Nokian Tyres Plc Unsp/Adr

Hello and welcome to the Notion TIRES Q4 conference call. My name is François and I will be your operator for today's event. Please note that this conference is being recorded and for the duration of the call, your lines will be on listen only. However, you'll have opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero, and you'll be connected to an operator. I will now hand you over to your host, Evian Tola, to begin today's conference. Thank you.

Thank you. Good afternoon from Helsinki, and welcome to Nokia and TIAS Q4 and the full year results conference call. My name is Saivi Antola, and I am the Head of Investor Relations in Nokian Tyres. And together with me in the call, I have Jukka Moisio, the President and CEO of Nokian Tyres, and Teemu Kangaskärki, the CFO. In this call, we will go through Q4 and full-year results, and more importantly, discuss our plans for 2023 and beyond, and the new start for Nokian Tyres. But now I'm handing over to Jukka and Teemu. Please go ahead.

Thank you, Päivi, and welcome on my behalf as well. So, first of all, I will go through the prepared presentation. The heading is Resilient Performance in 2022 and 2023 a New Start for Nokian Tyres. And indeed, we could also say about 2022, that was an eventful year. I move to page two, and there we reflect the first steps we've taken to build the new Nokian tires. The most important thing is that we made a decision in 2022 to build a new factory in Romania. We went through more than 35 sites in Europe in about six months' time, prepared the investment proposal, decided and announced that in November. So quite a rapid action to rebuild our capacity. First IS will be rolling out in the second half of 2024, and we aim for commercial production in 2025. Right now we have various actions ongoing, including land purchases, permitting processes, and indeed we've ordered the first production equipment already in late 2022. Financing will be taken care of with our own cash flow and leveraging a strong balance sheet. We are not looking to raise new equity to finance this factor in. Actions also to increase capacity in Finland and in the US are proceeding in line with the plan. So we had a plan to go all the way up to 4 million tyres in Dayton. That plan is very much ongoing. Equipments will be installed this year and ramping up of those equipments will be taking place this year and early 2024 to achieve that 4 million tyre capacity or capabilities. Also in Nokia, we are increasing capacity. We decided that those investments on new equipment, late 21 and early 22, they are being installed as we speak. And also we are increasing, ramping up the capacity increases in Nokia right now. First contract manufacturing agreements were signed in Q4 and negotiations with other manufacturers are ongoing. So the first of the volume to be expected in the second half of 2023. And the same process in Russia is ongoing. Move to page three. Despite an eventful year, we had a resilient performance and I want to highlight some of the key achievements. First of all, Heavy Tyres had all-time high net sales, all-time high profitability and productivity. Viano delivered all-time high net sales. In North America, we achieved the highest ever sales in terms of volume in passenger car tires and also, of course, production records in our data factory, which progressed in 22 according to plan or actually ahead of the plan in 22. Important achievement was also our new products, which were high-performing and efficient. We had strong partnerships with our customers, which drove our net sales in 2022, despite a demanding year and eventful year because of the war in Ukraine. I go to page four. So Q4 is impacted by lower supply volumes. Net sales at 411 million euros. This is 22% behind the 21 fourth quarter. incomparable currencies and the most impacting reason for that was the lower passage of car tire supply volumes. Segment operating profit at 13.5 million euro was 88 million a year ago. We had the same reasons, lower passage of car tire volumes and also changed factory mix and But we also had price increases to combat cost inflation and we had higher net selling price, average selling price. Then we will talk more about the profitability impacting factory mix and supply volume impacts soon. I got paid fine, which is reflecting the full year 22 performance. So in our net sales, they're 1.78 million, which is all-time high. Last year, we achieved 1.71 billion. sorry, 1.78 billion net sales in 2022 and 1.71 billion in 2021. So, actually, 2022, despite it being an eventful year, had the all-time high net sales of Nokian tires. However, in comparable currencies, we're slightly behind 2021 net sales. We had lower passenger car tire volumes as the Sanctions came into force and the tire imports from Russia to Europe and North America ended in July. However, we had also a record year in heavy tires and Vianor. This shows a strong performance by our Nokia tires team and also the resilience under very demanding circumstances in 2022. Segments operating profit were 221 million versus 325 million in 2021. Again, the supply of or the lower passenger car tire supply volumes as well as changed factory mix had the most important impact on the profitability. We had tailings from price increases and they helped to combat the cost inflation. Based on 22 performance, the board proposal on the dividend payment is as follows, 35 cents to be paid in May, and also the board will seek authorization to decide on the second dividend payment of maximum 20 cents per share in second half of 2023. So all in all, the dividend payment proposal is up to 55 cents per share. On page six, we have the highlights of the financial performance. I call out some key numbers here. In the final quarter, cash flow from operating activities, €319 million. Capital expenditures, €70 million. In that €70 million, we have about slightly below €40 million of new equipment for the Romania factory. Our segments EBITDA, a new profitability measurement, segments EBITDA at 12.5% and segments operating profit at 3.3%. Full year net sales at 1.78 billion versus 1.71 billion in 2021, as I mentioned earlier. Segments EBITDA in 2022, 21% at 367 million versus 400. in 2021. Equity ratio remains strong, so we have 65% equity ratio and interest rate and net debt at the end of the year at 141 million. Capital expenditure for the year at almost 130 million. And on page 7, just to highlight also achievements in sustainability, we had excellent safety performance. Lost time incident frequency was record low at 3.2 per million hours worked. We also started to build the first CO2 emission factory in Romania. Entire industry introduced the most sustainable concept tire yet, and also an important achievement in 2022, if included in Dow Jones Sustainability Year Index, being one of the top scoring companies in automobiles and automotive components industry. With those highlights, I hand over to Teemu to give more color to financial performance and financial details. Teemu, please go ahead.

