Nokia Oyj - Interim / Quarterly Report 2018

6-K 1 a18-37191_16k.htm 6-K

*SECURITIES AND EXCHANGE COMMISSION*

*Washington, D.C. 20549*

*FORM 6-K*

*Report of Foreign Private Issuer*

*Pursuant to Rule 13a -16 or 15d -16 of*

*the Securities Exchange Act of 1934*

*Report on Form 6-K dated October 25, 2018*

*(Commission File No. 1-13202)*

*Nokia Corporation*

*Karaportti 3*

*FI-02610 Espoo*

*Finland*

(Name and address of registrants principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F : x	Form 40-F: o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Yes: o	No : x
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Yes: o	No : x
Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes: o	No : x

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Enclosures:

Nokia stock exchange release dated October 25, 2018: Nokia Corporation Financial Report for Q3 and January-September 2018

Interim Report for Q3 and January-September 2018

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●
October 25, 2018

Nokia Corporation

Interim report October 25, 2018 at 08:00 (CET +1)

*Nokia Corporation Financial Report for Q3 and January-September 2018*

*Full year 2018 guidance reiterated following solid Q3 results*

This is a summary of the Nokia Corporation financial report for Q3 and January-September 2018 published today. The complete financial report for Q3 and January-September 2018 with tables is available at www.nokia.com/financials. Investors should not rely on summaries of our financial reports only, but should review the complete financial reports with tables.

*RAJEEV SURI, PRESIDENT AND CEO, ON Q3 2018 RESULTS*

Nokias third-quarter results validate our earlier view that conditions would improve in the second half of 2018. This was particularly evident in our excellent momentum in orders, growth across all five of our Networks business groups, and improved profitability compared to the first half of the year. Despite some risks related to short-term delays in project timing and product deliveries, we remain on track to deliver on our full-year guidance.

We are executing well on our strategy with particularly good progress in Nokia Software and expansion to select enterprise vertical markets. Separately today, we announced steps to accelerate that progress as well as sharpen our customer focus and maintain cost leadership. These are important steps that give us added confidence in our ability to deliver on our 2020 financial commitments.

*Q3 and January-September 2018 reported and non-IFRS results. Refer to note 1, Basis of Preparation, note 2, Non-IFRS to reported reconciliation and note 15, Performance measures, in the Financial statement information section for details.*

EUR million (except for EPS in EUR)	Q318		Q317		YoY change		Constant currency YoY change	Q1- Q318		Q1- Q317		YoY change		Constant currency YoY change
Net sales	5 458		5 500		(1	)%	1 %	15 695		16 496		(5	)%	0 %
Operating profit/(loss)	(54	)	(230	)				(611	)	(403	)
Operating margin %	(1.0	)%	(4.2	)%	320	bps		(3.9	)%	(2.4	)%	(150	)bps
EPS, diluted	(0.02	)	(0.03	)				(0.13	)	(0.19	)
Operating profit/(loss) (non-IFRS)	487		668		(27	)%		1 060		1 583		(33	)%
Operating margin % (non-IFRS)	8.9	%	12.1	%	(320	)bps		6.7	%	9.6	%	(290	)bps
EPS, diluted (non-IFRS)	0.06		0.09		(33	)%		0.10		0.20		(50	)%
Net cash and current financial investments	1 876		2 731		(31	)%		1 876		2 731		(31	)%

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· Reported net sales in Q3 2018 were EUR 5.5bn, compared to EUR 5.5bn in Q3 2017. On a constant currency basis, reported net sales grew by 1% year on year.

· Reported net sales in Q3 2018, excluding non-recurring catch-up licensing net sales which benefitted the year-ago period, grew by 3% year-on-year (4% on a constant currency basis). In Q3 2018, we achieved year-on-year growth across all five of our Networks business groups, as well as in Nokia Technologies.

· Reported diluted EPS in Q3 2018 was negative EUR 0.02, compared to negative EUR 0.03 in Q3 2017, primarily driven by lower restructuring and impairment charges, partially offset by the absence of non-recurring catch-up licensing net sales, which benefitted the year-ago period, our gross profit performance and income taxes.

· Non-IFRS diluted EPS in Q3 2018 was EUR 0.06, compared to EUR 0.09 in Q3 2017. Non-IFRS diluted EPS, excluding non-recurring catch-up licensing net sales, declined by EUR 0.01 year-on-year, as we were able to partially offset our gross profit performance with continued operating expense reductions, in line with our cost savings program.

· Net cash and current financial investments decreased by approximately EUR 270mn sequentially. In Q3 2018, we generated cash profits, which were more than offset by changes in net working capital, capital expenditures, payment of dividend withholding tax and restructuring and associated cash outflows. We expect to end 2018 with a strong financial position, based on strong seasonality in Q4.

· We reiterate 2018 non-IFRS diluted EPS guidance and remain on target to deliver EUR 1.2bn of recurring annual cost savings in full year 2018.

*OUTLOOK*

	Metric	Guidance	Commentary
Nokia	Non-IFRS operating margin	9-11% for full year 2018 and 12-16% for full year 2020	Nokias guidance for significant improvement between full year 2018 and full year 2020 is primarily due to expectations for:
	Non-IFRS diluted earnings per share	EUR 0.23 - 0.27 in full year 2018 and EUR 0.37 - 0.42 in full year 2020	a) Improved results in Nokias Networks business, which are detailed below; b) Improved results in Nokia Technologies, which are detailed below; and c) Benefits from our EUR 700 million cost reduction program announced on October 25, 2018, which are detailed in the Cost savings program discussion in the Financial results section. ( updated commentary ) ( This is an update to earlier commentary for lower Nokia support function costs within Nokias Networks business and Group Common and Other.)
	Dividend	Approximately 40% to 70% of non-IFRS diluted EPS on a long-term basis	Nokias Board of Directors is committed to proposing a growing dividend, including for 2018.

