Hello, and welcome to the Nokia Fourth Quarter and Full Year 2020 Earnings Teleconference and Video Call. [Operator Instructions] Please note that today’s 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 2020 conference call. I am Matt Shimao, Head of Nokia Investor Relations. Pekka Lundmark, President and CEO of Nokia and Marco Wiren, CFO of Nokia are here with me via teleconference and video today. During this call, we will be making forward-looking statements regarding our future business and financial performance. 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. 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 30 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 report with tables and the presentation on our website include non-IFRS and comparable 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. Today’s stock exchange release and presentation can be found on the Investor Relations section of the Nokia website. With that, I would now like to turn the call over to Pekka.

Thank you very much, Matt and dear investors, welcome to join us today. I am happy to report that we had a solid Q4 to end 2020. And actually, as you will have seen, we came in at the high-end of our previously communicated outlook range. The Nokia level non-IFRS result, both gross margin and operating margin were healthy and they were up. Non-IFRS operating margin was 16.6% and that was up 20 basis points and then of course for the full year the increase was bigger. We came in at 9.7% and previous year was 8.6%. And as you have seen, gross margin development, pretty good non-IFRS gross margin, 41.8% for the quarter and 40% the year before. This was driven by first of all regional mix shift towards higher margin North American market. It was also driven by our R&D efforts to enhance product quality and cost competitiveness and this is of course pretty encouraging all of it. Most of this was in the networks business and then of course this was the last year now when we report in this structure where networks is one business this year, we will zoom a little bit deeper into the different components of the networks business. What we would like to highlight is that Q4 operating profit benefited about €250 million from two drivers, €150 million early payment and then €100 million from Nokia Venture Fund valuation that Marco will talk about a bit more in detail. And if you turn or kind of calculate that how much the EPS effect out of these two items would have been – it would have been $0.035. We also reiterated our earlier view on 2021 operating margin outlook. So, we keep the 7% to 10% margin forecast for this year. And then…

Thank you so much and hello from my side as well. There is basically four areas that I would like to cover with you today and I will start with the group common and others and then go over to cash position and liquidity position at the end of the year. And then explain a little bit more about the derecognition of the Finnish DTA, deferred tax asset, that impacted our reported results. And then finally, I will close with some comments about our ‘21 guidance. So if we start with the group common and just starting here that we had a very strong year-on-year net sales growth. And this was actually second quarter in a row. And the main driver here was the ASN, Alcatel Submarine Networks. And if you remember, already in Q3 they started with a very good path and this continued in Q4 as well. And just to point out here that, due to the COVID, we had to close our factories in Alcatel Submarine Networks and that affected heavily their business and volumes as well. And now when the factories have been reopened, they have been able to deliver according as well. And other things that I would like to highlight on the ASN side is, as well that, they have – first of all, they are market leader today in their business. And their order book is extremely good €1.75 billion at the end of 2020. And, of course, we believe that we can continue a good development when it comes to top line during ‘21 as well. Then another item that I would like to highlight in the group common and that’s the €100 million impact that we got just in the end of the year. As we have the venture fund in…

Thank you, Marco. [Operator Instructions] Cole, please go ahead.

Thank you. [Operator Instructions] And our first question today will come from Andrew Gardiner with Barclays. Please go ahead.

Thanks very much. Good afternoon. I was hoping to go into a little bit more detail on some of the comments you made on the mobile market share and therefore the revenue you expect within the mobile access business. So Pekka, you said that you expect to drop from about 27% to 28% 4G, 5G market share example-China last year to 25% to 27% this year. And I suppose if I sort of then think about what is expected for the mobile access market. Yes, going to grow this year quite clearly, given 5G led by China. But I think even – even without that with North America and Europe, it should be growing by low single digits. And so if I consider your slight market growth offset by your market share pressure in the middle of the range, I get to something around a low single-digit decline. Maybe it’s mid-single-digit when we consider the FX headwinds you guys faced. It sounds, however, when you talk about significant decline that it’s – it’s more than that. Just can you give us a bit more detail there? Do you think you’re facing more price pressure than others, given some of the technology issues you faced in the past? Just a bit more detail in terms of what specifically you are expecting in mobile networks revenue would be helpful?