thank you let's start with the passenger car tire business and as we as we see in the q4 net says which was on a level of 236 million clearly declined from comparison period because of the lower supply of volumes from our factories The segment operating profit was negative in the fourth quarter, 14 million. Then looking at the full year numbers, the net sales for passenger car tire was on a level of 1.233 billion, increase of close to 3% with reported numbers, and with comparable currencies, decline of around 5%. Then the segment operating profit for the full year, 179 million, and clearly down from the comparison period. As we knew, the lower tire supply had a negative impact, especially in Central Europe and in Russia. The inventories, are in high on a high level in the distribution that that will have an impact then then to the cell in the segment operating profit declined as expected but we have been able to increase prices to to offset the headwind from raw materials and other cost inflation Then if we look at the net sales by quarters, yeah, you can clearly see the volume impact of the decline after the third quarter being the biggest decline in the fourth quarter, and then the positive price mix development due to the fact that we have been able to increase prices that we started already in year 21 in the second half. Then currency has given us tailwind during the year 22 and most likely in year 23 looks like that we will have a headwind from currencies. Then looking at the performance of our PCT slightly more in detail, and focus to the segment operating profit bridge, you can see here the impact from volume, some 120 million, price mix significantly up, almost 240 million. and then which is clearly offsetting the material headwind of 130 million then if we zoom into the supply chain bucket which shows a negative development of 134 million half of that is coming from the lower production in in russia and then the other half of that headwind is is coming from higher logistics, warehouse, and custom duties from North America. So good to remember 50-50 split of this headwind. Then moving to the heavy tires, they had a record year that we are really proud of. The net sales in the fourth quarter was on a level of 65 million, and the segment operating profit, 6 million. The full year numbers, 274 million almost, is all-time high, as is the segment operating profit almost 44 million. In the fourth quarter, The net sales decreased slightly due to supply constraints, and as an example, the sick leaves were on a high level in the fourth quarter in our Nokia factory. As stated, all-time high full-year net sales and profitability in year 2022. Moving to the DNR. which recorded all-time high net sales. And we had a strong finish to the year in the fourth quarter, reaching 129 million in the fourth quarter, and the segment operating profit almost 11 million. The full year numbers are 362 million and segment operating profit 3 million. As you might remember, we had a weak first quarter and now strong fourth quarter and therefore we landed almost on the same level than in 21. In Vienna, we have continued to improve our operational efficiency as well as to offset the cost inflation in 2022. Today we also announced our alternative non-EFRS figures excluding Russia and here you can see the figures 22 and 21, how our segments net sales and segments operating profits looked in those years. This year, we have now introduced the new term segments net sales that we will guide in 23, excluding pressure due to the fact that the sales process is still ongoing. And if we look at the year 2022 and 2021 net sales figures, you can see that they have been on a level of 1.35 million in 2022 and 1.39 billion in 2021. And then looking at the segments operating profit for 2022, there you can see the segments operating profit on a level of 18 million. And here, good to remember the headwind from the supply chain last year, some 60 million due to the extra cost relating to moving tires out of Russia closer to customers. then moving to the assumptions for for this year 23 we are expecting that the first half will be weak due to the constraint capacity and the seasonality and then the second half is supported by the winter tire season and the offtake volume that we are getting in the second half. In heavy tires, I said all time high net sales and segment operating profit last year. Now we see the market softening, so there most likely is a short term headwind even though overall we believe that the market is going to the right direction. Then the guidance for this year, now we decided to guide with absolute numbers unlike earlier years. So the net sales will be between 1.3 and 1.5 billion, the segments net sales, and the segments operating profit percentage of net sales between 6 and 8%. I'd like to highlight the seasonality. especially in the segments operating profit, meaning that the profit is generated in the second half. I'm handing back to you.

