Nokian Tyres Plc

Good afternoon from Helsinki and welcome to Nokian Tyres Q1 24 results conference call. My name is Päivi Antola. I'm heading the industrial relations in Nokian Tyres. And in the call, I have the president and CEO Jukka Moisio and Niko Haavisto, the CFO of Nokian Tyres. As usual, we will go through the results. and talk about some other topicals as well. Romania, for example, of course, will be covered in the presentation and other highlights that will be coming during the year. But let's... Then, of course, we have a Q&A at the end of the call, but let's start with the prepared notes. Jukka, would you start?

Thank you, Päivi, and welcome on my behalf. I'll go through the prepared notes and presentation, which is heading to building the new Enochian tires contract in a challenging environment. And I move to page two, some of the important milestones we aim to achieve in 2024. Of course, our key innovation with the tire, they'll celebrate its 90th anniversary this year. Our new And world's first zero CO2 emission tire factory in Romania will start production. I'll talk more about that later. U.S. investment phase in Dayton factory will be completed and the factory will be fully invested to achieve its targets. And we keep on launching new innovative products because the rebuilding of Nokia tires and building the company is based on organic growth. So it requires and we want to introduce and sell innovative, successful and competitive products and then build the production capability behind those products. So therefore innovation in products are key element in achieving the new Nokia tires. I move to page three and this is a highlight and update of the Romanian factory. It's on the picture on the left hand side you'll see the new mixing building which is very much in progress and the equipment installations there will begin in the end of April. In the middle you will see the production building so finishing work is continuing and equipment installations are progressing as we speak. And on the right hand side you see finished goods warehouse where we are paving the loading docks and outdoor area. but very much on track and the recruitment of the team are progressing and in fact we have the launch team in training in Nokia as we speak and they'll be returning to Romania for the summer and be prepared for the manufacturing start. First tires will be produced in the second half of 2024 and as mentioned According to our schedule, the commercial production will start in 2025, and we are on time and we are on budget or maybe even below budget. On page four, we've taken steps forward in sustainability. Some of the examples of achievement in the first quarter, factory CO2 We have A-minus score from Cargo Disclosure Project for actions aiming at reducing the greenhouse gas emissions. We also made a long-term purchase agreement and commitment for recovered carbon plaque with the Tire Recycling Joint Venture. This is one step on our way to ensure that by 2030, we have at least 50% of recycled and renewable raw materials in our tires. And we also published our sustainability report for 2023. I move then to page 5, and we start with the financial part. Net sales and operating profit at previous year level. Net sales at 2.36 and last year also 2.36 million euro. Segments EBITDA in the first quarter 12.5 and last year 11.2. We of course had an impact of the political strikes in Finland as well as the Red Sea crisis. Approximately they amount to Euro 20 million at the EBITDA level and more than half of this is in the first quarter. And segments operating profit minus 15.1 in the quarter and last year minus 14. If we look at the top line number without the impact of or neutralizing the impact of the political strikes as well as the Red Sea crisis, we would have been in the range of 260 million in net sales and approximately 9-10% of EBITDA, which would have been about doubling out of 0.5 million EBITDA in the quarter. This impact of political strikes and Red Sea crisis consists of loss of revenue. This is of course a timing issue that some of the products that are on the ship on the way to Europe for our offtake did not land on time. However, we believe that we can sell the products in the coming months and quarters. We had a lack of production in Nokia in passenger car tires about 20 days and heavy tires about five days. Heavy tires is fully in the Q1. passenger car production, about nine days of the 20 days or three weeks, is in the second quarter after strikes. We needed to stop the production due to the fact that we couldn't ship any products from Finland, and we had all our warehouses full, and consequently we couldn't keep on producing any more. In addition, we had these extra costs which are related to warehouse logistics and similar things, rerouting and various other topics. But all in all, as said, impact for the company in the first half is about €20 million, more than half of that in the quarter one in the EBITDA. I move to page six. Still, we have a strong balance sheet despite the lower than expected profitability in the quarter. We have a strong balance sheet, 58% of equity ratio, keep gearing at 30%, net independent debt at 395 million, capital expenditure, we kept on investing