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	Recurring free cash flow	Slightly positive in full year 2018 and clearly positive in full year 2020	Recurring free cash flow is expected to improve over the longer-term, due to lower cash outflows related to restructuring and network equipment swaps(1) and improved operational results over time.
	Recurring annual cost savings for Nokia, excluding Nokia Technologies	Approximately EUR 1.2 billion of recurring annual cost savings in full year 2018, of which approximately EUR 800 million are expected from operating expenses(1)	The reference period is full year 2015, in which the combined operating expenses of Nokia and Alcatel-Lucent, excluding Nokia Technologies, were approximately EUR 7.3 billion. As a result of active efforts to drive 5G adoption, and in the interest of our long-term strategy given the acceleration of 5G, in 2018 we expect to incur approximately EUR 100 to 200 million of temporary incremental expenses related to 5G customer trials that will partially reduce the positive impact from the recurring annual cost savings.
	Network equipment swaps	Approximately EUR 1.3 billion of charges and cash outflows in total(1) ( update )	The charges related to network equipment swaps are being recorded as non-IFRS exclusions, and therefore do not affect Nokias non-IFRS operating profit. ( This is an update to earlier guidance for approximately EUR 1.4 billion of charges and cash outflows in total.)
	Non-IFRS financial income and expenses	Expense of approximately EUR 350 million in full year 2018 and approximately EUR 300 million over the longer-term	Nokias outlook for non-IFRS financial income and expenses in full year 2018 and over the longer-term is expected to be influenced by factors including: · Net interest expenses related to interest-bearing liabilities and defined benefit pension and other post-employment benefit plans; · Foreign exchange fluctuations and hedging costs; and · Expenses related to the sale of receivables.
	Non-IFRS tax rate	Approximately 30% for full year 2018 and 25% over the longer-term	Nokias outlook for non-IFRS tax rate for full year 2018 and over the longer-term is expected to be influenced by factors including the absolute level of profits, regional profit mix and any further changes to our operating model. Nokia expects cash outflows related to taxes to be approximately EUR 400 million in full year 2018 and approximately EUR 450 million over the longer-term until Nokias US or Finnish deferred tax assets are fully utilized.
	Capital expenditures	Approximately EUR 700 million in full year 2018 and approximately EUR 600 million over the longer-term	Primarily attributable to Nokias Networks business, and consistent with the depreciation of property, plant and equipment over the longer-term.
Nokias Networks business	Net sales	Outperform its primary addressable market in 2018 and over the longer-term	For Nokias Networks business, Nokia expects net sales to outperform its primary addressable market and operating margin to expand between full year 2018 and full year 2020.
	Operating margin	6-9% for full year 2018 and 9-12% for full year 2020	Nokias outlook for net sales and operating margin for Nokias Networks business in 2018 and 2020 is expected to be influenced by factors including: · An approximately 1 to 3 percent decline in the primary addressable market for Nokias Networks business in full year 2018, compared to 2017, on a constant currency basis; · Customer demand for 5G, with commercial 5G network deployments expected to begin near the end of 2018; · Improving market conditions in the second half of 2018, with particular acceleration in the fourth quarter in North America, following weakness in the first half of 2018;

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Recurring net sales	Grow at a compound annual growth rate (CAGR) of approximately 10% over the 3-year period ending 2020	· Growth in the primary addressable market for Nokias Networks business in 2019 and 2020, on a constant currency basis; · Our ability to scale our supply chain operations and to procure certain standard components to meet increasing demand. ( This is an update to earlier commentary for our ability to scale our supply chain operations to meet increasing demand); · Recovery actions to address increased price pressure, including the ability to offset price erosion through cost reductions; · The timing of completions and acceptances of certain projects, particularly related to 5G; · Focus on targeted growth opportunities in attractive adjacent markets; · Building a strong standalone software business; · Improved R&D productivity resulting from new ways of working and the reduction of legacy platforms over time; · Lower support function costs, including IT and site costs; · Uncertainty related to potential mergers or acquisitions by our customers; · Product and regional mix; and · Competitive and other industry dynamics. — Due to risks and uncertainties in determining the timing and value of significant patent, brand and technology licensing agreements, Nokia believes it is not appropriate to provide annual outlook ranges for Nokia Licensing within Nokia Technologies. Although annual results are difficult to forecast, Nokia expects net sales growth and operating margin expansion over the 3-year period ending 2020.
Operating margin	Expand to approximately 85% for full year 2020	In full year 2017, licensing net sales were approximately EUR 1.6 billion, of which approximately EUR 300 million were non-recurring in nature and related to catch-up net sales for prior years. Nokias outlook for net sales and operating margin for Nokia Licensing within Nokia Technologies is expected to be influenced by factors including: · The timing and value of new patent licensing agreements with smartphone vendors, automotive companies and consumer electronics companies; · Renegotiation of expiring patent licensing agreements; · Increases or decreases in net sales related to existing patent licensees; · Results in brand and technology licensing; · Costs to protect and enforce our intellectual property rights; and · The regulatory landscape.

(1)For further details related to the cost savings and network equipment swaps guidance, please refer to the Cost savings program discussion in the Financial results section.

