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Transcription

Nokian Renkaat Q3 / 2021 Interim Report

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02 November 2021

Nokian Renkaat Q3 / 2021 Interim Report

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PRESENTATION

Operator

Welcome to the Nokian Renkaat Q3 2021 Interim Report. Throughout the call, all participants will be in listen-only mode, so there's no need to mute your individual lines. Afterwards, there'll be a question-and-answer session. Just to remind you, this conference is being recorded.

Today, I am pleased to present Päivi Antola. Please go ahead with your meeting.

Päivi Antola

Good afternoon from Helsinki, and welcome to Nokian Tyres' Q3 Results Conference Call. My name is Päivi 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 Kangas-Kärki, the CFO of Nokian Tyres. As usual, we will start the call with Jukka and Teemu going through the Q3 results, and then that will be followed by a Q&A.

So Jukka, please go ahead.

Jukka Moisio

Thank you, Päivi. Good afternoon, and welcome on my behalf as well. I'll start going through the prepared notes, a PowerPoint presentation and, as on the cover mentioned, we had a strong volume and profit growth in the third quarter.

But before going into financial details of the quarter, just remind you that we announced our revised growth strategy in September in our Capital Markets Day. Some of the highlights of that strategies that we have an ambition to become a 2- billion-euro company mid-term.Mid-term meaning three to five years. And that will happen by growing Heavy Tyres by 50% from twelve month rolling basis ending June 2021, also growing in North America by 100%, Central Europe by 50%, maintaining and strengthening the number one position in Russia and also strengthening number one position in Nordics and Vianor.

Our financial key targets are 20% operating profit and 20% return on capital employed. So those are the highlights of our mid-term targets, which we announced as mentioned in the middle of September.

If I go to page five, which is our Q3 highlights. Net sales at 443 million euro, up from 350 million euro or approximately 25% with comparable currencies. All-time high third quarter, both in the passenger car tyres, as well as in heavy tyres. And we had strong demand for our products in all markets. Operating profit increased from 69 million euro to 97 million euro in the quarter and that was driven especially by increased sales volume. We also made price increases to combat inflation that led to higher ASP. We also continued prudent cost control, especially to ensure that the cost inflation is also controlled internally.

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Nokian Renkaat Q3 / 2021 Interim Report

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If I move to page six, and I call out some key numbers in our P&L. First of all, the segment operating profit percentage is 21.8% in the quarter compared to 19.8% one year ago. Year-to-date our segment operating profit is at 19.7% in 2021 versus 12.2% in 2020.

Cash flow in the quarter -81 million euro, this was driven by increased working capital, both inventories and also receivables, and on the other hand, we also had increased payables, which helped with the cash flow. Capital expenditure remains below 2020 level. Also in year-to-date, we have invested in year-to-date about 60 million euro versus 119 million euro a year ago. Equity ratio at the end of the quarter at 66% versus 57%, and gearing at 16% versus 18% a year ago.

Those are some of the financial highlights. And now, I hand over to Teemu to talk about passenger car tyres and financial details. Teemu, please go ahead.

Teemu Kangas-Kärki

Thank you, Jukka. Starting with the passenger car tyres, we had strong volume growth in all markets, especially in Russia, that is visible in our numbers. The growth rate for the third quarter was close to 30% and in absolute terms, net sales reached the level of 330 million euro. The segment operating profit for the passenger car tyres in the third quarter was on the level of 97 million euro plus.

We have been increasing the additional shifts in US and in Finnish factories in order to match that growing demand. All in all, if we move to the next page where we see the breakdown of our net sales, you can see that in the third quarter, our price mix was positive about 1.4%, of which the price component was clearly above 6%. So here you can see that we have been increasing prices as anticipated.

Then moving to the breakdown of our segment operating profit. Here, volume is the biggest driver to boost the profit, and as discussed earlier several times, we have a significant headwind coming from the materials and then when the factories are running with full capacity, we can see that positive development in the supply chain basket.

