Nokian Tyres Plc Unsp/Adr

and welcome to the Nikon Racket Q4 2020 Interim Report. Throughout the call, participants will be in listen mode only, and afterwards, there will be a question and answer session. Today, I'm pleased to present Pavi Antola. Please go ahead with your meeting.

Thank you. Good afternoon from Helsinki, and welcome to Nokia and Tire's Q4 and full year 2020 results conference call. My name is Pavi Antola. I'm the head of Investor Relations, in Nokian Tyres, and together with me in the call, I have Jukka Moistio, the president and CEO, and Teemu Kangaskärki, the CFO of Nokian Tyres. In this call, we will go through Q4 and full year results, followed by a Q&A, but before going to the results more in detail, Jukka, 2020, it was an interesting year. How would you summarize it?

Thank you, Päivi, and good afternoon on my behalf as well and welcome. Yes, indeed, I think that interesting is maybe one way to characterize or eventful or unprecedented, as we say in our presentation. Nevertheless, obviously, towards the end of the year, things started to become clearer and also actions and policies policies, et cetera, by the governments, they're not so much on the quick reaction mode, but more consistent what to do with the COVID and how to get out of the COVID situation with vaccination and lockdowns, selected lockdowns and so on. And I have to say that, of course, during this demanding year, when we first reacted to COVID, I believe that we said that we will focus on cost. We will make sure that we maximize the cash flow and also that we will not increase our inventories and we will make sure that the company will be in a good shape by the end of the year. I think that in many ways that was achieved. Our dean did well. We paid attention to safety, operated all factories quite well. also in terms of LTIF, accident frequency, we reduced that quite significantly, achieved a good cash position, made sure that the costs were under control, and so on. This in many ways shows the resilience of our team and the company, and I'm very, very pleased and proud that we achieved all those targets that we set out in the early part and the virus hit us and hit the economies throughout the world. We ended the year with a strong balance. It's quite important in terms of net debt, in terms of inventories, etc. So we did achieve all those targets we set out to do. And also, meanwhile, we advanced many actions to build the company for 2021 and beyond. One is data ramp-up, so we hired the second shift and started to ramp up the production. Also now we announced in the early part of this year, we announced the third and fourth shifts so that the ramp up in Dayton continues consistently. Also in Nokia, we agreed the direction and took actions accordingly, and also launched a number of new products during the course of 2020, but also in the beginning of 2021. I come later to our flagship product, Nokia Hakapelli 10, which was announced in early January, and we gave a peak information already in December about the product. So, very pleased. Ended well. Eventful year, interesting year. I think I deemed it well. So, I'm quite proud. I'm very proud of it.

So, many good achievements despite the circumstances. Thank you, Jukka. And let's now move on to the actual official presentation and start with Q4 results. Jukka, please.

Thank you, Päivi. So now on the presentation on page two, Q4, and we had impact from COVID and the late winter in our volumes. Our net sales were 413 million versus 475 in 2019. In comparable currencies, there's a decline of 7.1%. Most of that decline is actually passenger car tires in terms of top line heavy tires and Vianor performed reasonably well. Operating profit at 80 million versus 107 million in 2019 final quarter. Again, the impact is coming from passenger car tire sales. You'll see when Teemu will talk about the profitability of the businesses, you'll see that nevertheless the operating profit margin and passenger car tires, despite lower sales, was at the last year level. Tailwind came from lower raw material unit costs. I move now to page three, reflecting the full year. then reiterate that our team did a very good performance in terms of resilience, safety, delivery of the agreed targets, while continuing to achieve and build the programs for the future, especially completing and improving the investments that are in the pipeline when we started the year. Net sales were 1.3%. 1.3 billion versus 1.58 billion in 2019, 13% decline in comparable currencies. Most of that decline was in comparable currencies in the early part of the year. We had a relatively strong Q3 and then a slightly weaker Q4. These volumes are impacted, of course, as mentioned by COVID, also measures taken in Russia to reduce the sell-in in order to reduce the distributor and our old inventories, and also March-Winter of 2019-20. Segment operating profit full-year level at 190 million versus 337 billion in 2019. Again, the same culprit, COVID. also measures in Russia, and then because of low demand, the low factory utilization, most of that low factory utilization took place in the second quarter. Pavement came from raw materials and cost-cutting measures, which then reaction, cost-cutting was a reaction to COVID, as well as also we had a similar reaction to maximize the gas flow. The board proposes a dividend of 120 per share and to be paid in two installments during the course of 2021. I move to page four, and I want to call out a couple of items which I haven't really discussed yet. One is the cash flow, so in the fourth quarter, The cash flow from operating activities was 429 million versus 398 in 2019. And on a full year level, we have 422 million versus 220 million in full year. You see one important topic is the capital expenditure. So we spent 32 million in the final quarter versus 65 a year ago. And in a full year, our capital expenditure was slightly below 150 million versus 290 million in 2019. Balance, it is in a strong situation, so equity ratio 65%, and net debt is minus 17 million, which means that we are slightly cash positive at the end of the year. compared to having a net debt of 41 million a year ago. So, despite low profitability, despite headwinds, etc., we ended up the year with a debt-free balance sheet, which shows the strength of the cash generation. And I hand over to Teemu to talk about the passenger car tires. So, Teemu, please go ahead.

