Nokian Tyres Plc

Thank you. Good afternoon from Helsinki and welcome to Nokian Tyres Q3 results conference call. My name is Taivi Antola and I'm the Head of Investor Relations in Nokian Tyres. And together with me in this call, I have Jukka Moisio, the President and CEO of the company, and Teemu Kangaskärki, the CFO of Nokian Tyres. In this call, we will go through the Q3 results and discuss the recent events, i.e. the agreement for the sale of the Russian operations, which was signed last week, and also the new factory, which will be built in Romania, which we announced earlier today. And what I can inform you about already now is the capital market stay and the timing of it. together with new financial targets. We will organize a capital market once the Russian exit deal has been closed. But now I'm handing over to Jukka and Tim.

Thank you, Päivi. Good afternoon on my behalf and welcome to this call. And I would like to go through the presentation, where the heading is Building New Nokian Tyres, started Greenfield Factory Romania Agreement for the Save of Russian Operations. I move to page two, and indeed taking the first steps to build the new Nokian Tyres. So we announced earlier today that we will build a new Greenfield Factory Romania. All in all, the investment is 650 million euros. annual capacity for that amount is 6 million tyres and we have a site which has potential to expand further in terms of capacity and number of tyres. We expect that the first tires will be manufactured in the second half of 2024, and we aim that the commercial production will start in 2025, and the construction of the site will begin in early 2023. This will be the first greenfield zero CO2 emission factory in the tire industry. We also are adding further supply capacity, so we are increasing capacities in this Nokia factory and also in the Dayton factory in the US, as previously announced, and this continues according to our plans and according to our earlier communication. We have also acquired land and property in Finland to secure opportunity to develop further the Nokia side. This means that property nearby the factory has been acquired by us. This will allow us to open the capacity in Nokia. Those plans are in the development phase at this point of time and when we are ready and we are clear with the plans we will then announce what kind of steps will be taken in Nokia. Also at the same time we are developing outsourcing options to supply especially central European markets. And final point of building new Nokian tires is that the exit decision, controlled exit from Russia was made in June and during the third quarter lots of discussions and negotiations and also in the early part of the fourth quarter we conducted and then we announced an agreement for sale on October 28th and we signed the agreement and the debt-free cash-free purchase price is expected to be around 400 million euro. The final purchase price is affected by net cash, working capital adjustments and changes causing the euro exchange rate. I move to page 3, just highlighting the Q3 net sales and profits. First of all, excuse me, the net sales were 466 million minus 6.4% with comparable currencies Obviously, we see that the currency tailwind was quite strong because our headline sales were higher than in the third quarter of 2021. Lower passenger car tire supply volumes were attacked as the imports from Russia to Europe and North America ended in July. Heavy tires also had slightly lower net sales due to supply constraints. Segment operating profit in the quarter, 54.9 million versus 96.9 million in 2021. Lowered main reasons, lower passenger car tire supply volumes, of course, the factory mix when lower production in Russia impacted our profitability. But at the same time, we were able to increase prices to compact cost inflation, and therefore we had a higher average selling price of tires. I move to page four. There are some key financial numbers. I call out a few numbers here. First of all, the segments operating profit percentage in the third quarter, 11.8% versus 21.8 in 21. And first nine months, segments operating profit at 15.2%, corresponding period. Segment EPS at 26 cents in the quarter and year-to-date at 1.19 cents. Full year in 2021 we had 1.84 cents. Our balance sheet remains strong so equity ratio is 64 percent versus 65.7 percent in 2021 Cash flow from operations was slightly weaker in the third quarter of 2022, and the year to date, the minus 323 million versus minus 96 million in 2021. Big impact on the working capital is higher raw material cost and also quite a high ready-made tires, which is still in our distribution network. Gearing at 32% versus 15.9% in 2021. Interest rate net debt at 374 million and capital expenditure at the same level in 2022 versus 2021 in the first nine months. Now I hand over to Teemu, and Teemu will talk about passenger car heavy tires, the other financials, and look at the outlook and assumptions. Teemu, please go ahead.

Thank you, Jukka. Let's start with passenger car tire performance in Q3 especially. Our net sales was on a level of 348 million. Reported growth was on a level of 5.6% growth. and with comparable currencies, the change was negative of 9.5%. Our segment operating profit for the quarter was on a level of 55 million. As we have been commenting already earlier, the lower tire supply will impact and has impacted our net sales negatively, especially in Central Europe. We have been able to increase our average sales prices with comparable currencies, and especially in Russia, the increases have been significant. Our customers have been securing their availability of tires, and now the inventories in the distribution are on a high level. In terms of our segment operating profit, naturally the lower sales volumes have an adverse impact as well as the change factory mix due to the floor production in Russia. We started adjusting our cost base in Central Europe and now we have aligned the resources there for the for the coming quarter's sales. Then moving to the net sales development by quarters, you can see here the trend lines. The sales volume drop is clearly visible there and is significant. And then when we move to the price mix, we can see strong strong positive development for the full bct business as well as in the call out boxes you can see the rice mix without russia which is also on a strong level and and then in the third quarter another positive factor to impact that is the changing region mix where the share of Nordic and is increasing and Central Europe is decreasing. Then moving to the bridges and here we can see the net sales components, sales volumes minus almost 32 percent, price mix 22 and then a strong currency tailwind of almost 15%. And then if we look at our segment operating breakdown, you can see the impact from sales volume and the positive development from the price mix worth of 73 million, which then offsets the material headwind, but don't offset fully both material and supply chain. impact and the currency impact for the third quarter in passenger car tire was plus 17 million on the segment operating profit level and then moving to the heavy tires our net sales in the heavy tires business unit was 68 million reported development was a minus and with comparable currencies it was minus 3.3%. Here we can see that supply constraints impacted the net sales in the quarter. Our segment operating profit was on a level of 9 million. Here we can see the same factors as in passenger car tires, lower sales volume, and then raw material and cost inflation showing a headwind in the business. Then moving to the V&R business unit, as we all know, the the third quarter is seasonally low quarter. But if we look at our top line, we can see that we reached net sales of 76 million euros, change in comparable currencies, 9.3%. And as always in the quarter, we show a loss of this time 5 million. Top line is driven with the price increases to combat the inflation. Moving to the assumptions for the full year. As we all know, the war in Ukraine and sanctions have a severe adverse impact on our supply capacity. And it will hit especially our central European area. Overall, the demand for both passenger car tires and heavy tires is estimated to be healthy this year. And the raw material and logistic costs continue to be on a high level. Then moving to our updated guidance that we announced last week, Friday, we increased our top line outlook. Now the new guidance is that the net phase is expected to be at previous year's level or increase. No change in the segment operating profit guidance, which is decrease significantly compared to the year 2021. And I'm handing back to you, Rukka.