Nokian Tyres Plc Unsp/Adr

Hello, and welcome to the Nokian REN-CAD Q1 interim report 2020. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. Today, I'm pleased to present Paivi Antola. Please go ahead with your meeting.

Good afternoon from Helsinki, and welcome to Nokian TIRE's January-March 2020 results conference call. My name is Päivi Antola, and I am the head of Investor Relations in Nokian Tyres. And together with me in the call, I have Hille Korhonen, the president and CEO of the company, and Teemu Kangaskärki, the CFO of Nokian Tyres. We will start the call as usual with a brief presentation by Hille and Teemu, and then continue with a Q&A. So, Hille, please go ahead.

Thank you, Päivi, and good afternoon, everybody. Thank you for for joining us today, and I hope you are all safe and healthy, and so are we. There are two topics I want to focus today. Overall, business performance during the first quarter in 2020, including our actions in Russia and what has been the impact on the first quarter results. And then of course the corona pandemic, what are the measures we have taken and how it has been impacting our business during the first quarter and also how we are moving ahead towards the end of the year as a company. So let's start from the corona. and the measures we have taken immediately when it was realized that the pandemic situation will be spreading to Europe and North America as well as to Russia. So first of all, the top priority for us is to take care of our people. and also to make sure that we can continue the business in a safe way and continue to support our customers. We have been taking immediate actions to ban travel and start remote working. Fortunately, we have global IT systems in place so that almost everybody has been working remotely since mid-March and we don't see any direct impact on our business. And even customer meetings have been taking place through the video. There are then also additional operational measures that we have taken to secure our business. First and most important thing is to managed our production capacity according to demand that we are tracking twice a week and we have also taken enhanced actions to monitor the customer payments in order to make sure that we have the financing position in place and securing the cash flow. Cost reductions have been planned already during the first quarter, and the biggest impact of those actions will be visible in the second quarter. We have been implementing temporary layoffs for both production personnel in Finland and in Russia, as well as temporary layoffs for white-collar workers so-called Kurzarbeit in Central Europe for the white-collar workers. And the aim is, of course, to reduce the cost and also to make sure that we are working efficiently throughout the year. We have been suspended production temporarily in Russia, Finland and in the US. and this has been mainly driven by the local coronavirus restrictions. And now at the moment, all the factories are in a mode of up and running, except for the Russian factory, which is due to Russian national holiday, but otherwise we have the preparedness to run the production and having safety measures in place. Regarding the financial situation, our board of directors proposed the AGM to divide our dividend into two halves and the first half Euro 0.79 per share has been paid already and for the rest the board has authorization to decide additional payment and timing until the next AGM. We have also carefully reviewed our CAPEX plan for this year. It was already on a much lower level compared to previous year and we have taken down the capex down to 170 million. Unfortunately, the majority of that is already being spent during the first half, and they are mainly related to completing our strategic investments in Dayton and regarding the Spanish test track. and we continue to look at all the capex spent in a very careful manner. We have taken actions to further strengthen our liquidity position, and it's also important at this time to have the strong balance sheet which is supporting us through these challenging and difficult times. Then going to the first quarter performance. It's clear that we are suffering from low volume in passenger car tyres, which is impacting our net sales and operating profit. And the three key drivers behind are thruster, coronavirus and winter. In Russia, this is resulting from the actions we have taken to reduce our channel inventory in distribution, and this is according to what we have been announcing already in February. So we are reducing the sell-in and taking actions to improve the sell-out support to our customers in order to take the inventory levels to a normal level. And this is mainly related to the winter tire inventories and they're in the B segment. And regarding the winter, it's clear that None of our key markets had proper winter. And usually in the first quarter in Nordics and Central Europe, we are selling the winter volumes, which are being replenished directly to the retail. And usually in the first quarter, we start the Russian deliveries to the channels. Then what comes to the segment operating profit, it's clearly lower compared to what we have been expecting. And the main impact is coming from Russia, 20 million. And coronavirus is the thing that we were not planning in a way, which is 10 million. And of course, when we have... lower volume our whole supply chain is geared towards the higher capacity utilization and therefore we have a lot of extra cost which is not absorbed by the volume. We will have positive raw material effect as we go ahead and it was already visible in the first quarter. Regarding the guidance, it was already withdrawn in March, as we saw that there is increased uncertainty in the market due to coronavirus. Then let's take a look at the different markets. I start from the Nordics. In Nordics, our volume