Hello, and welcome to Nokia’s Third Quarter Teleconference and Video 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, Investor Relations. Sir, you may begin.

Ladies and gentlemen, welcome to Nokia’s third quarter teleconference and video call. I’m Matt Shimao, Head of Nokia Investor Relations. Pekka Lundmark, President and CEO of Nokia; and Marco Wirén, CFO of Nokia are here with me via teleconference and video today. During this call, we’ll be making forward-looking statements regarding the future business and financial performance 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 risk in more detail in the section titled, operating and financial review and prospects-risk factors of our 2019 Annual Report on Form 20-F, our financial report for Q1 published on April 30th on Form 6-K, 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 a reconciliation between the non-IFRS and the reported information. Please also note that we have a lot of content today and to ensure we have a good amount of time for Q&A, we may decide to let this call run five minutes over. With that Pekka, over to you.

Thank you very much, Matt. And it's a pleasure to talk to all of you on my first quarterly call at Nokia. We actually do have a lot to cover today, so let's get right to it starting with our third quarter results first. Overall, the quarter was solid and we did see progress in many parts of the business. We also saw some developments that while not impacting the quarter will provide some potential headwinds in the future. When we look at market conditions, we believe that our primary addressable market excluding China will decline this year on a constant currency basis. We expect that we will slightly underperform the market, driven by -- mostly by global services. And then from a topline perspective, it's clear that Q3 year-on-year decline -- sales decline was disappointing. Global Services and to a lesser extent, Nokia Software, were the primary drivers of that decrease. We cannot be happy with a 3% decline in topline on constant currency basis and 7% decline on a reported basis. Several Nokia level profitability metrics were, however, up year-on-year, including operating margin and operating profit. As you have seen, we had 80 basis points improvement in non-IFRS operating margin and 200 basis points improvement in IFRS reported operating margin. In the sign of the progress that we are making, I would also note that our network's gross margin was up strongly 370 basis points to be accurate from the same quarter last year. Overall, we saw solid operational and commercial discipline and a low non-IFRS operating expenses largely resulting from less travel due to the ongoing pandemic. And then in terms of net cash, we ended the quarter with €1.9 billion, up €139 million from Q4, 2019 to mark the fifth consecutive quarter of solid free cash…

Thank you Marco. For the two day session, please limit yourself to one question only as a courtesy to everyone else in the queue. Cole, please go ahead.

[Operator Instructions] And our first question today will come from Alexander Duval with Goldman Sachs. Please go ahead.

Yes. Hello. Hi, there. Many thanks for question. Today you’re talking about increased investment, and that's clearly mapped into your guidance and you referenced R&D in particular. And can you please talk about what you've learned so far in terms of what kind of R&D is needed? How you're going to direct the spending and what are the kind of benefits. You'll get from that spend, if we think about things like product quality on the wireless side, your market position, and also financial factors like gross margin?

Okay. Thank you, thank you that's of course an extremely critical, critical question. I would like to my start my answer, going few years back, which I already commented earlier that, for the reasons that I explained. We were clearly behind in 5G development and that has cost us some market share. And since then we have been constantly increasing the spending at the same time when we've been pretty heavily rationalizing the R&D structure and reducing the number of locations where we do R&D. And the good thing is that our customers have recognized the progress and we have lately received pretty encouraging feedback from many customers, and some of them. I can say it, because they said it in public BT with whom we’ve made - signed a large deal. Recently, they said that in public that they have seen great progress on our 5G. So I believe we are catching up. We still need to complete the system on chip roadmap, and it will go into next year until we have - have a high enough share of those. But then very importantly, it is then also being able to on the software side, complete the development of all the different features when we look at the current situation. I mean, different customers are in different situations in some customer - with some customers. We already have cases where we have seen that we are actually slightly ahead of competition in some features. But still if we are totally honest to ourselves and an average. We are still slightly behind. And that's why, since we have very important customer opportunities and we want to take care of these customers and make the commitments to them. When it comes to next year's deliveries and the year after - after that we have decided to increase the investment on R&D. We have to remember that for the time being and this will continue into 2021, we are still going to invest both in. So, SOCs, and then FPGAs, and this will continue in 2021, but then after that, when this ramp up has completed in 2021, then hopefully gradually after that we would be able to start reducing this double spending. So - so that's why I mean there is a possibility that one way or another next year will be the peak, peak here and in the name of transparency. I'm also, since we have factored this in into the guidance next year, what we are talking about in terms of increased R&D spend next year in 5G, it's low triple digits in millions i.e. a low hundreds of millions in additional spend next year and this is one of the things that is factored in the guidance for next year. Sorry, this was a long answer to your question and of course we could go more into detail also. Also, when we have time, but this is how we see this.

