Accelerating sales growth

• Q3 net sales growth accelerated to 6% y-o-y in constant currency (+16% reported). By business group:
  • Mobile Networks grew 12%, due to continued strong demand and supply constraints easing.
  • Network Infrastructure continued its strong performance with 5% growth and robust demand.
  • Cloud and Network Services declined 3% as we continued to rebalance our portfolio.
  • Nokia Technologies declined 19%, still impacted by expired licenses that are in litigation/pending renewal.
• Enterprise net sales grew 22% y-o-y in constant currency (+32% reported) with notable strength in private wireless.
• Reported gross margin declined 60bps y-o-y to 40.1% and operating margin declined 100bps y-o-y to 8.3% mainly due to the decline in Nokia Technologies.
• Comparable operating margin of 10.5% compressed 120bps y-o-y mainly due to the decline in Nokia Technologies. Operating margins in both Mobile Networks (+250bps) and Network Infrastructure (+50bps) improved.
• Comparable diluted EPS of EUR 0.10; reported diluted EPS of EUR 0.08.
• Free cash flow positive EUR 0.3bn, net cash balance of EUR 4.7bn.
• Full year 2022 net sales outlook is unchanged in constant currency. Full year net sales outlook applying 30 Sept 2022 exchange rates is EUR 23.9bn to EUR 25.1bn. Comparable operating margin guidance remains 11% to 13.5%.

This is a summary of the Nokia Corporation Financial Report for Q3 2022 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 Q3 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 report with tables.

PEKKA LUNDMARK, PRESIDENT AND CEO, ON Q3 2022 RESULTS

Our third quarter performance demonstrates we are delivering on our ambition to accelerate growth. Net sales grew 6% in constant currency as supply constraints started to ease and we maintained good profitability with comparable operating margin of 10.5%. This was slightly down year-on-year, as improving profitability in Mobile Networks and Network Infrastructure was offset by timing effects of contract renewals in Nokia Technologies.

I was pleased to see a strong quarter in Mobile Networks, which grew 12% in constant currency as we benefited from our improved competitiveness and improving supply situation. Net sales growth remained robust also in Network Infrastructure at 5% driven by continued strong underlying demand trends. Cloud and Networks Services declined 3% as we work to rebalance the portfolio but with improving gross margin. Nokia Technologies continued to deliver good progress in its patent licensing growth areas such as automotive and consumer electronics. These areas, which were negligible in 2018, now contribute over EUR 100 million in net sales in the past 12 months.

Our Enterprise net sales growth accelerated to 22% in constant currency. We have strong momentum in Enterprise including adding 30 new private wireless customers in the quarter and a further new IP Routing customer in webscale. With this momentum, we expect Enterprise to remain our fastest growing customer segment.

While risks around timing of outstanding deals in Nokia Technologies remain, assuming these close we continue tracking towards the high-end of our net sales guidance for 2022 and towards the mid-point of our operating margin guidance.

As we start to look beyond 2022, we recognize the increasing macro and geopolitical uncertainty within which we operate. While it could have an impact on some of our customers’ capex spending, we currently expect growth on a constant currency basis in our addressable markets in 2023. Considering our recent success in new 5G deals in regions like India which are expected to ramp up strongly in 2023, we believe we are firmly on a path to outperform the market and to make progress towards achieving our long-term margin targets.

OUTLOOK

¹ Assuming the rate 1 EUR = 0.97 USD as of 30 September 2022 continues for the remainder of 2022 along with year-to-date actual foreign exchange rates (adjusted from prior 1 EUR = 1.04 USD rate as of 30 June 2022). Assuming the 30 June 2022 exchange rate, the net sales outlook would continue to be EUR 23.5bn to EUR 24.7bn.
² Please refer to Performance measures section in Nokia Corporation Financial Report for Q3 2022 for a full explanation of how these terms are defined.

The outlook, the long-term targets (3-5 years) and all of the underlying outlook assumptions described below are forward-looking statements subject to a number of risks and uncertainties as described in the Risk Factors section later in this release.

