Nokian Tyres Plc

Good afternoon from Helsinki and welcome to Nokian Tire's Q2 2025 webcast and conference call. My name is Saamukka Myrja and I'm working at Nokian Tire's Investor Relations. Together with me in this call I have our CEO Paolo Ponte and interning CFO Jari Huustanen. As usual, we will start the webcast by first reviewing the financial results and some other topicals from the quarter, and then we will have Q&A session. So, the floor is yours, Paolo.

All right. Thank you very much, Anouk, and good afternoon, everyone. Thank you for joining our call this afternoon. Obviously, it is summertime. It's a beautiful week here in Finland, so we appreciate even more for those who are located in Finland your participation to this call. Let's start today with the headline, which is strong operating profit improvement in the second quarter and, of course, action ongoing to further strengthen the financial performance. Moving to slide number two, yes, this is the agenda that is related to the financial performance in quarter two. Then we will talk, Yari will support us in describing the trend of the business unit. And then, of course, we will end with the assumptions and the guidance for the year end. Let's start with the quarter two and the financial performance. So we move to page number four. We had a strong quarter, as we say, we had a good sales growth of approximately 6.9% in quarter two. Our operating profit improved significantly by almost 31%. And of course, this is also the result of the ongoing action that we are putting in place to improve our financial performance at the moment. The ramp-up of the operations in Romania is proceeding according to the plan, and some good news also from the sustainability side point of view, we are obviously ranked among the world's most sustainable companies by the Time magazine. We will tell you something more later on. And of course, we will also talk about tariffs that are creating some uncertainties in the short term, and of course, we have in place mitigating actions in order to reduce the potential impact. Moving to slide number five, let's talk specifically about their performance. As I said, the sales were going up by 6.9%, up to 343.7 million euros. And our segment EBITDA was up by 22%, up 57.2 million euros. The segment operating profit was 26.3 million euros. That was 7.7%. in relation to sales and up by almost 31% compared to previous year. The increase was mainly driven by the passenger car tire segment that was well supported by price increases and lower manufacturing and supply chain costs in Q2. Moving to slide number six, you will see that we were able to outperform any market also in terms of market share development. We were growing in the Nordics, we were growing nicely also in Central Europe, considering all the actions that we have in place, but also we were growing two digits in the North American market. As you know, this is a very important growth area for us. We were very pleased about the performance in the second quarter in a market that is pretty stable at this stage. Moving to slide number seven, I would like to highlight a few items of this slide. First of all, I will focus on the growth year to date, which is 9.3%, and I would like also to focus your attention on the segment EBITDA that is up by 18% year to date and segment operating profit that is up by 56% year to date. But also bottom left you will see that our capex as expected are going down and we are at the moment at 89.7 million euros invested in our business, significantly lower than previous year when we had obviously heavy investments in particular in Oradea in developing our new manufacturing facility in Romania. In quarter two also the cash flow had a strong improvement as a result of better control of the working capital but also as a result of lower CAPEX. Moving to slide number eight, this is our guidance in terms of CAPEX for this year remain as it was, we will be between 180 and 200 million euros, so everything is going according to plan, also from the CAPEX point of view, but what I would like to highlight once again is that we are ending a strong investment cycle that was necessary to rebuild the footprint of Nokian Tire in Europe as well as to build and to extend the one in North America. So at the moment we are estimating to be perfectly in line with our guidelines in terms of CAPEX and of course the capex level from after 2025 is expected to go back to a normal level, more or less in line with the depreciation. Moving to slide number nine, as I mentioned at the beginning, obviously we continue to focus on our improvement of the financial performance. I was very clear also during the closing of quarter one that this is going to be very important to focus on profitable growth. And this is where our guidance is coming from. Of course, we have three important focus areas that are extremely important for our future development and for our profitability development in the next future. Obviously, one is the commercial area. We are, as I told you already in quarter one, accelerating our effort to gain premium market share in the North American market. And of course, the key opportunity is in the in enlarging the sales network in the United States. In Central Europe we have similar challenges even though we are a little bit more mature in this market. We are expanding at the moment our existing network and we are also entering new markets and we are also implementing consistent price realization in line with the premium branding positioning. This is a long journey that we will carry on from now on, because obviously this is the position that we want to have in both the Central European and the North American market. In the Nordic, we are doing pretty well at this stage. We are managing very well the pressure that is coming from the raw material increase. And of course, we keep protecting our premium positions and our strong product portfolio, utilizing Vianor as an strong asset of the company to accomplish our objectives. From the operational point of view, we are also working at 360 degrees. Obviously, the ramp-up of our factories in Oradea and in Dayton are supporting the economy at scale, consequently better absorption of the fixed cost. We are moving in the direction of driving higher efficiency across the organization because we need to improve our efficiency and our productivity in our own factories And of course, you will see later on more and more the importance of our development in Romania in terms of Rampapa because obviously this will give us a competitive base for our future development in Central Europe. Last but not least, we are working very hard in improving our efficiency when we talk about supply chain and our local for local business model will give us the opportunity to become more efficient in managing our working capital and our inventory. We said also at the beginning of the year that we want to also improve from the procurement point of view, enlarging our supplier portfolio, and obviously become more efficient in the way we spend our money. And this is what we are doing at the moment, and we see already an important improvement in our P&L in quarter two, also in these dimensions. All the three dimensions are delivering good results at this stage, and all the three dimensions have contributed to the good improvements that we had in quarter two. Moving to slide number 10, obviously these improvements This job, this continuous improvement plan is requiring a clear structure. Of course, our new operating model is helping to have a stronger focus on the P&L and in some way the KPI ownership that we have built around the organization has been driving to better accountability of our own business. We have in place at the moment a lot of different work streams that are working in a systematic way to follow up and giving us the possibility to follow up and to have a clear reporting of our practices, but also about our result. And then of course, today we have an organization with an enlarged management team that is giving us the possibility to be more agile and to react quickly to any business opportunities or challenge. Moving to slide number 11. We had also some good news on the sustainability side. Nokian was recognized to be one of the top 500 most sustainable company in the world by the Time Magazine. Actually, we were number 98 in the list made by the Time Magazine. This is obviously rewarding our effort. in becoming a more sustainable company, reducing the CO2 emission, increasing the level of renewable and recyclable material, and of course, being a socially responsible player in the industry. And we will carry on this effort, and this effort has been recognized not only by the time, but as you can see, by many other organizations, and of course, I would like to highlight again, our EcoVadis Platinum status is one of the also best indicator to tell how good is our effort at this stage of our history. Moving to slide number 12, I will ask kindly Jari to take the control of the presentation.