Thank you, Jukka. Starting with the passenger car tires and looking at our net sales development. In the fourth quarter, our net sales decline on comparable currencies, 9.8%. On a full year basis, the decline was on a level of 18%. Looking at our segment operating for the fourth quarter on a level of 66 million euros and our profitability, was almost on a same level than in comparison period. One reason for that, despite the lower volume, was the fact that we were running our two factories in Russia and in Finland on a higher load compared to Q4 2019. Then in terms of average sales prices, which declined on comparable currencies, while the product mix improved. There we should remember that our customer base is most likely less fragmented than our peers, so one reason to drive this development was the customer and country mix. If we then move to The next slide where we can see the quarterly changes for net sales. As I said, the Q4 price mix was driven by customer and country mix, this negative development. And then what clearly stands out here is the currency development, which has been going to the wrong direction in terms of sales and profit. And the main driver is naturally the weaker ruble, which started to deteriorate in the third quarter, and then continued in the fourth quarter. Then moving to the next slide, where we can see the full year, bridge and if i focus on the segment operating profit there we can see the volume impact and the tailwind from materials and and lower factory load in the factories on the on full year basis and maybe one of the key topics from this slide is the currency impact so you can see that in the passenger car tires we had a headwind mainly from weaker ruble, about 26 million for the full year. And if you look on a quarterly basis, you can see that in our earlier slides and in the appendix that we had a headwind about 10 million in the third quarter and additional 10 million in the fourth quarter. If we look how the ruble has developed in the past years, you can see that in 2019 the ruble was on a level of 72 against Euro, and then in 2020 on a level of 82, and in January this year it is on a level of 90 or we are on a level of 90. And if we would take a look to the future, so I would say that the good proxy, if the ruble stays on this level, that we could get 10 million headwind in the first quarter and in the second quarter, depending on the volume and and the currency. So if you would take a base year from 2019 and then taking the second half from last year and then anticipating the first half of this year, you could anticipate a significant decline or impact from the currencies. Then moving to the heavy tires, in the fourth quarter, the net sales on a comparable basis grew 0.9%. On a full year basis, the net sales declined 1.8%. Looking to the segment operating for the fourth quarter was on a level 5 million decline from Q4 2019, which was on a level of 10 million, and factors impacting this decline in segment operating profit was the planned production shutdown, now Nokian factory in Finland, and then maintenance work related to the investment and shutdown that we took already in order to be in a good position this year. And moving then to VNR business unit. So the top line was declining on a comparable currency, 2.4% segment operating profit on a level of 10 million. And just as a reminder, 2019 Q4 we had two million profit from sale of real estate so the decline was smaller on a comparable basis some highlights in in sustainability that we are proud of we are the first in the thai industry to have the science-based targets to reduce CO2 emissions. Those were approved last year. Safety is our priority. And our lost time injuries frequency has been declining. And last year we were on a level of 3.7. We are continuously fighting against the climate change and the rolling resistance of our tires. have been going down from 2013 level about 8.5%. And we continue to innovate in order to make progress in this front. And we are also happy to be part of the sustainability indexes. And this is the testimony of our good work that we have been doing and continue to do in the future as well.

