Q3 2019 Earnings Call

October 24, 2019

Hello, and welcome to the Nokia third quarter 2019 earnings Conference call.

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No I 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 third quarter 2019 conference call.

Oh, no good Investor relations with cheap Siri, President and CEO , Nokia and Christian Polo Dot CFO of Nokia or here and I spoke with me today.

During this call will be making forward looking statements regarding the future business, but not to performance of Nokia. This industry. These statements are predictions that involve risk and uncertainties. Afterwards ultimate therefore differ materially from the results. We currently expect doctors that could cause such differences can be bought external such as general economic and industry conditions as well that's it.

Total operating factors.

But then the parts such Ruskin more detailed on page 60 to 70 528 <unk> annual report on form 20-F.

Not to report for Q3 issue today, that's what that's our other filings with the U.S. Securities and Exchange Commission.

Please note that our results what release the complete interim report with tables and the presentation on our website include not our first 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 not our press information.

Reconciliation between the Lanark for us and the reported information.

With that Ritchie.

Well what do you.

Thanks, Matt and thanks to all of you put joining today.

Nokia's public water with solid.

We had guided to headquartered there would be solved and believed at the end result was better than back.

We got scroll with positive sales were up in coating and for about six we didnt operating margin was solid oxide, Egypt focus area, the Nokia enterprise and Nokia software performed well.

Might be routing theyll do it four consecutive quarters.

Cost discipline was good and we continue to win new Fiveg deals and launch new Fiveg networks.

Have you would've seen in our release today. We also expect its strong fourth quarter with robust operating margins at a 1.2 billion euro improvement the net gosh, allowing us to M.B., all with a 1.5 billion euro net cash balance.

Despite this progress some of the risk that we flagged previously are materializing and we believe.

Basically create challenges going forward.

Several of these risks.

Oh related to the market and others are specific to Nokia.

Talk about these lists in greater detail you would've seen how that but the big caused us to revise our guidance for this year and the next as well as defined a longer term operating margin target.

In addition, our board of directors resolved knocked the distribute the third and fourth quarterly installments of the dividend for the financial New York wed be happy.

The board will continue to review dividends on a quarterly basis and expects to with you in payments, but our net cash position has improved 2 billion euros.

We believe that supports gives us the necessary operational flexibility to increase investment than five you continue investments in growth in our strategic focus areas of enterprise in software and strengthen our cash position.

With that as an introduction in the rest of my remarks today I would like to address quarterly highlights.

All of the VIX that'd be a ceiling.

Just makes that you're making to our corporate strategy.

And the driver that position us well to create future value.

For the quarter.

Net sales landed at 5.7 billion euros up 1% year on year in constant currency non partisan operating margin was 8.4% down 50 basis points and earnings per share.

Well five you offense down once said from the same quarter last year.

Christian will talk more about gosh, let me provide an update on two important areas for free cash flow was positive in the quarter at about 300 million girls.

Not where we wanted to be this with a good but also from the negative trend in the first off of the.

Second while net cash decreased in Q3, the change what's left under 320 million euro than dividend payments. We made in the quarter. We also had meaningful cash outflows from restructuring as well as from cash taxes in capital expenditure, we have the actions underway in pretty much every part of the company to improve our cash performance we have.

Clinton, our centralized pricing wardrobe and margin management controls Titan audio decision, making process to include a greater focus on cash and good dawn and capital employed reinforced mandatory contractual terms and realigned planned not even incented foot 2020 .

We're also reviewing existing contracts to ensure that they continue to make commercial sense, and we will look to renegotiate or exit where they do not this could result in some country exits if we find that the overall mix of projects in any particular country does not meet our standard.

We're already seeing early signs of public and as I noted, we expect to see the impact already in Q4 with more to come in the following quarters.

Turning to our business group the underlying story of Q3 was challenging in mobile access in fixed access strategy.

The other units.

Consider the following Nokia software so you're on your sales growth of 5% in constant currency any more than doubling of absolute operating profit. Yes. There was some benefit from strong in quarter completions and acceptances, but you could also see the sustainable power of the underlying brought up and go to market improvements that we have made.

Nokia enterprise maintained its trajectory to growing double digits portfolio 20, Nike sales, well, oh, well over 20% in the quarter and we continue to add new customers at a rapid pace. In fact, we added more than Cody new customers in Q3 alone, bringing the year to date, daughter, <unk> 84 across the spectrum.

