Nokian Renkaat Oyj

Kim Gran – CEO Anne Leskelä – CFO

Tom Skogman – Handelsbanken Capital Markets Tommy Ilmoni – Carnegie Investment Bank AB Artem Beletski – SEB Enskilda Stephen Fitzgerald – Goldman Sachs Martino De Ambroggi – Equita SIM

This is Kim Gran here of Nokian Tyres speaking. I’m pleased to welcome you to this conference on Nokian Tyres First Semester Results and we will be presenting the results of Q2 and give you guidance for so of the following here.

With me from the Nokian team, I have our CFO, Anne Leskelä, who is here to help. If there is any tricky questions at the end, when we have the Q&A and also our Vice President for Communications and as usual here in Helsinki we have analyst and press, and media, and some investor present.

In my presentation I will start by having a short summary of our Q2 results and also an update on how we see the market, raw materials and pricing developing on different markets and then we we’ll briefly touch on the profit centers and the operations near the first half and I give an update and I go ahead and soon, how we see the rest of the year proceeding and of course we’ll spend quite a lot of time talking about Russia, the market environment on our like corporations over there and how we see that developing, but before continue, I would like everybody to switch off your mobile phones in order to make sure that the teleconference don’t get any disruption, while we proceed. The key message is today are that nothing dramatically has changed seeing after the results of Q1.

Our view on the market situation and our own operations are pretty much unchanged which is reflected in the fact that our guidance were so for the second half is pretty much intact. Of course we’ll be talking about the pricing and raw material ratio a bit how’s that has changed, then I’ll review on that portion has been updated.

And the market in Europe is still quite weak. We see the market truly being down compared to last year, but they’re already somewhat positive signs in the marketplace and I’ll be touching on that.

And when looking at our core markets, 75% of our revenue is created in the combination of Nordic countries and Russia. We see the marketplace being quite flat for the full year with Nordic countries improving a bit during the second half.

One of the key elements is the pricing environment, which has been some people have been told not to use the word "challenging" because that means bad, but it’s been quite tough and prices on all markets have declined a bit compared to last year some markets, more heavily than others and I’ll also touch on how we see debt progression and also the future. The material which we’ll be using in this conference has been published on our website and I’ll try to remember to refer to the page, which I’m presenting.

So let’s move on to page three, where we have a summary of our result and also summary of some of the key points, we want to address. The second quarter sales and result were pretty much in line with our own expectation, you could say that.

The EBIT was slightly better because over the fact that raw materials declined more than we had estimated and we will continue to do so over for the full year. And improvement in EBIT of roughly EUR7 million going to EUR113 million last year in Q2 to EUR120 million relates basically two-thirds of the improvement came from the passenger car tyre division which booked an EBIT margin of 36% in the second quarter and the rest of the improvement came from improved business and profitability in our tyre chain.

Vianor part that had to do with seasonality. The summer season being shifted forward a bit and parts slightly more than half of the improvement in Vianor came from increased revenues in sales of services.

Our total ASP for the first six-month is flat measured by Euros to kilo, despite the fact that we’ve seen some price declines on our markets and that has to do with that improved mix, we had a bigger sale of winter tyres being sold in during the first six months, it went up from roughly 64% to 73% of total passenger car sales and also the share of the markets in which we are market leaders, which is Nordic countries and Russia and CIS, the share of that business increased in the total portfolio going up 69% to 74% of total revenue. So this pipeline show like lower price increased that we had that then held up by the improved mix.

We are also continuing to improve the industrial structure so we like started to use the second 12 lines in Russia and we mandate in March-April and we’re running full capacities during in Russia or so during the second quarter. In our results in Q2, we have also booked an exchange rate difference which relate to some internal loans from another company to Russia in rubles and the effect is visible as we have to book it based on behalf are as rubles, but expect fully that we like to mitigated are decreasing so has one-third of what we book now, will be effect for the full year, so that will gradually like melt as we move forward.

And we’re looking at the second half of the year, we expect to show growth in sales practically in on all the markets. The pricing environment will continue to be challenging and it’s going to be very tough to maintain the same ASP, which we had last year for the second half, but having said that we have stronger than expected tailwind from raw materials helping also, here in the second half which is then the foundation for our guidance.

We may move then on and I’ll talk a little bit more about, how we see the different quarters to page seven in the presentation. And some or what I’m going to say is very familiar to most of you and of those who follow the company.

We had as usual a quite slow start for the year. Our first quarter is always the weakest and then gradually, we start improving the results as we move forward.