Going back to you, Jukka. Thank you, Teemu. Then moving on to page 11 and 21, we focus on growth and cash flow. Moving on to page 12 and immediate priorities. So we are and have been launching a number of new products. We expect them to generate excitement and new volumes in addition to our existing product offerings and we will then keep on improving our go-to-market activities to ensure that indeed we are close to our customers and consumers in introducing the new products. Important to look at the cash flow. We will protect that by prioritizing investments. We expect that the capital Expenditure in 2021 will be below what we reported in 2020, so below 150 million. Also, when we look at the market, we expect that the recovery is likely to happen. So from 2019 to 2020, roughly the market went down in terms of volume pieces about 12%. And we expect that when we look at the market studies and various sources that anywhere between 5% to 9% recovery expected in 2021, depending on the market. So that would suggest that two-thirds of the decline that happened between 19 to 20 will be possibly recovered in 2021 and then potentially full recovery in 2022. This is, of course, subject to many buts and ifs, but this is the best market outlook that is available out there right now. Some of the products that we are launching this year, so we have a product for all season in North America, a Nokian Encompass, which is exclusively available through Discount Tire. So that is something we do one distributor. Then we launched already Nokian Tyres 1, which is introduced in the early part of this year. We have launched Nokian Nordman 8 and Nokian Nordman 8 SUV. And also in the autumn of 2020, we launched Nokian Hakka Green 3, which is then targeting to 21 summer season. Most important launch is Nokian Hakka Pellet 10, is essentially the new next generation winter tire. So it's been introduced a week ago to internal and external audience. Important to look at the various dimensions of that. So we have the most studs, superior winter grip. We also have a comfort and reduced noise level, good and better on-road stability, and silent drive technology, which then allows also a silence and noise-cancelling features of the tyre, especially for the electric vehicles. So, we have this Hakkapelitta 10 to cars, SUVs and electric vehicles and over 140 products. And it is expected to go into production this spring for the season of 2021 winter. Also new products in heavy tyres. Nokian Tyres Intuit, which is a smart tractor tires, gives on-time information to driver about temperature and air pressure. Also gives the same information to us via cloud. We have a Nokian Ground King, number of new products there. Also Nokian E-Truck, which is a tire range for delivery trucks. And then we have a care semi-slick, which is the backhoe in railroad operations. So a number of new products coming to the market and this is very important for us because we have a capability and we are building the manufacturing in the US and also seek to fully utilize Russia and then build Nokia towards heavy tires step by step, but also keeping the premium tire, passenger car tire manufacturing in Nokia. When we then look at the outlook for 2021, here on page 16, I have some key assumptions or we have some key assumptions. One is that the demand for replacement car tires is expected to increase, driven by a stronger demand and increasing new car sales. Demand for heavy tires, core products, is estimated to increase. We also recognize that uncertainties due to COVID pandemic remain, especially the introduction of vaccination and reduction of local lockdowns and similar, that how will that evolve But we can consider for COVID that help is on the way. When the help will help is something that we need to look market by market and quarter by quarter. Teemu talked about the Russian ruble and clearly the weakness of Russian ruble in January 2021 will have a headwind to our net sales and profitability, as mentioned by Teemu. We also expect that because of the recovery, the raw material unit costs are likely to increase. And also, as we all have read in the newspapers, that indeed the logistics costs are quite fragile at this point of time, early part of the year. That may stabilize throughout the year, but at this time, the cost of containers and cost of transportation likely to be on the high side. However, the guidance for 2021 is that our net sales and With comparable currencies and segments operating profit, I expect it to grow significantly. And we expect that the global car and tire demand is expected to pick up, but the COVID pandemic continues to cause uncertainties for the development. This is formally our guidance, and I end our prepared presentation here, and I am back to Päivi to lead the Q&A session, please.

Thank you, Jukka. Thank you, Teemu. So, operator, now we would be ready for questions from the audience, please.

Thank you. If you wish to ask an audio question, please press 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. Once again, if you wish to ask a question, please press 01 on your telephone keypad. There'll be a brief pause whilst we wait for questions to be registered. Our first question comes from Gabriel Adler from Citi. Please go ahead.