Vertical enterprise segments that we are targeting energy transportation web scale companies in the public sector. The need for mission critical networking, it's clear whether it is providing private wireless networks, helping mining companies automated improving safety and efficiency and transportation systems are enabling smart city.

Our work is putting off at the heart of Big industrial automation that would be so important thing you asked a couple.

As I've said before quarterly results, an enterprise will be a bit lumpy as we push to drive foster growth and that remains true, but the opportunity for US remains large edit is high on my list of priorities.

IP routing maintained its excellent momentum with year on New York sales up 13% in constant currency and clear product leadership.

Before based products are performing very well and we continue to increase our footprint and displacing competitors.

Optical network soy sales decline after several quarters, a strong performance, but I'm not concerned by this as it was largely driven by a tough compare to last year and project timing.

Oh, that's what up sharply in the quarter and most important be products based on our industry, leading B.S.U.P. chipsets are now in the hands of select customizable testing with a full ramp up to follow in the coming quarters.

Nokia technologies grew by 2% in constant currency, while maintaining strong profitability you may have seen our press release after the close at the quarter announcing that we'll be glad more than 2000 patent families as essential for the Fiveg standards, while our focus remains on patent quality, we're delivering that quality in increasingly large number.

So my point here is that much of Nokia is performing very well.

Our access business it on the other half are facing some challenges fixed access would probably 10% decline in constant currency sales in Q3 is as I've noted before in the mixed up the significant market transition as Gulfport declined and fiber grows we have traditionally had very strong market share in copper access, but it's significantly lower.

Although still strong position in fiber by default that means we are losing operating leverage at the market changes offsetting cost reductions that expansion in areas such as fixed wireless access is underway, but a full turnaround will still take more time.

Then mobile access where many things are working very well we continue to deliver the was the best performing Fourg networks have unified single band product on a common platform off the yield of acquisitions have been rated as the top small cell vendor for the 50 on in a row and global services, which we now report within mobile access is.

Last getting back on track.

Sundry coil, who took all the leadership of global So this is a bit more than a year ago has moved swiftly to fix poorly performing projects improve operational efficiency to digitalization and automation protect the profitability of good. So this is reduce overall costs and introduce new offerings with robust longer term profit potential.

The results are starting to show and we expect the benefit Florida as low margin deployments of its a decline over the course of next year.

Fiveg is where we still have work to do even if we continue to win deals and have successfully launched 15 life networks. Those networks include some of the world's largest with customers like sprint the rising your DMT going T mobile in the U.S. Vodafone, Italy, then in Saudi Arabia, and SK Telecom Korea.

All the common LG you plus in Korea.

With one customer in Washington, D.C., we saw download speeds, reaching a blazing 2.3 gigabits per second absolutely amazing when you experience it.

As you will recall I talked openly in Q1 about some of the issues facing in mobile and I noted that hi, O video product costs also had an impact on gross margins given the importance of this topic, let me go into some more detail.

It is not unusual at this early stage in the new technology cycle do have high protocols. Those costs typically go down significantly at scale increases in cost optimization work proceeds. This is totally true for Fiveg, where we had the comprehensive ongoing program to address every possible bought a part of building.

Cheerios BCBS power supplies, RF and other analog imported materials and mechanical components and of course semiconductors, which on a large cost driver over.

Over the course of 2020, we expect our cost reduction efforts to deliver results, particularly related to semiconductors are fiveg product mix should improve considerably when they constantly increasing share of hardware based on our cost competitive reshapes system on chip product to ensure that we execute on this Boston effectively we have increase.

Using investment in system on chip capabilities, and moving aggressively to strengthen and diversify our supplier base.

While we have a near term challenge no denial about that I'm confident that we are taking the right steps to resolve the issue given the complexity and lead times associated with semiconductor technology. However, it will take some time to improve the situation.

Our current expectation is that our fiveg brought a cost will improve progressively over 2020, and we will start 2021 in a much stronger position.

Of course, you, but as Weve shop lowest cost. It also provides significantly improved performance as well.

As I think many of you are aware, we appointed a new leader of mobile networks. Tom you talked about nine months ago, Tommy and it's Dean have developed a comprehensive plan to ensure nokia's competitive in flight Jeep and they'll relentlessly executing against that but Tommy is a strong leader and he has my full support.

One other comment that I would make related to mobile is that we are seeing some selective pricing pressure as competitive seek begin footprint in fiveg.

Some of these deals also involve upgrades to fourg, we're not seeing the margin uplift in fourg that one would normally expect at this stage of the cycle. We believe this situation would be short lived and not extend beyond a small number of large early deeds.