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*NOKIA FINANCIAL RESULTS*

EUR million (except for EPS in EUR) — Net sales	Q318 — 5 458		Q317 — 5 500		YoY change — (1	)%	Constant currency YoY change — 1	%	Q1- Q318 — 15 695		Q1- Q317 — 16 496		YoY change — (5	)%	Constant currency YoY change — 0	%
Nokias Networks business	4 888		4 823		1	%	3	%	13 906		14 696		(5	)%	0	%
Nokia Technologies	351		483		(27	)%	(27	)%	1 077		1 099		(2	)%	(2	)%
Group Common and Other	235		251		(6	)%	(4	)%	765		812		(6	)%	(2	)%
Non-IFRS exclusions	(4	)	(38	)	(89	)%			(13	)	(59	)	(78	)%
Gross profit	2 019		2 185		(8	)%			5 684		6 546		(13	)%
Operating profit/(loss)	(54	)	(230	)					(611	)	(403	)
Nokias Networks business	246		334		(26	)%			358		1 064		(66	)%
Nokia Technologies	290		390		(26	)%			856		736		16	%
Group Common and Other	(49	)	(56	)					(153	)	(217	)
Non-IFRS exclusions	(541	)	(898	)	(40	)%			(1 671	)	(1 986	)	(16	)%
Operating margin %	(1.0	)%	(4.2	)%	320	bps			(3.9	)%	(2.4	)%	(150	)bps
Gross profit (non-IFRS)	2 141		2 365		(9	)%			6 120		6 911		(11	)%
Operating profit/(loss) (non-IFRS)	487		668		(27	)%			1 060		1 583		(33	)%
Operating margin % (non-IFRS)	8.9	%	12.1	%	(320	)bps			6.7	%	9.6	%	(290	)bps
Financial income and expenses	(60	)	(63	)	(5	)%			(224	)	(496	)	(55	)%
Income taxes	(15	)	102						89		(154	)
Profit/(loss) for the period	(127	)	(190	)	(33	)%			(752	)	(1 058	)	(29	)%
EPS, diluted	(0.02	)	(0.03	)					(0.13	)	(0.19	)
Financial income and expenses (non-IFRS)	(48	)	(63	)	(24	)%			(247	)	(207	)	19	%
Income taxes (non-IFRS)	(133	)	(90	)	48	%			(275	)	(211	)	30	%
Profit/(loss) for the period (non-IFRS)	309		516		(40	)%			532		1 159		(54	)%
EPS, diluted (non-IFRS)	0.06		0.09		(33	)%			0.10		0.20		(50	)%

Results are as reported and relate to continuing operations unless otherwise specified. The financial information in this report is unaudited. Non-IFRS results exclude costs related to the acquisition of Alcatel-Lucent and related integration, goodwill impairment charges, intangible asset amortization and other purchase price fair value adjustments, restructuring and associated charges and certain other items that may not be indicative of Nokias underlying business performance. For details, please refer to note 2, Non-IFRS to reported reconciliation, in the notes to the Financial statement information in this report. Change in net sales at constant currency excludes the effect of changes in exchange rates in comparison to euro, our reporting currency. For more information on currency exposures, please refer to note 1, Basis of Preparation, in the Financial statement information section in this report.

*Nokia, Q3 2018 compared to Q3 2017*

Nokia non-IFRS and reported net sales were both down approximately 1% year-on-year. On a constant currency basis, Nokia non-IFRS net sales were approximately flat year-on-year and Nokia reported net sales grew approximately 1% year-on-year.

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Reported net sales in Q3 2018, excluding approximately EUR 180 million of non-recurring catch-up licensing net sales which benefitted the year-ago period, grew by approximately 3% year on year, with growth across all 5 of our Networks business groups, as well as in Nokia Technologies.

In our Networks business, our order backlog was strong at the end of Q3 2018, and we continue to expect commercial 5G network deployments to begin near the end of 2018. We continued to build momentum in our end-to-end strategy, with approximately 43% of our sales pipeline now comprised of cross-business group deals. We also continued to make progress with our strategy to diversify and grow by targeting attractive adjacent markets, with continued year-on-year growth in net sales to large enterprise vertical and webscale customers.

In Nokia Technologies, we maintained our strong track record, with 19% year-on-year growth in recurring licensing net sales. The decrease in net sales on a year-on-year basis was primarily due to the absence of approximately EUR 180 million of non-recurring catch-up licensing net sales, which benefitted the year-ago period. We continued to make good progress on licensing agreements. Subsequent to the end of Q3 2018, we extended our patent licensing agreement with Samsung and reiterated our financial guidance for Nokia Technologies.

Nokia non-IFRS diluted EPS amounted to EUR 0.06, compared to EUR 0.09 in the year-ago period. Non-IFRS diluted EPS, excluding non-recurring catch-up licensing net sales which benefitted the year-ago period, declined by EUR 0.01 year-on-year. Adjusted for the non-recurring item, the decline in non-IFRS diluted EPS was primarily driven by lower gross profit across all three reportable segments of our Networks business, partially offset by improved recurring gross profit performance in our Technologies business, as well as lower operating expenses in both Networks and Technologies.

Nokia reported diluted EPS amounted to negative EUR 0.02, compared to negative EUR 0.03 in the year-ago period, primarily driven by lower restructuring and associated charges, lower impairment of assets and improved recurring gross profit performance in our Technologies business, partially offset by the absence of approximately EUR 180 million of non-recurring catch-up licensing net sales, which benefitted the year-ago period, lower gross profit across all three reportable segments in our Networks business and income taxes.

*Nokia, January-September 2018 compared to January-September 2017*

Nokia reported net sales decreased 5% year-on-year. On a constant currency basis, Nokia reported net sales were flat year-on-year.

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In Nokia Technologies, we maintained our strong track record, with 18% year-on-year growth in recurring licensing net sales. The decrease in net sales on a year-on-year basis was primarily due to the absence of approximately EUR 170 million of non-recurring catch-up licensing net sales, which benefitted the year-ago period. We continued to make good progress on licensing agreements. Subsequent to the end of Q3 2018, we extended our patent licensing agreement with Samsung and reiterated our financial guidance for Nokia Technologies.

Nokia reported operating loss amounted to EUR 611 million, compared to EUR 403 million in the year-ago period. This was primarily driven by lower gross profit across all three reportable segments in our Networks business and the absence of approximately EUR 170 million of non-recurring catch-up licensing net sales, which benefitted the year-ago period, partially offset by lower restructuring and associated charges and lower impairment of assets.