Hi, thank you very much. It's Gabriel from Citi. Can I start, please, with the outlook? Could you help us better understand how to interpret your expectations of significant growth in both revenue and operating profit? Can you offer any more specific colour maybe on the target for 2021? Because it's very difficult to interpret significant growth as a metric. when we're coming off such a low base in 2020? So that's my first question.

Teemu.

So we expect, as I said, significant increase, and for us significant means double digit, and we will specify the guide along the year. We are not giving a more detailed guidance at this point of time, but as stated already a couple of times, Want to highlight the effect of Russian ruble exchange rate to our top line and profit.

Okay, understood. Two more questions, please. One on raw materials and then one on all season tires. So on raw materials, clearly big benefit this year, likely or seem to reverse next year. Can you talk a little bit about how much of this you think you can offset with price mix, given that your price mix has remained negative for several quarters now. And also whether you've put any price increases through perhaps already in January and February, like we've seen at other time manufacturers. And then my last question on all season ties is just, I guess, a slightly broader question about how structural perhaps you think this shift is from winter to all season that we're seeing at the moment and how much of the volume decline can you attribute to the winter season being weak and how much of it is pointing towards a more structural shift from your customers towards all season tires underway from winter. Thank you.

If I start with the raw materials guidance, so in the fall we expected or we had an outlook that the raw materials would increase by two to three percent. Now our view is that it's going to be on a level of four to five percent, but that is clearly dependent on the on the overall demand and current view for us is around 5% increase in raw materials for this year.

Okay, and talking about the all season, so all season is a category, especially in Europe, that grew in demand also in 2020, despite the fact that there's a 12% overall decline in overall tire demand. We expect that the category actually gains both from winter and summer tires, and I believe that it becomes a category in between, so that on the other hand, some people from summer will upgrade to all season, and then some people from the winter will also go down to all season, and we expect that that will carve out the position between those two. Which one will lose more? Of course, probably continental Central European winter, is something that may shift more towards all season. What we do see is that in the Nordics, where you have a clear winter seasons and so on, you still rely on winter tire, studied or non-studied, maybe a friction tire, and then you have a summer tire. So that evolution is mostly in the continental Europe at this point of time.

Okay, thank you very much. Could I just follow up, please, on raw materials, your point around assuming a 5% increase. Do you expect to offset any of that with price mix next year?

So, there is a clear pressure to increase prices.

Typically, the industry has been quite disciplined in doing that, and especially now when there's a demand recovery, we believe that there's good momentum to ensure that the raw material increases also in the selling prices.

Okay, thank you.

Our next question comes from Ashet Kakar from JP Morgan. Please go ahead.

Thank you, Ashet from JP Morgan. Three from my side, please. The first one, again, on pricing. You are still seeing some pricing pressure on a low comp from last year. I'm keen to hear your thoughts on what are you seeing specifically in Russia and Europe going into the first few months? That's the first one. The second one is the impact of the weak ruble on profitability. Can you just help us understand again, how should we think about the drop-throughs on an EBIT level? Don't you have a natural offset between the translation impact from low revenues, but an offset from the transaction impact in terms of the cost structure? majority of which is in russia um that's the second one and the third one is an update on the ramp up of dayton how many units do you plan to produce in 2021 and what are the u.s factory ramp up costs that you expect for the year versus the 27 million that we had in 2020. thank you i'll start with the the pricing in in russia and europe in early part of this year so we have a uh

went into the year, we expected that raw material prices go up. And so therefore our pricing is also done accordingly. Remember also maybe important to remember in 2020, we did in Russia, especially commercial actions to ensure that the inventories, distribution inventories and so on would go down. And therefore we supported the sell out with various commercial actions. We don't see similar need for commercial actions in 2021, so therefore we expect that the pricing will be more attractive to us. I'll take also the Dayton, so we are ramping up Dayton, so we actually hired the second shift in latter part of 2020, and we are starting now with two shifts, and we've announced that we will also hire the third and fourth shift by the summer, and therefore ramp up the factory to continuous operations. And the expectation is that it will produce more than a million tyres in 2021, and the run rate towards the end of the year will be about a million tyres per annum. And then we'll take it from there when we go to 2022, that what additional actions can be taken, needs to be taken to further ramp up the factory.