Thank you, Teemu. So we go back to looking at 2023, and it will be a new start for Nokia tires. So what will happen? What is important for us? First of all, we count on our team. We've been through 22, which has been quite a demanding year. We look optimistically into 23. We have our agenda quite full. First of all, we work on the new factory in Romania. We have a very tight schedule to build it and to get the first tires dropping out, which is the latter part of 2024, and then commercial production starting 2025. The second one is that the Nokia factory capacity increases ongoing. So right now we are wrapping up new equipment as we speak and increase the capacity. Same with the Dayton, new equipment is coming and we are wrapping them up. And we have factories fully utilized at this point of time. All the tires we can make are being made and being shipped in the second half. focus on winter tires and our core products. We have also already made an agreement to have contract manufacturing. We keep on negotiating with additional contract manufacturing opportunities so that we complement our product portfolio in late 2023 and especially in 2024-2025. As you may remember, we announced in December that we have already concluded one agreement that will help us to supply winter tires in Central Europe. At the same time, it's important that we provide our customers with world-class production services. It's important that the real process from our factories to our customers and consumers continue uninterrupted. We will drive leadership in safety, product quality and sustainability, building on our achievements in 22 in sustainability and safety, which safety was a record level, and also we... They're included in the Dow Jones Sustainability Index in 2022. We aim to do the same in 2023. We also will use this opportunity to improve our processes and build our systems and capabilities for the next stage of Nokia's growth. And this is important when the new factory in Romania comes on stream. And I move to page 18, which is capturing all these... key initiatives and actions that we see. We have an investment phase in 23-25, so new factory, Romania, capacity increase in Nokia, date and factory completion, and growing contract manufacturing. In 26-27, we will see a significant growth phase, and based on the new products and investability, and we target to have a 2 billion net sales at the end of that period or during that period. Obviously, many of you remember that when we had the capital markets day in 2021, we were aiming to be a 2 billion company midterm. Now, we still aim to be a 2 billion company midterm. Took some important hits in 2022, and it was a demanding year. However, we regrouped. We focus on key actions. We are confident that the implementation will be successful. Financially, we are able to do it, and we have a strong cash flow, strong balance sheet to rely on, and that will allow to build the new Nokia empires. This is the end of the presentation, and the final page says it's a new journey, and it will be a new journey.

that it will be. Thank you, Juppa. Thank you, Teemu. Before going to the questions from the audience, Juppa mentioned Capital Market Day in 2021, and then there is a question about the next Capital Market Day, as announced earlier, that will be arranged once the Russia exit has been finalized. And as I said, the process is ongoing. And now, operator, we will be ready for the questions from the audience, please.