During the first quarter of this year, of course those results during the first three months were affected quite heavily by the fact that we stopped making contract manufacturing to Bridgestone, so part of like book cumulative sales decline has to do with that, and then like during the second quarter and also we’re likely during the first quarter had to like cut production a bit in Finland. We had roughly two weeks of layovers, we in the Finnish plant, so we were not running full speed.

In the second quarter, we took Finland back to normal to five days production and introduced the 12 lines in Russia, which mandate are like production output increased and as we go forward after the holidays, we will continue to run Finland full five days full speed, we are running flat out in Russia. So we are utilizing all the capacity, so we are gradually like improving output going forward quarter-by-quarter.

When looking at the ASP, so the first quarter and second quarter, we’re flat. We estimate that during the second half when taking into effect all the effects both from price like environment, some price cuts and then the mix effects new products and growth in the core markets.

The total effect to be somewhere between 0% and 2% declined. So which means that we should be able to like maintain quite good raw materials going forward.

So we are looking traditionally I’ve been here on this point, being making guesstimates on how many, what percentage of EBIT generated so far is for the full year and as I will do the same again. So I will say during the first six months, we’ve generated somewhere between 45% to 47% of global annual EBIT generation, which means that we will tenure the second half improved EBIT our own estimate is that we will able to improve EBIT in Q3 and also in Q4.

Our visibility is quite good for the third quarter and of course the visibility to the fourth quarter which is then determined by winter tyre seasonality and depending on winter when snow falls in different areas and the seasonal sales is still unclear. So that is an estimate.

Okay, then moving forward to page eight and some more comments on markets in which we operate. In fact, we managed to improve our market share in all the countries in which we operate during the second quarter.

So despite the fact that we saw some decline in Central Europe or 7% in the second quarter, we managed to improve market share and when looking at the Nordic countries, we are looking at the first six months have shown decline in the replacement market of roughly 2%. We expect the total annual volume development to be flat, which means that the second half will probably be better.

We’ve generated about 3% of improvement in revenue and the majority of that came 14% growth in Nordic countries during the second quarter. And what of course that has driven pretty much by launch of new products, which we have as just we’ve been renewing our product range and one indicator of the success has been that both in Finland and Sweden, which are the biggest markets for winter tyres, Nordic countries we booked record high, all time high pre-season orders for winter tyres.

Of course, we sold part of that in Q2 but the situation is quite good here. Russia; the replacement market totally in Russia has been flat.

We have booked an improvement; I’ll be talking about Russia more in detail, so I won’t go into that much. We’ve shown a growth in volume and a slight decline in average prices based on by the B segment as far as having the biggest share of the total revenue this year.

In Europe markets had been down quite dramatically during the first six months. We are now seeing some improvement during the last two months that has been already size of the market improving.

When like that will be effected is then a question mark, we believe that there is pent up demand, both for summer tyres and winter tyres in Europe. It’s an interesting situation, when you look at numbers of car registrations, cars being sold are dramatically down roughly 7% during the first six month.

I think the exact number is 6.6%. The car park in Europe is still growing and with having 17 months over decline in consumer sales in Europe.

It means that with the car park growing and sales of tyres been down, we believe that at some point, this slight pent up demand will be released, whether it happens during end of this year or during the beginning of next year, we remain to be seen we believe that is the case. Okay and basically, when looking at assets.

The total of it as I stated Scandinavian and Russian basically the share of that has increased. It is a total portfolio and as you may remember in passenger car buyers; our EBIT margins are quite healthy in those markets Scandinavia and Russia, our EBIT margins are quite lot lower than the average 36%, which we booked in for the full company.

All right, then let’s move on like raw materials as that is the biggest ever cost. So on page nine, we have raw material and our estimate for the full year, we’ve upgraded that.

We started the year by stating that we expected EUR20 million to EUR25 million of tailwind. Gradually, we saw that this would be EUR30 million and now we know that it’s going to be in the ball park of EUR45 million of tailwind for the full year.

And of course as we’re already in August. We’ve already contracted, so this is no guess work, it’s something which we know as we’ve already made the deals.

Raw materials for percent, as you may remember as we stated this before about 65% on manufacturing cost and about 35% of net sales. So it is by far the biggest like input cost and has a big importance for the operations.

We are looking at how this is then going to work, well in our case we are looking at the manufacturing side and raw materials. The EUR45 million of like savings, mean is that if our ASP on an annual level would decrease by 3%, they will still have the same raw material margin, so that is the ratio, roughly.

Okay, then we will move on the profit centers and to page 11 and basically the structure of the company has remained the same, so far car tyres through percents. Roughly 75% of total revenue and there of course significantly more of the total.

