Nokian Tyres Plc

Good afternoon and welcome to Nokian Tire's first quarter of 2020 results audio guest. I am Anu Kangeria from Nokian Tire's investor relations and together with me in this call I have our president and CEO Paolo Pompei and our new CFO Timo Koponen. As usual, Paolo and Timo will run through the presentation And after that, we will open the line for questions. But before we start, I would like to ask you, Timo, a couple of questions. You have been with us only a few days. And first of all, welcome to the company. Thank you. It's great to have you here. With this short but intense experience with the company, What are your first impressions?

Yeah, well, it has been a very, very busy start as everybody can anticipate. First of all, I'm very excited to be on board finally. It's been a long wait. And kind of looking back when we started discussions with Paolo and other people in the company, I got really intrigued by the momentum and drive that Nokia has. And obviously that intrigue remains. And you only need to look at the just ended first quarter and you see many product launches and so on. And you can really see that we have a second gear on. It's good to be here.

Thank you. Good to hear. Maybe if you can also briefly say a few words about your background.

Sure, sure. Yes, as I think it was already mentioned in the announcement, I have a long background in Finnish industrial equipment. Companies, Konecranes, Hakman, Vertos, Värtsilä, and last couple of years at Normit. I've been working in finance as well as in the line management roles, both in Finland and abroad, France, China, and UK, and now in Finland.

Thank you. And with that, I will now hand over to you, Paolo, for the first quarter results.