Thank you. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. If you change your mind and want to withdraw your question, it's star 2. The first question comes from the line of Michael Jacks from Bank of America. Please go ahead.

Hi, good afternoon, Yuka, Temo. Thanks for taking my questions. I have three. The first, first of all, thank you for providing more specific guidance ranges on revenue and EBIT. But could you please also provide some steer on the building blocks for cash flow in 2023? I think the dividend sends a somewhat confident message in this regard, but just want to understand the moving parts to that. Secondly, on heavy tires, Your guidance flags risks from general economic developments. Just curious, is this based on trends that you are currently observing, or are you taking a view on the macro development for the year? And then finally, with reference to your restated segment operating profit figures, what are the main reasons for the wide margin gap between the 2021 ex-Russia margin of 15% and your 2023 guide of 6% to 8%? Thank you.

So, Teemu, if you take the cash flow building blocks, please go ahead.

As you stated, the dividend proposal to the AGM should send a clear signal to the investors how we see our cash flow developing not only in the 23 but also in the coming years. Good to remember that we have now a heavy investment program in the coming years and the first two years are the biggest in terms of investments and As we have stated, the investment in Romania is some 650 million. So if you divide that by two, taking into account that we have maintenance capex of some 100 million, so that might be a good proxy for year 2023. So dividing 650 by two... meaning that the Romanian investment is not yet completed in two years. It goes into three years, but then taking into account the maintenance capex on a level of some close to 100 million. Then in terms of working capital changes, most likely no major changes there in this year.

And then if you look at the net debt EBITDA ratios, we see that we can comfortably clear the situation in 2024-2025 and not having too high a leverage based on net debt EBITDA despite these investments. Heavy tires, we basically talk about the heavy tires, what we see right now. Obviously, the general economic situation is a concern, and we need to pay attention. But right now, of course, as Tim was saying, the inventory pipeline is relatively full, and we see a current situation which appears to be softer. However, that may change, of course, depending on how the economic momentum evolves over the year. and then to restate them.

And the question was about the range.

Did I... Yes, I just want to understand the main reasons for the difference in the margin between the 2021 ex-Russia margin of 15% and the guide for between 6% and 8% for 2023, given that that one is also excluding Russia.

Hmm. So if we start with the 22, and as I said, we should bear in mind that there we have these headwinds from logistic warehouse and custom duties, some 60 million. So on the 80 million, you can put that on top. And then if we look at 21, there we should remember that we get the benefit of lower production costs in Russia. So if we take that into account, then we come closer to the guidance of 23, indicating the range of 6% to 8%.

That's very clear. Thank you very much.

The next question comes from the line of Akshat Kekar from JP Morgan. Please go ahead.

Hi, Yuka. Hi, Temo. Akshat from JP Morgan. Three questions from my side as well, please. The first one on the deal with that nest on the Russian plant. Obviously, you mentioned that the process is still ongoing. Is it possible to give us some more clarity in terms of the timeline or the next steps in this process, please? and how have things really evolved in the last three months from when this was announced, and after the other two later?