• Nokia’s outlook assumptions expect the following size and growth in our estimated total addressable markets (Mobile Networks excluding China and Network Infrastructure excluding Submarine Networks) and assuming year-to-date actual rates and 1 EUR = 0.97 USD for the remainder of the year (updated):

• Nokia’s outlook assumptions for the operating margin of each business group in 2022 are provided below:        

• Nokia expects Nokia Technologies to deliver a largely stable operating profit performance in 2022 (assuming the conclusion of some outstanding deals) and over the longer-term;
• Nokia expects the net negative impact of Group Common and Other to be EUR 250 million in 2022 and over the longer-term;
• In full year 2022, Nokia expects the free cash flow performance of Nokia Technologies to be approximately EUR 450 million lower than its operating profit, primarily due to prepayments received from certain licensees in previous years;
• Comparable financial income and expenses are now expected to be an expense of approximately EUR 50-150 million in full year 2022 and over the longer-term. There is currently greater uncertainty due to the foreign exchange volatility and associated impacts (update);
• Comparable income tax expenses are expected to be approximately EUR 450 million in full year 2022 and over the longer-term;
• Cash outflows related to income taxes are expected to be approximately EUR 400 million in full year 2022 and over the longer-term; and
• Capital expenditures are expected to be approximately EUR 600 million in full year 2022 and around EUR 600 million over the longer-term with some variation year-to-year (update).

Rule of thumb related to currency fluctuations: Assuming our current mix of net sales and total costs (refer to Note 1, Basis of Preparation in the Financial statement information section included in Nokia Corporation Financial Report for Q3 2022 for details), we expect that a 10% strengthening in the USD vs. the EUR would have an impact of approximately positive 5% on net sales, a positive impact on operating profit and a slight positive impact to our operating margin, before hedging. In the current financial year, due to the impact of hedging, we expect an approximately neutral impact on operating profit and a slightly negative impact to operating margin.

Nokia’s long-term targets as published with our fourth quarter 2021 results remain unchanged.

SHAREHOLDER DISTRIBUTION

Dividend

Under the authorization by the Annual General Meeting held on 5 April 2022, the Board of Directors may resolve an aggregate maximum distribution of EUR 0.08 per share. The authorization will be used to distribute dividend and/or assets from the reserve for invested unrestricted equity in four installments during the authorization period, in connection with the quarterly results, unless the Board decides otherwise for a justified reason.

Under the authorization, a EUR 0.02 dividend was paid in Q2 2022 totaling EUR 113 million and a EUR 0.02 dividend was paid in Q3 2022 totaling EUR 112 million.

On 20 October 2022, the Board resolved to distribute a dividend of EUR 0.02 per share. The dividend record date is on 25 October 2022 and the dividend will be paid on 3 November 2022. The actual dividend payment date outside Finland will be determined by the practices of the intermediary banks transferring the dividend payments.

Following this announced distribution of the third installment and executed payments of the previous installments, the Board’s remaining distribution authorization is a maximum of EUR 0.02 per share.

The payment of the third installment of the distribution is expected to total approximately EUR 112 million in Q4 2022.

Share buyback program

In 2020 and 2021, Nokia generated strong cash flow which significantly improved the cash position of the company. To manage the company’s capital structure, the Board of Directors initiated a share buyback program under the authorization from the AGM to repurchase shares. Purchases began in February 2022. By the end of September 2022, Nokia has repurchased 50,270,648 shares for a total purchase price of approximately EUR 238 million, with weighted average purchase price of EUR 4.74 per share. The program targets to return up to EUR 600 million of cash to shareholders in tranches over a period of two years.

RISK FACTORS

Nokia and its businesses are exposed to a number of risks and uncertainties which include but are not limited to:

• Competitive intensity, which is expected to continue at a high level;
• Our ability to ensure competitiveness of our product roadmaps and costs through additional R&D investments;
• Our ability to procure certain standard components and the costs thereof, such as semiconductors;
• Disturbance in the global supply chain;
• Accelerating inflation, increased global macro-uncertainty, major currency fluctuations and higher interest rates;
• Scope and duration of the COVID-19 pandemic, and its economic impact;
• War or other geopolitical conflicts, disruptions and potential costs thereof;
• Other macroeconomic, industry and competitive developments;
• Timing and value of new and existing patent licensing agreements with smartphone vendors, automotive companies, consumer electronics companies and other licensees;
• Results in brand and technology licensing; costs to protect and enforce our intellectual property rights; and the regulatory landscape for patent licensing;
• Timing of completions and acceptances of certain projects;
• Our product and regional mix;
• Uncertainty in forecasting income tax expenses and cash outflows, over the long-term, as they are also subject to possible changes due to business mix, the timing of patent licensing cash flow and changes in tax legislation, including potential tax reforms in various countries and OECD initiatives;
• Our ability to utilize our US and Finnish deferred tax assets and their recognition on our balance sheet;
• Our ability to meet our sustainability and other ESG targets, including our targets relating to greenhouse gas emissions; as well the risk factors specified under Forward-looking statements of this release, and our 2021 annual report on Form 20-F published on 3 March 2022 under Operating and financial review and prospects-Risk factors.