Okay. Thank you, Paola, and good afternoon from my side as well. Starting from passenger car tires, in the second quarter, we reported higher sales and improved margins. Our net sales was 206 million, comparing to prior year, 189 million. Net sales increased in comparable currencies by 11.3%. Average sales price with comparable currencies improved, as well as the share of higher than 18 inches tires increased significantly. Segment operating profit was 15.9 million, or 7.7% of net sales, comparing to last year, 7.1 million or 3.7% of net sales. Profitability improved in passenger car tires mainly due to higher sales and price increases which were implemented in the first quarter. Also, our manufacturing and supply chain costs were lower comparing to prior year. In the first half, we have been able to improve our inventory rotation In the next page. We can see. In the second quarter. Net sales and segment operating profit. In net sales. We can see that. Both sales volume. And price mix component. Developed well. Sales volume impact was 12 million. And price mix 9 million. Currency we had. headwind coming mainly from usd and canadian dollar in second operating profit side sales volume impact was 5 million price mix in impact plus 9 million still in material because we had some negative impact minus 4 million however i want to highlight that It's good to see that price mix component is now clearly higher than the material cost, so basically we have been able to offset the higher cost in the second quarter. Supply chain component plus 3 million, coming mainly from manufacturing, sales rates, and warehousing. SGA costs somewhat 3 million negative, comparing to prior year, and increased. What comes to currencies, the impact is very close to neutral, minus 1 million. Going to page, passenger car tires net sales. Here we can see quarterly changes by our sales components, sales volume, price mix, and currency. Here I want to highlight price mix in the second quarter, which was plus 4.9%. coming from both higher sales prices and also better sales mix comparing to last year. Then to continue to heavy tires, in the second quarter, we had solid sales development. However, weak market affected to heavy tires margins. Net sales was 61 million, comparing to last year, 60 million. Change in comparable currencies was plus 1.3%. In heavy tires, net sales increased in all regions driven by aftermarket sales. Segment operating profit was 6 million or 9.9% of net sales comparing to last year, 7.6 million or 12.7% of net sales. Profitability decreased in heavy tires mainly due to weaker product mix in sales. And in heavy tires, Finnish goods inventories are on a lower level comparing to prior year. Moving to Vianor, Vianor second quarter, we reported stable sales development there. Net sales 98 million compared to last year, 96 million. So net sales with comparable currencies increased by 1.2%. Segment operating profit was 7.1 million, or 7.2% of net sales, versus last year 7.5 million, versus 7.8% of net sales. Segment operating profit was slightly lower year on year, mainly due to cost inflation in Vianor business. In Vianor, Finnish goods inventories remained stable in first half. Then handing over back to you, Paolo.