As we stated already in late October, when we announced the deal that the Russia exit has substantial uncertainties, related to timing terms and conditions and and the closing of the transaction and and the situation definitely has not got any better so it is a demanding topic and environment and therefore i would love to give you more clarity but i don't have that either so therefore i cannot comment that

Unfortunately, but maybe if I just add something which you didn't ask, but nevertheless I add. So despite the ongoing Russian process, the rebuild of the company in terms of building the new factory in Romania and advancing with the capacity rebuild is not dependent on the Russian exit. So that these are two separate things. Russian exit is one, it's a process in its own. And then the other part is that we build new Nokian tires independently how it goes and when it comes to conclusion. So therefore, these two things are not dependent. Just as an addition to your question.

And if I build on that, if I build on that of the team, Nokian tires team, 99.9% are focusing to the future building the new Nokian tires. myself and a few of my team members are the ones who are only focusing on closing the deal in Russia.

It's a necessity from the company point of view that we move on, we build a new company, at the same time we value and pay attention to that thing, of course, that we do in the best professional way the process in Russia next year. Okay, next question.

So you had a second question. Yeah, that is very clear. And I agree with that, that the balance sheet still is in a strong position. The second question was on the 2023 guidance and the implied passenger car margin. So you're talking about a 6% to 8% segment operating profit margin. So firstly, in terms of your disclosure, what will be the difference between segment operating profit and operating profit in 2023? just probably a list of items that you will still be adjusting for in 2023. Is it still the Dayton ramp-up expenses or maybe some more ramp-up expenses in Romania? So some kind of details on those adjustments will be helpful. And secondly, within that group margin, can you also guide us to what kind of passenger car margins are you looking for in 2023 because your Q4 passenger car tire margin was in the negative territory? Thank you.

If I start with the PCT or passenger car tire guidance, we have been guiding on a group level and we stick with that approach. Then in terms of the profitability guidance between six and and eight percent there there uh as you said the exclusions are not include included and the exclusions in year 23 are as you said the date on ramp up until we reach the three million level as we have been communicating and then on top of that We exclude now the Russian business, and that's the reason why we introduced the segment net sales, because as long as they have some business there, we will report the net sales and operating profit as non-IFRS exclusion.

So the new item in 2023 in exclusions will be Russia. Until the process is concluded.

Sure, understood. And for the underlying passenger car margins, like just in terms of Q4 was a negative number and what are we building for 2023, I did hear the comments in terms of the second half weighted profitability, but just in terms of how the passenger car profitability is panning out with the two underlying plans that you have today.

Thank you. As I said in our Q3 call, that you shouldn't overanalyze our Q4 results because of several activities happening in passenger car tires. And therefore, I just reiterate the same comment that don't overanalyze the Q4. Please look our guidance for 23 and our comments regarding the seasonality. And maybe this is a good point to give you some color. You might take a look what kind of business we had previously. For the sake of argument, in year 2000, before we started the Russia era, there you get some flavor how the seasonality was between the quarters and what kind of profitability we recorded in those quarters.

Great.

Thank you for the details and all the best. Next question comes from the line of Thomas Bisson from Kepler Chevrolet. Please go ahead.

Thank you very much. Maybe I'll be a bit blunt. You had 337 million exclusions in 22, 57 in 21. Should we expect you to be closer to 21 or 22 levels of exclusions in 23, assuming the process of your Russian disposal goes broadly as you imagine? So I assume sometimes in each one.

So the Dayton part is on the same ballpark that it has been. And then the Russia is the big question mark that nobody has in Cristobal at the moment. But as you can see from our numbers, from last year, we recorded 300 million impairments. related to Russia that is in the exclusions and we made the conclusion that the impairment is still valid at the year end with the information that we had at the year end. However, let's see what is the end result when this saga ends.

Okay, thank you. Second question, please. You present adjusted figures that you call excluding Russia. So I just want to clarify, because for me, maybe I'm tired, but I'm not sure I understand what you mean. Are you talking about without Russian cells? You remove the Russian revenues as a destination, right? Would it not have made more sense to present an adjusted set of figures without Russia as a production center on top as a sales? We are completely unable to look at your underlying performance as long as you still assume that Russia as a production center was still there. I just want to make sure I understand that the exclusion is just Russia as a destination, right?