Excellent. Thank you very much, Anouk. And also from my side, welcome on board, Timo. Let's start immediately with the headlines, where you can see that sales increased across all regions and operating profit improved significantly, driven by discipline, strategy, execution. But let's move to the agenda. We will start with the quarterly highlights, moving to the financial performance. Then Timo will comment the business unit performance, as well as our cash flow and financial position. And then we will close this call with assumption and guidance. And of course, at the end, there will be question and answer. Moving directly to slide number four, operating profits improved significantly. This was really supported by volume, price and mix improvements, and lower manufacturing and material costs. Operating profit improved by more than 50%. And we had really good, good also price and mix improvements during this quarter. Effective working capital management, the lower CAPEX has contributed to improve our cash flow by over 50 million in quarter one. And this is also important, an important achievement in this quarter. We keep working on our continuous improvement initiative that are really supporting strongly our strategic plan and our 220 million EBITDA improvements by 2029. And this was also an exciting quarter when we talk about product innovation. We were able to actually, we were releasing two important flagships in our product range. for the Nordics and the Central European market, and also a new tire for heavy tire division, a new line for truck tires. Moving to slide number five, as I said, this was an exciting quarter, and it's worth really to spend a few words about our achievements, because we were able to release, once again, a new disruptive technology, the Catalita 01, uh stud with that is actually delivering a tire that is able to operate and to adapt to the change of temperature with start on or start off depending on the driving condition in different with different temperatures this is really a great achievement is a disruptive innovation and we are really proud about the achievement of our r d theme and what the our company has been able to develop through intense R&D work as well as in terms of testing in the last few years. We're also releasing the Nokian TAS NoProof 3P. This is also an extremely high-performing product dedicated to the Central and Southern European market that is meeting actually the key competitors in many parameters, and of course we are extremely excited about our strong improvement in the product performance in a strategic market, a growing market for all of us. We have invited to test our tourism solution more than 500 customers during the month of March in our test center in Guitel in Ivalo and this is obviously the best way to promote our product to make sure that our customers can really experience, the good performance and the good capabilities of our own facilities as well as of our own products. Let's move to the financial performance, so moving directly to slide number seven. When we look at the market, we see actually market declining both in Europe and North America. This is making us even more satisfied with our existing journey, because obviously in passenger car tire we'll be able to outperform the market in quarter one. So the market is estimated to be at this stage minus 3% in Europe in passenger car tire and minus 8, so significantly down in North America. Truck tire business has been positive actually in quarter one. And we can say that the agricultural and forestry business was flat, both in the OE and the replacement market in the same period. Moving to slide number eight, we see that net sales increased by 4.9% in quarter one. I would like to highlight the strong performance of Pages Passenger Cartier that was plus nine in comparable currency. We were growing in all the regions, and this is also very important in our existing journey. We improved segment EBITDA to 30.2 million, so plus almost 80 million compared to previous year, and this is representing finally two-digit EBITDA, 10.8% of net sales compared to 4.6% in 2025. We improved our segment operating profit by More than 40 million, this is a growth of 70%. Moving to minus 4.3 million, also very close to the break-even, coming from 18.5 million in 2025. And finally, we improve our operating profit by 50% to minus 17.8 million versus almost minus 36 million in 2025. So the numbers are improving according to plan, and we are really pleased about these developments. Moving to slide number nine, you will see as we have anticipated that cells are growing in any region. Obviously, these in compatible currency, we see a growth of 1.4% in the Nordics, strong growth in Central and Southern Europe with 9.1%. And also very good growth in comparable currency in North America with plus 7.8%. I remind you in the market that is declining by 8% in quarter one. So passenger car tire was outperforming the market. Heavy tire, the sales were down by 1.6%. But the profit was improving significantly above 15%, at 15.7%. And Viano was slightly positive with 1.7%. Moving to slide number 10, this is a new slide that we are presenting in this deck that is giving you a better understanding of the mixed development of the company. You will see that in quarter one, we were growing in term of a percentage of sales in the old season and summer tire business, while we were declining from 37 to 30% in the winter tire business. Just a reminder, obviously quarter one is not a winter tire quarter in our industry. And also, a second reminder is that, obviously, we are leveraging this year the product launches that we did last year in 2025 in Central Europe for the all-season and summer tire business, as well also in North America for the all-weather. We are also happy about the progress we are doing on the 18 inches plus larger tire diameters. When we are reaching now, they are reaching today 51% in value. of our total sales. So I would say from the mixed development point of view, we are developing the business in line with the plan and in line with the strategic targets that we released in February 2026. Moving to slide number 11. Of course, we see more or less the same numbers, but I would like to focus your attention on Three main KPIs. One, obviously, the reduction of the debt by approximately $45 million, and Timo will tell you more about that. The reduction of the capital expenditure to $7.3 million from $52 million last year. Obviously, we say that we were ending a very heavy investment period, and now we get back to normal. And then, of course, the cash flow from operating activities has been also improving by more than $50 million. Moving to slide number 12, you will see that we are targeting this year an investment level more or less in line with the depreciation of approximately 130 million euros at this stage. So we'll get back really to a normal investment level, which is obviously supporting our strategic plan journey moving forward to 2029. Then I leave the stage to Timo for the business unit comments.