The EBIT, when going forward we expect not only to like improve our profitability in during the second half, but our estimate is that we will do better during the second half in all our profit centers during the second half. Of course passenger cars improving but also Vianor we expect to be like profitable on EBIT level.

Heavy tyres we estimate, a small improvement compared to the beginning of the year and also compared to the second half of last year and also truck tyres, where we only report the revenue. We expect to remain on a healthy level and to improve a little bit.

So again we are not talking big numbers, but we are talking consolidation of results. Then moving on to the profit centers are already of course been talking mainly are only passenger car tyres, which is more in detailed percentage on page 12.

Already talking about ASPs, sales and so also I want to repeat that. Perhaps one of the points is that the growth which we’ve estimated for Russia for the coming years has because of this year being delayed and we have also upgraded our estimates for t hose markets.

During the second half, we look as I stated at increasing output compared to last year. Also commissioning additional capacity in Russia and with the 13 line going in or in fact it’s already installed and we are starting to utilize it and then EBIT to improve.

One of the interesting points perhaps which is not in the presentation, but is in the text system [ph]. The share of Russian production in relation to Finland and Russia has a production cost which is more than EUR10, but by a cheaper than the Finnish plant has gradually increased and during the first six months.

We are out of the total output which we had 82% were actually produced in the Russian plant and then of course 80% in the Finnish plant. And so that also supported productivity gains and helped to keep reasonably good numbers and of course an EBIT level of 36%, compared to 35% last year is reasonably good in this platform possession market.

So we’ve of course have to fight in order to keep in that level. Right and one of the ways to keep it and is of course to have the best product in our core segment.

We already told during the first quarter that we are re-ramping our product range. So roughly 70% of our winter tyres are renewed during this and they will come on stream.

So far, we had been selling into distribution, but now they’re coming on stream also to the consumer market, which would help to do it. One of the points, of course which we never utilize is that, we’ve had the speed record for starting winter tyres on ice, already for many years but when launch a new product, of course we make sure that we upgrade it or so that record during the last winter.

I won’t comment more on that. Okay, then perhaps the point which has caused normally or causes most questions and how we see the Russia developing first our own results.

We had a slight improvement in sales in Russia over about 2.6% and but also the other likely areas in CIS improved in the percentage terms for the 44% but gradually we have again like started to operate more rigorously in Kazakhstan, Belarus and Ukraine, so those markets are again like back on track and improving. The growth in Russia came the mix changed as I stated a bit during the first six months volume were up slightly more than the number which we present here and ASP came down, a couple of percent units as a reflection of us selling more normal, then previous week.

In fact like, we have been quite successful in filling the pipeline during Q3, both in terms of wholesale and retail. There was one of our competitors who made a comment earlier here about like the inventory level being high at this point in Russia.

My comment to that is that of course it is, it’s full of Nokian Tyres which we sold in Q2 and that’s the normal like proceedings and events. If it wouldn’t be, I would be extremely worried about the situation.

So as you may remember, our way of operating in Russia as it’s nine time zone, and nobody knows when snow is going to fall, we have to like shelves filled, to fill it during mainly during Q2 and then to top up in Q3 and then contribute later on to mainly to car dealers during the season itself, so it has to be prepared in order to work well. Our market share in Russia has improved quite clearly in winter tyres, during this year.

The market in winter tyre, we are looking at folding numbers is a bit up, but our sales are significantly more up then the numbers in the total folding. And as some of the weakness in the market has to be with summer tyre sales which actually declined during this year.

So we’re looking at the full year estimate for this year. We expect like a slight increase in total revenue in Russia.

One of the key elements of course is the distribution base 16 and we continue to be by far the like the biggest operator in distribution with our Vianor chain and also the Hakkapeliitta and that’s during the first six months we added in Russia and CIS, a total of 48 shops into the structure. So we have now about 580 and we will continue to like the increase the numbers also the during the second half.

So we believe that the control of this part of the business is vital for success and of course, when looking at our competitors, either they’re trying to copy what we’ve done but I think that one of our colleagues from (inaudible) has about 120-130 shops in the chain, that’s the closest to what we have at the moment. Okay the pricing situation in Russia is basically, that we are looking at the premium segment there is less effects, there’s a slight decrease compared to last year, but in the B segment there has been quite a lot of aggression mainly from the Japanese companies for while the recourse of the weak year, held by the weak end, which has forced everybody in the B segment to reduce prices somewhat in order to get it going.

So that’s Russia or the distribution. Our industrial part and the factory as I stated already is running full speed, 12 lines running.