Please go ahead with the next question please.

Certainly. And our next question will come from Robert Sanders with Deutsche Bank. Please go ahead.

Yeah Hi, good morning, good afternoon. My first question is just relating to -- your reflections on Nokia’s as mistakes in the past. I have noticed that in the past, bad news has traveled slowly and good users traveled fast. And, you know, look it has missed its margin targets historically, but are you doing differently internally to make sure that there's no excessive optimism, whether on competitiveness, on pricing? And related to that, when you think about your new sort of organizational structure and when can you take a view, do you think on, on which businesses are non core. You said you mentioned for example that optics could do mid single digit margin, but that doesn't for example, probably cover its cost of capital, so I'd love to sort of hear when you think as a sort of drop dead for some of these decisions about disposals? Thanks.

I mean, I'm of course focusing on the future and not on the past and I do not want to go too deep into anything that has happened before. I talked about the R&D situation in 5G, which I believe I've explained in a way that that is satisfactory. But what is really going to be important for us in the future is to communicate as transparently as possible. We want to develop internally first of all, a culture of openness in all aspects both good news and bad news so that management will get accurate information also on things that are not going well in addition to things that are going well. But then, I mean, my commitment and Marcus and my commitment to you dear investors is, is to be as honest and as transparent as possible and in the name of that honesty and transparency, we have now given you our current best view on next year which will be tough. I realize that many of you feel that it's a disappointment, but when we factor in these four things, loss of market share in one big important American customer, strong price pressure in North American mobile networks, the increased R&D investment to achieve technology leadership in 5G and then COVID uncertainties. This is the most honest and best picture that we can currently give of next year and that's how we want to continue also in the future. Then your second question about what could be potential non core businesses in the future? That's of course not something that I want to speculate on this time as we explained all businesses will need to be able to demonstrate a path to at least deliver their cost of capital, if they are not there today, path to value creation. And as I said earlier, optical networking business it is in turnaround mode. At the moment with close to breakeven profitability, so it's currently nowhere near delivering its cost of capital. Having said that, it has pretty exciting momentum going on. There's good topline growth. Q3 profitability year-over-year was promising. And then there is the product cost reduction opportunity through the acquisition of Elenion which will start to play into the numbers next year. So from that point of view, I'm not ready to make that decision or conclusion today that that they would not be able to cover their cost of capital going forward. So this is the assessment that we are going to go into look through for all businesses and then of course, we will be openly communicating any decisions that we may make in the future.

Thank you, Rob. As a reminder, please limit yourself to one question only as a courtesy to everyone else in the queue. So Cole, we'll take our next question please.

And our next question will come from Alexander Peterc with Societe Generale CIB. Please go ahead.

Hi. Thank you for taking my question. Can I just ask, when you look at your footprint in mobile, so the loss of footprint with China 5G Verizon, it’s quite substantial. Can you maybe tell us whether you'll be able to claw back maybe half of the loss of the loss footprint in areas where your main competitor is losing share now due to security concerns. How much do you think you can actually claw back? Thank you.