Okay. Thank you, Paolo. So as it has already been mentioned a couple of times, we are very pleased about the performance we had in passenger cars. Tires net sales increasing by 9.1% on comparable currencies. At the same time, the pricing continued improving. And very importantly, we operated with the lower manufacturing and as well as material costs. And this logically all results in significantly improved segment operating profit. And as we can see, we moved from losses a year ago, 6.2 million up to 10.2 million or 5.5%. Moving on to page 15, when looking at different components in passenger car tires in net sales, volume contributed 10 million of that increase plus 5.7% and price mix 6 million plus 3.4%. Headwind we had relates to currencies minus 2.1% and that comes mainly from the North American sales. In the lower part, in segment operating profit level, lower material cost was the biggest lever we had by 11 million. Sales volume and price mix having also a significant positive effect, 5 million and 6 million respectively. And as we already anticipated in the capital market stay during the period may have made significant investments in our brand and marketing. And that shows us as a higher SG&A. And it's needless to say the growth always takes some money. Moving on then and looking at also the picture that we are very happy about. Sales volume turned to growth after two declining quarters, growing by 5.7% on quarter one. And regarding the price mix, we can see the price increase continuing also on a quarter, this time by 3.4%. And currencies, we already commented earlier. Then moving to heavy tires, there the net sales decreased by 1.6%, and that was due to lower demand in forestry segments. Despite of that, the segment operating profit improved by 8.6 million, and that is thanks to good pricing this April. Percentage-wise, as Paolo already mentioned, we are back above 15% level at 15.77%. And as it has been, our target already in this business is to fix profitability, and we are very happy to see that happening. And then finally, on the business units, there we had a disappointing first quarter, as already mentioned. And despite of the increased net sales, it went up by 1.7%. The segment operating profit declined and was minus 17.1 million. And the main cause there was the two factors, basically the cost inflation and then one of inventory revaluation, which both had a negative effect. And as a reminder, as most of you already know, Q1 is seasonally low for BNR, so nothing new there. And then moving to cash flow and financial position, positive cash flow development was already mentioned. Two main contributors there. First of all, thanks to very effective working capital management, we were able to improve. And there the factors are, as we have previously communicated, we have several initiatives ongoing. to improve our position, the inventories, the payables, and so on. Another big improvement compared to a year ago was the lower CAPEX. There are some seasonalities on that, but we also have to remember that we have very tight scrutiny on new investments, what we are taking in and focusing on improving cash flow. Finally, on a debt position, as already I mentioned, net debt went down by 45 million on a quarter. On a liquidity, at the moment or end of the quarter, it was 441 million consisting of cash and then the 304 million undrawn cash credit facilities. And regarding the debt maturities on the right-hand side, as we already commented in the report, during the period, we executed an extension of one year for 100 million loan, and that was the only event that we had on the quarter.

Excellent. Thank you very much, Timo. And let's move now to the assumption and guidance. So if we can move to slide number 23, you will see that we are actually not changing the assumption for this year. We believe the market will remain plus and minus 2% pretty stable in passenger car tire, as well as in agri and forestry tires, where we see actually the demand pretty stable and low level in the OE market and slightly positive in the aftermarket for the rest of the year. So moving to slide number 24 and looking at the guidance, there are no changes to our previous guidance. We believe that in 2026 the entire sales will grow compared to previous year, and obviously operating profit as a percentage of net sales will be between 8 to 10%. The tire demand is expected to remain flat. Obviously, we are continuously watching the evolution of the existing conflict in Middle East. This is an important part of the assumption. At the moment, we are able, looking at the outlook and considering our continuous improvement plan, we are able to confirm that our guidance is pretty strong and stable. The profitability obviously will improve supported by new products but also by price and mix as you can see also in quarter one and continuous efficiency improvement. So I would like to close this quarterly presentation reminding our long-term objective. We remain focused and we want to remain fully focused in our leading position in winter, keeping our leading position in wintertime. We are targeting to grow above market level in the all-season all-weather segment as well as in the agri and forest retirees. Three different journeys by geography in Nordic is about strengthening our first position. while in Central Europe as well as in North America is about growing above market average. We will do that always supporting value, premium value positioning and mix enhancements. We will do that extending our VNO network in Europe and focusing more and more on B2B and B2C, in particular consumers. We have a strong product innovation in the pipeline. Actually, we are counting by 2029, I remind you, in the passenger car tire to release a new product in all the segments where we operate, and 90% of those new products will be dedicated to winter tire and all season and all weather. Consumer focus to have investments in marketing in particular, and then we will keep working on operational excellence where we see great opportunities to improve significantly our cost structure. Our local-to-local business model will enable us to be less vulnerable in front of geopolitical tensions. And of course, we can count more and more in an experienced and engaged team who will be able to achieve our financial target. So our long-term financial target remains the same, 1.82 billion euros within 2029, segment EBITDA above 24%, and segment operating profit above 15%, reducing the debt level to a ratio between net debt and segment EBITDA below 2. We can now move on to the question and answer, and thank you for your attention.