The new factory which we commissioned last year and will house when it’s fully completed, four lines with a capacity of 6 million, already has three lines installed and we are planning to put in the fourth line also, which will then gradually like be lot of the capacity. When grossing last year we produced about 12 million tyres in Russia and we are gradually increasing the capacity and we will close the year, with an annualized capacity which is more than 15 million units.

Okay, I think that’s enough about the factory. I see one of the power points perhaps, without going into numbers about what the Russian operation is that.

During the first six months, the EBIT margin has actually improved. I was talking about pricing reductions and so on but, the fact that we have commissioned the new lines, the fully automatic lines have improved productivity from materials side and we have been able to improve the local EBIT margin also in Russia in during the first six months of this year.

Then the couple of words about the market itself and what we, how we see the like drivers in the market place, the GDP in Russia has not been as good as estimated at the beginning of the year. The GDP growth during the first six month was about 1.7% and it’s already being downgraded to I think, their estimates vary between 2% and 2.7%.

We state 2.4% and the main driver for the growth is consumption of consumers. Consumer confidence is actually on a quite good level, but the consumption has been held back a bit by two factors.

The most important being quite high interest rates, during the first six months for loans and then also like the recession in Europe and transparency about the effects of that. Our estimates which we show for growth are based on the same thing is that, Russia will gradually turn back to GDP growth, also we estimate or saying that the interest rate, the effecting interest rates will likely come down a bit, in order to like feed the consumption and the market will start to, to car panel will have something like 3% to 4% growth as an average going forward.

When looking at the car sales, which has been a concern, during this year. We’ve seen a decline.

I stated after the first quarter, that I believe that the biggest factor is the interest rates. If we go to a bank or waive to the bank during the first six months, you had to pay an effective interest of 14% for a car loan.

Now at the time, after Q1 being by hope on this is I believe becoming the Chief of the Central Bank of Russia stated that I think that you will do something. I don’t know whether it’s Chi [ph] or the rest of the Russian gang but they actually change the rules and implement is again a support for car loans, which is effective for 1 July of 5.5% effective with that being said.

The interest for car loans which use to be 14% goes down to 8.5%. So there is, the car loans will be an incentive or prevention of 5.5% it’s by the government.

Previously, this is not anything new. It’s new for this year and overall but this is something which we had also previously in 2010 and 2011 and at that point in time it had, quite a positive effect on car sales.

Of course, it’s not a magical wand and it also started helping immediately. We feel that the effect will come gradually, during the fourth quarter and then also during the beginning of next year.

The difference this year compared to the previous program is that, the previous program was directed only for cars, which were manufactured in Russia. Whereas the new program which is implemented now is open for any cars regardless of their origin or where they’re manufactured or regardless of whether they’re produced in Russia or whether they’re imported, they will have the same support, but it will then of course mainly affect the mid-size car as it’s directed to like a certain level of value of cars.

And then the reflection car tyre, demand and how see that, in fact as I stated we have updated onwards for this year and also for the future. In fact, this is practically the same graph which we’ve had in the past, with the exception that the growth starts one year later.

So because this year is going to be flat, we expect the market gradually then to pick up again. At the moment the total Russian market consist of if we take A,B and C segments.

We estimate it’s going to be somewhere around 40 million-41 million units and out of that we estimate that roughly 45% is summer tyres and 55% is winter. So with there’s the biggest market segment in Russia.

With like the majority of the premium and the B segment which is called premium by summary factors. As it’s the rest of brands, is mainly with the tyres of the majority of that is with the tyres.

We believe that the winter tyre market is going to grow this year and that the summer tyre market is going to decline having a full effect of like roughly flat total numbers we are talking about sale in of tyres. Gradually this growth on updates 20 we believe will change, we have not updated our new on the C segment which we think is going to gradually melt into the B and like that segment is actually growing fastest at the moment.

Okay, I think that’s perhaps enough about the market situation. So we believe that this year we will see growth in the premium segment and grow in winter tyres after decline in the summer tyre business.

Also the comments which I made about Central Europe about pent up of car park in relation to what it’s sold, we have practically at the moment the same situation in Russia. The car park in Russia have during the recent years gone from level of roughly 32 million to between 37 million and 30 million cars.

So the car park has increased quite dramatically during the last years and as this year and last year. This year we are not seeing any huge like sales improvement in volumes.

We believe that again there is going to be pent up demand and which will see a growth, when going forward. Some of the regulatory changes in Russia, there’s a program to implement winter tele-station [ph] in Russia from the 1 January, 2014 we accepted that to be finally approved and implement it in October of this year.

The membership in WTO and the duties is going down gradually from 20% to 10% is also something that needs to be rampified [ph] during this year, the duty has remained for a level of 20% despite the fact that it was supposed to go down to 18%. We believe that during the fourth quarter, the chains will then take place the duty will go from 20% to 18%.