in Romania, as well as finalizing data on about 70 million and cash flow from operating activities minus 87 million. And then I will hand over to Niko to talk about the segments and other topics. Niko, please go ahead. Yeah, thank you, Jukka. I will go through the segment numbers a little bit more in detail, and I'm in page seven. So in the passenger car tire segment, our net sales increased due to the higher volumes, and that, of course, was driven by increased product availability. Our average sales prices compared with the comparable currencies were at the previous year level. And profitability improved through higher volumes and lower costs. Net sales being 143 million euro compared to 133.3 in last year's same quarter. And then on the operating profit level at the segment, we were at the level of minus 2.8 million compared to 4.6 million last year, same quarter. On page eight, there is a bridge on the passenger car tire segment. And there you see on top the sales breakdown. So the volume up by close to 10%. At the same time, we were able to keep the price a mix at previous year's level, more or less. And then we had a little bit negative headwind from the currency. All in all, landed at 143 million euros. In terms of operating profit, there we see especially the material costs were coming down. So we were there gaining some 8 million euros. But at the same time, the supply chain with the increased logistic costs, warehousing and freight especially, hit us by 11 million euro in this segment. Final slide on the passenger car tire segment. So there you see the volume changes by quarter. So, still coming out from a fairly okay Q4 into Q1, plus 10% price and mix. That was kind of a flat, but I think that is a good achievement in the market and still getting a little bit headwind from the currencies, but not so much as it was during most of the last year. Then with the heavy tires, their weak market is affecting us in terms of sales and profitability. And there especially we see in the Nordics and also on the road heavy tires products that we are having some difficulties. We last most likely during H1 this year. net sales 55 million euro compared to last year's 68 million euro and then on the operating profit level we were at the level of close to 12 percent with the actual numbers of 6.3 million compared to 9.6 million euro last year. And then on the Vianor side there We landed pretty much on the level of last year in terms of sales. Operating profit was minus 16 million euros compared to minus 13 and half last year. And of course, this is a seasonality thing. But of course, the inflation is hurting us in this business. And we need to understand better going forward how to how to put that into our earnings as such. Then I have the guidance slide, so slide 13, and we have kept our guidance unchanged, and we say that this year, 24, our net sales with comparable currencies and segments operating profit are expected to grow significantly compared to that of last year. And by significant, we mean at least a double-digit growth, and we will be more precise what we mean with that when we go more into that year. And with that, I hand it back to you. Thank you, Niko, just to wrap up. tires is very much focused on the new products so we have a very good product for products and then or their factory goes on stream that will be based on completely new products that are in the pipeline and will be introduced during the course of We have highly competitive new products, but also the portfolio right now, as you see, keeps on evolving continuously. And the review of the company is based on organic growth. So in the heart of that is a good portfolio of new products. I move to page 15 to wrap up the presentation. Again, we come back to the capital market state presentation of 2023. We have the investment phase, and then we have the growth phase, and you see roughly where we are at this point of time in the investment phase. Those activities consist of a capacity increase in Finland done, U.S. factory completion about to be done right now, a new factory in Romania will be be making the first tires in the second half of this year and we'll start commercial production in early 2025. And then growing contract manufacturing, which is very much ongoing. in the ship when they were supposed to be landing in Europe. However, we believe that this is only temporary based on Q1 dislocation, but we will be able to sell those products later on. Growth phase then starting in 2026, increasing market penetration, which is built on new products, increased capacity and enhanced operational capabilities. And that way we would be on our way towards 2 billion from passenger car tires point of view in heavy tires, whether it's Nordics or whether it's Nordic OEM, Finnish OEM, in this particular quarter, we will continue to, at the above market level growth, and in the VNO, we continue to have the distribution excellence in the Nordics. In combination, that will allow us to move towards 2 billion. And with that, I... And the presentation of prepared notes, I'll hand over back to Paivi for Q&A. Paivi, please go ahead.

Thank you, Jukka. Thank you, Nico. And now, as Jukka said, we will be ready for the questions from the audience, please.