Nokia reported diluted EPS amounted to negative EUR 0.13, compared to negative EUR 0.19 in the year-ago period. This was primarily driven by the absence of expenses related to the early redemption of debt, lower restructuring and associated charges and income taxes, partially offset by lower gross profit across all three reportable segments in our Networks business and the absence of approximately EUR 170 million of non-recurring catch-up licensing net sales, which benefitted the year-ago period.

*CASH AND CASH FLOW IN Q3 2018*

EUR million, at end of period	Q318	Q218	QoQ change		Q417	YTD change
Total cash and current financial investments(1)	5 612	5 861	(4	)%	8 280	(32	)%
Net cash and current financial investments(1)	1 876	2 144	(13	)%	4 514	(58	)%

(1) For details, please refer to note 9, Net cash and current financial investments, and note 15, Performance measures, in the Financial statement information section in this report.

During the third quarter 2018, Nokias total cash and current financial investments decreased by EUR 249 million and Nokias net cash and current financial investments (net cash) decreased by EUR 268 million.

In the third quarter 2018, net cash used in operating activities was EUR 82 million:

· Nokias adjusted profit before changes in net working capital was EUR 354 million in the third quarter 2018.

· In the third quarter 2018, Nokia experienced a decrease in net cash related to net working capital of approximately EUR 340 million, of which approximately EUR 110 million related to restructuring and associated cash outflows, and approximately EUR 230 million related to an

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increase in inventories and an increase in receivables, partially offset by an increase in liabilities.

· The increase in receivables was approximately EUR 80 million.

· The increase in inventories was approximately EUR 270 million, primarily due to our decision to ensure sufficient flexibility to deliver higher levels of equipment sales.

· The increase in liabilities was approximately EUR 130 million, primarily due to an increase in accounts payable, partially offset by a decrease in contract liabilities.

In the third quarter 2018, net cash used in investing activities primarily related to capital expenditures of approximately EUR 140 million.

In the third quarter 2018, net cash used in financing activities primarily related to the payment of withholding tax of approximately EUR 130 million, associated with the dividend paid in the second quarter 2018.

*COST SAVINGS PROGRAM*

The following table summarizes the financial information related to our cost savings program, as of the end of the third quarter 2018. Balances related to previous Nokia and Alcatel-Lucent restructuring and cost savings programs have been included as part of this overall cost savings program as of the second quarter 2016.

In EUR million, approximately	Q318
Opening balance of restructuring and associated liabilities	750
+ Charges in the quarter	70
- Cash outflows in the quarter	110
= Ending balance of restructuring and associated liabilities	710
of which restructuring provisions	580
of which other associated liabilities	130
Total expected restructuring and associated charges	1 750
- Cumulative recorded	1 560
= Charges remaining to be recorded	190
Total expected restructuring and associated cash outflows	2 100
- Cumulative recorded	1 300
= Cash outflows remaining to be recorded	800

The following table summarizes our full year 2016 and 2017 results and future expectations related to our cost savings program and network equipment swaps.

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			Actual	Expected amounts for
In EUR million,			Cumulative			FY 2019 and
approximately			through	FY 2018		beyond		Total
rounded to the nearest EUR	Actual	Actual	the end of	as of the end of		as of the end of		as of the end of
50 million	2016	2017	2017	Q218	Q318	Q218	Q318	Q218	Q318
Recurring annual cost savings	550	250	800	400	400	0	0	1 200	1 200
- operating expenses	350	150	500	300	300	0	0	800	800
- cost of sales	200	100	300	100	100	0	0	400	400
Restructuring and associated charges	750	550	1 300	600	450	0	0	1 900	1 750
Restructuring and associated cash outflows	400	550	950	650	600	650	550	2 250	2 100
Charges related to network equipment swaps	150	450	600	650	600	150	100	1 400	1 300
Cash outflows related to network equipment swaps	150	450	600	650	600	150	100	1 400	1 300

We now expect restructuring and associated charges to total EUR 1 750 million and the related cash outflows to total EUR 2 100 million, both of which are EUR 150 million below our previous expectations. In addition, we now expect the charges and cash outflows related to network equipment swaps to total EUR 1 300 million, which is EUR 100 million below our previous expectations.

Note that the above expectations do not reflect the changes resulting from the cost reduction program announced on October 25, 2018. We expect the program to result in a EUR 700 million reduction of non-IFRS annualized operating expenses and production overheads by the end of 2020 compared to the end of 2018, of which EUR 500 million is expected from operating expenses. The restructuring charges and cash outflows are both expected to be EUR 900 million.

Under the cost reduction program announced on October 25, 2018, Nokia is targeting savings from a wide range of areas, including investments in digitalization to drive more automation and productivity; further process and tool simplification; significant reductions in central support functions to reach best-in-class cost levels; prioritization of R&D programs to best create long-term value; a sharp reduction of R&D in legacy products; driving efficiency from further application of our best-in-class common software foundation and innovative software development techniques; the consolidation of selected cross-company activities; and further reductions in real estate and other overhead costs.

*OPERATIONAL HIGHLIGHTS*

Nokia delivered another solid quarter on its strategic commitments and its 5G leadership position across business groups and geographies.

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*In the first pillar of our strategy, leading in high-performance, end-to-end networks with communication service providers:*

Nokia announced a $3.5 billion, multi-year 5G network deal with T-Mobile to accelerate the deployment of a nationwide 5G network in the US.

In September, AT&T named Nokia as one of its 5G suppliers with the US operators announcement to introduce mobile 5G in parts of five additional cities Houston, Jacksonville, Louisville, New Orleans, and San Antonio this year.

Also in September, Nokia and Sprint gave the first live demonstration in the US of a 5G New Radio connection over a dual mode-capable Massive MIMO radio.

Earlier in the quarter, Verizon and Nokia completed the first transmission of a 3GPP New Radio 5G signal to a receiver situated in a moving vehicle. The test followed the companies successful completion of a series of outdoor data sessions over the 5G New Radio standard.