No, it's Russia excluded completely. including all the top line, all the manufacturing, everything. And then that is segment net sales and segment operating profit, excluding Russia. So there's no Russian impact at all in those numbers. And in the guidance... So can I continue? So 1.3 billion to 1.5 billion net sales is completed without Russia. And also 6% to 8% segment operating profit is completed without Russia. No manufacturing, no net sales, none whatsoever.

Okay. Do you mean that the 2022 adjusted figure of 1.3 billion excludes the production of TARS in Russia as well? So that's only what you have built in Finland and data that has been recorded in your 1.3 billion sales for 2022? You have no TARS produced in H1 in Russia in that?

As I... I tried to comment earlier when we were looking the year 22. There we had the impact from Russia for the sales that we generated outside Russia, because we produced those tires in Russia. And then maybe it's more clear in year 21, If we look at our segments operating profit, 210 million, that contains the cost of tires produced in Russia with a lower production cost.

Okay, thank you. I have two other questions.

Yeah, so again, the guidance for 2023 is completely without Russia. No Russia.

Yeah, I think for the guidance it's clear. Thank you. Can you guide us on the tax rates, now that you don't have Russia anymore? It's been an important source of substantially lower tax rates than you would have had normally. What should we assume in 2023-2024 as your tax rates, now that you don't have Russia anymore?

I would say that somewhere around 20-21% is good for that number.

Okay. And last question, please. You have, if I looked at your backup slides, 83% of your debt to be refinanced in 2023-2024. Can you guide us on how you plan to do this refinancing? Do you plan to use your existing and unused bank loans or do you plan to issue bonds? And what kind of costs should we assume for 24-25 net interest charges.

So we are now in process to organize the financing or the funding for the company and this is now the moment where we become like a normal company with a different kind of funding because in the previous years we have been in a net cash position now so now during this year we will structure our funding totally different and bond is one of the source of funding the investments in the coming years.

Our profile becomes different because from now on our net sales and our profitability and our assets are outside Russia so they are essentially in Western Europe and in North America and so therefore our leverage and our asset base as well as our financing structure can and will change so therefore we look different kind of a company in terms of a balance sheet in years to come.

Okay, thank you very much. The next question comes from a line of Artem Bilepski from SEB. Please go ahead.

Yes, good afternoon, and thank you for taking my questions. A couple to be asked from my side. So the first one is actually relating to the product mix development this year. So what is your outlook? I guess you will become past the constraint and can actually improve your mix and how it actually looked like in Q4, excluding Russia.

Yeah, our product mix, obviously, when we look into 2023, so we'll be capacity constrained. And so, therefore, we go back to our core, which is winter tires and all-season tires and high premium summer tires for Nordics. But basically, the key driver will be winter tires. Obviously, that's why we talked about the seasonality in terms of our supply that we the tires will be supplied towards the end of the year. And so therefore, when we talked about our guidance, we said that the net sales will be accumulated in the second half quite strongly. And this is what we do. So therefore, clearly we prioritize those tires and those SKUs that bring us the best benefit from our current capacity. And that we have seen already in the latter part of the year. Of course, Russia, if you exclude that, you see that winter tyres in the latter part of the year has been an important part. And going into 2023, that will be the key. It's obviously, I mean, this is, I guess, a no-brainer to everybody that winter tyres is our core and we prioritize them as well as all seasons.

Yes, and then I had another question. It's relating to your cost structure and potential actions, what you are taking on Z1. So, you a bit alluded about those funds in accordance with Q3 results. Could you provide some update? Obviously, you are planning for some, so to say, cost initiatives looking at this year.

