Q4 2021 Nokia Oyj Earnings Call
Okay.
Good morning, ladies and gentlemen, and welcome to Nokia's fourth quarter 2021 results call I'm, David Mulholland head of Nokia Investor Relations and today with me as Pekka Lundmark, our president and CEO , along with Mark <unk> our CFO .
Before we get started a quick disclaimer during this call we'll 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 and internal.
Factors, we've identified such risks in the risk factors section of our annual report on form 20-F, which is available on our Investor Relations website.
Within today's presentation references to growth rates will mostly be on a constant currency growth rate basis and margins will be on our comparable reporting. Please note that our Q4 report and this presentation are published on our website on both reported and comparable results and reconciliation between the two are available there.
In terms of the agenda for today Pekka will give a quick overview of our financial and strategic progress throughout 2021 before explaining the new long term targets that we've introduced market will then go into a bit more detail of some of the key factors impacting our financial and cash flow performance before explaining how we see the business outlook for 2022 and then.
We'll go to Q&A with that let me hand over to Pekka.
Thank you very much David.
Hello, everyone and thank you for joining the call today.
Yeah.
Q4 ended a year, which was truly transformational for Nokia in many ways.
I would like to start with gross as you remember we have said throughout the year that this year would be different in terms of seasonality.
And that's exactly what happened we had 3% top line growth overall in the year, a $22 2 billion Euro sales Q4 pretty much as expected was 5% down year on year $6 4 billion euros, because we had this year in a way it much more.
Balanced seasonality compared to where we have typically been.
Q4 top line highlights was clearly network infrastructure at 10% a gross.
So overall, a good year from a top line point of view.
Pretty much as expected when it comes to seasonality. So now let's look at operating margin.
We had a.
Strong Q4, 14, 2% comparable operating margin, but again, because we had more stable seasonality. This year. It was 190 basis points lower than the extremely high and strong Q4 that we had last year, but overall for the full year of 12, 5%.
Comparable operating margin, it's a 300 basis point improvement over 'twenty 'twenty.
I'm extremely happy and proud of this achievement that our team is deliberate.
Why do I say that it was a transformational year well. This graph helps me to explain explain that here you see.
First of all net sales constant currency constant currency growth each quarter. This was 2020 growth in each quarter.
And here you can see the corresponding growth in 2021 very different picture between those two years, but yes differentiation that led to Q4 being relatively weaker as expected and then.
Here you see the significant margin improvement that we delivered here is 12 months rolling.
Comparable operating margins tightening from Q1 2020, and then did the developing all the way to the Q4 and to the 12.5 margin that we had so overall.
Great performance in margin execution, and they said now together with very good working capital efficiency helped us to deliver a strong cash flow of $2 4 billion euros.
Free cash flow for the year, which means that we now have at the end of the year, a $4 6 billion Euro net gas position on our balance sheet.
And.
In simple terms. This means that we now have a possibility to reach.
Jim shareholder distributions.
It is proposing to share.
Shareholder meeting annual shareholder meeting that we will start dividend payments and board is also initiating a share buyback program and medical will actually talk more about this in his part.
But now I would like to move on and make a few comments on each of our businesses.
And I'll start with mobile networks, which.
Had a if I say for the fourth for the groups that we had a transformational year that definitely applies to mobile networks.
$9 7 billion sales, that's down 5% year over year pretty much as we expected because of lower market share in North America because of the decisions our customers made in 2020, but what is remarkable is that despite.
This 5% decline in sales in constant currency, we had through our improved technology position, we had 150 basis points improvement in gross margin.
And we had stable <unk>.
Stable comparable operating margin.
That's really strong execution from mobile networks.
That is further confirmed by the API development here you see that.
Kpis that we've been reporting for quite some time, which is the reef shark share of all deliveries in Q4, 68% and in December already 76%. So this is pretty much we're actually even slightly higher than what we what we told that we would be at the end of their I think our guidance was 70% for the end.
Of the year. So we are strongly on track to meet me at the target you had pretty much all deliveries in res reef shark based by the end of this year and then the other important indicator that we've been reporting as.
Our combined for <unk> market share outside of China, No sorry, not enough markets here that we are also reporting that was 26%, but this graph here is talking about conversion rate 45 G. A conversion rate, which has now stabilized on a about a.
Ah, 90% level and now when we have in a way stabilize this Jason in mobile networks now of course, the only acceptable go going forward is to them that.
Gaming market share and I think we have every possibility to do that because we have so much stronger technology position now compared to where we were about a year ago.
In the middle of this year, we launched a new generation of ask are scale products, both baseband and a new massive mimo radios, largely we can now say and this is being confirmed by multiple customers that we have close the gap to competition in <unk>.