Of course, our goal is to recover, as much of it as possible, but I do not have a number for you yet, but we do see opportunities and some of this recent deals that we have announced clearly are part of this recovery. And yes, we do have exciting stuff in the pipeline as well, but I will not give you a number today. What I would like to point out though, is that when we talk about Verizon, they continue to be our top three customer. We continue to work with them in many parts of the network in routing, in optics, in fixed, in software, cloud, you name it. And of course, we are in the 4G network strongly, and we are, by no means, going to give up on 5G radio either going forward. So we want to find a way to fight back in the future. So that's a general statement about Verizon. The relationship is good and strategic and we have an ongoing dialogue with them all the time. And how much of this others will be able to compensate that and then the low market share in China, which we of course, want to work on in the future. It's too early to say.

Thank you for your question Alex. Cole we’ll take the next question please.

And the next question will come from David Mulholland with UBS. Please go ahead.

Hi. Thanks for taking the question. Just kind of following on a similar term, you've commented that in Q3 you still achieved over a 90% conversion outside of China and obviously this clearly a big impact in the U.S. and have you embedded within kind of the full quantum of headwind of Verizon. And if that's the case, is there anything else you can call out beyond BT that have been helpful in terms of gains elsewhere to offset some of the headwind, because I would have assumed that it would have been a lot less than 90% with Verizon alone.

I mean we have factored in into that number everything we have, and of course, Verizon has a negative, a clear negative impact because of the strong volumes that there are. But as you correctly point out there are also some positive news BT. There is Orange and Proximus in Belgium. There is Elisa. There is Telia in Finland, and several others as well.

Thank you, David. Cole, next question please.

And our next question will come from Sami Sarkamies with Nordea Markets. Please go ahead.

Hi, thanks. Can you talk about your ambitions related to top line growth? For example, do you think you will be able to show growth next year despite loss of Verizon footprint? And longer term, are you targeting about market growth even possibilities to gain a share from some of your Chinese rivals?

Of course, any business needs to have an ambition to target top line growth and grow faster than the market, but next year will be challenging, because of the reasons we have already discussed and it remains to be seen that how these two things play out when it comes to top line next year, the loss of market share in North America, but then some of the opportunities in other segments that we are seeing. We are not giving a top line guidance yet for next year. And we see then -- we will then need to see that when we get into December and then Capital Market Day that's what is the right way of providing you with additional information so that you can model the top line part as well. But the best we can now say about next year is that the combination of our expected top line gross margin and OpEx and everything basically SG&A and everything that we will be looking at 5% to 10% non-IFRS operating profit. Marco Wirén: 7 to 10. And…

7 to 10, yes.

Yeah. Thank you, Sami. And Cole, we'll go to our next question please.

Our next question will come from Simon Leopold with Raymond James. Please go ahead.

Thank you for taking the question. I wanted to see if you could maybe talk about the process, you would undertake to determine if you have sufficient scale to compete in 5G given all the moving parts of higher R&D, lower volumes, I have to imagine you've got an equation here, and bring scale competitiveness into question. Could you just help us understand the thought process and the calculus behind the plan to move forward? Thank you.

Of course. That's something that we have following up every day and it will actually now when we consolidate all that into a P&L responsible business. It will also be much easier for us internally to make those decisions because we will be able to better than before connect the deal making, the customer decisions and the expected volumes and margins and potentially the expected additional customer specific R&D requirements, all together in this decision making. For competitive reasons, I'm currently not going. Today we are not going to open up this more, but it is exactly as you said, it is a product of volume, sales margin, gross margin and then very much and this is very important in that business is the R&D investment, because we are talking about a lot of money and as we have noted it will increase next year. Our goal once again is then, since we are today operating in this communication and a fairly high level that we would be able to then provide you the next level of information on the market positions and general ambition of these businesses in December, and then do a real deep dive in March, in the Capital Market Day when then hopefully we would be able to give you a much more detailed information.