And in terms of the Russian ruble impact, as you probably remember, since 2018 Capital Markets Day, I have been communicating the fact that we benefit from strong ruble and weak ruble, on the other hand, is a headwind for us. And now, last year, when there is a significant change in the Russian ruble in the third and fourth quarter, that became visible to all of us. And as I said, it's a good proxy looking from last year that we had a 10 million euro headwind from, mainly from Russian ruble in the third quarter and in the fourth quarter, And I said in Q1 and Q2, if the ruble stays on this level, you can make a proxy of 10 million for the first two quarters of this year. So this shows you the sensitivities, in my opinion.

Thank you. Just following up, I think the question on pricing in Europe was still left, and the second one on the expected ramp-up costs for Dayton in 2021. Thank you.

Yeah, okay. So Dayton, we expect that we go to EBITDA positive clearly in 2021 with the anticipated shifts and ramp-up, and then European pricing, the same story as in Russia, that we don't see any pressure to reduce prices, we have the contrary situation that new products improvements in pricing.

Understood, thank you.

Our next question comes from Mathias Holbo from DMV. Please go ahead.

Thank you. A question on your Russia guidance. Can you help us understand a bit how you or what metrics you look at to to produce this forecast. I'm just reflecting that AEB earlier this year published a forecast saying they saw roughly 2% growth in Russia car sales in 2021. And your forecast is obviously a bit higher than this. So I'm just curious to hear what you base this on.

You were asking the Russian new car sales forecast or did I? Yes. Yeah, you're correct. So that is our own expectation in Russia. And as you remember from the earlier years, our own view has differed from the official estimates.

And one more question also on data. I read in the report that you said that the ramp up was a bit slower 2020 due to COVID-19, but I'm not certain if that refers to the later part of the year or earlier part. Can you just clarify if this is an issue you've had in the latter part of the year or an old issue?

It's basically delay in the early part of the year and we actually hired the second shift after the summer. when the clarity and situation with COVID became more predictable. And then we decided that it's quite time to continue to ramp up. But the early part of the year was a time when we had a delay. Now we don't have any delays at this moment or going into 21. Thank you. Obviously, it takes time to hire the shifts. Great. Thank you.

Our next question comes from Thomas Benson from Capela Chivre. Please go ahead.

Thank you very much. I have a few questions as well, please. First, I'd like to come back to the new products you're launching, so the Hakapellita 10 or the Nordman 8. Could you remind us how much it accounts for the overall volumes or revenues of the passenger tar business, these combined studded winter tar products that are going to be replaced over the next, what, 12, 18 months, or just over the next six months. And also, when you introduce that new generation, talk about the price points at which you launch it versus the Hakapelita 9 or the Nordman 7, please.

So the first question is, what's the share of the winter products in our lineup? And all in all, the winter tires are about 70%. And obviously, Nordman is a bigger category than Hakopelita, but nevertheless, in combination, they are about 70%.

Okay. And do you mind talking about the price point at which they're going to be introduced versus the previous generation, please?

Yeah, the Hakka Pelita 10 is going to be the new premium point, and then Hakka Pelita 9 and Nordmans are lined up below that price point.

Okay, so it's a fair comment, Jukka, to say that these products are going to be more expensive than the previous generation or not?

Hakka Pelita 10 is going to be more expensive than Hakka Pelita 9 and the predecessor, yes. Okay. But of course, it's a market by market, but now we talk about the Nordic rush hour. and also North America.

Okay, thank you for that. I'd like to come back to the guidance. Anderson, you don't necessarily want to specify it, but we have a consensus figure for 2021 of about a billion five, and a consensus figure of somewhere around 265 million euros of adjusted EBIT. What I call adjusted EBIT is after the element that are reclassified Is your guidance consistent with that or do you believe analysts are too optimistic for 2021?