We are already shipping the new air scale baseband, we have already shipments still over 150 customers with excellent feedback.
<unk>.
Extremely important feature of the new generation of products this 75% improvement in baseband energy efficiency.
And one additional highlight that I'd like dimension, which we achieved recently was.
A new benchmark of almost three gigabit per second.
Radio performance in five G standalone downlink throughput using carrier aggregation with air scale on a live CSP in network three gigabits per second.
Then onto two network infrastructure.
The real stellar year end and here you can see it first of all how the top line developing in the in the four divisions inside network infrastructure. As you can see all businesses had top line growth, but of course to really really fantastic division is fixed networks, 35% growth.
In the year, and then submarine networks, a 33% growth.
We have clearly taken.
<unk> taken market share in this business service provider routing. This is actually market share development, although it going all the way to the third quarter 2017, and this is third quarter 2021 on a rolling 12 month basis, which is.
Which is the last available market share from Delora at the moment, 26% is the latest figure that we have in our.
In our service provider routing.
And then the most important focus segment for us in fixed networks. This is not the only business of course, we also have copper and we have we have and.
Optical network terminal and fixed wireless access, but if I focus on on O. L. P. S. Optical line terminals, which is the most important stronghold that we have in this business. We have there now a growing market share and a very high market share of <unk> 41 per cent then when you look at the market development forecasts are.
For this business going forward, it's actually pretty pretty promising when you look at what the what the market research Jason its agencies are expecting about the continuous fiber rollout. There are still several countries for example in Europe large countries, where the fiber.
Penetration or actually homes passed by fiber has not even reached a 50% yet.
Optical network market share has been fairly stable, 16% here we have.
Very important new product generation now in early deliveries, we are strengthening our position in this business as well so overall.
We continue to have great momentum to build on our technology leadership and network infrastructure.
Then onto the cloud and network services as you May remember, we've been talking about the rebalancing of the product portfolio because there is a very very right.
<unk> range of products available in that business, we have decided to focus on six segments five G core analytics and AI private wireless digital operations monetization and security. We believe that these are those sweet spot in the CNS business, where.
The best growth and the best profitability can be achieved going forward and I'm pleased to report that if we take those six focus areas that I just mentioned.
Our year on year growth.
Was 13% overall CNS with one person but growth in these focus areas for 13% and then in other than this drug focus areas. The topline development minus 8%. So this just seems to confirm that that we have made there.
The right choices when deciding on the focus areas.
Then on Nokia technologies delivered another strong year.
8% topline growth excellent profitability continued and of course Pat.
Patent portfolio development being an extremely important kpis.
The outlook of this business during the year, where rates are the very important milestone of 4000 patent families declared as essential for five G. Standard. So overall strong execution, including and this is important including new engagements in automotive and consumer electronics.
<unk> as we do want to grow into new areas in this business.
Then.
Couple of comments on enterprise, which is not of course, not a business group of its own. These numbers are buried in the numbers of several businesses, but we are tracking them separately, because we have a very strong ambition to grow beyond our traditional customer base of service providers and we do.
You believe that enterprise business offers significant growth opportunities going forward the 1% net sales growth that we had in 2021 did not meet our expectations.
That's the bad news, but the good news is that we had extremely strong.
Order intake, especially in the second half of the year that means that we now have a strong foundation for growth for this business for 2022 .
Yeah.
One <unk>.
Important to note the only one but one important focus area in our enterprise business is a private wireless and as you can see this development continues in a very promising manner. We currently have 420 private wireless customers.
Private wireless has two sub segments. One is wide area networks for example for authorities and railways and utilities, but the other one which will be a fast growth segment going forward is campus wireless 14 million industrial campuses in the world significant part.
Of them will one way or another invest in new generation of networking in the coming years, we have decided to double down our investment in campus wireless we are expanding and increasing our R&D investment income with wireless.
To build on top of the already strong initial position that we have in that and then of course, very importantly that sales and distribution of the partner.
Network distribution partner network that is needed to reach out to those 14 million accomplish this is another significant part of the investment and then.
One additional important thing in the enterprise businesses is increasing engagements with the web scale or who of course can be extremely important partners in many parts of that business.
So.
As you remember.
When we.
Presented at our capital market day, we.
In a way launched a a three step <unk> concept in our strategy execution reset accelerate them scale and now I'm pleased to confirm that we have completed our reset face.
First of all.
Strategy, we refocused on R&D to make sure that we go forward that strive for dry for technology leadership in all the segments, where we compete we changed our focus from end to end to best of breed.
Definitely we are delivering complete networks also in engaging in network architecture discussions with customers, but we do not want to mix that with the extreme importance of each business group had being responsible for achieving technology leadership in their own segment.
