Nokia Corporation

Good morning, ladies and gentlemen. Welcome to Nokia's fourth quarter and full year 2025 results call. I'm David Mulholland, head of Nokia Investor Relations, and today with me is Justin Hotard, our president and CEO, along with Marco Varen, 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. We've 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 and portfolio basis, and other financial items 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 reported and comparable financial results and reconciliation between the two. In terms of the agenda for today, Justin will go through our key messages from the quarter, then Marco will go through the financial performance, and then we'll move on to Q&A. With that, let me hand over to Justin.

Hello, everyone, and thank you, David. Overall, our fourth quarter performance was in line with our expectations, reflecting disciplined execution across the business. Net sales grew 3% in the quarter to 6.1 billion Euro with operating profit of 1 billion Euro and free cashflow of 0.2 billion Euro. For the full year, net sales were 19.9 billion Euro and operating profit was 2 billion Euro, slightly above the midpoint of our guidance. Free cashflow conversion of 72% was also consistent with our guidance. Stepping back 2025, was a foundational year in repositioning Nokia for long-term value creation. We strengthened our portfolio with the acquisition of Infinera, simplified our operating model, and set a clear strategy at our capital markets day to focus the company on the areas where we see opportunities for differentiation, scale, and sustainable market leadership. Now, to give you a bit more detail, let me first turn to network infrastructure. In the fourth quarter, net sales were 7%, driven by optical networks, which grew by 17%. Order intake was solid across both optical and IP networks, with a book-to-bill above one, supported by particularly strong demand from AI and cloud customers. For the full year 2025, we delivered €2.4 billion in orders from AI and cloud customers. This reinforces our view that optical networking will become an even more critical part of the infrastructure to support the AI super cycle. We are investing to capture near-term demand while maintaining a long-term perspective on the opportunity. In optical, our 800 gig ZR and ZR plus pluggable products are shipping with initial units performing well in the field. We now have multiple design wins and are supplying into scale deployments. Our focus is on ramping production to meet the strong demand we see in the market. In IP networks, we made progress on our expansion into data center switching. We launched two new products in the quarter, the 7220IXR H6 switching platform powered by Broadcom's TH6, an argentic AI solution for event-driven automation management, which reduces network downtime by 96%. We also secured a design win for our next generation data center switching platform. These are encouraging steps, and we continue to believe revenue will ramp over time as we expand our presence in this rapidly growing market. In our mission-critical enterprise customer segment, book-to-bill was well above one in Q4, supported by a growing pipeline from both new and existing customers. Turning to fixed networks, performance was stable year-on-year in Q4. As discussed at our Capital Markets Day, we are deprioritizing certain customer premises equipment products, but we do not have meaningful differentiation in which to leave margins. In Q4, our fiber OLT business grew 16% year-over-year, offset by declines in these areas I just referenced that we are deemphasizing. This resulted in overall flat performance for fixed networks. As I announced at our Capital Markets Day on January 1st, we brought together core software, radio networks, and technology standards to form our new mobile infrastructure segment. This structure is designed to sharpen accountability, improve profitability, and position the business for long-term technology leadership. Core software, formerly a part of cloud and network services, He's leveraging our differentiated cloud native core network stack to grow faster than the market and continue improving profitability. During the quarter, we won a 5G core deal with Telia and announced a collaboration with Bartier Tel on Nokia's network as code API platform. We now have more than 75 partners using the platform, including 43 telcos. Radio networks, formerly a part of mobile networks, focused on disciplined execution in a largely stable market. We continue to invest to deliver 5G advanced and O-RAN solutions while innovating to establish a longer-term leadership position in 6G and AI-native networks. A key pillar of our strategy is co-innovation, and in Q4, we