Then you look at things from a regional perspective, where our story in Q3 was one of weakness in China and Middle Eastern Africa growth in North America, but less than expected and relative strength elsewhere.

China, where sales were down 23% in constant currency was not a surprise we have consistently flight concerns about our ability to deliver adequate returns in that country, particularly in mobile access and that view remains unchanged. While we have admiration for China's cost moved to Fiveg and overall technological progress.

We still take it prudent approach to the market.

If there are deals that make commercial sense on their own Tom we will take them. If there are not we will not simple if that I expect that this may lead to some tough decisions in the upcoming procurement rounds in China, but that remains to be seen.

Then North America.

Overall, we remain strong in North America and grew 2% in the region in Q3 in constant currency. Unfortunately, however, our progress fell short of what we expected given Fiveg project acceptances and completions and uncertainty related to the announced operate a merger where we have the particularly large footprint, we cannot predict how long the situation to look at.

Genuine hope that the relevant authorities will move quickly to find a resolution.

Next let me talk about strategy, while I'm not satisfied with our current performance I'm confident that our strategy remains the right. One we are however, making two adjustments that I would like to share with you.

We're upgrading how we think about both enterprise software given the progress that we have made.

On the enterprise side, we originally talked about expanding network sales into select vertical markets with the progress that I discussed earlier, we believe we have successfully shown that enterprise can be a meaningful business for Nokia no. We're setting our sights on growth and on consistently and significantly outgrowing the market.

In terms of software our initial focus was on building a strong standalone software business. We have made massive improvement re architecting many of our product moving to become truly cloud native and creating a strong experienced software sales force for two years in a role now Analysys Mason has like Nokia.

As the top telecom software provider. So I think it's safe to say we have delivered on our original intent going forward. It is about strengthening about taking the foundations that we had built and making them stronger as examples we see opportunities to move even more products onto our common software foundation and further develop their recalling grab.

And your business model.

The second thing we have done it's two explicitly to find those businesses for which we will prioritize profit and cash in both of which we were privatized growth.

In particular, our mobile and fixed access businesses were focused on profit and cash. This approach will largely be reflected in how we addressed the market in terms of deals if you're willing to accept and how we structure. Our office. It does not mean that we would stop investing in the business up a few a growth in fiveg, we absolutely will do both but they would be no puts your share.

In fact, we will walk relentlessly drive advantage to strong technology time to market and significantly lower product costs in fiveg, while leveraging our differentiation and superior Fourg network performance and the most comprehensive small cell portfolio.

IP routing optical networks, Nokia software Nokia enterprise will all be aimed at growth not growth by sacrificing margins, but broad based on other competitive advantages.

We believe that IP routing can expand based on product leadership, Nokia enterprise can outperform it growing market given the demand for our mission critical networking capabilities and Nokia software can leverage the strong product and sales foundation, we have built to target robust growth opportunities.

Optical networks within the position of technological extent that will get even better with its coming PSC pre products.

Additional scale and optical can drive meaningful profitability improvement and that is what we are aiming for.

Nokia technologies with target significant cash generation in its core patent licensing activities as well as growth through diversification into Aiotv and consumer electronics.

These changes will be reflected in how we set targets and how we said management incentive it is important to recognize that they are designed to reflect priority. So that when the inevitable choices need to be made we have three or God, we had been place.

We expect this change to slow our growth slightly and as a result, you would've seen in our earnings release that we now expect to grow in line with the market not outperforming as previously mentioned.

Now, 9.5% plus or minus 1.5 percentage point.

One other comment on our guidance related to cost as you would have been we also reduced our target to deliver the 700 million euros and cost reductions in fully or 2022 500 million euros.

All of this context, let me take a step back and talk about five drivers that give me confidence in our ability to meet our longer term goals.

Sorry, lower patent litigation costs, lower patent licensing costs and lower incentive accruals in the quarter. All in all the performance of Nokia technologies continues to be solid and as expected.

Moving to group common another net sales were flat year on year bolt.

On report it as well as constant currency basis, with Alcatel submarine networks net sales being up and radio frequency systems net sales being down the operating loss for group former on other worsened year on year, primarily due to lower gross margins in both RFS and air sand.

And the digitalization investments, that's focused on driving automation and productivity.

What's been partly offset by lower incentive accruals.

As I said in the past for modeling purposes, we continue to expect group coming on other operating expenses to be approximately 20 million Europe , a quarter higher than in 2018 due to investments we're making in digitalization now we see it is also continuing in 2020.