Nokia announced plans to sell the majority of its IP Video business to Volaris Group of Canada. The transaction is expected to close in Q4 2018.

Idea Cellular in Delhi started to deploy Nokias cloud-native core technology as part of the operators digitalization effort to meet increasing data and mobile broadband demand.

Ooredoo Myanmar selected Nokia to secure its telecom and ICT networks against cyber threats. Nokia analysed Ooredoos systems using Nokias Security Risk Index. The Managed Security Service then implemented performance improvements to ensure that critical information assets are adequately protected against known and unknown threats.

Early in the quarter, the consulting and research firm Analysys Mason rated Nokias AVA cognitive services platform as the leading Telco AI Ecosystem (TAE) offering in the market. The firm highlighted the AVA platforms ability, ahead of the competition, to give vendors a single TAE in all their applications and intelligence across multiple systems and enable the optimization of end-to-end processes.

Nokia WING (Worldwide IoT Network Grid) momentum continued with Tele2 IoT launching a new global IoT platform, EnCore, making it the first operator to offer commercial IoT services to enterprises using Nokia WING. In September, WING won the global corporate award in the Smart Emerging Technologies category at ITU Telecom World.

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*In the second pillar of our strategy, expanding network sales to select vertical markets needing high-performing, secure networks:*

Nokia and Tencent signed an agreement to accelerate 5G webscale research and applications to benefit millions of Internet users in China.

*In the third pillar of our strategy, developing a strong, standalone software business at scale:*

Telia Company chose Nokias NetGuard Identity Access Manager to enhance security across the operators networks in Sweden and Finland.

Also in the quarter, the Nokia Intelligent Care Assistant solution was introduced into the Salesforce AppExchange. The Nokia Intelligent Care Assistant integrates the Salesforce Service Cloud with Nokias Autonomous Customer Care software, equipping agents with insights to improve customer satisfaction and enrich and monetize digital experiences.

In the quarter, Nokia Software demonstrated the strength of its portfolio, as well as orders and net sales momentum, by winning major accounts including British Telecom, Telenor One Europe, STC, Telefonica UK and Sky.

*In the fourth pillar of our strategy, which is now focused exclusively on licensing:*

Nokia announced that it expects the licensing rate for the Nokia 5G standard essential patent (SEP) portfolio to be capped at EUR 3 per mobile phone. Nokia said its licensing practices for licensing 5G SEPs for mobile phones will be consistent with its licensing undertakings made to relevant standard setting organizations.

Nokias brand licensee, HMD Global, continued the refresh of its smartphone portfolio with the launch of the Nokia 6.1 Plus and Nokia 5.1 Plus. HMD also announced plans to double its manufacturing capacity in India to satisfy demand.

In the quarter, Nokia expanded choice for licensees in the automotive sector by joining the Avanci licensing platform.

Also, subsequent to the end of Q3 2018, Nokia extended its patent licensing agreement with Samsung. Nokia will follow its existing practices for disclosing patent licensing revenue in its quarterly announcements and expects that revenues for the extended agreement will start to be recognized in the first quarter of 2019.

*RISKS AND FORWARD-LOOKING STATEMENTS*

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expectations and targets regarding financial performance, results, operating expenses, taxes, currency exchange rates, hedging, cost savings and competitiveness, as well as results of operations including targeted synergies and those related to market share, prices, net sales, income and margins; D) expectations, plans or benefits related to changes in organizational and operational structure; E) expectations regarding market developments, general economic conditions and structural changes; F) our ability to integrate acquired businesses into our operations and achieve the targeted business plans and benefits, including targeted benefits, synergies, cost savings and efficiencies; G) expectations, plans or benefits related to any future collaboration or to business collaboration agreements or patent license agreements or arbitration awards, including income to be received under any collaboration or partnership, agreement or award; H) timing of the deliveries of our products and services, including our expectations around the rollout of 5G services; I) expectations and targets regarding collaboration and partnering arrangements, joint ventures or the creation of joint ventures, and the related administrative, legal, regulatory and other conditions, as well as our expected customer reach; J) outcome of pending and threatened litigation, arbitration, disputes, regulatory proceedings or investigations by authorities; K) expectations regarding restructurings, investments, capital structure optimization efforts, uses of proceeds from transactions, acquisitions and divestments and our ability to achieve the financial and operational targets set in connection with any such restructurings, investments, capital structure optimization efforts, divestments and acquisitions; and L) statements preceded by or including believe, expect, expectations, commit, anticipate, foresee, sees, target, estimate, designed, aim, plans, intends, focus, continue, project, should, is to, will or similar expressions.