We see no reason to comment it up or down. We are confident saying that having talked about all headwinds and tailwinds, we expect that we have a significant top line and profitability growth in 2021. But we promise that we will specify the guidance as the quarters continue so that clearly we understand that COVID is one element when the lockdowns will be eased and when the vaccination will help and so on. So there are a number of uncertain elements. But nevertheless, we are confident when we go into the year at this moment that we have a significant improvement in both the segment operating profit and top lines.

and I agree on the uncertainty. I make another try on the pricing question. You're the price setter for the Nordics and for Russia. Have you planned to raise prices in March, April for the next summer season, or is it something you do not comment before doing it?

Basically, the The basic idea behind new products is that they command a premium, and we start from that angle. And then we obviously look at the pricing of the competitive products and our novelty product, and we go from there. But of course, the ambition is to ensure that the newest products are commanding a premium pricing. And then, of course, step by step, every market, we make the launches and we make the price list, and we talk with the distributors and customers.

Okay. And I have a last one, please. Is it fair to believe that you were very strongly pushing inventories down in your distribution channels in the Nordic and in Russia because you were going to introduce these new products, so to make room and not to disturb the pricing initially of these new products, or it's not related at all?

I think that... We set out in the early part of the year to ensure that we do not build any extra inventory and so on, and we agreed that we will then reduce the inventories in the distribution channel. But obviously, these things go hand in hand, that when we go into the next winter season, it's easier to go to winter season when the pipeline is relatively well managed and there is no excess production in the pipeline. And at the end, At the end, it helped us to make sure that the distribution stocks and our own inventories are low at the end of the year. It also makes sense for our distributors, but it also helps and surely secures a better launch of new products. So they all go hand in hand, but which one is chicken and which one is egg? I think that this time the chicken was really the COVID that started the whole process. program, but obviously we also recognize the benefits of helping on the product launches.

Okay. Thank you very much.

Our next question comes from Artur Melodinsky from SEB. Please go ahead.

Yes, hi. This is Artur from SEB. Thank you for taking my questions. I actually have three to be asked. So maybe what comes to demand and the volume outlook, appreciate the comments stating that maybe two-thirds of market declines in last year will be restored this year. How do you see your volumes in light of these comments, given the fact that you are indeed having quite a few new products introductions impacted by winter and also made some inventory adjustments in Russia? The second one is relating to late winter So I guess it had some negative impact in Q4. What is the situation now at the start of 2021, given that we had quite snowy winter conditions? And the third one is relating to non-IFRS exclusions, which have been indeed quite substantial last year at 70 million euros. Could you provide us with some guideline of what is likely to be the level for this year?

I'll take this market expectation and so on. So clearly, we rely on market estimates and so on that what will be the likely recovery compared to the decline from 2019 to 2020 and expect somewhere around two-thirds will be recovered this year and then full recovery expected assuming that things go well in 2022. Uh, some benefits may come from the fact that the, uh, uh, for volume that, uh, of course the pipeline and how inventories are relatively low so that there may be, uh, that kind of an help, uh, which may then allow our volumes to be higher than the market growth. And then some market share gains, uh, with the new products. And that's basically our volume expectation. And based on that, we say that the top line is likely to, uh, grow significantly.

And as you pointed out, the delayed winter season in May market had an impact in the fourth quarter. Now, in January, the winter has been good in other markets, so it should have a positive impact for the full year when inventories are geared out. Your third question relating to the non-IFRS exclusion related to data. And so the proxy is about 20 million this year, as it was last year as well.

Yeah. And other non-IFRS exclusions that we had in 2020, we don't expect to have in 2021.

All right. Very good. This is very helpful. Thank you.

Thank you. Our next question comes from Michael Jacks from Bank of America. Please go ahead.

Hi, good afternoon. Thank you for taking my questions. I've only got one that hasn't been answered before this already. Just with regards to volume drop through into EBIT, it seems as if the drop through into EBIT on the passenger tire side was something like around 51% to the downside for this year. Would it be fair to expect a similar rate of drop through in 2021 as volumes recover, or are there other factors that we need to take into consideration when looking at this line item? Thanks.