Then on the product side as I already mentioned mobile networks secured full portfolio competitiveness largely caught up the competition in five G. We have stepped up R&D, while improving gross margin as I already daily I said 550.
Basis points.
Profitability, Yes, 300 basis points improvement in comparable operating margin one driver behind this is is that we streamlined SG&A to be able to fund R&D, we had significant increase in our R&D spending and despite that increase in R&D.
Spending we had 300 percentage.
300 basis points expansion in our comparable operating margin.
Then leadership.
Structure and the way, how we operate new operating model for Bgs, we removed the matrix in our P&L management.
New members in our group leadership team.
Much more straightforward easier to understand simple.
Down to the Earth model that maximizes the accountability within the management team.
And then last but definitely not least the people we have renewed our purpose during the year and we renewed our ways of working we launched a.
New cultural Essentials opened pls and empowered which is our guiding star and how we continue to develop our corporate culture.
So with the reset now behind US it's time to accelerate.
And what does accelerate and then after accelerate scale.
What does actually mean.
It's actually very simple, etc accelerate means exactly what it is accelerate grow and expand margins, we want to now deliver growth across our businesses and we want to continue to expand our margins. We had we have renewed mobile networks portfolio strong network infrastructure technology leadership growth in CNS.
Focus areas, we have strong momentum in enterprise.
Grow that's what we want to do we will continue to invest we want to prioritize R&D investments into our core areas to further strengthen technology leadership, including and this is just to highlight now which we have perhaps not talk that much about I already mentioned doubling down.
In our investments in campus wireless to maintain and extend extend our lead but then I would also like to highlight optical networks. We are now delivering our next generation <unk>.
The PSC five generation.
We are capitalizing momentum created by it and this is now a good place to increase ambition level in technology leadership also in the optical business.
We continue to optimize how we operate continuous review of business returns to optimize portfolio. There is still a possibility to improve further R&D efficiency continue to refocus R&D, especially in CNS to.
Towards the growth areas and very importantly, we continue to invest in the digitalization of our own operations. There is still some old tools that we're using in different parts of the company and we target additional productivity improvements through digitalization investments.
And then the last point are definitely not the least important one which is our innovation going forward we.
Our building new business models like our as a service CNS has already launched the first.
As a service offerings and this is something that we will expand on we will expand on enterprise as I said, we continue to build strategic partnerships, including with web scalar.
And then we want to utilize long term innovation capacity, including Nokia Bell Labs. The Fantastic Research organization that we have there. We believe that there is a case for for speeding up the commercialization of the innovation that takes place in battle apps and then.
And J P. Nokia growth partners the venture capital arm that we have excellent results in 2021.
We have just announced their next fund, which Michael will talk more about suddenly shot.
Grow.
Invest.
Optimize and innovate.
And then to finish let's take a look at our long term Todd.
Targets, which we have published a.
Today.
First of all.
Given the.
The pace of our strategy execution.
We feel that now is the time right time to introduce new long term markets and of course, we aim to deliver continuous improvement each year first of all we want to drove faster than the market then.
And then we target to reach at least.
14% comparable operating margin in the next three to five years, and we are targeting 50% to 85% cash conversion from the comparable operating margin.
So overall, ladies and gentlemen, we have every reason to be optimistic about the future I'm. So proud of this team who delivered such a transformational year and with that I would like to hand over to Marco.
Yeah.
Thank you pick up and Hello from my side as well.
If we now just.
Look shortly.
Financial Center, and a little bit deeper also what comes to our 'twenty two guidance and we started with the top line and how that was developed at.
During Q4.
If we look here, we can see that our sales declined by 5% in constant currencies and we have communicated throughout the year as wall that we will see a different seasonality than we've seen in the previous years.
And also if you look the different regions.
Regions, you can see quite different development, starting with Europe . We are very happy to see that we have a good growth in Europe and thanks to those.
Wins that we have made in this area mainly in <unk> and then find Chi deployments.
They need to go to.
Asia Pacific you can see that we have a decline of about 13% and this is mainly driven by the South Korea market.
And we had actually good growth in Japan, but that Couldnt offset the whole decline that we have there.
And then of course.
I had mentioned north North American market as well.
As you know we've been communicating about the negotiations that happened in mobile in S. Brookside and North American market in 2020 and of course, they had a impact on our net.
Net sales here in Q4.
I just want to mention also that in in Ni network infrastructure side, we actually had a good growth in North America in quarter, four but that could offset the whole decline that we saw on our mobile and at Brookside.
But worth mentioning also that in North America full year, we still saw about 4% growth.
And then if you look what comes to operating margin development and if we start from.