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operating performance, cost savings, competitiveness and synergies generally and our ability to implement changes to our organizational and operational structure efficiently; 8) our global business and exposure to regulatory, political or other developments in various countries or regions, including emerging markets and the associated risks in relation to tax matters and exchange controls, among others; 9) our ability to achieve the anticipated benefits, synergies, cost savings and efficiencies of acquisitions, including the acquisition of Alcatel-Lucent; 10) exchange rate fluctuations, as well as hedging activities; 11) our ability to successfully realize the expectations, plans or benefits related to any future collaboration or business collaboration agreements and patent license agreements or arbitration awards, including income to be received under any collaboration, partnership, agreement or arbitration award; 12) Nokia Technologies ability to protect its IPR and to maintain and establish new sources of patent, brand and technology licensing income and IPR-related revenues, particularly in the smartphone market, which may not materialize as planned, 13) our dependence on IPR technologies, including those that we have developed and those that are licensed to us, and the risk of associated IPR-related legal claims, licensing costs and restrictions on use; 14) our exposure to direct and indirect regulation, including economic or trade policies, and the reliability of our governance, internal controls and compliance processes to prevent regulatory penalties in our business or in our joint ventures; 15) our reliance on third-party solutions for data storage and service distribution, which expose us to risks relating to security, regulation and cybersecurity breaches; 16) inefficiencies, breaches, malfunctions or disruptions of information technology systems; 17) our exposure to various legal frameworks regulating corruption, fraud, trade policies, and other risk areas, and the possibility of proceedings or investigations that result in fines, penalties or sanctions; 18) adverse developments with respect to customer financing or extended payment terms we provide to customers; 19) the potential complex tax issues, tax disputes and tax obligations we may face in various jurisdictions, including the risk of obligations to pay additional taxes; 20) our actual or anticipated performance, among other factors, which could reduce our ability to utilize deferred tax assets; 21) our ability to retain, motivate, develop and recruit appropriately skilled employees; 22) disruptions to our manufacturing, service creation, delivery, logistics and supply chain processes, and the risks related to our geographically-concentrated production sites; 23) the impact of litigation, arbitration, agreement-related disputes or product liability allegations associated with our business; 24) our ability to re-establish investment grade rating or maintain our credit ratings; 25) our ability to achieve targeted benefits from, or successfully implement planned transactions, as well as the liabilities related thereto; 26) our involvement in joint ventures and jointly-managed companies; 27) the carrying amount of our goodwill may not be recoverable; 28) uncertainty related to the amount of dividends and equity return we are able to distribute to shareholders for each financial period; 29) pension costs, employee fund-related costs, and healthcare costs; and 30) risks related to undersea infrastructure, as well as the risk factors specified on pages 71 to 89 of our 2017 annual report on Form 20-F published on March 22, 2018 under Operating and financial review and prospects-Risk factors and in our other filings or documents furnished with the U.S. Securities and Exchange Commission. Other unknown or unpredictable factors or underlying assumptions subsequently proven to be incorrect could cause actual results to differ materially from those in the forward-looking statements. We do not undertake any obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.

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The financial report was authorized for issue by management on October 24, 2018.

· Nokia plans to publish its fourth quarter and full year 2018 results on January 31, 2019.

*Media Enquiries:*

Nokia

Communications

Tel. +358 (0) 10 448 4900

Email: [email protected]

Jon Peet, Vice President, Corporate Communications

*Investor Enquiries:*

Nokia Investor Relations

Tel. +358 4080 3 4080

Email: [email protected]

*About Nokia*

We create the technology to connect the world. Powered by the research and innovation of Nokia Bell Labs, we serve communications service providers, governments, large enterprises and consumers, with the industrys most complete, end-to-end portfolio of products, services and licensing.

We adhere to the highest ethical business standards as we create technology with social purpose, quality and integrity. Nokia is enabling the infrastructure for 5G and the Internet of Things to transform the human experience www.nokia.com

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Interim Report for Q3 and January-September 2018

Full year 2018 guidance reiterated following solid Q3 results

Rajeev Suri, President and CEO, on Q3 2018 results

EUR million (except for EPS in EUR)	Q318		Q317		YoY change		Constant currency YoY change	Q1- Q318		Q1- Q317		YoY change		Constant currency YoY change
Net sales	5 458		5 500		(1	)%	1 %	15 695		16 496		(5	)%	0 %
Operating profit/(loss)	(54	)	(230	)				(611	)	(403	)
Operating margin %	(1.0	)%	(4.2	)%	320bps			(3.9	)%	(2.4	)%	(150	)bps
EPS, diluted	(0.02	)	(0.03	)				(0.13	)	(0.19	)
Operating profit/(loss) (non-IFRS)	487		668		(27	)%		1 060		1 583		(33	)%
Operating margin % (non-IFRS)	8.9	%	12.1	%	(320	)bps		6.7	%	9.6	%	(290	)bps
EPS, diluted (non-IFRS)	0.06		0.09		(33	)%		0.10		0.20		(50	)%
Net cash and current financial investments	1 876		2 731		(31	)%		1 876		2 731		(31	)%

· Reported net sales in Q3 2018 were EUR 5.5bn, compared to EUR 5.5bn in Q3 2017. On a constant currency basis, reported net sales grew by 1% year on year.

· We reiterate 2018 non-IFRS diluted EPS guidance and remain on target to deliver EUR 1.2bn of recurring annual cost savings in full year 2018.