Well other Czech [ph] officials have come up with the new fees will remained to be seen as far as we’re really think that the Russians hold the money or the custom authorities will let the money disappear. All right then a couple of first about the other operations.

Vianor actually to fall quite, well as I stated improved services and so in Q2, we made an EBIT margin of 7% seasonally of course the first quarter was quite weak and we expect the full year to be positive, of course with the majority of the revenues and profits to be generated during the second half of the year as usual. On page 22, we have an update of the structure of Vianor totally we added 84 shops during the first six months.

For structure we have now 1,121 shops. We had at the end of June, we have slightly more at the moment.

In 26 countries, Vianor is the largest tyre chain in Nordic countries and the Baltic States. It’s also the largest tyre chain in Russia and CIS and we are expanding also in Central Europe.

The new concept which we launched end of last year called in NAD, Nokian Authorized Dealer has been successfully added already more than 200 shops in three countries. Mainly Germany, Italy and China and we believe that we’ll have more than 300 by the end of this year.

One of the expansion areas, new areas for us or Vianor or for NAD distribution is China. Where we have contracted with one of the major global car manufacturers to open 100 NAD’s in China, in the areas where there is snow.

So we are gradually looking also like building distribution on that market. This is the concept on following; When looking at the other operations at past and quite attractive.

The heavy tyres there is practically no big change. We believe that the firstly tire market and our sales in all categories will improve especially end of Q3 and the beginning of Q4 and that we will be able to book slightly improved result.

We are making about 10% EBIT margin, which is reasonable considering that we are only utilizing at the moment about 65% of the capacity. So there is still like room for improvement in this operation.

Truck and bus [ph] (inaudible) and we will take a couple of the cash flow elements. We are looking at our CapEx for this year, our estimates in sound change, we are going to spend about EUR144 million in CapEx, mainly to like upgrade and increase the capacity of the Russian plant and also like to do some improvement in Nokian plant, many much of the Nokian investment is related to most.

And as a reminder, our maintenance investment level presently, if we take notes, our maintenance in the production is running at the level of roughly EUR65 million. So whatever we do on top of that means either an increase in the capacity or an improvement in productivity and giving guess to that.

When moving forward going into next year, we estimate that the level of investment is going to be between EUR100 million and EUR150 million depending on how the market like to develops and there is at the moment, no major abates 28, we have a summary of our factory structure or manufacturing structure. There is no imminent lead for any major factory like projects as in the existing to factories in Finland and Russia.

We have the capability of ramping up the capacity by more than 50%, which means that from the level of like capacity of 18 million last year, we made about 16 million tyres. We can go up to 25 million in the present factories and if we run both factories and do the changes, it means that we need to spend only slightly more than EUR100 million to create roughly 8 million of additional capacity.

So if you look at that picture. I’m going to give a quite good back fall for the future.

The projects on Central Europe are presently on hold and we are monitoring of course the situation quit carefully in Central Europe, so there is no news on that. Then the last slide today, before we go to Q&A is just a summary of the assumptions and the view on how we performance on the second half for the guidance.

I’ve gone through most of those so, I won’t repeat it. The guidance itself has been like slightly altered from the previous where we stated that we would be looking at some growth during the full year or this year to flat to some and I would claim that perhaps the flat to some growth to sales and summary related perhaps to EBIT, when looking at it, but both need to so need to improve during the second half in order to reach the targets.

Okay, I think I’ll stop here and then we will move to questions and I’ll start by questions here in Helsinki and then to questions on the teleconference and on the lines and please state your name and the company, you represent before asking the questions. And preferably like not like five questions.

You want to go about one or two, in order for me to remember what you’re asking.

This is Tom Skogman from Handelsbanken and we haven’t seen the Russian ruble coming down significantly, lately. Could you open up or what kind of impacts do you see both from the seasonal patterns with that ruble swings and I wonder what kind of hedging follow policy at the moment?

Okay, the hedging policy of course I think it’s better if you talk to our CFO after the meeting. It’s unchanged and maybe it’s being demonstrated explained quite carefully in our annual reports.

There is no big issues. Let’s put it first that the ruble as you stated like become weaker against the Euro, whether that’s significant or not going from a level of 40 to 43.

I don’t see that much, it’s a bit of surprise for us as the oil price, which are one of the main drivers for Russia. Normally when looking historically at an Russian level, when the oil price is high, also the ruble is strong and our expectation is that the ruble will be volatile during the second half of this year.

We don’t see any major changes as such, longer term we’re looking at different bankers analyses on the ruble, they seem to believe that the ruble was strengthened against the Euro. I think that, when you take leverage from what different estimates they’re talking about the level of roughly 38.