Thank you, Jari, and thank you very much for explaining the performance in the single business units. Now we go through the guidance, and from the market point of view, we don't see major changes in the market. Of course, there is a lot of uncertainty related to the market development in North America due to the safari situation. We will watch this very carefully, but in general, we can see the market, the aftermarket, where we are a strong player, we'll see at the moment to remain pretty stable both in Europe as well as in North America. The avatar business will be down. We are expecting that we remain down in the second half of the year at this stage, also looking at the market development in both the replacement and in the OE segment. When we talk about North America, of course, as we mentioned already during the closing of quarter one, we will keep a pretty flexible strategy, what I mean is that we are a local for local, we have a local for local business model, and fortunately we are not exposed heavily at all to the tariff, in particular when we talk about U.S., we are basically 85% of our business is made in U.S. for U.S., so we don't see this issue, but of course we will need to be ready to look at any kind of opportunities in the month to come based on the negotiation between Europe as well as US and Canada because obviously we are also exporting Canada. I remind you that all the winter tire business that we sell in Canada, which is obviously an important part of our business, is made in Finland. Consequently, we should not be exposed on that side. So we are at the moment looking at different options and scenarios There will be some uncertainty that is more related to the consumer behavior than uncertainty relating from the manufacturing side. So we will need to carefully watch the development from the consumer side. And this is really my main message today. But we are well equipped from the pure manufacturing point of view to face any kind of ending scenario. Moving to slide number 21, we keep our guidance for the year where net sales are expected to grow and segment operating profit as a percentage of net sales will improve. We are expecting, as we say, the demand to remain in line with previous year level. And then, of course, the global economy as well as the geopolitical trade and tariff are creating some uncertainty that we are watching day by day in order to understand better the business development. Of course, we have an important opportunity, having our capacity moving up in Romania in particular, and this obviously supporting better availability of finished coating at the same time. better sales i would like to take this opportunity also to drive your attention to the following quarters last year we had a very high level of exclusions uh over in in our in our pnl due to exceptional items that were coming on the agenda last year this year we are forecasting by far lower exclusions so when you build the model please look at the improvement of the a bit of the profit level, more than segment operating profit, because this is very important to understand the development of the company for the future months. We will have, obviously, we guided less exclusions for the next couple of quarters. We have also today announced three important changes in our management team. We welcome Chris Ostrander, who has been a board member who is today still a board member of Nokian Tire team. He will step down from the position as a board member and also as a leader of the investment committee, and he will join the management team starting from the 1st of September, leading the North American team as a senior vice president of passenger car tire in North America. He will replace Lauri Alme, who has accepted the challenge to lead our Vianor network starting from the same day, as a senior vice president of Vianor. Lauri has an extensive experience in the company and also in managing service operations, so I'm sure he could do a great job also managing Vianor as a senior vice president for the years to come. At the same time, we are promoting Tron Gulbransen as a senior vice president passenger car tire for the Nordics. Tron has been in the company for many years. He knows the company very well. He will join the management team and he will have his expertise and his knowledge, commercial knowledge to the management team supporting our future growth and expansion in the commercial area. We are now up to the time of the Q&A.