19.
It is in 'twenty, and we had a 9.5% operating margin and <unk>.
We had the headwinds that we've been communicating is wall, if just I mentioned on North American market.
<unk> actually played out exactly as expected.
And then.
These were offset by a strong underlying demand, especially in ni and.
Mobile networks and also on the mobile network side, we had a very good progress on our product cost side.
And thanks to these <unk>.
Market wins that we had and.
One progress on product cost side, we had a good development throughout the year and also the external market.
Analyst firms upgraded the market expectations, a couple of times throughout the year.
And with together.
One offs that we had we landed at $12 five so very proud of this progress that we've seen throughout the year.
And then what kind of cash performance, we had a good cash performance throughout the year and also into Q4.
And cross cast landed at $9 3 billion.
And the net cash at $4 6 billion, so within the quarter, we actually had a very cute.
Profit generation and.
That was off.
Taken down actually by mainly by the networking capital.
Development, where we saw receivables increasing.
Slightly offset by inventories, which were a little bit locked down so all in all three.
$300 million increase in our net cash during the quarter.
What comes to free cash flow that landed at about 400 billion, one 1 million in the quarter and the full year was about 200 at 252 4 billion and at the same time as we were actually.
Continuing to reducing the level of receivables.
And then what comes to dip at how are we using the cash I think we have a quite clear.
Capital allocation policy, our first priority is investing in R&D.
And we believe that this will give good returns.
Shareholders.
And the second priority is shareholder distributions.
And if we look at the R&D investments why do we do with that just securing that we have a technology leadership not only today, but also longer term why we invest more in bell labs and also the N G P.
Our venture fund that package, just mentioned and in both of these areas. We also have a business in patients.
When it comes to <unk>, we just announced today, a new fund fund five and that's about a 400 million USD fund that win.
We'll invest in the next coming years in areas that are strategically relevant to Nokia.
And if you look the track record of <unk> has been very good so.
So far they have had about a 15% to 20% IRR at maturity.
In addition to that of course, the good financial position that we have we have to secure that we can fulfill those commitments we have towards our customers.
And that's why we will intelligently think how to increase the inventory levels that we have especially in these situations. We will see that there is a supply chain constraints.
And if you look our.
Working capital rotation days, we've seen a pretty good development in the past.
Two years' time and.
And also the inventory rotation days had been declining in a nice way.
And I'm worried about is if we increase inventories.
Three levels at such because that will definitely benefit our top line and margins.
You see a slight increase in accounts receivables towards the end of the year and I would say that this is mainly because of we reduced the sale of receivables. So the underlying development is very good.
And.
What comes through the <unk>.
Distribution to all shareholders. Thanks to the strong liquidity position that we have actually the board of directors have today proposed to the AGM eight cent of dividend for results of twos in 'twenty, one and this will be paid on a quarterly basis.
Also the manage our capital structure and excess cash.
The board of directors will initiate now a share buyback program with the intention of.
Repurchasing up to $600 million over the next coming two years.
And let's go over to Toni to outlook and giving some more details of each of these three different areas.
And just.
Just stating.
The outlook itself on a net sales side.
22.6 to $23 8 billion and a comparable operating margin between 11 and 13.5.
Free cash flow, we actually haven't changed how we guide is that in the future. So now it's a conversion from comparable operating profit to cash flow and we believe that in 2022 that will be between 25% to 55%.
And let's look into each of these little bit more detail what is the background and support for these <unk>.
Starting with the top line.
If we look the operating.
The addressable market, we see that.
It's growing about 3%.
Constant currencies.
And we see growth across all businesses in mobile and ask Brooks to driver is 50 deployments in network infrastructure. It is connectivity investments in national proton initiatives and also the fixed wireless.
And what comes to cloud and network services, we see continued growth in the enterprise sector, especially in private wireless, but also a web scale like edge compute.
And then reached.
Regionally I would say that we see growth in all regions, especially in North America, Europe and Asia Pacific.
And of course without the constraints that we see in the supply chain I think we would see higher croft in place as well.
Just a couple of words about mobile networks as well this is now excluding China.
And network infrastructure is excluding the submarine business and.
And mobile networks.
3% I would say is that if we compare with external analyst firms like delora.
This is pretty much aligned with their expectations as wall. This is now in constant currencies in euros, while they usually have USD and also the perimeter is little bit different they only look the ran while we have maybe wider parameter.
I think the operating margin, we can see that starting from 'twenty, one and excluding the one offs about 150 basis points, we landed 11.
And we see that sales growth and operational improvements.
Be the main driver of the margin improvements during this year of course tempered by the impact from supply chain.
Costs general cost inflation and also on investments for the future.