I would reiterate my earlier comments during the call, and you can do the math. comments about 10 million in q3 and q4 and the proxy for first quarter and second quarter so that's the level that i'm commenting at this point of time okay thank you maybe just one one more question if i may um it's a bit of an evolution from one of the prior questions

Just in terms of the late winter, what sort of stock levels were the dealers holding towards the end of Q4? Are you expecting a significant catch-up in the dealer selling as well, or were they already holding stocks ahead of the winter? Thank you.

We think that the inventory and the pipeline situation is quite good across the whole pipeline, so we would not expect that there's any inventory issues anywhere, as far as we can tell.

Thank you very much.

Thank you. Our next question comes from Edward from One Investments. Please go ahead.

Afternoon, gentlemen. Just one from myself, if you don't mind. It's just looking at the new product launches you've got. versus a historic level of new product launches, just to quantify that. And then just the pricing architecture that you'll be hoping to achieve in 21 versus 19, looking again at the new product mix and your comments around premiumization. Would you expect to actually be able to back to a similar price index of 19 for 21?

New product launches, I think I'll take that one. We've looked at the pipeline, and we have calculated the number of new products and new product launches and modifications. At this point of time, our assessment is that we are all-time high in terms of, as a company, how many new products we launch. This is, of course, a development of many years of programs, so this is not something that happened just last year, but this is a consistent development evolution and indeed many of the products are targeted towards continental Europe and North American markets which are new markets for us and an area where we want to expand and grow in years to come and so obviously these new products and new modifications are quite important. At the same time it's normal that we revitalize our winter tire offering continuously because technologies developed, studying technologies improved, and also lots of the electric vehicles and similar are being introduced, and it's important that we are up to date in that product offer. And about the margin demo.

The pricing architecture, as you pointed out, clearly one of the main tasks for this year is to to have focus on the pricing and try price increases in all areas where we see opportunities. As commented in our release, the product mix impact was positive last year. And what I've been also commenting that in our business, if we look at our customer portfolio, the market and customer mix have most likely a bigger impact than in our peers, so for you to draw a direct conclusion about the pricing per se is difficult. Then just to comment on the net ASP and the Russian impact, because russian ruble has weakened significantly from the level of 2019 and that will have have an impact on on our reported number so we shouldn't forget that point we had a significant decline in the russian volume from 19 2019 to 2020 and again when we go to 2021 so obviously we expect as we said

that significant recovery, and that includes Russia as well.

Okay, and just a second question, actually. I apologize if you answered this earlier, my line broke up, but just on the Russian volume recovery, I think it's like 10-15%, what are the underlying assumptions behind that?

In our sell-in, obviously, we reduced artificially our sell-in in 2020 in order to clear out the inventories and the distribution channel. Part of that is just going back to normal volumes in Russia.

Okay. All right. That's great. Thank you very much indeed.

Our next question comes from Panu from Danske Bank. Please go ahead.

Yes, thank you. I have a couple of questions. The first one is actually on this Russian market selling guidance. So you expect 10% to 15% market growth, but is there an assumption that your own revenues will grow more than that?

We expect our own revenues to develop at market or higher, yes.

Okay, thank you. Then secondly, on the North American revenues, the decline in local currencies was the biggest in that region of your region. So why was that? Was there something specific in North America in Q4?

It is in line with our comment from the Q3, where we also said that there are some shifts between between the quarters and that applies also to both quarters.

Okay. Thank you. My final question is on the date on factory. I think you have earlier commented that the factory should be at EBIT break even as a run rate at the end of this year. Can you still give that comment?

I think that we work basically when we go to third and fourth shift is that we go first to positive EBITDA and then we target positive EBIT. And if we achieve that run rate by the end of the year, it's possible. We will see how it happens. But of course, introducing a third and fourth shift and if they are fully up and running and we have a volume which is competitive towards the end of the year, so higher than a million tires per year annualized, then it is totally possible to get to that number. We will keep everybody updated.

Can I just ask a follow-up? I think you earlier mentioned that you would need like 2 million or even more volume to reach break-even, and now you talk about one. So is the calculation changed?

No, break-even means that, as we said, we do not need to regret at the EPS level. That was maybe the story at the time when we talked about it. But then step by step, then we operate that industrially. So first positive EBITDA, then positive EBIT, and then finally a neutral achievement at the EBS level. Step by step. So you can move down the P&L.

All right. Thank you.