Looking at non I first financial income and expenses in Q3, we experienced higher expenses year on year.

Largely reflecting a deterioration in our FX results due to adverse currency movements given that our year to date financial income and expenses on effort FX results are 50 million higher than a year ago.

We increased our full year 2019 assumption do now be 400 million Euro up from 350 million Euro previously.

No no first tax rate came in at 27% in Q3, 2019, and we continue to expelled expect full year no nitropress.

Tax rate to be approximately 28% for.

2019.

At the Nokia level, our non my first dilute the Dps was five cents in Q3 compared to six cents in the.

Now, let's turn to our cash flow performance in Q3 on a sequential basis Nokia's net cash decreased by approximately 160 million Euro two at quarter end balance of 340 million Euro.

We didnt. This decrease we generated positive net cash from operating activities, which part which was partly offset which partly offset cash outflows from investing and financing activities, including the payment of the quarterly dividend our free cash flow was positive 299 million Euro in Q3 large scale.

Like being stronger operating cash flow, excluding restructuring cash outflows net working capital generated a decrease in net cash of 50 million Euro.

We didn't working capital liabilities.

Decreased 440 million Euro primarily related to a decrease in deferred revenue as an advance payments a decreasing liabilities related to employee benefits and a decrease in accounts payable receivables decreased 390 million euro primarily due to improved.

Actions, which where she achieved through higher sale of receivables.

One last one on the last quarter call. We said that we were unable to collect approximately 350 million euros receivables, which negatively impacted cash flows into quarter. In Q3, 2019, we collected approximately half of the 350 million the other half which.

Entirely relates to the collection over lunch receivable from a state owned operator, we anticipate to recover in the coming quarters inventories were approximately flat flat sequentially.

And we expect our inventory inventory levels to be improved in Q4, as large scale fiveg deployments and acceptances accelerate meaningfully.

Q3, we showed some positive signs of improvement in our free cash flow efforts, which notably.

Cash through increased sequentially by approximately 1.2 billion euros.

Next a quick update on our cost.

On a on a year to date basis, excluding the impact of lower incentive accruals. We have already achieved approximately 180 million euro of recurring cost savings.

I want to be clear and compete first starting in 2019 as what you had mentioned in his prepared remarks, we have updated our outlook to reflect the number of risks that we have priests previously flagged which have materialized in Q3.

These are driving margin pressure in our networks business.

Hang on strengthening the related supplier base. This will help us drive lower fiveg hardware product cost over the medium to long term.

Let the challenges in greater China.

9.5.

Finally, as CFO Nokia I expect to be asked many times over the coming months by many of you why should I continue to be or become a Nokia shareholder why why like I acknowledge that our performance has not lived up to our potential I believe that we have the right assets and are making the right.

Well now begin the question and answer session.

Again, please limit yourself to one question only.

Good afternoon, guys. Thanks for taking the question.

You mentioned ritchie's for diversifying the supply base, you having to now sort of investment spend your own money in order to get outside suppliers in answer to restart that this with the chipset strategy around Fiveg and so we're going to see both your own internally developed a six with.

So number one this is not a new strategy we.

And so.

Specifically.

What we're doing is moving to Esa fee based products, which will progressively start shipping during 2020 . So it's not like it'll all comet one go at the end of anybody or something that's going to progressively touching. It has we think will progressively mitigate now why even spending even more because we want to be continuing to be aggressive then accelerate what we've already start.

Good.

And yes, we do our own sort of esselte design, but now we're working with multiple suppliers.

Thank you Andrew Nickel next question please.

Our next question comes from Sandeep Deshpande of JP Morgan. Please go ahead.

Hi, Thanks for letting me on for question.

My question is how many many look at your third quarter results in terms of your performance on the margin front on New York gas generation fun and in terms on what you're guiding to cash generation in into the fourth quarter, what I'm trying to understand is why you see compelling.

Our cash position will be at the high end 1.5 billion euros, I mean, I couldn't dividend would have been fair given that more difficult environment, but why this complete lack of dividend is this a signal that you expect this business to remain very difficult to anyone or 22 because.

Thanks Sandeep so.

So I think I'd call it pause.

Do we want to continue investing in the growth areas that are accretive to the Nokia whether you look at margins. They look at cash position for both our enterprise and software and and.

Yeah, because youre not the mechanics of that up at the board will seek a dividend authorization from next annual General meeting and we'll continue to review.

Distributions on a quarterly basis from it so I think the the keyboard from these bonds.