October 25, 2018

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Outlook

	Metric	Guidance	Commentary
Nokia	Non-IFRS operating margin	9-11% for full year 2018 and 12-16% for full year 2020	Nokias guidance for significant improvement between full year 2018 and full year 2020 is primarily due to expectations for: a) Improved results in Nokias Networks business, which are detailed below;
	Non-IFRS diluted earnings per share	EUR 0.23 - 0.27 in full year 2018 and EUR 0.37 - 0.42 in full year 2020	b) Improved results in Nokia Technologies, which are detailed below; and c) Benefits from our EUR 700 million cost reduction program announced on October 25, 2018, which are detailed in the Cost savings program discussion in the Financial results section. ( updated commentary ) ( This is an update to earlier commentary for lower Nokia support function costs within Nokias Networks business and Group Common and Other.)
	Dividend	Approximately 40% to 70% of non-IFRS diluted EPS on a long-term basis	Nokias Board of Directors is committed to proposing a growing dividend, including for 2018.
	Recurring free cash flow	Slightly positive in full year 2018 and clearly positive in full year 2020	Recurring free cash flow is expected to improve over the longer-term, due to lower cash outflows related to restructuring and network equipment swaps(1) and improved operational results over time.
	Recurring annual cost savings for Nokia, excluding Nokia Technologies	Approximately EUR 1.2 billion of recurring annual cost savings in full year 2018, of which approximately EUR 800 million are expected from operating expenses(1)	The reference period is full year 2015, in which the combined operating expenses of Nokia and Alcatel-Lucent, excluding Nokia Technologies, were approximately EUR 7.3 billion. As a result of active efforts to drive 5G adoption, and in the interest of our long-term strategy given the acceleration of 5G, in 2018 we expect to incur approximately EUR 100 to 200 million of temporary incremental expenses related to 5G customer trials that will partially reduce the positive impact from the recurring annual cost savings.
	Network equipment swaps	Approximately EUR 1.3 billion of charges and cash outflows in total(1) ( update )	The charges related to network equipment swaps are being recorded as non-IFRS exclusions, and therefore do not affect Nokias non-IFRS operating profit. ( This is an update to earlier guidance for approximately EUR 1.4 billion of charges and cash outflows in total.)
	Non-IFRS financial income and expenses	Expense of approximately EUR 350 million in full year 2018 and approximately EUR 300 million over the longer-term	Nokias outlook for non-IFRS financial income and expenses in full year 2018 and over the longer-term is expected to be influenced by factors including: · Net interest expenses related to interest-bearing liabilities and defined benefit pension and other post-employment benefit plans; · Foreign exchange fluctuations and hedging costs; and · Expenses related to the sale of receivables.
	Non-IFRS tax rate	Approximately 30% for full year 2018 and 25% over the longer-term	Nokias outlook for non-IFRS tax rate for full year 2018 and over the longer-term is expected to be influenced by factors including the absolute level of profits, regional profit mix and any further changes to our operating model. Nokia expects cash outflows related to taxes to be approximately EUR 400 million in full year 2018 and approximately EUR 450 million over the longer-term until Nokias US or Finnish deferred tax assets are fully utilized.
	Capital expenditures	Approximately EUR 700 million in full year 2018 and approximately EUR 600 million over the longer-term	Primarily attributable to Nokias Networks business, and consistent with the depreciation of property, plant and equipment over the longer-term.
Nokias Networks business	Net sales	Outperform its primary addressable market in 2018 and over the longer-term	For Nokias Networks business, Nokia expects net sales to outperform its primary addressable market and operating margin to expand between full year 2018 and full year 2020.
	Operating margin	6-9% for full year 2018 and 9-12% for full year 2020	Nokias outlook for net sales and operating margin for Nokias Networks business in 2018 and 2020 is expected to be influenced by factors including: · An approximately 1 to 3 percent decline in the primary addressable market for Nokias Networks business in full year 2018, compared to 2017, on a constant currency basis;

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Recurring net sales	Grow at a compound annual growth rate (CAGR) of approximately 10% over the 3-year period ending 2020	· Customer demand for 5G, with commercial 5G network deployments expected to begin near the end of 2018; · Improving market conditions in the second half of 2018, with particular acceleration in the fourth quarter in North America, following weakness in the first half of 2018; · Growth in the primary addressable market for Nokias Networks business in 2019 and 2020, on a constant currency basis; · Our ability to scale our supply chain operations and to procure certain standard components to meet increasing demand. ( This is an update to earlier commentary for our ability to scale our supply chain operations to meet increasing demand); · Recovery actions to address increased price pressure, including the ability to offset price erosion through cost reductions; · The timing of completions and acceptances of certain projects, particularly related to 5G; · Focus on targeted growth opportunities in attractive adjacent markets; · Building a strong standalone software business; · Improved R&D productivity resulting from new ways of working and the reduction of legacy platforms over time; · Lower support function costs, including IT and site costs; · Uncertainty related to potential mergers or acquisitions by our customers; · Product and regional mix; and · Competitive and other industry dynamics. — Due to risks and uncertainties in determining the timing and value of significant patent, brand and technology licensing agreements, Nokia believes it is not appropriate to provide annual outlook ranges for Nokia Licensing within Nokia Technologies. Although annual results are difficult to forecast, Nokia expects net sales growth and operating margin expansion over the 3-year period ending 2020.
Operating margin	Expand to approximately 85% for full year 2020	In full year 2017, licensing net sales were approximately EUR 1.6 billion, of which approximately EUR 300 million were non-recurring in nature and related to catch-up net sales for prior years. Nokias outlook for net sales and operating margin for Nokia Licensing within Nokia Technologies is expected to be influenced by factors including: · The timing and value of new patent licensing agreements with smartphone vendors, automotive companies and consumer electronics companies; · Renegotiation of expiring patent licensing agreements; · Increases or decreases in net sales related to existing patent licensees; · Results in brand and technology licensing; · Costs to protect and enforce our intellectual property rights; and · The regulatory landscape.

(1)For further details related to the cost savings and network equipment swaps guidance, please refer to the Cost savings program discussion in the Financial results section.

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Nokia financial results

EUR million (except for EPS in EUR) — Net sales	Q318 — 5 458		Q317 — 5 500		YoY change — (1	)%	Constant currency YoY change — 1	%	Q1- Q318 — 15 695		Q1- Q317 — 16 496		YoY change — (5	)%	Constant currency YoY change — 0	%
Nokias Networks business	4 888		4 823		1	%	3	%	13 906		14 696		(5	)%	0	%
Nokia Technologies	351		483		(27	)%	(27	)%	1 077		1 099		(2	)%	(2	)%
Group Common and Other	235		251		(6	)%	(4	)%	765		812		(6	)%	(2	)%
Non-IFRS exclusions	(4	)	(38	)	(89	)%			(13	)	(59	)	(78	)%
Gross profit	2 019		2 185		(8	)%			5 684		6 546		(13	)%
Operating profit/(loss)	(54	)	(230	)					(611	)	(403	)
Nokias Networks business	246		334		(26	)%			358		1 064		(66	)%
Nokia Technologies	290		390		(26	)%			856		736		16	%
Group Common and Other	(49	)	(56	)					(153	)	(217	)
Non-IFRS exclusions	(541	)	(898	)	(40	)%			(1 671	)	(1 986	)	(16	)%
Operating margin %	(1.0	)%	(4.2	)%	320	bps			(3.9	)%	(2.4	)%	(150	)bps
Gross profit (non-IFRS)	2 141		2 365		(9	)%			6 120		6 911		(11	)%
Operating profit/(loss) (non-IFRS)	487		668		(27	)%			1 060		1 583		(33	)%
Operating margin % (non-IFRS)	8.9	%	12.1	%	(320	)bps			6.7	%	9.6	%	(290	)bps
Financial income and expenses	(60	)	(63	)	(5	)%			(224	)	(496	)	(55	)%
Income taxes	(15	)	102						89		(154	)
Profit/(loss) for the period	(127	)	(190	)	(33	)%			(752	)	(1 058	)	(29	)%
EPS, diluted	(0.02	)	(0.03	)					(0.13	)	(0.19	)
Financial income and expenses (non-IFRS)	(48	)	(63	)	(24	)%			(247	)	(207	)	19	%
Income taxes (non-IFRS)	(133	)	(90	)	48	%			(275	)	(211	)	30	%
Profit/(loss) for the period (non-IFRS)	309		516		(40	)%			532		1 159		(54	)%
EPS, diluted (non-IFRS)	0.06		0.09		(33	)%			0.10		0.20		(50	)%