Thank you, Simon. Cole, next question please.

Our next question will come from Richard Kramer with Arete Research. Please go ahead.

Thanks very much Pekka. I think investors have become rather tired of the -- the entire equipment sector at Nokia or Alcatel or Ericsson and others with sort of never ending rounds of restructuring where the cash costs seem to linger on, but the cost savings become very hard to spot. Will your move to a new operating model at Nokia involve yet another sort of Nokia restructuring, I think this would be 3.0 or 4.0 since the Alcatel merger, but yet another major restructuring plan that investors would have to wait to see the end of to prove the cost savings.

If I take this through the lenses of what we -- what we want with or what we target with the simplification of the operational model and this is really going to be quite a big simplification. One of one of those things is really to target better cost efficiency i.e. lower -- lower cost, because there is an opportunity through this simplification to look at how we do things and potentially rationalize some overlapping functions. What we do need to focus on, though in everything that we do is basically ultimately at the end of the day only two things matter. Is that you have R&D teams that create great products and then you need to have customer teams that are able to take these to customers and get them installed delivered and taking care of your customer and everybody else in the company. Mark and me included, we are here to make these two teams successful. So if we -- when we talk about rationalization. We want to do it in such a way that we keep focused on these two teams. I do see potential for better cost efficiency, but this is something that we will come back to, then later when our plans have proceeded and then of course I mean, the reality is in some cases, if you want to reduce costs, there may be then restructuring costs associated. But this is all speculation at this time there are no decisions. And this is something that we will we will come back to later, if needed.

Thank you for your question Richard. Cole, we will now take our final question for today.

And your final question for today will come from Stefan Slowinski with Exane BNP Paribas. Please go ahead.

Yes. Good afternoon and thanks for the increased detail and transparency today. Had a question on cash flow and the dividend outlook, would you say is now a three to five year outlook so just wondering what you mean by three to five years? And in the past I think you've stated you would reinstate the dividend when you had 2 billion of net cash. You should be there by the end of this year, so are you suggesting that the net cash will trend lower next year, if you don't pay a dividend this year, or is that €2 billion level no longer the policy? Thank you.

Thank you so much for the question. Just to be clear here. The three to five year long-term dividend target has been there quite a long time and that's our dividend policy 40 to 70% of non-IFRS EPS is paid as a dividend. When it comes to the Board of Directors assessment that I touched upon us well in my introduction. The board will make the decision, usually after the Q4 for closing. And, of course, then they're going to assess, not only the net cash today, but also what are the investment needs that we have going forward. And what is the expected net cash position going forward and all of these different aspects are weighted together and that's the board will make a decision.

Okay. Thank you very much for your questions today everyone, I'd like to talk -- turn the call back to Pekka for closing remarks.

Thank you very much. Matt and thanks again to all of you for joining us today. As you can see we still have plenty of work to do on our go forward strategy and I know we will have a lot to discuss with all of you in the coming months. I will simply say three things in closing. First, we will have a relentless focus on returning Nokia to shareholder value creation. Second, we will be transparent about where we stand and the challenges we face. And third, there is much good - there's much good that we are doing every day, and you can see that in our solid Q3, our progress in mobile access and the strong positions we have elsewhere in our business. So I really look forward to talking with all of you again in December, if not earlier in one-to-one meetings. So with that, again, back to you, and Matt - thank you very much and back you, Matt.

Thank you, Pekka. Ladies and gentlemen, this concludes today's call. 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, such as general, economic and industry conditions, as well as internal operating factors. We have identified these in more detail in the section titled, Operating and financial review and prospects-Risk factors of our 2019 Annual Report on Form 20-F, our financial report for Q1 published on April 30 on Form 6-K, as well as our other filings with the U.S. Securities and Exchange Commission. Thank you.

Ladies and gentlemen, the conference has now concluded. Thank you for attending today’s presentation. And at this time, you may now disconnect your lines.