So just in 'twenty, two will be a continuation of the path towards our long term targets.
And then finally, what Comstock cash flow guidance in 2021, we had very strong cash conversion almost 90%.
And in 2022, most of these factors will be similar to.
<unk> to 'twenty, one, but we are seeing increased.
I'll slow off of <unk>.
Networking capital as we build more inventory.
And I believe also we will have more normal customer payments.
What comes to Nokia Tech, we can have about 450 million impact from the prepayments that we have received in earlier years and these together will lead to a cash conversion between 25% to 55%.
In the long term when we see more normal networking capital development, we believe that cash conversion should be between 65 and 85.
But also if you take two's in 'twenty, one 'twenty two together.
We will actually be already around that area that we see in a longer term.
So thank you from my side and back to you David.
Thank you Patrick for the presentations before we move to the Q&A session. I just wanted to give you all the date for your diaries and following on from the mobile networks progress update that we did back in December our next event for progress updates will be on our network infrastructure business and that session will be held on Thursday, the 17th of March we'll send the details of our two shortly.
With that over to the Q&A.
As a courtesy to others in the queue could you. Please limit yourself to one question Rachel could you please give the instructions.
Thank you we will now begin the question and answer session. If you were also watching the video webcast. Please your amendment kidney audio on your computer before asking your question.
Second delay.
To ask a question you May press Star then one on your telephone keypad.
Using a speakerphone please pick up the handset before pressing the keys.
To withdraw your question. Please press Star then two I will now hand, the call back to Mr. David Mulholland.
Our first question comes from Andrew Gardiner of Citi. Andrew. Please go ahead.
Thank you David.
Guys I appreciate you taking the question.
I had one on the sort of revised long term margin target. Please.
You spoke about the <unk>.
Phases of the strategy you have.
Just completed the reset phase and are now embarking on accelerate and scale.
Under the reset phase you'd already shown nicely expanding margins. So about one five percentage points on an underlying basis last year, excluding those one offs.
And you're calling for similar kind of expansion one to one and a half percentage points. This year.
If you'll now moving into the accelerate phase and like you described focusing on growth at the top and bottom line why is it going to take longer to expand margins to the north of 14% than it has done during the research phase.
Yeah. Thank you that's of course, a highly highly relevant.
We have a stronger technology position now than we had the euro and a half ago the market continues.
Strong carrier Capex plans.
At least what we have seen now in North America for this year for example, they all look strong then there also.
Hello continuous uncertainties on the component side.
<unk> uncertainties.
Uncertainty is are we just simply don't want to get ahead of ourselves we want to make sure that that we have continuous improvement.
Your over year end, and we felt that if we take the underlying profitability of 11%. Excluding the one offs last year, we felt that 14%. This is the right level for for the three to five.
Our target of course, three to five years, it's a fairly wide wide range, we do see improvement.
Sure.
The mobile networks in network infrastructure in a cloud and network services and I was talking about the levers that we.
See supporting the growth and market margin expansion and business and those businesses earlier.
Thank you Andrew our next question will come from Simon Leopold from Raymond James Simon. Please go ahead.
Thanks for taking the question.
You didn't talk too much about supply chain constraints, which I'm interpreting is probably good news, but but if you could update us because you certainly.
I.
We did indicate that there were some headwinds.
So I'd like to get an update in terms of some quantification of what the impact was.
In terms of the quarter, how it's evolved over the last 90 days and what are you assuming in terms of improvement in any supply chain constraints for your 2022 outlook. Thank you yeah. Thanks.
If my memory serves me right I said and what do you think Q3 report I'm I'm, not 100%, but somewhere I said that that it could get worse before it gets better.
And.
Now, we did not say that but.
But it would it does not mean that our that the situation would be or it has stabilized.
That is fair to say, but it continues a tight there are still going to be at least in the first half of this year situations, where people live more or less hand.
Mouth.
We had 3% top line growth last year.
Now that growth could have been a bit higher.
Had there been more component in semiconductors, especially.
<unk>. So there was a revenue shift from.
Especially the second half of the year, including Q4 to 2022 and again, we are not out of the woods. Yet we have managed this very challenging as Jason very well without any major casualties or any major customer losses, but.
Situation continues and calls for four continuous day to day management, then when it comes to the economic impact of this in our 2022 numbers.
We have of course incorporated that in our guidance and that is one of the reasons why as you could see the two and a half percentage point guidance range is still quite wide at this time.
Thank you Simon next question comes from Frank <unk> Dnb.
Yes, hi.
Good morning, everyone.
So my question.
Again to the cloud and network services business what are the main challenges you see there with regards to margin progress.
Both in 2022.