In our own estimates, we utilize in a level longer term of 40, compared to Euro. So If I would know exactly, I would be a rich man.

Unfortunately, I don’t have that visibility.

But what I’m interested is that your sale till to Russia in the first half and then you have a lot of exports from the Russian plant to Euro accounted in the second half. So I just wonder, where the benefit you should get from these here’s destroyed by the hedging or do you really get some benefit from?

Well of course we are hedging, so we are not getting the full benefits, but we are getting some as well the costs are in rubles, as you know the ratio of like production and sales remains pretty much the same. We will be ramping up the capacity in the Russian plant and when looking at the volumes from the Russian plant roughly slightly less than half of the production is actually exported from Russia and slightly more than half of course and sold in Russia.

So what will 10% change in the ruble mean on a full year basis for your EBIT or pretax profits? What’s that, what do you use?

Well I think, you’ll have to come back to this question. I won’t give you an exact number, as I don’t remember exactly how much has been hedged and how much has not been hedged, but probably the like effect would be quite minor.

So not material for the year, but unless I know what’s to like to comment to more on this part. So I’ll let our CFO, Anne Leskelä address it more in detail.

Yes, they were still discussing about this Russian exposure and we have to remember that as Kim said that roughly half of the production in Russia is exported and that’s actually is all invoiced in Euros, so that is actually gotten down the Russian ruble position quite significantly.

Okay, I hope Tom that this but you can come back to this after the meeting.

Tommy Ilmoni from Carnegie question regarding the Central European markets. Do you have a better visibility this year, than last year when it comes to sell-in to Central Europe?

The answer is yes. Yes we have a better visibility than last year.

So our quarter book is higher percent to Europe this year than last year and all at the same time.

You don’t see any risk for similar price.

Well, I think that the price erosion in Central Europe has actually like leveled off. There was a quite a fight and here in recent weeks, we haven’t seen any additional changes as much.

Somewhat optimists hope that the price will actually like to quite rapidly up again, as like the wholesales and the market had been holding back like now for quite a long time and at some stage, we had to start filling the pipeline. So I hope that they’re light, but of course that remains to be this year.

I already explained about the pent up like demand in tyres. We believe that we’re talking on a total level of perhaps in the ball park of 30 million units as demand one-third roughly being winter tyres, we are talking about consumer level and two-thirds being summer tyres.

When actually that then like materializes is something which I don’t know, we have to wait and see, but the situation is improving and slightly better than last year.

Artem Beletski, SEB. Can you Kim talk about uptake how tire products or have you been able to grab significantly market shares recent premium is Russia for example for this product and maybe in terms of building dealers pipeline, so have you been delivering a lot of this products in Q2, obviously it should be seen in Q3 of this year?

While we will see like we have actually supplied quite a lot of acknowledgement during the first quarter. Since we’ve been (inaudible) of the new product yet in production or full available during Q2, so it’s a gradual field up and so we are still like not fully utilize in the full capabilities of that, but they already commented that we’ve had like record high pre-orders in Scandinavia, the Nordic countries and which reflects the products.

Everybody of course in our distribution as we are working very closely. We are informed about the chances, there’s a product range already during last year in order to make that they don’t have too much of carry over.

Made the second question regarding, this opportunity speaking C segment, do you have anything new to fill?

No there’s, I already stated that’s a quite bit big market in volume terms, so at the moment in the ball park of 18 million units and being part of that being also winter tyres. We stated in Q1 that we are considering launching a new product range into that, let’s say that it’s very likely that we do it in line.

At some grade in a limited way in order to basically control distribution, it’s for defensive move in distribution and the opportunity for likely improved profitability. So it’s a better tool for better control of distribution and it’s very likely that we do it.

Of course, they’re like price erosion in the B segment during this year has made us to rethink a bit and so, so when the final decision will be made during Q4 and after the first wave of snow, when we see what the balance is going to be even going forward for next year. So the tools we have already in place.

So we can do it next week, if we like but the decision will depend on market development.

Very good. Thank you.

(Inaudible) there’s one question on your outlook on this Central Europe after Q1, you said that you expect flat sales in Central Europe this year and now after quite clear drop in H1, you said you expected improvement in H2, so is flat sale okay are you expecting decline for the full year?

Well, if you look just at the numbers. Our sales in Europe were down 24%, but you have to remember that in that number.

We include the Bridgestone contract manufacturers, you have to like take that our in order to count the total numbers and then you have to take out price decline. So in fact you’re looking at the second quarter sales.