Okay, okay. Thank you. I mean that’s of course one of the most essential questions that – and issues that we are facing this year. If I comment market shares, first, expectation is clearly that in China and in North America this year, we will have lower market shares. And of course, that 25% to 27% that you referred to, that’s excluding China. But then overall, when we take top line, of course, China is in that game as well. We do not believe that we would be facing a situation where we would have to sell our product cheaper than competitors. There is price erosion in the market. We certainly do not want to be the one who would be driving prices down, but it is reality that the prices are eroding and the price erosion is stronger in the North American market than it is in other parts of the world. So from that point of view, the top line and then it comes to the definition of this significant. There are three components. There is the volume, which is driven by market share. And then there is price erosion, which, together with volume drives top line. And then on top of that, there is the currency headwind, which is actually going to be quite significant this year, so these three components together and up to significant. Then of course what you should note and hopefully this is then the positive side of the story is that when you take our guidance for top line group top line this year, and we are not guiding any midpoint or anything like that. But just for the sake of argument, if you mathematically take the midpoint and then eliminates the effect of currency headwind. That would lead to roughly flat top line for the group this year, which would mean that then excluding currency effects, the other businesses would actually compensate for the drop in mobile networks top line.

Thank you for your question, Andrew. Cole, next question please.

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

Thanks. I want to understand a bit better what happened in Q4 with regards to your product mix at Mobile access. At the third quarter, you were prepared for a lower share of ReefShark-based sales in Q4, but this was not the case as you benefited from earlier than anticipated product releases. Are you running ahead of your targets thinking of system on a chip transition and was the €150 million tailwind from early revenue recognition driven by this matter?

Sorry, thank you, Sami. The €150 million thing is unrelated to this one. That was a customer-specific issue. I would not show the conclusion that the 43% share would be an indication of the overall program being ahead of targets. We maintain this 70% target by the end of this year and 100% target by the end of next year. These percentages jump up and down always dependent on the mixture of customer deliveries in that specific quarter. Actually, the way it’s measured is deliveries from the factory to customer. But then there is a further delay often 6 months between that event and then until the revenue is recognized after it’s typically installed and take commission and taken into use, that’s when the revenue is recognized. So I know that there is a temptation to draw that conclusion, but that would be pushing it a little bit.

Thank you, Sami. Cole, next question please.

And our next question will come from Alex Duval with Goldman Sachs. Please go ahead.

Good afternoon everyone. Thank you for the question. You obviously had solid cash generation in the quarter relative to your prior guidance, even with that €500 million early payment of cash. I just wondered if you could expand a bit more as to why you got that early payment? And then also, it would be interesting to know in terms of the underlying improvement, which was better than expected. What were the main operational drivers and how sustainable is that as we look forward to the coming year?

Yes, thank you. Very good point. And I would say that reason for this early payment from the customer side, which was due in Q1 2021 is only the customer that can actually answer that question. We did expect that. It came. And it could be just banking days arrow here as well. For the other point, I would say that if you look how we have been able to reduce the net working capital, which is the main driver on how we can improve our efficiency in collecting cash. Two-thirds of the improvements that we’ve seen now in the latter part of the year is actually totally coming from higher efficiency on net working capital. And only one-third is coming from volume-based. So I would say that we have been able to increase the efficiency in net working capital and we measure this in rotation days and we have seen that they have been improving.

Thank you, Alex for your question. Cole, we will take the next question please.

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

Yes. Hi, good afternoon and thank you the question. I just had a question really on back to market shares on the timing of the market share shifts that you see. So, if you help me understand I was thinking maybe China share loss was a 2020 affair and then we don’t have further impacts on China in ‘21 or am I mistaken? And then the same for North America is that only a ‘21 impact or we are going to be having this share loss hampering growth in North America for more years than just the current year? And then obviously for Europe, you have some gains here, have those already transpired and what we saw in the final quarter or is there more to come in ‘21 and beyond? Thanks.

Yes, the overall market share excluding China, remember, this 25% to 27% this year and 27% to 28% last year was excluding China. So that is eliminated. Clearly, the negative driver this year is North America. And then Europe is actually supporting this mitigating some of that negative effect. We have guided only this year’s market share, and it’s actually very difficult to say anything yet about ‘22 or ‘23, we may be able to shed some light on this question at the Capital Market Day, but there is still so many deals to be negotiated and hopefully one during this year that will then affect next year’s 2023 market share that it’s simply too early to comment that.

Thank you, Alex. Cole, next question please.