Thats good. Thank you Sandy the call next question. Please.

Operator customers. Thanks.

You know.

Sort of the footprint migration of up on that at least if we wanted to ensure that we get the time to market catch up as soon as possible now that is not the most efficient from a cost point of view that is why we diversified our supplier base as well as.

And so I'm watching very closely with Tommy with Sanjay and the teams then I have confidence the last thing I will say.

Listen this is why our customers will stick with us to this situation.

Next question comes from Alexander Potter Oh, sorry.

Okay or topline issue.

Gross margin issue maybe related to pricing pressures.

Thanks, So we've we've said Alex that up next year.

That we could expect to grow in line with the market.

As opposed to outgrow the market has also driven by our prioritizing cash in profit or growth, but what has changed.

For things.

Like we said high cost associated with the early generation Fiveg products, the fourth generation products.

Offerability challenges in China, which we think we'll continue given the nature of aggressive price, making expected bear in fiveg.

Some pricing pressure in early Fiveg teams and I'll say, it selective and of course uncertainty related to the announced operator merger in North America, where we have a particularly large footprint. So we saw that impact in Q3, we'd likely want to see it in Q4, we can't predict when that will.

You know close so but also likely be for the for the first off of next year. So I think in that order its gross margin because of this product cost issue, which will progressively mitigate over 20 trend and then of course on top of that we do have the negative impact that comes from the additional investments that we are now making in fiveg as well.

Okay. Thank you Alex Nicole the question please.

Next question comes from David Mulholland.

Please go ahead.

I'm sure screen are largely executing them out from a gross margin perspective, what wasn't taken so long to come to this realization of the need to reinvest that should look into next year.

Yes, thanks, David So this isn't up.

Fiveg only started meaningfully rolling out this year. This for US is not a fourg product cost issue would say, it's a fiveg product cost issue.

And so that's starting from beginning this year so it's.

Like I said earlier I mean, the system on chip strategy has been put into motion already a while ago diversified our supplier base.

We are increasing the investments you only because we want to increase even more the vs. Sophie penetration in our products and continue that and of course, we know how to do system on chip, Yes, we started with SPJ with Fiveg because it gave us that time to market a catch up advantage, but we do that in in much of.

Our portfolio with the before and PSV three so we just.

Thank you David Nicole we'll take our next question. Please.

Next question comes from also Tanya Credit Suisse. Please go ahead.

Hi, good afternoon.

Im just trying to understand like how your positioning with your product on the Ford you cited the market I think when we look at your revenues in a number of regions.

Example, China U.S. Korea I think.

We've seen that there's a big divergence between your performance and and key competitions performance year to date.

And how does that position you going into next year and your ability to actually grow in line with the market next year. Thank you.

Thanks, Nigel I, just try to step back and and sort of look about question. So.

I think the issue we've seen.

Offered a situation with regard to the merger activity, where we have a.

No.

Large, particularly large footprint, so that impacts us more.

Then.

That reduces or negative impacts of business mix. So thats, what I would say that also then when it comes to China.

I know Fiveg has not started.

But the reality is that.

Even in the underlying business, but are there are sort of profitability challenges and start.

Priority on on no.

Thank you that's all the call next question. Please.

Next question comes from Robert Sanders Deutsche Bank. Please go ahead.

Yes, just a question on your Fiveg. So see strategy I was just interested in understanding what your view is on a sick vessels SSP. I mean, you had this issue with reshot within tells tend not to me to process.

Customers want but given you've got these challenges now wouldn't it make sense just to switch to an SSP vendor like them all vow to just get your time to market right rather than pursuing this basic strategy at all costs.

But.

Hi, Thanks for taking my question just.

Yes, you specifically called out China multiple times as being challenged from a profitability standpoint. So are you, suggesting that potentially China could be a country that is a candidate for exiting altogether at least for part of your business and how would that impact your ability to have enough share globally.

Yes.

Thanks difference no we had I think we'd be a significant player in China for a long long time to come.

Look I mean, let's just talk about trying to for a minute the China volume.

Of base stations in the world or approximately 60% right. The revenue share of that volume, it's approximately half that the profit share of that volume in the medium term is negligible.

So that to me expands or trying to questions. There in China, we are going to change our business mix more private networks with state owned enterprises. It will take some time more core networks higher margin more routing and transporting backhaul higher margin with service providers.

Obviously, it affords you radio and we'll see what happens with Fiveg radio and then more.

Routing and transparent optical who got scale players and we're not starting this now we already have that underway. So the business mix might change the cash flow will get better and contribution margin sort of as though as a quality improves yes, the revenue might come down.