The net - we are on a level 97 million euro and in this quarter currency didn't play any significant role. In terms of net ASP, we can see that our price increases have offset negative BA [ph 00:07:15] mix impact when that share of the Russian business is growing stronger than in other markets.

If we then move to Heavy Tyres, there we can see the all-time high third quarter net sales and operating profit with comparable currencies, the growth rate was on a level of 36%, net sales on a level of 69 million euro and segment operating profit for the quarter close to 12 million euro. And the growth was driven by new product launches as we have been discussing earlier that we have a strong NPV pipeline coming and that is affecting positively to our top line and customers' strong production levels as the early timing of deliveries help to reach the top line. In terms of inventories, we can clearly see that those are on a low level, as also in the passenger car tyre business.

And then moving to Vianor. There the performance has been on a good level in all countries. The net sales growth was on a level of 4% in reported numbers, in absolute terms on a level of 70 million euro, and then the segment operating loss was around 4 million euro. And as we all remember, Vianor's two main seasons are Q2 and Q4, and therefore we are now in the middle of the main season in order to generate the profits.

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And maybe as a final comment of the Q3 and the second half, we clearly saw that Q3 was stronger than we anticipated, because of the lack of tyres, but in terms of our view on the second half, there hasn't been any significant changes as we see that today.

Jukka Moisio

Thank you, Teemu. And I continue with the presentation. So first of all, to revisit our Hakkapeliitta 10, which is our major launch this autumn, again, it's a four-time test winner in Finland, Sweden, Russia and it comes with 140 different SKUs and is a really good winter tyre.

On the next page, on 12, Hakkapeliitta 10 EV which is a tailored model for electric vehicles and hybrids. There are certain expectations or parameters in EV version that are important. First of all, the EV vehicles are heavier, so therefore there is a higher load capacity in the tyre, as well as the higher torque in EVs, and therefore, it needs to have a higher grip or higher torque. It's made from sustainable materials. So this is in line with our sustainability targets, and we include more and more renewable and recyclable material in our tyres. Hakkapeliitta 10 EV also comes with lower noise and that allows higher driving comfort for EVs and hybrids. And finally, what is important for the improved battery range and sustainability matter as well, there is ultra-low rolling resistance in this winter tyre. So this is our highlight and our key product in the season.

On page 13, just to recap that sustainability is important, firmly rooted in all what we do, including our mid-term financial targets, non-financial targets. We had also introduced those in September. So, we want to bring new environmental and safety innovations to our products. Our ambition is to have 50% of the tyre made from renewable or recyclable materials. We also aim to reduce our CO2 emissions, in line with the Science Based Targets which were approved in 2020.

We further want to improve our workplace safety and we keep on monitoring and improving the monitoring of the sustainability of our suppliers. We have published our sustainable natural rubber policy in September. Also, we announced that we've made a ten-year agreement to have renewable wind energy for electricity in the Finnish factory in Vianor and also in June we announced that we will start a solar power plant on top of our Finnish logistics centre in Nokia.

Our guidance on page fourteen is unchanged. We expect that in comparable currencies the segment's operating profit and net sales are expected to grow significantly. And recapping our prepared notes with our revised growth strategy, we have been ambitiously forward [ph 00:12:54]. We aim to be a 2-billion-euro company in mid-term, and growing in heavy tyres by 50% from rolling twelve months ending June 2021, growing North America by 100%, Central Europe by 50% and strengthening number one position in Russia and also strengthening number one position in Nordics and Vianor.

And our 12 month rolling sales, at the end of June 2021 we were 1.52 billion euro and now at the end of September our 12 month rolling sales are 1.615 billion euro, which is all-time high rolling 12 month revenue of the company.

With that, I end my prepared notes and I open for questions. Päivi, please go ahead.

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Päivi Antola

Thank you, Jukka. Thank you, Teemu. And now, Operator, as Jukka said, we would be ready for the questions from the audience, please.

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