If you wish to ask a question, please dial pound key 5 on your telephone keypad. To enter the queue, if you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Artem Beletsky from SEB. Please go ahead.

Yes, good afternoon, Paolo and Timo, and thank you for taking my questions. So I actually have three to be asked. So the first one is relating to raw materials, and Paolo, you also mentioned conflict and Middle East. Could you maybe comment whether you have been doing already some price increases due to this topic or have seen competitors acting or and maybe just in terms of time lack when you need when this type of higher all the related raw material costs will start to increase for you maybe i'll start with that one yeah thank you for the question this is an important one really relevant of course so when we talk about raw material there is

time gap, as you know very well. I mean, we are estimating to see the impact of the raw material changes more through the end of the year, meaning end of quarter three, beginning of quarter four. Clearly, we are not concerned about compensating this effect that will come up. As you can see, our pricing are moving up despite we have a favorable trend at the moment of the raw material trend. So, Clearly, prices is the tool to compensate the raw material trend long term. Obviously, we don't comment about competitors, but I can only say in 30 years in our industry, the market is very disciplined in transferring this cost, obviously, when they are coming.

Yes, this is very clear and maybe the second question what I would like to ask is relating to heavy tires and indeed you delivered quite nice profitability improvement in Q1. Do you see that this level is now sustainable and maybe you can update us with your view what comes to market recovery? Do you still expect it potentially to happen in second half of this year?

Yeah, thanks a lot. This is also a very good question, actually. The heavy-tire business is improving because, obviously, good price discipline, as we said, it's keeping, and of course, some internal operational efficiency actions that we have activated. I think the heavy-tire business is now at the end of a very long negative cycle, so we expect the market, obviously, to move up. It's difficult for anyone to say, particularly today with existing crisis in the Middle East, to say really when the market, the OE market in particular, will pick up. Because the replacement market, I think, is already moving in a better direction. It's more about understanding when the OE market, for us, as you know, is very important, the forestry market as well. My original estimation was the market will improve in the second half of the year, but of course, This at the moment is not yet visible. At least we don't have any visibility about this potential improvement already in the second half of the year. But we will keep you updated step by step.

Yes, great. And then the last one what I had was relating to SG&A expenses. And those went up 6 million euros in Q1 year over year. And I fully understand that it has to relate to this very interesting new products what you introduced to the market. Is it fair to say that the increase during the remainder of the year will be much smaller given the fact that those product introductions and presumably big events are behind us?

Yes, of course. Don't forget in quarter one 2025 we were coming out from a very, very Difficult 2024 rebuilding a company stretching everything at minimum not really investing too much in our future and then now we are investing on our future with Growing sales force and growing marketing investments and of course a big big product launches that we did in March 2000 2026 Clearly we will keep investing in growth, but it has to be a profitable growth. So as I said, I Of course, you should not expect 12% SG&A increase every quarter, because otherwise this will not be sustainable. But you should expect that, obviously, we will keep investing on our brand for the future.

Okay, very good. Thank you, and this is all from me.

As a reminder, if you wish to ask a question, please dial poundkey5 on your telephone keypad. The next question comes from Thomas Besson from Kepler Shoebrew. Please go ahead.

Thank you very much. Good afternoon. I hope you can hear me. The quality of the line was disastrous during the previous question, so I may ask a question for almost a second time, but I'd like to make sure I understood correctly. I think, Paolo, you said that the industry has basically been raising prices significantly to offset the higher energy and input cost historically, but my question was really to try to have a view on what you're assuming in terms of energy and raw materials headwind over the year, or again in 2026, and when these energy and raw materials are going to turn from a tailwind into a headwind, and what kind of price hike you need to be able to offset this assumed headwind. That's my first question. I have more questions that I'll ask later.