We are looking at volumes feel pretty close to already to the previous year and as Anne stated, we believe that going into Q3 and Q4. We will start to increase the volumes.

Okay, very good. Thanks.

(Inaudible) you have 12 lines in production in Russia. How about those lines to come in the coming years, can you tell us anything about that?

Well the total like number of production lines in Russia is going to be 14 that’s the maximum and are already, we’re in 13 line this practically installed. And then on top of that, we have also the capability of modernizing the so called old plant, which is not that old, it’s something which we built for 2005 on, eight production lines, of let’s say semi-automatic and then which can be automized and improved, we’ve already done some improved on one and there is still like potential to do the same.

So we estimate that from the Russian plant, where it’s like fully completed all the modernizations. We will be able to like squeeze out, in the ball park of 20 million units.

And the nominal capacity in the Finnish plant if we run full speed is 6 million. Therefore it’s not running full like seven days week in Finland, at the moment.

I guess, a small follow-up on that. is it fair that you’ll prioritize to modernize the Russian lines, I assume and then do the Finnish lines afterward and build a third factory, that what we should expect that you don’t really automate the Finnish lines.

Well the Finnish plant in fact is pretty much processed and development plant. And also addressing the Scandinavian market, which means that all the new processes, all the new machinery is first implemented and tested and put into production in Finland and also the new products are developed here.

The Finnish output is tested by basically like aged, roughly at what we sell the Scandinavians. So Scandinavian volumes for the same level of volumes which we sell in the Nordic countries is what we produce in the Finnish plant and the role of the Finnish plant is to act, not only a platform for production process development, but also a platform for R&D, as we held R&D operation in Finland and the R&D requires a living plant.

Which means that unless we have the best equipment in let’s say process development plant, we won’t be able to do the best new products? So if you say that the automation in the Finnish plant has been to a big degree, there are something’s which we still could open, but the answer to your question is that we are looking at, what likely in best rate of returns.

Yes of course, we will modernize the Russian eight lines. First we are looking at production output, but it has to be and we will continue to develop and upgrade also the Finnish factory.

On the contrary, we have to do it. I do it because business feel so.

(Inaudible) question about your plan, about the Central Europe’s factory. You’ve said earlier this year, that you would postpone the plant due to the recent success in Europe, what’s the current position or thinking on that one?

Well the thinking is that, at some point we have to build it. With if you look at the estimates, which we have for the Russian market.

It means that gradually the capacities in the Russian plant will be consumed by Russian CIS and we will need a factory for Central Europe while we also project growth in the future. So it’s a question of like, what the correct timing is in order to do that.

We have like already projects and agreements with some governments on excise and terms and so on and we could like make a decision tomorrow market allowing, but at the moment we will see whether our thinking on this car park tyre sale had to pent up like tyre sales is factor, whether it’s just like numbers on paper. It seems to be no further questions here in Helsinki.

We will move on to questions on the phone line.

Thank you, Eric Gouland with ABG. I have three questions.

Kim, the first one. The table on slide 20, if I understand correctly, what is it you changed here let’s say from 2013 and ‘14 onwards.

It looks like quite different compared to the same tables at Q1.

You mean, the chart on growth in Russia.

Yes, exactly the.

If you say, previous like guidance and thinking on Russia. You should go compare that with what we present today and if you move the previous one year forward.

You’d have practically the same from 2015 and which we had before. So what we estimate is that this year, we will not see that much growth.

We will see like the winter tyre market growing, summer tyres is very down with the total effect on the market being minor or none and then we’re going to see some growth during the next year and then gradually the market picking up again. This is based on the thinking of the car park growing from the present level of roughly 280 units per thousand capita, in the ball park of 350 cars per thousand capita.

The Russian car fleet has changed during the last 10 years roughly from a level of 100 gradually to the whole crisis to about 210 and the enrollment there is about 280 cars, passenger cars per thousand capita. And as I stated before, the car park has changed from roughly less than 30 million to roughly 38 million.

So these are the drivers behind it, of course nobody knows exactly what is going to be the situation. The Russian market is still in a phase of growth and the car park is going to grow, when you’re making this estimates.

We’ve been looking at what happened in Eastern Europe, after it was moved in from [ph] Commack 1 and gradually became EU countries. The first phase was to go from less than 100 quite rapidly to a level of roughly 300 and after that the growth has slowed down and favor rapidly up about 350 and then it started materially.

And we expect the similar situation to happen also in Russia. Then of course like with Russia, cars only the winter cars that will drive, the new car sales will drive and sales of winter tyres, the premium segment and the growing car park will grow, drive then the replacement market.