decreased. but the positive thing was that our market share increased in winter, and also in large ring sizes in summer and winter. So, we have been keeping our high profitability in the market, and we even had some price increases for the summer tires for the first quarter due to currency. The new car sales have been down, and the biggest decline we have seen in Norway, which is due to a very high comparison base. And that has been also impacting our winter tire sales in the car dealer channel. In the Nordics, the tire shops have been kept open, and while the shopkeepers have been taking virus safety measures very seriously. It means that also the capacity of the tire shocks is lower due to that. So that has been impacting the sell-out volume. In Central Europe, the volume has declined, and at this point, Our volume decline was mainly related to lack of winter. So our winter tire sale in was about 50% lower compared to previous first quarter. And we have been actually increasing market share in summer tires and in all season tires. And the volume has been close to previous. year level, which is, I think in this situation, very, very good achievement as the market has been declining by 19%. And in many countries, the tire shops have been closed and lockdowns have been preventing people to go out and sell out from retail has been declining even up to 70% during end of March. We have seen geographically biggest volume decline in Italy and France and Spain. And anyway, the positive thing is that these have not been our focus countries. So our focus has been in the DAH area and in Eastern Europe. As we move forward, it's very important for us to stay in very close contact and collaboration with our customers. We have been restarting our sell-out support campaigns with the customers who have been now opening their doors, and we are focusing on supporting the DAH and Eastern Europe and of course not neglecting the southern European countries when they start to ramp up their businesses. Now in the second quarter it will be important for us to start collecting the winter season pre-orders and we will make sure that we have availability for those products. In Russia, as I was explaining, we had significant decline in our sell-in during the first quarter, which was over 40%. And this was in our plans in order to make sure that we are reducing the winter tire inventory levels towards year end. we are selling in the winter tires during the first half and the actual impact will be visible then towards the year end. So the second quarter will be similar to the first quarter when we are talking about sell-in in Russia compared to previous year. As we all know, coronavirus did not have any business impact on Russia during the first quarter and we have seen the lockdown activities and other restrictions only starting in the second quarter. The new car sales have been increasing especially in March and this was mainly due to the fact that people wanted to buy cars before price increases due to weakening ruble. And our estimate for the full year new car sales is roughly minus 20%, down to 1.4 million cars sold this year. And as we are already starting from a very low level. Then when we look at the coronavirus impact further at the moment in Russia, they are changing summer tires and the season for summer tire sales has been extending because the big cities, they are basically in lockdown, including Moscow. and it means that only online business can be conducted, and this is, of course, taking also the capacity down. So all in all, Russia and the coronavirus impact on the economical situation together with the oil price changes is still a question mark, and that's why the visibility to the Russian forecast is still quite weak. Then when we take a look at North America, our sales increased in USA and decreased in Canada. And in Canada, the strict measures taken due to corona closed many of the tire shops fully for a certain period of time. And when talking with our key customers, their capacity has been down even up to 70% due to safety reasons. In U.S., in the market, the sell-in to replacement market declined over 10%, and the biggest decline took place in March. we have been increasing our market share by having growth in the quarter. Sell-out has been very much dependent on the state and restrictions taken in each of them. And what we have seen is that the value and economic segments have been gaining some market share. in the sale out. But very much it's regionally dependent. In general, when I look at the markets, one note is related with the pricing. So pricing environment has been surprisingly stable. We have been, and also I know many competitors, have been adjusting the back-end programs according to declining volumes, but no major changes in pricing environment. And also it seems that the retail and wholesale sell-in has been lower compared to sell-out in many markets. And it's clear that in this kind of situation, all the customers want to be very careful with their inventories. And I think this will help everybody when the markets start to come back to normal and we will see some replenishment of the inventories. We have been also taking actions to manage our mix very carefully. So when we saw that the winter tire market has been going down, we have been increasing our share of summer tires and having sell-out programs. We have been increasing the share of premium and also share of bigger sizes. Then when we take a look at heavy tires, the market have been still quite stable, the replacement market in the first quarter, and the order stock has been on a good level. What has been impacting us mostly has been due to our OE customers having shortage of components and production stops, and this will continue to impact us during the second quarter. So let's then hand over to Seemu to take a look at the numbers and the preaches.