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

Hi, thanks for that. Just following on from the last question, I know it’s probably a bit early to try and touch on this, but with what you are seeing in terms of your customer engagements and knowing the Verizon and North America issues are largely behind us. Do you feel confident that you’re holding your share in the rest of your North America base? And if that’s the case, we’re not past the issues in China, and you’re gaining share in Europe, do you think that we will, at the very least be troughing in terms of market share in 2021 given the engagement you see with your customers with the product today or is it too early to have that confidence and you need to see a bit more of customer interaction and success on winning this year?

Yes. We do need to see more customer interaction before we are able to say anything about ‘22 or ‘23 market share. Of course, some of the recent deal activity that we have had, especially the ones that we have published is promising, but it’s still too early to call. And then, of course, when it comes to individual customers, customer names, including in North America, we never comment individual customers’ speculations in terms of what they might not decide in the future. So into that, we cannot, unfortunately go. So it’s still too early to call ‘22 or ‘23 market share.

Thank you, David, for your question. Cole, we will take the next one.

Your next question will come from Robert Sanders with Deutsche Bank. Please go ahead.

Yes. Hi, good afternoon. And I just want I had a question about Europe. If you look at the historical rand share in Europe at 50% for the Chinese vendors in 4G, how much of that share would you say is already up for grabs in 5G? And related to this, after you complete the swaps you’re doing, do you think actually Europe could end up becoming a more attractive market from a pricing point of view over time?

I do believe that Europe will be an attractive market, but it’s not possible. I’m sorry to answer your question through any numbers or anything like that. We are not able to simply estimate that we are looking at our market share in Europe, which is trending up at the moment, but it is not up to us to speculate on where that would be coming from. And then especially when it comes to the comments about geopolitics. As I have said earlier, we are a business. We are not politicians. So we are not participating in any political speculations. We are focusing on our business and what we are seeing in our customers. And as I said, we have seen a positive market share trend in Europe.

Thank you, Rob. Cole, next question please.

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

Thanks for taking the question. I wanted to see if maybe you could offer some thoughts on how the C-band auction that’s underway in the United States might affect Nokia. For example, there are some that are arguing that the money spent on the auction will reduce what operators will spend on the networks. While other arguments are saying, no, it demonstrates large intentions to spend, and it’s a good thing. And on top of that, I’d like to get a better understanding of your product competitive positioning with mid-band? Thank you.

Yes. I mean, those are exactly the two ways to look at that thing. But I mean, hey, look, if somebody spends a lot of money on something makes a big investment. Shouldn’t that lead to a very high interest to do everything possible to maximize the return on that investment and how do you maximize that return, you need to maximize the spectrum efficiency, you need to maximize the investment into your service, which would indicate that it would more be the latter one of the two alternatives that we are – that you are highlighting. Then when it comes to our product competitiveness in C-band now when we are making quick progress on ReefShark and system on chip, we are seeing a pretty strong competitiveness when we complete the road map during this year. So we are ready.

Okay. Thank you, Simon for your question. Unfortunately, it looks like we won’t be able to get through the entire queue. So Cole, we will take our last question for today.

And that question will come from Peter Nielsen with ABG. Please go ahead.

Thank you very much. You have made some comments that you are – have improved your competitiveness on the product side. Could you elaborate a little bit on – and where more – where specifically you feel sort of that you have improved your 5G competitiveness? And also, has these encouraging comments and trends you’re seeing make you believe that you can perhaps catch up a bit sooner than you had anticipated and spoke to us about 3 months ago? Thank you.

Well, it’s – there is no big difference to what we said 3 months ago. We were pretty confident on our ability to catch up back then. And I would like to repeat that confidence today. We are now already in the second month of 2021. And as I’ve said earlier, 2021 is the year during which we believe that for all relevant and significant parts, we will complete the catch up. So we are optimistic. And this is, of course – I mean, this is a matter of both silicon customers and in some cases, merchant silicon, but then it’s very much the software features and software functionality. There are clearly areas where we don’t need any catch-up anymore. We are one of the leaders. And one of the examples is clearly end-to-end network slicing, which cuts across the whole network and also across 4G and 5G and makes it possible for operators to offer specific enterprise – enterprise-specific slices when they are doing their industrial applications. And there is more to come. So we are approaching a situation where there is no need to talk about catch up anymore, but there is a lot of work still to do this year. But once we get through this year, I believe we will get there.

Thank you, Peter Kurt and thank you to all of you for your questions today. Thank you also, Pekka and Marco. 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 and internal 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.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines at this time.