludes our conference call. I would like to remind you that during the conference call today, we have made a number of forward-looking statements that involve risk and uncertainties. Actual results may therefore differ materially from the results currently expected. Factors that could cause such differences can be both external such as general economics and industry conditions as well as internal operating factors. We have identified these in more detail on Pages 60 through 75 of our 2018 Annual Report on Form 20-F, our financial report for Q4 and full year 2019 issued today as well as our other filings with the U.S. Securities and Exchange Commission. Thank you.

Thank you. The conference has now concluded. Thank you all for attending today’s presentation. You may now disconnect your lines. Have a great day.