But also the longer term, you'll see potentially contributing positively being accretive or value add potential so to the long term group margin how do you see it longer term. Thank you.
Well, the cloud and network services being a more software centric than the other businesses.
Of course that means that if and hopefully when we get the volumes up really up in the new.
Focus our segments are there should be a lot of.
Additional margin potential yet right now we are still doing a lot of portfolio cleaning there a lot of old products that are getting to the end of their economic life. There also there are also some <unk>.
Nonperforming units nonperforming products that we are cleaning up and then we are increasing our focus and investment in the in the focus areas that I was talking about and I believe that that has the possibility to deliver good growth going forward on top of all this and I did talk about campus wireless also quite a lot.
And then there is this strategic structural development that would start.
Taking a speed gradually which is the development towards various.
<unk> as a service models, where you actually want to offer.
Certain functionality is for example in network security and network quality management and anomaly detection as a service. These are some of the initial services that we have just recently launched and then one thing that I also talked about already last time I think is is this evolution of Oh.
Open interfaces, where you want to hide the enormous network complexity from from developers and offer a simple set of Apis through which.
Networking functionality for example, industrial vertical applications can be offered.
Your show sound that way engaging the developer community in a much more simple and straightforward way than what has traditionally been the case in this type of networking applications in communications networks in general.
Thank you Frank we will now take the next question from Alex Duval of Goldman Sachs.
Yes, many thanks for question.
Quick one on the U S market in wireless and market position that I wanted to firstly, if you could talk a bit about what you see in terms of market demand. Both this year and next year for that particular market on the wireless side and secondly related to that level, just keeping some historic share losses.
I wonder to what extent you feel given what youre, saying today about an improved wireless offering that.
You could potentially regain some share.
How much progress we can expect from that.
Mhm.
Of course, it goes without saying that the that the 16%.
Decline in our.
Net sales of mobile networks in the quarter.
It's not a good achievement, but the point here is that it that this is something that we had been trying to say throughout the year that the seasonality would be would be different and this again. This goes back to decisions that customers made earlier in the year 2020 now the good news is that that after those.
Decisions in a typically made around mid 2020, we have not lost any more market share in North America, we have.
Had some smaller wins with some smaller operators. We of course, then also secured a five year.
Five year deal with both T mobile and AT&T so.
In the Big picture I would.
Put it this way that are that we have now.
Established a new baseline.
For our North American business, and that's not a bad baseline.
On top of the mobile network position, we have strong position in networking infrastructure and cloud network services, which were quite a lot actually able to compensate for what mobile networks launched in Q4 in North America now listening to the Capex.
Capex plans of the key customers.
In America that are.
So of course there.
The reason for optimism, we see continued strong market demand there and now very importantly, when we have a completely different product competitiveness that we had a year.
Two even two years ago, we have every reason to be hopeful and optimistic and I don't think that when we're talking about our targets to in general not only in North America, but in general to now start to go after increasing market share I I do not see that doesn't andreoli stick target.
Thank you Alex will now take our next question from Peter Nielsen AVG. Peter Please go ahead.
Thank you very much David.
Morning, gentlemen, can I just follow up on that please and preceding question.
Margin guidance, you've given for our networks.
It's a fairly broad one could you discuss a little bit.
Determining factors, whether you end up at the upper end of the range.
A question of topline leverage thank you very much.
Yeah. If you I mean topline leverage is of course is of course extremely important in mobile mobile networks, but there is also the gross margin expansion that we saw in the year, we had seven 9% comparable operating margin in 2021 and.
If you take away some of the effects of the one offs.
7% roughly would be a good comparable a starting point for this year and we are saying that our assumption is between 6.5% to 9.5%. Then of course, we have incorporated into this everything we are seeing on the market on the positive side stronger product position.
Mind that continues strong.
Other side of the equation inflationary of development that we are playing all this against each other.
Other.
You may call it boiled up that's of course.
Your call, but we are just trying to give you as realistic and honest and transparent picture as to where we believe that this year this year would land.
Thank you Peter will take the next question from Francois <unk> from UBS Francois. Please go ahead.
Hi, Thank you very much.
My question is if we get the top line for 2020, So if you look at.
Your guidance and adjusted for constant currency.
You are barely growing your top line and to ensure to introduce my math is correct.
You showed some addressable market growing 3% at constant currency.
We look at your comments, a strong backlog of positive momentum and operators Capex, which is well above 3%.
With no market share loss, Europe , youre, gaining some market share.
Because of the swap out so.
I'm trying to reconcile these comments and the market dynamic with your guidance for the top line is there anything we should be aware that would justify a lower growth end market growth.
Trying to understand if I'm missing something thank you yeah. Thank.
Thank you so much.