So, we already took out costs in 2022 in anticipation that... Especially in the Central Europe, we will have a lower volume because that was supplied by Russia. So, therefore, we took cost actions already in 2022. Those will bring benefits in 2023. But we also look at the spends very carefully. And under these circumstances, we regulate our cash flow quite carefully as well as our spend and so therefore you can expect that all kinds of actions that are needed to conserve cash and be cost efficient are taken but the major restructuring and those actions were taken already in 22. okay that is very clear and maybe the last one from my side is accelerating to

date and ramp-up, and you actually mentioned that 3 million tires is a mark after which you won't be recognizing any ramp-up related costs. Is it fair to assume that you would be reaching this type of ramp-up or run rate in terms of production already during this year?

We installed the machines and equipment for that kind of run rate this year, but then achieved the run rate sometime in 2024. And then it's up to us to be as quick and as efficient in hiring the people and getting the machines up and running. But basically the machine deliveries will happen this year. And this goes back to our many previous discussions that when did we order the equipment late 21, early 22, and they are now being delivered during the course of 23 and then ramped up one by one.

Okay, that's very clear. Thank you. The next question comes from the line of Giulio Pescatoli from BNP Paribas Exxon. Please go ahead.

Hi, thanks for taking my question. The first one on the 2 billion target by 2027. I'm just wondering what are you assuming here? Are you assuming a normalization of pricing in case the material costs have to normalize? And any chance you can give us a rough indication of what the margins can do and how quickly you can reach those 2,000 levels? The second question on the inventories. You said that inventories are quite high. I was just wondering if you can specify which we're talking about and if that's true across all segments, winter, off-season and summer. Yeah, thank you.

Okay, when you look at the 2 billion target, obviously it's a combination of volume. So we ramp up volume, not only our oil manufactured volume, but also production. volumes. We assume trend pricing for that, so that's how we look at the revenue plan. In terms of margins, we have not given any indication, so perhaps we wait until the Russian situation is clear, and then we have the C&D, and then we will come back with the margins and details of achieving 2 billion. But basically, just give a high-level ambition for 2026-2027 billion company. We had that in our plans already. 21, we were about to achieve that in 22, but then the war came between us and success. However, we want to achieve that success in the years to come. But more details when the CMD will be organized, and that is dependent on the conclusion of the Russian process.

And then in terms of... Can I... So you can just follow up on that just quickly. So just to make sure I've understood it correctly, you are assuming current pricing and a recovering volume. So you're not assuming a normalization of pricing.

We are assuming trend pricing. So trend pricing is a normalization. So it's not the highest of the high, not the lowest of the low, but trend price.

Okay, thank you.

That's typical in industry.

And then regarding your question about... raw material price development. So on year-on-year comparison, we expect that to still increase in 2023. But if you look at the development by quarters, good to remember that the first half last year, we had a lower raw material prices peaking towards the Now, we don't see that to increase, but we have a low comparison in the first half, and therefore the year-on-year comparison is higher. And having said that, another factor that impacts our raw material price level is that because of the situation that we went through last year. purchased a high amount of raw materials in order to secure our production. Now we have more than enough raw materials with higher prices in our inventories that we will consume in the first half and then we are on a normal level with our raw material inventories in the second half.

And that's a good point what Tim was saying that when we went through the Eventful 2022, we wanted to secure that indeed we will not run out of raw materials either in Nokia or in Dayton and to have that kind of a reason not to be able to manufacture or ship tires. That was important for us to ensure that this does not happen.

Okay, thank you. And sorry, on inventories in the distribution, you mentioned that they're quite high. So I was wondering if you can comment on where they're high and on which products and what's the reason for that? Thank you.

Yeah, that was basically because the slowing economy in the final quarter and early in 2023 pipeline across the system is quite full. We expect that that will then be cleared out step by step. But towards the end of the year, the pipeline was quite full.

And that's a general industry comment, not on the Anokyan issue.

That was a general industry comment, but it relates also to some of our tires, so it's not that we are immune to that.

Perfect.

Thank you very much. The next question comes from a line of Christoph Lascari from Deutsche Bank. Please go ahead.