Thank you. Our next question comes from Eduardo Espana from HSBC. Please go ahead.

Thank you. We have two very quick questions. One on the CapEx. I just wanted to ask for the next couple of years, 21 and 22, the development, is the DNA a good proxy for the level of investments? At the moment, I think you're running at 15% above DNA. Is that something that we should look for 21 for the whole year, or should we think that it will increase? Can you guide a little bit about the future? And the second question is on the tax rate. If you can comment on whether the current events are affecting the tax rate going forward and if you can share the appropriate level. Thank you.

So the capital outlays, we've given guidance that they are expected to be below in 2021, below 2020 level. at about the DNA level or thereabouts. Going into 2022, we come to a point that if the Dayton ramp-up continues well, then we are in a situation that we have the opportunity to consider the next stage expansion, which may then trigger capital outlays in 2022 or 2023. But beyond that, the major investments are behind us, and so therefore we can enjoy a couple of years with relatively competitive capital expenditure level. And the thing that may happen is that if we accelerate in the data to next level, but that is dependent on our run rate this year and late this year and during the course of 2022, as well as on the revenue plan and tax rate demo.

Yeah. Just reiterating what I've been commenting earlier, so On a level of 19, 20%, that's a good proxy. Thank you.

Thank you. Just as a quick reminder, if you wish to ask an audio question, please do so by pressing 01 on your telephone keypad. Once again, please do so by pressing 01 on your telephone keypad if you wish to ask an audio question. Our next question comes from Percy Bison from Maldia. Please go ahead.

Thanks. This is Pasi from Nordea. Coming back to this Dayton issue, I mean, to be honest, I mean, the ramp up in the North America unit looks more or less quite slow. So is there any other problems in the underlying demand other than COVID-19? Or is there some problems related to contracts with distributors in the area? when you are going to reach this four million target annual capacity in the new unit? And maybe lastly, could you please say something about the average sales price in the Dayton unit in the area? Thanks.

Thank you. Yes, we think that yes it was slow in 2020 and indeed in the early part of the year as discussed it was slow and and we are clearly speeding it up right now so think about our hiring a second shift in the latter part of 2020 and then already now going for the third and fourth shift as well as then seeing that possibly we can discuss about the expansion to form the entire decisions and investments in 2022, and then they would be up and running sometime in 2023 during the course of the year, and then achieving that capability by the end of 2023 or early 2024. Yeah, it depends. If you think that that is slow, we should speed it up and we see what we can do. But clearly, right now, I think that this is a very measured way of ramping it up, because new factory requires, of course, skilled people to run, and we believe that quality is quite important. We have no issues in terms of suppliers or anything at the factory. It's more to do it in a measured way. Clearly, what does not help is that we cannot get... trainers from, for example, from Russia or Nokia to help people in Dayton. So clearly there are some things that we need to do via teams and so on. But I think that under the circumstances, we are progressing quite well. ASP in North America.

If we compare the net ASP development against the original plan, they are broadly in line with the plans, so no major changes there. And then you were asking about the demand picture, so that's not a reason for the ramp up.

No. Okay, great. Thanks. Thank you.

And now, operator, we would still have time for one additional question, and then I'm afraid we are running out of time.

So our next question comes from Edward. Dumbe from One Investments, please go ahead.

Ladies and gentlemen, thank you. Just going to your appendix on slide 23 on your cost development on raw mats, what is the phasing of raw mat pricing inputs versus your repricing yourselves? I apologize, my knowledge of your company is very limited. Just to give me an idea of how that phases through.

So we are setting our prices more or less according to the season. So now we have, for example, in Russia set the prices for winter season and it varies by the market. And then in terms of raw material prices, there we have a lack of three to six months.

In heavy tires, we have with certain large OE customers, we have escalation, de-escalation mechanisms so that our prices react with a lot of raw material up or down, which is relatively typical when you have a long-term contract.

Right. Okay. Very helpful. Thank you.

Thank you. I will now hand it back to the speakers for any other concluding remarks.

Thank you. Now, at this point, I would like to thank the audience and also Jukka and Teemu here with me in the call. Thank you for the questions. This ends today's conference call. Thank you for participating and have a good day.