As we stated that we believe that market in general will draw about 3%.
There's a little bit different is in mobile networks market, which is a 3% growth and as I said this is pretty much. According to same principle and at the same level says.
The Lora if you look the same perimeter and the same currency so currency play a big role here also and in <unk>.
Network infrastructure the market is growing about 3% of small CNS, we see about 5% growth and.
And if you look our guidance today would be half of this year. It is going from to $22 2 billion to $22 six to $23 8 billion. So I would say that.
Our ambition is to grow.
Faster than the market and this is something that.
We are definitely working on them.
Thank you Francois.
I will take the next question from Artem <unk> at Seb Artem. Please go ahead.
Yes, hi, and thank you for taking my question I would like to pick your thoughts what comes to the inflation situation and what type of impact that you're basically baking in what comes to your top line guidance for this year. So could you maybe comment about that.
Pricing picture will come to the products and services for this year compared with normal yes, what you have seen previously.
Mark I may have a general inflation comment in there related to guidance, but I just say maybe.
One thought in the beginning that of course, the inflationary development is pretty much near to our industrial component.
Costs are increasing and of course, it goes without saying that in all new contracts that we make with our customers. We take all this in.
Into account it is of course, much more straightforward in new contracts than in existing contracts.
That of course goes without saying, but we are basically mitigating the inflationary effects, both with our suppliers and customers pretty much every day.
Yeah and just.
Building over Pekka said I would say that.
If you look at guidance at the interval that we have given us walls that depends quite a lot about.
How the inflation is broken but also market demand itself and also the supply chain situation and.
These all together of course with our own.
Performance is depending.
A factor, where we land in those intervals.
Thank you we'll now take the next question from Alex <unk> from Societe Generale, Alex. Please go ahead.
Yes.
Yes, good morning.
Thank you for taking my question.
Just like to understand again.
To your long term guidance.
We had a pretty good track records in recent periods a flattening at the higher end of your guidance range.
So if in a hypothetical situation where your 'twenty two.
Clean comparable operating margin lines towards the higher end of your 11 to 13, 5% range would you say that your 14% plus three to five year target, we look too conservative either in scale or in terms of timing.
Thanks.
Well without getting into too much speculation.
I guess everybody understands that.
The higher on this year's range, we would land this year the more likely it is that we would achieve the 14% target.
Earlier, but.
More than that I would not like to speculate what our target is continuous improvement in all our businesses and I as I said in my presentation, we believe that.
That's when we look at our mobile networks network infrastructure CNS, we are in a good position to continuously improving all all those businesses and hopefully we would reach that 14% as quickly as possible.
Thank you Alex we'll take the next question from Rob Sanders from Deutsche Bank. Please go ahead.
Yes, hi, good morning, I, just had a question on Iran.
Your <unk> share ex China, I think fell to 26%.
In 2021, I was just wondering in which regions do you think there is the best opportunity to get back to 30%, which I think under the previous management was that was that was it targets. Thanks.
Well, we havent we have not.
Published a particular target.
Of course now that the market share has now stabilized and our target is to increase it from 26%, but we have not given given as to how far we would like it to go in and how quickly.
I would say that there is potential in all our markets. There are several markets in the world, who havent actually yet even started five jeep.
And America is very early stage still India has not even start date, so there's still yet a lot of business business to.
Again in many parts of the world, but I would not like to highlight specifically any particular regions, where the margin share gain a possibility it would be highest.
Thank you Rob will now take the next question from Sami Sarcomere from Nordea markets. Sammy. Please go ahead.
Thanks, I would still like to go back to the free cash flow guidance that its looking surprisingly weak actually indicating a bit more than 1 billion euros of free cash flow this year.
With half the level of last year could you. Please explain what is looking like a difficult year for you thinking of free cash flow generation.
Yes, Thank you Sami.
We had exceptional cash flow generation in 2021.
Yeah.
We might have a big swings in our cash flow just like we saw in 'twenty one.
And many of those.
Payments that we received towards the end of year could have actually rolled over to 'twenty two.
That's why I also mentioned that if you look these two years together we are in a very good position with campus to free cash flow generation. We believe that this year, we will have a little bit more.
Buildup of net working capital at two main reasons. One is of course the inventory, we believe that we could increase our inventories a little bit on it.
Areas, where we believe are important.
And secure that we can supply and deliver those commitments to the customers that we have.
And the other one is that we we believe that.
We will have increase in trade receivables as well.
But if you look the trend.
Over time, and a longer term as well we believe that we will have a good cash flow generation.
Thank you Sami will now take the next question from Sandeep Deshpande from JP Morgan Sandeep. Please go ahead.
Okay.
Hi.
Thanks for letting me on.