announced our partnership with NVIDIA. We continue to remain on track to begin trials and proofs of concept on AI-RAN later this year. We also announced a market share expansion deal with Telecom Italia, along with contract extensions with Telefonica Germany and SoftBank. Technology standards remains focused on securing long-term monetization of Nokia's patent assets. We signed several deals in Q4 and continue to maintain a contracted net sales run rate, approximately 1.4 billion euros. At our capital markets day, we also announced the creation of Nokia Defense, a new incubation unit that will serve as the central R&D hub and go to market for our defense portfolio. Our priority is to deliver defense-grade solutions based on Nokia's mobile and network infrastructure technologies for Finland and other NATO countries. Nokia Defense also includes Nokia federal solutions in the U.S. and includes the technology we acquired from Phoenix Group in 2024. Based on feedback from customers, we see growing demand for our 4G and 5G technology in military environments, both for national security and tactical applications. This is an area where we are continuing to invest, and we will share updates as we make further progress. Finally, in Q4, we closed the transaction to take full ownership of our joint venture in China, Nokia Shanghai Bell. This gives us greater operational flexibility, and we will bring it into full alignment with Nokia's global operating model. As a part of that integration, we expect to deliver approximately 200 million euros of run rate cost synergies with integration costs of approximately 300 to 50 to 400 million euros over a period of 24 to 36 months. Turning to 26, looking ahead, our focus is on disciplined execution to capture growth in AI and cloud and increase efficiency while we're building a high-performance culture across Team Nokia. We now have fewer, clearer priorities, a simplified operating model, and a strategy we are executing with speed and accountability. Network infrastructure remains our primary growth engine, particularly optical and IP networks, where we see strong structural demand. In mobile infrastructure, our focus is on gross margin and efficiency, while we continue to invest in our portfolio for competitiveness and market share in 5G and to transform the business for long-term success in areas such as AI-native networks and 6G. From a financial perspective, in 2026, we're targeting an operating profit in the range of 2 billion to 2.5 billion euros. At our capital markets day, we outlined a series of KPIs to illustrate how our strategic direction translates into financial outcomes. Let me revisit those and what we expect in 2026. Our first KPI is to deliver six to 8% compound annual growth in network infrastructure between 2025 and 2028 on a constant currency and portfolio basis and 10 to 12% in the combined optical and IP networks businesses. In 2026, we expect growth rates in both cases to be in line with these long-term targets. As expected, the product prioritization decisions we have taken will limit growth in fixed networks, while we expect growth in our fiber OLT portfolio to continue to occur due to strong underlying demand. Our second KPI is to expand network infrastructure operating margin to 13% to 17% by 2028. This is compared to the 9.5% achieved in 2025. In 2026, we expect measured margin expansion as we ramp new products and continuing investing in the long-term growth opportunity we see in the business. The next two KPIs relate to mobile infrastructure gross margin and operating profit. In 2026, we continue to expect some top line headwinds from prior contract losses, but otherwise a stable market environment. Our focus is to continue to target at least one and a half million euros in operating profit consistent with our performance in 2025. As announced at our CMD on January 1st, we have moved four businesses into a new unit called portfolio businesses. This includes our fixed wireless access customer premises equipment, and site operations businesses, both from fixed networks, our microwave radio business from mobile networks, and the enterprise campus edge business from cloud and network services. In 2025, these businesses generated net sales of 850 million euros and an operating loss of 97 million euros. In 2026, our target is to conclude a future direction for each of them, We currently assume a lower operating loss in 2026 versus 2025. For Group Common, we expect costs of approximately 150 million euros in 2026, compared with 190 million euros in 2025. Overall, we see 2026 as a year where we will make meaningful progress towards our long-term targets. With that, let me turn over to Marco to walk you through the financials in more detail. Marco.