Hey, thank you for taking my question. Well, I'll also be on the ramp-up of the contract manufacturing volumes that you foresee. So the first one on that, how big is your confidence in the ramp-up given that it's not entirely yourself operating those volumes? And then just in terms of the pricing that you assume for those volumes to go into the market. In the meantime, before you have sizable volumes from the contract manufacturing, I would assume you just technically lose market share to some degree. Obviously, you have a strong brand. Do you just assume that you can go in with the market pricing that you see at that point and your premium pricing versus competition? Or do you need to be a bit more aggressive in order to place the volumes in the market as well? Thank you.

point of view that how confident we are that we can deliver those contract manufacturing volumes. We are quite confident. We've tested the quality. We've audited or we are in the process of auditing the supplier plans and we see that in terms of logistics manufacturing quality, we are confident that we can deliver. Now, obviously, the pricing-wise, they are not as profitable as our premium tires made in Nokia or in Dayton. However, an important part of making sure that we provide to our customers and our distribution Nokia products so that they have good portfolio products. This is of course something that over time will evolve and we expect that the offtake will be an important or more important part of our portfolio in years to come. Historically we haven't done that but we see that even when we start Romania factory increased capacity in Nokia and in Dayton, offtake will be an important part of our portfolio. And so, therefore, we invest time, effort, development to make sure that that is going to be successful. Now, the first volumes will be in the second half of 2023, so at this point of time, these are plans. We are confident we will deliver, but then the reality will happen when we actually deliver. But those are included in our guidance of 2023.

Thank you. Just a follow-up, if I may, on that. You just said to Julia's question, I think, that inventory levels are fairly high. So by H2 of 23 in Europe, you would expect it to normalize and at the dealers, be at a level where they happily take those volumes they come on to stream. And in the US, is it any different?

We expect that because the expectation of the new car deliveries will be positive in 2023 versus 2022. So we expect that there will be an increase in demand and improvement in demand. So therefore, the inventories will be going back to normal level during the course of 2023. Thank you.

Okay, thank you very much. It's getting four o'clock here in Finland, so it's time to finish the call. Jukka, any closing remarks, maybe a couple of words about building the New European Tires?

Thank you, Paivi. Maybe if I come back to that guidance, so 1.3 billion to 1.5 billion in 2023, and that does not include any Russia, so this is based on our output in Nokia in Dayton and off-take, as well as heavy tires via North, so that's the perimeter of our guidance, 6% to 8% segment operating profit, and then obviously the segment EBITDA will be at the with double digit kind of a number or higher. And key actions for our team in 2023 are well lined out. So it's really to achieve the Romania factory first steps. So building the real estate and then starting to install machines. and being prepared for H2, 24, first tire manufacturing and then commercial production in 25. So this is one project. The other one is to ensure that the Nokia factory ramp up the new capacities that are being installed right now. will be delivered as well as heavy tire expansions will be delivered and Dayton continued ramp up and the new machine installations will be delivered those are quite important things and then the offtake which is a new element or in that scale a new element to our company that the quality delivery the process will be impeccable and that we get the benefits in our top line profitability in the second half of 2023 So lots of new things in our company for our teams. At the same time, as Dan was saying, 99.9% of the people are working on these ones, but we have an important professional team working on the Rasa exit at the same time. And again, when the Rasa exit is being completed, achieved or concluded the process concluded we will then seek to organize a cmd as soon as possible to give more color how we get to 2 billion net sales based on trend prices with the highest of the high not lowest of the low and what kind of volumes we expect from various sources coming and what kind of margin profile can we think about achieving at that point of time again You all have been used to our Russian factory a long time ago. Russia, as we knew it at the time, delivered high margins. We don't see that Russia being there anymore. So we as a company want to move on, and we have new highs, new opportunities ahead of us, and we will deliver on those. That's where Mnoki & Tayos is right now. Thank you, baby.

Thank you, Jukka. Thank you, Teemu. And thank you all for participating. And this concludes the call.

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