My question is when you look at the margin of your competitor who has the structure for many years.
Is today.
When you look at your long term, 14% plus guidance at.
14% does guidance looks.
It doesn't look very aggressive at this point, given where they have been able to take that margin still why does Nokia not think that they can also reach that sort of margin.
In the wireless business.
Of course your view on the market share it is different.
Yeah. Thank you Sandy.
I mean the.
It is a fact that oh.
Cost base.
Business portfolio saw a different a different between different actors and we have a business is that some other company.
Companies do not have but if we talk specifically about mobile networks. It is of course of business.
Which has a very high R&D investment and that automatically means that volume and topline is extremely important.
Going forward.
For the sake of argument.
If we had.
Similar topline and similar geographic geographical mix of as probably the competitor you are referring to I see no reason why we would not have similar margins. This goes back to the product fundamental product competitiveness, which now starts to be in a pretty.
Good shape and that's why this <unk>.
Our next step in our strategy, which is called accelerate and then scale is so enormously.
Portland now Fortunately in our case, we have other businesses, which are very good in terms of margin and when we look at this year's target 11 to 13, 5% comp.
Compared to where we believe that we would be just a couple of years ago I think that's good development, but again.
We are now focusing on that 14% then hopefully we will we will get there as soon as possible. It's very much a volume game from now on in mobile networks.
Thank you Sandeep will now take our next question from Richard Kramer from Arete, Sorry, Richard Please go ahead.
Thanks very much.
Many of your competitors are also targeting this enterprise space Pekka and talking about exposing Apis in hopes of getting some development of <unk> network applications and you mentioned the order growth, but can you talk a little bit more about two specific things.
One your go to market and the cost of that in the sales cycle, but also long term do you expect enterprise to be higher margin than your current carrier business. Thanks very much.
Yes. The go to market, obviously, if you want to reach those 14 million industrial companies that I was talking about it has to be fundamentally different and that's what we are building.
At the moment you need us.
You need a strong partner network you need.
Our system integration partners, you need partnerships with our with the different types of.
Cloud service providers web scale.
And so on and so on there is I mean from a cost point of view.
It would be a hopeless case to try to scale your own sales force to reach to $14 million Industrial accomplishes then of course on the product side also you need to make sure that your product is a scalable asked package of all that's possible and that's why the general development to where its Apis and creating a platform for developers and <unk>.
Offering the whole thing as a service.
And that business is evolving too that's that's really really important and.
To your second question, yes, once we increase the annual recurring revenue as a service business model absolutely that our model has a higher margin potential going forward, but of course that will be evolutionary development over the coming years.
Richard will now take our last question from Frederic <unk> from Handelsbanken Fredrik. Please go ahead.
Thank you very much. Thank you for taking my question I would like to tap your brain.
On the enterprise side again, the negative thing allow the wrong market aspect for the enterprise.
In the coming years, and if you could.
For us sort of frame what the potential in terms of wrong market growth is coming from sort of new segments. If you like fixed wireless access.
Importantly, about SWA for several years now, but it failed to show.
And how it contributes to raw milk to mobile networks revenue generation in coming years, So could you sort of.
Talk a little bit about the potential when it comes to enterprise <unk> and how that sort of chickens down into their own market value. If you feel like we are.
We are first of all strong believers in the potential of the enterprise and campus a wireless it's a market that we have noted that is extremely hard to estimate on a day at that level. That's how fast that growth will be because it could swing a lot between the extremes. The only thing that is.
Certain that it will grow substantially faster than the carrier.
<unk> market it starts from a low level. So we will certainly see years, where the market can grow at least 30, 35% if not more while the carrier market most likely overtime is in the in the low single.
Digits.
You mentioned fixed wireless access that is actually a market that now driven by the new <unk> based systems is driving a lot of our growth and that is in addition to dip.
Passive optical networks is one key reason why our fixed networks business is growing so fast remember in our model fixed wireless access is in network infrastructure in fixed networks business, it's not in mobile networks, even though technically of course, we are delivering radios there.
We are bullish about the market potential but.
Unfortunately, I mean, I'm not able to and I don't think anyone is able to.
Detail, that's how much exactly the growth will be over the coming years.
Thank you Fredrik, ladies and gentlemen. This concludes today's call. If you have any outstanding questions. Please do feel free to reach out to the Investor Relations team.
I'd like to remind you that during the call today, we've made a number of forward looking statements that involve risks and uncertainties actual results may therefore differ materially from the results currently expected factors that could cause such differences can be both external as well as internal operating factors. We've identified such risks in the risk factors section of our annual report on form 20-F, which is available.
On our Investor Relations website.
With that thank you very much.
Thank you.
Now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.