Thank you, Justin, and hello from my side as well. As Justin mentioned, we delivered a fourth quarter which was in line with our expectations and guidance. Net sales were 6.1 billion euros. That's up 3% on the prior year. First margin was 48.1%. An improvement of 90 basis points driven by improvements in mobile networks and cloud and network services. Operating margin was 17.3%, and this is 90 basis points below the prior year, impacted primarily by increased investments in growth areas, including the engineer acquisition. We generated 2026 million of free cash flow and ended quarter with 3.4 billion of net cash. Let's turn to the business groups now, starting with network infrastructure, where net sales grew 7%. In quarter four, AI and cloud customers accounted for 16% of our net sales and 30% of optical networks. The book to build for the overall segment was above one, with strength in IP and optical networks. First margin declined by 80 basis points to 44.6%. Operated margin was impacted by lower gross margin, along with the increased growth-related investments in R&D, and the costs associated with the acquisition of Infinero. And then let's go to cloud and network services, where we saw a decline by 4% in the quarter. And this was mainly due to a different phasing of revenue recognition this year. The business delivered 6% of net sales growth for the full year 2025. Cross-margin increased 650 basis points, partly as a result of the reversal of a provision of 37 million in the quarter. So even without this benefit, we would have seen an improvement in cross-margin. Operating margin also increased by 470 basis points with improvement in cross margin supported by reduced operating expenses. And then mobile networks net sales increased by 6%, and this was driven by growth in Middle East and Africa, Japan, and Indonesia. Full year net sales were stable and consistent with our expectations. First margin was 40.1% due to more favorable mix and lower indirect costs. For the full year, gross margin was 37%. Operating margin was 11.3% in the quarter, reflecting the higher gross margin as well as the impact of lower operating expenses benefiting from the ongoing cost saving program. And look at technologies, net sales declined by 17% in the quarter. Catch-up sales in this quarter were lower than the previous year. And we signed several new deals in quarter four, and our annual net sales run rate remains at approximately 1.4 billion euros. Operating profit was impacted by a 20 million euro impairment charge, and this is related to a prior asset purchase, which we deemed to have minimal future value in the context of our product portfolio. Now, let's look at the net sales by region. And as you can see here, in North America, we saw strong growth in networks infrastructure, while cloud and network services and mobile networks declined. In APAC, Japan and Indonesia grew while we saw declines in India and Greater China. And excluding Nokia technologies, Europe grew 4% with strength in network infrastructure. Middle East and Africa grew in both mobile networks and network infrastructure. And then recording cash, we ended the quarter with a net cash position of 3.4 billion, and the free cash flow was positive 226 million euro, and ending the year with a conversion rate of 72%, which is within our guided range of 50 to 80%. And the quarter has increased as a result of the NVIDIA equity investment, which was 0.9 billion. And we also completed the acquisition of the NSP shares. which impacted cash by half a billion euros. And this equates to 50% of the net cash in the joint venture, which we paid to the other joint venture equity owner and was consistent with the liability we had already recorded on our balance sheet. We now fully own our operations in China, and that will give us a greater operational flexibility going forward to manage the business, just like Justin mentioned. And today, we have also published recast financials based on the new operating structure we have implemented at the start of the year. And there are a couple of things that I wanted to highlight to help you understand these figures. you will see some differences in the net sales compared to our prior reporting, reflecting those units being moved into the new portfolio business segments, as Justin explained earlier. In Group Common, the recast cost base for 25 is 180 million, as we have reallocated approximately 193 million of the cost to the primary operating segments. It better reflect the nature of these costs. And as we discussed at our Table of Markets Day in the operating segments are expected to drive efficiencies in the organizations to mitigate those costs over time that we have transferred to them. However, this reallocation have a short-term impact on the segment profitability in NI and MI. And finally, Justin already introduced our new 2026 financial outlook, but I just wanted to share some comments on additional modeling assumptions for this year. For quarter one, historic seasonality would imply a 24% sequential decline in our net sales, excluding Nokia technologies. Considering the above normal seasonality that we've seen in quarter four, 2025, we currently expect quarter one, 2026 net sales to decline somewhat more than normal seasonality would imply. We also assume the operating margin would be only slightly better than the prior year. Then for the full year of 26, we expect comparable financial income and expenses of between positive 50 to 150 million euros. And we assume a comparable income tax rate of around 26 and 27%, but this might increase related to the regional mix of profit generation. Cash tax outflows are expected to be approximately 500 million euros. And we are planning for capex of between 900 million and 1 billion euro as we invest in additional manufacturing capacity for optical networks, along with some real estate renewal projects. And finally, we expect free cash flow conversion of between 55 to 75%. With that, let me hand it back to David for Q&A.