Thank you, Hille. I will highlight some of the key figures on this slide. So the net sales growth was, or decline, was on a level of 17%. Absolute terms reaching the level of 280 million. The segments operating profits on a level of 16 million. So change compared to comparison period was on a level of 40 million decline. Then looking to the key ratio, especially the equity ratio, there you can see that our balance sheet is strong. equity ratio was almost on the level of 70% decline from the comparison period. And there, it's good to remember that at the end of first quarter, we got negative translation difference from Ruble, and that impact was about 112 million contributing to this decline on equity ratio. Gas flow from operating activities was negative on a level of minus 39 million, less negative than in prior year, which was on a level of minus 69, so happy for that. And then our capex was in the first quarter on a level of 51 million, slightly lower than last year. and the interest-bearing net debt was on a level of 121 million, increase of 80 million from the year end. Then, in connection with our restated numbers, we also prepared this kind of a comparison for your benefit to get transparency how we are performing in terms of SG&A efficiency with our peers. And you can clearly see that we are in line with our peers or below. Having said that, we continue to work diligently to look at our cost base every quarter in order to make sure that we have the resources in right places and the effectiveness is on an appropriate level. Then a few words about passenger car tires. The top line got a severe hit So, the reported numbers were almost minus 25% decline, reaching the level of 190 million, and the segment operating profit was on the level of 26 million. And as pointed out by Hille, the two main reasons were that Russia and the COVID-19 impacting also the low factory utilization rate. And naturally, we have therefore, because of the weak demand, adjusted the production according to demand, which is the normal practice for us, starting with our finished factories. And here you can see the bridge in the first quarter. So small negative impact coming from the price mix as well as from currency. And then if you look at the segment operating profit movements, clearly the main two reasons are volume related, the sales volume impacting negatively by 27 million, as well as then the lack of volume in the supply chain having a negative impact of 13 million. All the rest is net zero. And here you can see how we have been performing the prior quarters price mix negative currency negative and and as expected the first quarter we got a hit close to 23 percent down in terms of heavy tires there the reported offline growth was on a level of six six percent small positive addition from the acquisition of Levi Pyöra, which took place in the second half of last year, and the second operating profit almost on the same level as previous year, despite the fact that we have had more costs from the initiatives that we are building a good future for heavy tire business like new R&D center and investments in the production at the Nokia site. And lastly, going to the DNO figures, the mid-winter season also affected the net sales there slightly. And the top line, was on a level of 54 million, and the segment of operating loss was about 12 million, which is common for V&R business as we all remember that the majority of the results are made in the fourth quarter, and then the second quarter is better than the first one.

Thank you, Teemu. And coming back to the business and products, as I said, we continue to support our customers in different geographies and business segments with new products. And despite the challenging year, 2020 will be a record year of our new product launches. And in this business situation, We need to be creative and have new approaches how to organize go-to-market events and trainings. We have done already quite a few events online. So this is hopefully not going to be a new normal, but new ways of conducting business as well. And as a summary, So we are taking actions to manage both the Russian and coronavirus impact on our performance. And both of these topics will continue to impact our second quarter this year. Having said that, we have solid foundation. So we have focus on the replacement market, which in the past has been experiencing recovery from any drops faster than the OE market. We have strong position in Nordics and in Russia, and we have very efficient production platform as we move forward. And also the big investments will be over And we are well positioned to take advantage of the opportunities when the demand recovers. Thank you.

Thank you, Hille. Thank you, Teemu. And now we would be ready for questions from the audience. We would kindly ask you to limit the number of questions to one or two so that everyone has a chance to ask questions and we will have enough time to cover them all.