Yes, thank you. If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Akshat Kakkar from JPM. Please go ahead.

Good afternoon, Paolo Akshat from JPMorgan. I have three questions, please. The first one is actually on pricing. Can you talk about all the pricing actions that you have taken specifically in Europe and North America? Is this specifically related to playing catch-up on raw materials and other inflation costs, or are you also being opportunistic in the North American market, given your positioning there? The second question is on overall volume growth. We have told us multiple times that a lot of the volume growth that you've seen is supply-linked for no-candida, because you are in a unique position. I've seen that number relatively slow down. It was at 21% in Q1, 6% in Q2. And the cons get more difficult in the second half. So could you just give us a broad expectation of what you're expecting for Nokia and volume growth in the second half, please? And the third one is just a general question on the marketplace. I would be very interested in understanding what are you seeing in both Europe and North America since the month of May, since U.S. tariffs have come into force? Could you just talk about in general inventory levels in these markets, probably product flow coming in from Asia and how the competitive landscape looks like in general? Thank you so much.

Thank you very much. It's an important question. I would like to start answering to the first one that is really about prices. As I explained also in quarter one, in quarter one, as you may remember, we lost quite a margin also because we were not increasing the prices covering the raw material cost increase that we had in quarter one. There is always a sort of time gap between the raw material increase and the pricing, but obviously this was for us an important action to put in place in order to compensate the lost margin in quarter one. that were coming from higher raw material and stable prices. At the same time, of course, I also deliver the important message that it is crucial for us to position Nozian Tire as a premium player in the Central European and North American market. And this is a journey that obviously is starting this year and will carry on in the years to come. So we will always compensate raw material, but we will always try, obviously, to raise our position in terms of pricing to be well positioned in the premium market. About the volume growth, this is also very important. I mean, there is no joy in life to grow without increasing the profit, obviously. So we say that we were focusing on profitable growth more than only growth. At this stage of our history, it's extremely important as well that whatever additional tire we sell, it will be profitable, it will generate profit and value for our shareholders. So this is what we are doing at the moment. So we are accepting, we accept to be a little bit slower in generating growth, but we want to have a profitable growth for the years to come. Last is about the scenario of the tariff. I mean, the situation in Europe, the market was pretty stable in the second half. Actually, it was down for the European player. And, of course, there was a lot of tariffs coming from Asia, too. The same is happening in North America. It was happening at the beginning of the second quarter when the tariffs were just announced. There was a large number of tariffs arriving in the United States from Asia. in order to anticipate or to reduce the impact of the duties. I see two effects. I think the market will stabilize. In Europe, it will be pretty stable for the months to come, while in North America, the only question mark is about the general economy and the consumer behavior related to the GDP development of the country. Clearly, less purchasing power from the consumer will... deliver decisions in terms of what to buy. The market is not self-sufficient in terms of tires. What I mean is that in the North American market, half of the market is supplied from abroad, so this also can be a problem but an advantage for us being a local player. But we will observe the dynamics and we will see where we land. Just to remind you that we are pretty small in North America, so obviously we watch the market day by day, but we have our own agenda, and we need to grow based on our own capabilities, accepting that there will be up and down based on the GDP growth in the local market.

Thank you so much. And just a question left on your own Nocantires volume growth expectations for the second half, please.

The guidance is that we will grow. So meaning that we are guiding a growth below 10%.

Thank you so much, Paolo.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you. It seems that everything was very clear this time, and if there are no further questions, it is time to end this podcast. Thank you all for participating in this call, and thank you, Paolo, and Javi. Thank you. Have a nice rest of the day and summer.

Thank you very much also from our side, and have a wonderful summertime.

Thank you.