Nokia Corporation

Good morning, ladies and gentlemen. Welcome to Nokia's fourth quarter 2024 results call. I'm David Mulholland, head of Nokia Investor Relations, and today with me is Pekka Lundmark, our president and CEO, along with Marko Beren, our CFO. Before we get started, a quick disclaimer. During this call, we will be making forward-looking statements regarding our future business, proposed transactions, 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. We have identified such risks in the risk factor section of our annual report on Form 20F, 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 in relation to margins will be based on our comparable reporting. Please note that our Q4 report and a presentation that accompanies this call are published on our website. The report includes both reportable and comparable financial results and a reconciliation between the two. In terms of the agenda for today, Pekka will go through the key messages for the quarter, Mark will go through our financial performance, and then Pekka will make a few comments on some particular highlights from the quarter. We'll then move on to Q&A. With that, let me hand over to Pekka.

Thanks, David, and thank you all for joining us today. I'm pleased to share with you that we finished 24 with a strong quarter. The improved order trends we have talked about in recent quarters were now clearly visible also in our net sales with 9% growth in the fourth quarter. Network infrastructure grew 17% in Q4, with all units growing and with IP networks, the standout performer, growing 24%. We also had a very strong performance in Nokia Technologies with several new deals signed, increasing our net sales run rate to now approximately between 1.3 to 1.4 billion euro. Cloud and network services also grew 7% despite a four percentage point headwind from a prior disposal. Mobile networks So its sales trends stabilize as the more challenging comparisons in India are now behind us and we saw stronger demand in Q4 in North America. The strong Q4 sales and high contribution from Nokia technologies led to a comparable gross margin of 47.2% in the quarter and an operating margin of 19.1%. This is the highest quarterly operating margin we have seen at Nokia since 2015. We also had a strong year for cash generation with a free cash flow of 2 billion euro. Our year end net cash balance was 4.9 billion euro, even after returning 1.4 billion to shareholders during the year through both share buybacks and dividends. I will come back to this topic, but with the momentum we are seeing in the data center space, we are accelerating investments into our IP networks business, and I'm really excited about this opportunity. We will discuss our outlook a bit later, but I'm pleased to say the improved trends from the second half of 24 are expected to sustain into 25. With that, let me hand over to Marko to go through the financials in a bit more detail.

Thanks, Pekka, and hello from my side as well. I will start by discussing our overall group performance. As Pekka mentioned, we were very pleased to see the strong end to 2024. The fourth quarter saw net sales growth of 9%, gross margin increased by 250 basis points to 47.2%, and this was due to the increased contribution from Nokia Technologies and improvements in other business groups. Our quarter four operating margin expanded 380 basis points year-on-year to 19.1%. I will now look at the performance of our business groups, starting with network infrastructure. We saw a strong finish to 24 with all units growing in quarter four. IP networks had a very strong quarter with 24% growth. Fixed networks grew 16% and optical 7%. And this growth was mainly driven by improvement trends among CSP customers. and regionally in North America and India. Cross-margin expanded 70 basis points to 45.4%, and this was mainly driven by beneficial product mix. The operator margin was very strong at 19.6% in the quarter, as we also continued our prudent cost management. And in mobile networks, net sales declined by 2% in the quarter. After some very challenging quarters, we are now seeing net sales trends to start to stabilize. Pleasingly, North American net sales increased by double digit, while India net sales stabilized. First margin declined slightly by 20 basis points, but remains at robust 38.1%. And operator margin was 7.7%, a decrease of 380 basis points versus the prior year as underlying cost reductions were offset by higher variable pay accruals. Cloud and network services net sales grew by 7% of the quarter, with strong growth in North America. And this was despite a negative impact of approximately four percentage points related to divestment earlier in 2024. Growth was mainly driven by core networks and enterprise campus edge. Cross-margin was strong, as was operator margin, which came in at 22.4% for the quarter, with profit weighted towards quarter four as is typical seasonality for this business. And before moving to Nokia Technologies, I also wanted to bring to your attention the fact that we have now moved our managed service business from cloud and network services to mobile networks as of January 1st, 2025. The managed services business provides outsourced network management of multi-vendor RAN networks for operators. And considering CNS is increasingly transitioning towards cloud-native software sales as a service product offerings and helping customers to monetize networks through APIs, we believe this business is more aligned and fits better with mobile networks. And based on 2024 results, This change is expected to lead to a transfer of about 430 million of net sales and approximately 40 million euro of operating profit from CNS to mobile networks. And we will provide recast financial information for 2024 reflecting this change prior to our quarter one financial results. Turning now to Nokia Technologies, net sales grew by an impressive 85% in quarter four, and this was due to a combination of the increased annual net sales run rate from new deals signed in both quarter four and earlier this year, or 2024, along with some catch-up payments related to deals signed in the quarter. that were signed included Entrention, and is a previously unlicensed mobile device vendor, and then multimedia-related agreements with HP and Samsung and other smaller deals as well. Nokia Technologies' annual net sales run rate has been gradually increasing in the recent quarters to approximately 1.3 billion to 1.4 billion euros. And this shows a good progress on the journey to achieve our midterm target of 1.4 billion to 1.5 billion euros. Let's now look at the net sales per region. The biggest contributors to the net sales growth were North America and India. In North America, we saw a meaningful improvement in demand from telecom operators supporting all of our businesses. The growth in India was mainly driven by network infrastructure and especially by fixed networks where we benefited from strong fixed wireless access demand. And in Europe, we saw a resilient market performance But the growth in the region mainly relates to Nokia technology's performance. And elsewhere, most markets were relatively stable in the fourth quarter, although the competitive environment remains challenging in Latin America. 2024 has ended as a strong year for cash generation. On the whole, it played out as we expected in many respects. but we performed a bit better on each metric. Our prudent cost management also helped us to manage our capex requirements in the business this year, and we put significant focus on improving our working capital position, which yielded good results, and this was one of the biggest drivers of our strong cash performance. And we ended the quarter with a net cash position of 4.9 billion euros, which means that we start 2025 with a strong balance sheet and will remain in a good position, even considering the impact of the Infinera acquisition. And looking at our cash performance since 2020, we have a much stronger track record of cash generation. Looking forward, we forecast free cash flow conversion of between 50 and 80% in 2025. And during 2024, we returned 1.4 billion euros to shareholders in total. 710 million euros was returned through dividends and 680 million euros via buybacks. And you will recall that during 24, we accelerated the two year 600 million euro buyback program and had completed it already within one year. In November, we then announced and started a new buyback program to offset the dilutive effect of the Infinera acquisition. And this program is still ongoing. Given our cash performance in the year, we are pleased to announce that the Board of Directors is proposing a dividend authorization of 14 cents per share in respect of financial year 2024. And this is a one cent increase from the 13 cents the year before. And with that, let me hand over to Pekka to go through some of the business highlights.