Thank you. Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad. Our first question comes from the line of Kai Muller from Bank of America. Please go ahead.

Hi, thank you very much for taking my question. The first one is really on your outlook going into the second quarter. We've already seen significant declines already for you in your Russian business and the Nordics in Q1. Can you give us a bit of color in terms of what you're expecting going into the second quarter, and also in particular maybe on Russia with regards to the low oil price and how that impacts the market outlook? I know you said you expect the market to be down 20%, but are there risks that this number could be even lower due to that? And then the second point is just in terms of the general reporting that you'll be doing. I obviously saw that you're now taking out the ramp-up costs out of your segment operating profit guidance or reporting? Is that what you will be doing forward as well? And can you give us, you know, you've obviously disclosed about 7 million related to North America in Q1. If you do report it this way, what are you guiding for that specific number for the rest of the year?

Thank you for the questions. I will start with the second quarter. So it's clear that the coronavirus impact on businesses in our main markets will have a big impact on the businesses both in Central Europe and Nordics and North America in the second quarter. And the Russian situation is coming a bit behind. And there are the the virus and the lockdown of the big cities is delaying the sale out of summer tires. Then, additionally, in Russia, as said, they have the oil crisis and weakening ruble, and at this point of time, it's very difficult to estimate how that will impact the rest of the year. but the second quarter will be heavily hit by corona impact and the Russian impact due to decline of sell-in of winter tires.

And on top of that, it's good to remember that the ruble has weakened, and if it stays on this level, it has an impact on top of what was said already.

and about the reporting.

And about the reporting, and this is now the new normal for us, how we report, and your specific question regarding the data ramp-up. So you can assume that for the full year, if you multiply the Q1 number by four, you are roughly on the right level.

Okay, perfect. And maybe on that, so it really was only data so far, Because I know last time we came through a tough situation in Russia, we also saw provisions being built. I haven't seen any of that so far. Is that a risk also going into the second quarter, that some of your dealerships just cannot handle it and you might have to write down some of your receivables?

So in the first quarter, that's purely data numbers that you see there, nothing else.

Yes, and in terms of what is the risk or what level could we be seeing for receivables having to be written down throughout this year on this whole Russia situation? Is that something you currently are watching closely or you don't see a risk right now?

Naturally, we are following that closely and with our capabilities, we feel that we have a good chance understanding of the situation. And so far, we feel that everything is under control there. But as you know, things can change rapidly. But at the moment, as we see it, it is under control. Okay.

Thank you very much.

And the next question comes from the line of Henning Kosman from HSBC. Please go ahead.

Yeah, hi, Pevi and Hille and Teemu. Thank you for taking my questions, Henning, from HSBC. If I can just ask again, I'm not sure I completely understood when you were talking about the Russian impact being similar in the second quarter compared to the first. Were you referring there to the lower level of sell-in as well or to the 20 million impact on the EBIT? I'm quite surprised, to be honest, about the difference between the sales impact and the The EBIT impact of Russia in general appears that the drop through that you've also referred to is especially high. So when I add back the 20 million to the EBIT for Russia, it appears the drop through on the rest was quite low. So if you could just talk around that a little bit more, how exactly the 20 million was composed again, and if you expect that to continue into Q2 on a similar level, or what you were referring to there. And the second question, if I may, is on the raw materials. Could you maybe give us an idea of what you're expecting there for the full year, or if it's not possible to give a guidance in absolute terms, if you could maybe remind us of the sensitivity when it comes to natural rubber and to oil itself and the related derivatives, but maybe also a bit to the timing and the potential impact of that, because I imagine you won't be seeing the full impact due to normal sensitivity because you won't be buying as much at the low price as you would otherwise. So, yeah, that's my two questions, please.

So, there were several questions and I tried to answer those in a right order. So, if we start with the Russian impact and the quarter two. So as we have stated already in the beginning of the year, so the negative volume hit before COVID-19 was expected to come in the first quarter and in the second quarter. And that view is still intact. On top of that, in Russia, in the second quarter, we should expect also to have a COVID-19 impact. On top of those two, we have this weaker ruble impact. So if you calculate those, it doesn't look too strong the second quarter compared to the first quarter. What else did you ask?