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Nokia, Q3 2018 compared to Q3 2017

EUR million — Networks business	Net sales — 65		% change — 1	%	Gross profit — (106	)	(R&D) — 41		(SG&A) — 17		Other income and (expenses) — (40	)	Operating profit/(loss) — (88	)	Change in operating margin % — (190	)bps	Financial income and expenses		Income taxes		Profit/(loss)
Nokia Technologies	(132	)	(27	)%	(123	)	30		(5	)	(1	)	(100	)	190	bps
Group Common and Other	(16	)	(6	)%	5		(7	)	(1	)	12		7		140	bps
Eliminations	6				0		0		0		0		0
Nokia non-IFRS	(76	)	(1	)%	(224	)	63		11		(30	)	(181	)	(320	)bps	15		(43	)	(207	)
Non-IFRS exclusions	34		(89	)%	59		25		(21	)	293		357				(12	)	(74	)	270
Nokia reported	(42	)	(1	)%	(166	)	89		(10	)	263		176		320	bps	3		(117	)	63

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Nokia, January-September 2018 compared to January-September 2017

EUR million	Net Sales		% change		Gross profit		(R&D)		(SG&A)	Other income and (expenses)		Operating profit/(loss)		Change in operating margin %		Financial income and expenses		Income taxes		Profit/(loss)
Networks business	(790	)	(5	)%	(804	)	92		71	(65	)	(706	)	(460	)bps
Nokia Technologies	(22	)	(2	)%	(1	)	71		39	10		120		1 250	bps
Group Common and Other	(47	)	(6	)%	13		(6	)	9	47		64		670	bps
Eliminations	12				0		0		0	0		0
Nokia non-IFRS	(847	)	(5	)%	(791	)	158		119	(8	)	(523	)	(290	)bps	(40	)	(64	)	(627	)
Non-IFRS exclusions	46		(78	)%	(70	)	78		35	272		315				312		307		933
Nokia reported	(801	)	(5	)%	(862	)	235		155	263		(208	)	(150	)bps	272		243		306

Nokia reported net sales decreased 5% year-on-year. On a constant currency basis, Nokia reported net sales were flat year-on-year.

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Cash and cash flow in Q3 2018

EUR million, at end of period	Q318	Q218	QoQ change		Q417	YTD change
Total cash and current financial investments(1)	5 612	5 861	(4	)%	8 280	(32	)%
Net cash and current financial investments(1)	1 876	2 144	(13	)%	4 514	(58	)%

(1) For details, please refer to note 9, Net cash and current financial investments, and note 15, Performance measures, in the Financial statement information section in this report.

*EUR billion*

In the third quarter 2018, net cash used in operating activities was EUR 82 million:

· Nokias adjusted profit before changes in net working capital was EUR 354 million in the third quarter 2018.

· The increase in receivables was approximately EUR 80 million.

· The increase in inventories was approximately EUR 270 million, primarily due to our decision to ensure sufficient flexibility to deliver higher levels of equipment sales.

· The increase in liabilities was approximately EUR 130 million, primarily due to an increase in accounts payable, partially offset by a decrease in contract liabilities.

In the third quarter 2018, net cash used in investing activities primarily related to capital expenditures of approximately EUR 140 million.

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Cost savings program

In EUR million, approximately	Q318
Opening balance of restructuring and associated liabilities	750
+ Charges in the quarter	70
- Cash outflows in the quarter	110
= Ending balance of restructuring and associated liabilities	710
of which restructuring provisions	580
of which other associated liabilities	130
Total expected restructuring and associated charges	1 750
- Cumulative recorded	1 560
= Charges remaining to be recorded	190
Total expected restructuring and associated cash outflows	2 100
- Cumulative recorded	1 300
= Cash outflows remaining to be recorded	800

The following table summarizes our full year 2016 and 2017 results and future expectations related to our cost savings program and network equipment swaps.

In EUR million, approximately			Actual — Cumulative through	Expected amounts for — FY 2018		FY 2019 and beyond		Total
rounded to the nearest EUR 50	Actual	Actual	the end of	as of the end of		as of the end of		as of the end of
million	2016	2017	2017	Q218	Q318	Q218	Q318	Q218	Q318
Recurring annual cost savings	550	250	800	400	400	0	0	1 200	1 200
- operating expenses	350	150	500	300	300	0	0	800	800
- cost of sales	200	100	300	100	100	0	0	400	400
Restructuring and associated charges	750	550	1 300	600	450	0	0	1 900	1 750
Restructuring and associated cash outflows	400	550	950	650	600	650	550	2 250	2 100
Charges related to network equipment swaps	150	450	600	650	600	150	100	1 400	1 300
Cash outflows related to network equipment swaps	150	450	600	650	600	150	100	1 400	1 300

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Operational highlights