And if thats the case and some other markets will do the same but again there might be some project we have to do it but the more wholesale country exits supports it.

Thank you stuff on the call next question. Please.

Next question comes from Pierre Ferragu News Street Research. Please go ahead.

Hi, This is for all standing in for pure who's done a noisy environments and on mute.

A question.

You mentioned your hardware issues, you're radio <unk> radio portfolio, and how you plan to address them and we were wondering what about software issues.

Mentioned earlier this year, some difficulties, which led to revenue recognition.

And Thats been reports that you're meeting challenges on that front as well.

Could you talk about the situation there and how you plan to address potential issues.

Thank you for the questions. So first of all its not in mobile radio.

All of it it's Justin in Fiveg I mean in only in Fiveg is what I, what I mean, not not in fourg not in single Ryan knocked out in Threeg to Fourg and Fiveg. It is primarily you know product cost issue as Weve just discussed.

Our.

Shipment or reshapes the value of chipset shipping.

Scott Visitation are also some features that that would be brought forward. So.

But.

Even if some features might be delayed because of esso see the reality is that that will work around solutions. All the time that we work with our customers on.

We've launched 15 networks, we're winning 48 customers get converting 100% of afford your customer base to Fiveg. So it is the side you've thought of cost issue Thats the primary thing.

Thank you all off the call the checking my question.

Our next question comes from Sebastian tablets from Kepler Please.

Please go ahead.

No. Thanks for taking my question I know its you'd be Tony but could you. Please.

If I understand what kind of growth due for your key markets for 2020 do you expect to bid on multiple by 19 Twins Twitchy Best Ustwenty 19, and where do you see I would see bids due to growth for topline push of.

Coming quarters in Q.

Thanks, we see growth continuing 2020 .

Within that there will be.

And mixed dimension depends on where the growth come from in general we can expect transport to be strong.

We can expect a software our success.

We continue that we can expect enterprise growth to continue for Fiveg will drive growth as well, but overall, we say growth for the market will continue in and will likely be inline with the market.

Thank you Sebastian Nicole next question please.

Our next question comes from Simon Leopold.

Raymond James Please go ahead.

Thank you for taking the question you've given us I think a lot of the bread crumbs around around the cash flow and the general trending but I want to make sure im interpreting.

Your expectations as to when you think you can resume paying a dividend.

Roughly speaking it sounds like you expect to be at that the targeted levels of net cash by the end of 2020, perhaps.

Early 21, I just want to make sure I'm interpreting your commentary accurately where if there are other variables I need to consider.

So, let's just if I kind of repeat the fact that that led you talked about we've we've taken a force on the on the dividend. The board has had said that it will resume payments as we.

Get to 2 billion or so of the old net cash. We've also said that we will seek.

A an authorization from the the next AG and due to be able to track the situation.

On a quarterly basis.

That's all we have yes. We've also said that from a from a cash expectation point of view, we expect to end the year at.

At the at the billion, a and a half and that we expect to generate positive cash flow in.

In 2020, clearly our objective is to tried to get to a dividend payment.

Situation as soon as quickly as possible.

Thank you Simon.

Nicole I think we have time for one more question today.

Our next question comes from Stuart Jeffrey I've Agency partners. Please go ahead.

Hello, Thank you very much I'm sort of question again on the trying to annual then to answer your condiment scale questions.

You Shake that you don't want to chase unprofitable business.

But trying to fiveg could be huge proportional fiveg spend late next year and 2020 won.

Doesn't impact your ability to drive manufacturing economies of scale.

In fact in China, but.

I will say that just repeat so it's yes, China Fiveg, just like China Fourg.

We'll be about 60% of the global volume of base stations and half of that will be the revenue market share of that but in the next let's say medium term in for medium term that there's about three years. The profit share of that will be negligible. Then the question on volume do you need the strong China.

Volumes, even if unprofitable to help your overall situation.

We've done the math on that it is not decisive no we don't have to have them.

Just because we are always going to be in a scaled position the way we see it and for me scale position is is the market share that we are fighting to globally.

So I think we'll be able to cover it.

Turnaround in 2021 second we see a clear set of drivers for creating future value. Some of these on the auto somewhere mid term and some have a longer horizon, but all are important all those get our focus an all can create value with that Matt.

Globally.

Internal operating factors rubber identified these in more detail on page 60 to 75 of our 2018th annual report on form 20-F, our financial report for Q3 issue today 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.

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