Nokia CorporationInterim report18 April 2024 at 08:00 EEST Nokia Corporation Interim Report for Q1 2024 Strong cash flow and improving orders despite market weakness As expected, a slow start to 2024 with net sales declining 19% y-o-y in constant currency (-20% reported) in Q1. Environment still challenging but order trends continue to improve year-on-year, particularly in Network Infrastructure. Comparable gross margin in Q1 increased by 1 090bps y-o-y to 48.6% (reported increased 1 040bps to 47.9%). Strong contribution from Nokia Technologies which benefited from significant catch-up net sales, in addition to significant improvements in Mobile Networks due in part to regional and product mix. Q1 comparable operating margin increased 460bps y-o-y to 12.8% (reported up 130bps to 8.6%), as licensing catch-up net sales more than made up for low net sales coverage of operating expenses impacting other business groups. Q1 comparable diluted EPS of EUR 0.09; reported diluted EPS of EUR 0.08. Q1 free cash flow almost EUR 1bn, net cash balance EUR 5.1bn. Nokia's full year 2024 outlook is unchanged. Nokia currently expects comparable operating profit of between EUR 2.3 billion to 2.9 billion and free cash flow conversion from comparable operating profit of between 30% and 60%. This is a summary of the Nokia Corporation Interim Report for Q1 2024 published today. Nokia only publishes a summary of its financial reports in stock exchange releases. The summary focuses on Nokia Group's financial information as well as on Nokia's outlook. The detailed, segment-level discussion will be available in the complete financial report hosted at www.nokia.com/financials. A video interview summarizing the key points of our Q1 results will also be published on the website. Investors should not solely rely on summaries of Nokia's financial reports and should also review the complete reports with tables. PEKKA LUNDMARK, PRESIDENT AND CEO, ON Q1 2024 RESULTS As expected, the ongoing market weakness drove a 19% year-on-year constant currency decline in net sales in the first quarter. However, we have seen continued improvement in order intake, meaning we remain confident in a stronger second half and achieving our full year outlook. Driven by the patent licensing deals signed in Nokia Technologies, we achieved a comparable operating margin of 12.8% in Q1, compared to 8.2% the year before. We also generated almost EUR 1 billion in free cash flow in the quarter, which is a very strong performance. I'm pleased that the improving order intake we started to see in Network Infrastructure at the end of last year continued in Q1 with year-on-year growth in order intake and drove a further increase in our backlog. The outlook for Fixed Networks for 2024 has improved which is an important signal as this market often recovers first. However, we believe the recovery in Optical Networks may take somewhat longer. While we are conscious of the broader economic environment, considering the on-going order intake strength, we expect Network Infrastructure will return to net sales growth for full year 2024 with a stronger second half performance. Mobile Networks was impacted by particularly low levels of spending in North America and India, which led to a Q1 net sales decline of 37% in constant currency. A slower pace of spending in India was anticipated following the rapid 5G deployment seen in H1 2023, and our expectations for India for the full year remain unchanged. Globally, we expect Q1 to mark the low point in demand with activity then progressively picking up through the remainder of 2024 consistent with more normal seasonality. We saw significant strength in gross margin at 42% in the quarter, which is a solid improvement from the 34% in the year-ago quarter. Approximately half of this improvement was related to improving regional and product mix, while the remainder was due to exceptionally low indirect cost of sales. Cloud and Network Services saw a soft start to the year which was related to the challenging spending environment. However, we are seeing improving order intake and pipeline momentum. Importantly, we are also making good progress with our Network as Code platform. This platform enables operators to monetize their 5G investments, creating new revenue streams by offering developers advanced API access to the network. We now have a total of 11 operators signed up to the platform with many more in active discussions. Nokia Technologies had a very strong start to the year as we concluded a number of outstanding licensing deals in the quarter. This meant that our annual licensing net sales run-rate improved from the EUR 0.9 to 1.0 billion we had in Q4 to approximately EUR 1.3 billion in Q1. In addition to the run-rate increase, we benefited from more than EUR 400 million of catch-up net sales in the quarter. We have now concluded our smartphone licensing renewal cycle with no major renewals due for a number of years. This means Nokia Technologies has entered a period of stability. The business will now focus its resources on expanding in new growth areas with the next goal to increase our annual licensing net sales run-rate to EUR 1.4 to 1.5 billion in the mid-term. We have been executing quickly on the operating model changes we announced back in October along with our cost savings roadmap. These actions, combined with our expectation for improved net sales growth in the second half of the year, supported by our order backlog, mean we are solidly on track to achieve our full year comparable operating profit outlook of EUR 2.3 to 2.9 billion and free cash flow conversion of 30% to 60%. FINANCIAL RESULTS EUR million (except for EPS in EUR) Q1'24 Q1'23 YoY change Constant currency YoY change Reported results         Net sales 4 667 5 859 (20)% (19)% Gross margin % 47.9% 37.5% 1 040bps   Research and development expenses (1 135) (1 108) 2%   Selling, general and administrative expenses (708) (729) (3)%   Operating profit 400 426 (6)%   Operating margin % 8.6% 7.3% 130bps   Profit for the period 438 289 52%   EPS, diluted 0.08 0.05 60%   Net cash and interest-bearing financial investments 5 137 4 304 19%   Comparable results         Net sales 4 667 5 859 (20)% (19)% Gross margin % 48.6% 37.7% 1 090bps