No, so maybe just to clarify, so it's the 20 million, similar to Q1, plus the currency effect, plus the corona effect, yeah? So not the 20 to extrapolate, but 20 underlying, and then plus the two effects that we haven't had in Q1 yet.

So 20 is the underlying, and on top of that, COVID-19 and the weaker currency.

Understood. Thank you.

And then you ask about the raw materials, So that's the positive thing this year because of the demand of raw materials. We are expecting to continue to have a positive impact for the whole year for the raw materials.

And are you able to qualify that a little bit? I mean, I assume not multiplying by four, I guess it will be a little bit bigger, but maybe not much bigger because you're not buying so much at these low levels now. Is that fair? So maybe between 50 to 100 million ballpark?

So we are expecting that the raw material price will decline more than in the first quarter.

Okay, thank you.

And the next question comes from the line of Gabriel Adler from Citigroup. Please go ahead.

Hi, thanks for taking my questions. I'd just like to come back to raw materials that Henning just mentioned, and more specifically, the relationship with your pricing strategy. And if you could talk a little bit about how the lower material costs will impact your prices for the year. I mean, should we be expecting price mixed raw maps this year to be positive, or do you anticipate pricing pressure because of the weaker volume environment to be greater than the benefit from the raw material prices? And then my second question is around capex, which came down slightly in Q1. If you could provide some color there on whether you need to cut capex further with volume declining in Q2, or if you think that the strength of your balance sheet actually means that we'll only flee

only see quite slight reductions of capex this year especially given the continued investment in the data factory thank you yeah if i if i take thank you for the question if i take first the pricing versus the raw material relationship in in heavy tires we we have an equation in the contract with our OE customers, so the raw material price is impacting our pricing with some delay. And when we are then talking about our pricing in the replacement market for passenger car tires, this year we will have weakening krona in Norway and Sweden, and therefore we have been taking our prices up slightly. In Russia, as the ruble is weakening, that might impact our pricing decisions further on, depending on the competitors' actions. And in the rest of the markets, in Central Europe and North America, we are talking about price positioning. And there, as we are not the market leader, we are following our competitors' prices. And if everybody is sensible in this industry, it means that the prices would not be going down as much as the raw material would imply.

Okay, thank you. And then the CAPEX.

The CAPEX, yes.

CAPEX for second quarter. So for the second quarter, as said earlier by Hille, The first half, those are the more or less already committed investment, and we are expecting to be more or less on the same level than in the first quarter, and then small decline in the second half in order to reach this $170 million level.

Great. Thank you.

And the next question comes from the line of Akshay Kakar from J.P. Morgan. Please go ahead.

Thank you, Akshat, from J.P. Morgan. Two from my side, please. The first one on price mix. Are you willing to split up the 0.7% impact that we saw on the revenue bridge? I'm assuming that mix of season of summer tires was negative, but you sold more of your large rim sizes. So I'm assuming it's a neutral impact on mix and pricing was negative, but if you could provide more color on that. And also, if you could share more details around the magnitude of pricing adjustments that you've taken in Russia and the overall environment as you see it in the first four months in Europe. That's the first one on price mix. And the second one, Hila, thank you for your comments on the sellout and retail activity. You mentioned it was declining by 70% at the end of March. Any comments that you have on recent activity levels in April will be helpful in your key market. Thank you.

So in terms of the mix and price, so the mix impact is clearly positive and the price mix is also clearly negative. And then we also need to remember the country mix impacting to the positive mix net impact.

So regarding the sale out, Overall, it has been varying depending on the country and timing between minus 30 to minus 70% even. And we don't have the latest information from all the markets, but the customers I have been talking with have been talking about minus 40 in April. So it has been still clearly below below the normal level.

So the minus 40 is in Nordics, or is it just a general comment across your customers?

It's just generic. I would say it's a generic comment has been minus 40.