Thank you. I'm sorry if the line was not, I hope it's better now, but that is an important question. As we said, I mean, the raw material effect of the current situation will probably be visible end of quarter three, beginning of quarter four. And of course, This is changing every day, as you know very well. I mean, it's depending on different announcements that are happening every day. But let's say in our assumptions we consider the existing raw material level the one that we will see moving forward, then obviously we are expecting to see some impact end of quarter three, beginning of quarter four. I think the pricing action we have in place are – able to compensate this raw material effect. I will keep repeating that the problem is not about transferring the cost. It's always about evaluating the consumer behavior at the end. So, tire industry, we were always very disciplined in managing price and raw material. We tried in the last couple of years now, one year and a half, to improve also our positioning through new products and to price increases. But in general, I would say that I will not be concerned about the balance between prices and raw material. We need to see how the demand will evolve. But at the same time, we need to say that our journey is a little bit, in particular, outside of the Nordic. It's a little bit independent, meaning that we come from a niche position, a small position, so we still have plenty of opportunity to to manage our growth.

Thank you. Second question. Your Q1 volumes in passenger cars were up 5.7% while your reference markets in Europe and the US were both down. And it comes against Q1 2025 where you already had a strong jump in volumes. Can you elaborate on what has been allowing this? Where have you gained share? And whether you do expect to be able to continue to largely outperform your end markets in Q2 and the rest of 26?

Sure. We are growing in terms of market share, as we said, in the two, I would say, new markets. We cannot even say new because obviously we were before the crisis in Russia, we were already pretty present in Central Europe. But we are regaining, obviously, market share in Central Europe. We are growing market share in North America. And this is driven by a combination of elements, as we know very well. First of all, we have a completely new manufacturing footprint that is giving the possibility to have dedicated factories for dedicated markets, meaning that we can really focus on the development of specific markets with dedicated manufacturing capabilities. Secondly, a lot of new products. We are releasing a lot of new products that are giving also the possibility to our team to promote our innovation capabilities. And of course, we are enforcing the theme as well. At the same time, also exploring new channels, reinforcing our B2B and B2C channels. So it's a combination. Clearly, for us, it's a continuous journey. And But it's very important that this journey is going to be profitable. So in Q1 2025, you saw an important growth of 22%, but you didn't see an improvement of profitability. Now, if you notice, you see a different journey in the last few quarters. We focus more on profitability improvement at this stage of our life. And then, of course, we are happy to see, like in Q1, when profitability and growth are moving together in the same direction because this is really what any healthy company should provide to investors every quarter.

Clear for that. Can you say a few words about what you expect in the coming quarters about your share gains? Do you think it can continue or this was the best outperformance you're going to show during the year?

The guidance is about growth. So what I mean is that we keep guiding single-digit growth. And that is really important. So we are not guiding two digit growth, but we are guiding single digit growth.

Understood. Last question for me, please. You, I mean, I think it's fantastic, but you barely spent any money in Q1 on CapEx. Seven million. So obviously driving an unusually big decline in debt over the quarter. Can you explain why this is the case? Are you facing something very slowly or do you still think you're going to need to spend 120-130 million for the year or did you get some of the Romanian state aid if you want?

Timo has already anticipated very well that clearly when you look at CAPEX you need to see also a sort of seasonality. Normally for instance we do maintenance during factory closing so obviously the CAPEX level in end of quarter one, beginning of quarter two, will increase because it's the maintenance period for many of our own operations. As I said, I would consider 130 million the maximum roof. Actually, we are targeting less than this 130 million. For us, it's very important to be capital efficient, meaning to be able really to invest wherever is needed in terms of maintenance, but also wherever we see a clear and fast return. So I will not take quarter one as a reference, but in general, of course, we have projects, we have maintenance projects, we have a small operational project to complete the Oradea plant that is not fully completed yet. But of course, we are guiding, as I said, at this stage, 130 million and probably a bit less, but we will guide you better in the second quarter.

Thank you very much.

Thank you.

There are no more questions at this time, so I hand the conference back to the speakers.

If they answer the questions, this concludes today's call. Thank you, Paolo and Timo, and all for joining this call. And we wish you a great rest of the day. Thank you very much.

Thank you.