Okay. Thank you for that. And the next question comes from the lineup. Please go ahead.

Hi, thank you. I trust you're all doing well. I have a follow up on the CapEx guidance of 170 million. It seems like you're pushing a bit of the investments forward here. So I'm just curious if this means that we may see sort of CapEx not coming down in 2021 and 2022, maybe as we had expected before, but rather that some of these investments will be pent up.

So we are evaluating our cap expense all the time, and we are pushing it as low as possible, and maybe it's too early to make any comments regarding next year, but we are for sure expecting to do everything to reduce the cap expense in 2021 as well.

Great and just one more question from my side. Looking at the closures that you've had of your factories, could you give us an indication of how many days that impacted production in Q1 and how many days of production that has been impacted in the second quarter? Thank you.

So the Russian factory started to work on the 9th of January as they always do. So The factory in Russia was closed practically one day during the first quarter. But the Finnish factory there, we had already negotiated in advance temporary layoffs just in case. And we had... both lower daily output and we had, I would say, two weeks of production closure during the first quarter. And when we look at the second quarter, of course, the volume or the number of days we have been closing the factories is much higher. But it's important to state here that We have specific products that we are producing in the Finnish factory and specific products that we are producing in the Russian factory. And we have to run both factories in order to secure the availability for our customers. And the most optimum situation is to run the Russian factory as high as possible.

And just so that I understand you correctly, because I recall some comments earlier in the quarter or earlier in April that there were public holidays announced in Russia, which essentially was what forced the closures. So has there been any production in Russia in Q2 as of yet, or are you still sort of in shutdown and starting to ramp up now?

Yes, that's such a good question, actually. As you know, Putin announced a national holiday, which has been lasting for almost one month. And we closed the factory for one week. And after one week, we got special permission to keep the production up and running as long as we are taking care of the safety measures. So we have two teams. So we have social distancing in the factory and the other team is on layoff and the other team is working. So that's also securing us if there would be somebody getting sick that not everybody would be impacted. So we are running the factory. Now in May we have two weeks closure. due to the first of May holiday, which is kind of the normal holiday.

And Mathias, for your information and for everybody else as well, we have an updated information about the factory situations on our website under the newsroom, so that you can find the up-to-date information about the factories.

Great, thank you.

And the next question comes from the line of Victoria Greer from Morgan Stanley. Please go ahead.

Hi there. Firstly, on Russia, please. Could you talk a bit about what's happened in Russia by segment? You mentioned that it was mostly the B segment that was impacted, but if you could take us through that a bit more in Q1, that would be helpful. And also, where do you see your market share overall in Russia? Do you think you've lost some? Secondly, you mentioned also that in restarting for service centres and so on, some of the safety measures mean that capacity is a little bit reduced there. Could you talk about the magnitude of that, how long you think that might have to continue? And also, while we're talking about safety measures, do you see any overall reduction to your ability to produce in your factories with the new safety measures in place, or are those quite manageable? Thanks.

Thank you. So in Russia, the options we are taking is to reduce the channel inventories of B-segment winter tires. So we are selling less B-segment winter tires to the channel during the first half of this year. And what comes to... Market shares, there has not been any major changes in our market shares for summer or winter, as we speak. Then regarding the service centers in Finland and in the Nordics, where we have our own Vianor stores, we have kept them open all the time, but as I said, the capacity is slightly lower. but it has not been impacting our business that much yet. And what comes to our customers' service centres, they need to follow their local regulations, and as I said, in some of the countries, they have not been even able to keep the shops open. So like in Italy or even in Germany, they have been closed for a while. And then what comes to the safety measures in our factories. So at the moment we have full capability to run our factories both in Finland, in Russia and in US. And we are having social distancing. We are disinfecting the space. We have the masks for the personnel. And we are measuring in Russia, we are measuring the person's temperatures every day. So we are fully aligned with the local restrictions and regulations.

Great, thank you.

And the next question comes from the line of Arvind Valesky from SEB. Please go ahead.

Yes. Thank you for taking my questions. Two from my side. So you mentioned about cost reductions and impacts will be visible starting from Q2. Could you maybe talk about magnitude, what we should be anticipating going forward? And the second question is relating to actually heavy tires and Wiener with quite resilient performance in Q1. What we should be assuming in terms of Q2? Should we Should there be any clear COVID-19 negative impacts? Could you please comment on these two questions?

So with regards to the cost cutting measures, we are implementing measures to save salaries as we have announced in Finland, also in other areas. And then we are cutting cutting activities where we see it is feasible in a way that not jeopardizing our sales. So the magnitude is several millions.

And then regarding the COVID impact on heavy tires, it's coming mainly because of the production stops at the OE customers, mainly in forestry. So the second quarter will be impacted by that. And Vianor, the full year impact will be visible of course later, but our estimate now is that the business is slowing down now after people have been changing their summer tires. So there will be negative impact during the second quarter as well.

All right, very clear. Thank you.

And the next question comes from the line up here, Testa, from One Investments. Please go ahead.

Hi, thank you. I just wanted to talk a bit about Russia and the 20 million. This is essentially just reduced sell-in volume, or was there any price support and take-back activity that also augmented that?

It was a combination, as indicated in the beginning of the year, of volume and the impact of price positioning.

Okay. Was it mostly volume or mostly price positioning? The volume was the biggest one. Okay. And then as you've had to execute this into a more difficult market environment with the winter effect and COVID, when you look at the carry forward effect into Q4, when you talk about a given effect during the winter sellout season, do you have a sense on how that influence might be changed now by virtue of the circumstances in which you've had to act? Okay.

It's difficult to estimate at this point of time, having the Russian economy being impacted by the COVID and the Ruble. And we will know actually about the channel inventory of winter tires only at the year end.

Right. Okay. And then the last thing was just on Central Europe, where you note that the inventory is a higher level than the previous year because of the soft environment, which obviously hasn't been made any easier in the last month or two. Can you just talk a bit about how you plan on managing your own production and selling the winter tires or inventory and price position? Just how you think you can manage your way through that to maintain your brand integrity?

Regarding the winter tyre season, of course, the positive thing is that the COVID has not had any impact on that yet. And we are, of course, getting prepared to gather the pre-season orders. But as I was explaining, most likely the customers will be buying the winter tyres closer to the season. And if there's no winter, we are prepared to put a lot more focus on all-season tires and summer tires. So we are not only getting prepared for the winter tire sale-in.

Okay, so my question was around the summer tire inventory that you remark upon and how you're going to manage your way through that part of it.

Well... We don't have excess summer tires at our customers. So this is one reason why we have been able to keep our summer tire sale in volumes on previous year level.

Right. Okay. So that was a market comment in the report, not specific to yours. Yeah. Okay. Thank you very much. Thanks for the answer.

And the last question comes from the line of Asha Aquarian from Exxon BNP. Please go ahead.

Hi, thanks for taking my question. I just have one left. In this delta between your segment operating profit and the reported operating profit for the passenger car tires, does that include the depreciation cost for Dayton as well? And how do you, I mean, once the U.S. plant starts ramping up fully, then how do you start accounting for this? And then also, what are the targeted volumes for the US planned in 2020, given that you postponed the second shift. Is it fair to assume it's maybe 300, 400,000 that you are at best planning to produce in the US this year?

So if I start with the bridge, so this passenger car tire segment operating profit excludes the Dayton ramp up costs.

And what comes to the production volume, you are in the right ballpark. So between 200,000 and 400,000 would be the volume. And of course, the main focus is amping up the new products that are specific to the North American market.

Sorry, can I just clarify when you said it excludes the date and ramp-up cost, does that also exclude the increase depreciation cost that you have from the US plant? Or is this the increase in ramp-up cost?

That includes the depreciation. Perfect.

Thank you.

Okay. Thank you. And now I'm afraid we have run out of time. So at this point, I want to thank you all for participating. Thank you, Hille. Thank you, Teemu. And this ends today's conference call. Thank you.

Thank you.

This now concludes our conference call.

Thank you all for.