We estimate that the life cycle of the tyre in Russia is slightly higher than in the western world, but still that will like continue to see the growth for some years after the car sales like matures. For your loss, for simple question but a quite a lot different strategy in place.

Okay, then the thank you. The second question is from the stimulus being introduced stimulus car phase in Russia, you talked about previously.

How do you think about the impact on your business given your weight in the premium segment or this being more of Nokian, the old man factor for you.

It’s going to drive the B segment more than the A segment, we believe about A segment will also get some benefits of it. When you look at more in detail into the Russian car sales, you’ll notice that for instance SUV, but the total car sales in Russian during the first six months came down, by B cost in SUV sold practically the same as before.

So the decline has in car sales was mainly in the mid-segment.

Okay, thank you and then the final question thus to Nokian Authorized Dealer network there and the expansion into China, can you say something about your longer term plans and expectations for Nokian in that region?

China is not major growth platform at the moment for Nokian buyers and the reason is that, the winter tyre market is quite small. It’s roughly the same as Sweden.

So likely it’s a big country, huge volumes so summer tyres and so the volumes are not enough for us for instance to start manufacturing operational overall. During that of course, we financially would be fairly easy to do, but that would change our business program and expose us to the summer tyre business, which in our opinion in China is not lucrative and we don’t see that to be something which want to get heavily involved in.

So it only more generally contribute the long-term as we in Europe.

It’s not the major driver in our next five years growth.

Okay, thank you.

Good morning from London, Stephen Fitzgerald from Goldman Sachs. Three questions, I guess two relatively short.

The first one is, if you can just update us on your potential contract renewal and the age limit, which I think is still implemented, when you expect any decision on that? The second question is on your balance and the dividend policy.

Obviously the balance sheet still looks very, very strong probably and again in net cash this year. Can you give us a bit of a feel, how you think about redistributing cash to shareholders and in that context, also the remind us about the dividend policy?

And then the third question is just, coming back to the market expectations for the second half. I think you gave quite a lot of examples and reasons why you’re lot more optimistic than some of your competitors, which you also mentioned during this presentation.

What I however, want to get a bit of feeling for is, how much of this is sort of let’s say bit more Nokian specific? So let’s say the success of your product maybe a little bit better visibility you have on the market given your experience in Russia and to what extent is this still depending on actually recovery really coming through.

So is there any, let’s say additional color you can give us probably will help to put it into context, what you’re saying and what several of your competitors are saying? Thank you so much.

Okay, thank you. Could you please repeat the first question?

I didn’t quite get that, you were talking about?

We talked about this, I think the last time that’s is in age limit at Nokian for the President and CEO and then the second question was just on the dividend and stock to return, cash to shareholders?

Well, there is no age limit as such in for how long I can continue, but normally there’s the pension limit in 68 years, so you can continue if you like to that point and like, I have the opportunity to get retire around 60. So those are the limits.

When do we make decision on how the client want to continue, will of course depend on the market. Then of course, it’s not my decision entirely.

So I’m likely blank, as of you in this as well. Then like the dividend policy that we’ve been paid more than 50% of net earnings during the couple of last year.

We paid EUR1.45 last year and I already stated that there is no like big demand for CapEx for next year or so there is no like huge financing or loans maturing, we have the convertible bond maturing next spring, which will drain cash by roughly EUR180 million. We paid about 200 million of dividend last year and of course, it’s not for the CEO to make the policy, but I believe that we will be paying quite a healthy dividend also during next spring and provided that we are able to increase net profit, a dividend should also improve accordingly and I can’t see that changing us as such as there is no point in sitting on part of cash.

And our policy on growth has not changed, we are not like interested in acquiring bad company. Hence we’re trying to consolidate that means, we’re operations, we are looking at organic growth, which has been our strategy for a quite a while and then talking about H2 and the specifics for Nokian.

I think you were referring to estimates about Russian mainly and of course let’s say that, who would have the best knowledge about Russia. We’ve been operating there since 1898 and we are market leaders pretty much for a long time.

We were the only western brand sold during the soviet time and have quite good visibility through our distribution network. So I would claim that our like expertise and on the market is quite good.

Our view on the market development itself doesn’t differ that much from what we’ve heard from some of our competitors. The view on inventory level is different as like some have been whining about like blocked distribution, we don’t have that problem as it’s our stuff, which is blocking, otherwise coming in.

So I’m not too worried and so that would be the Nokian specific, which you mentioned.

Okay, that’s very clear. Thank you so much.

Thank you.

Thank you very much. It’s Tomas (inaudible).

As a transition to this point about your stuff working as other guys start coming in, can you comment what the absolute level of inventory at the of H1 for you in terms of units and give us some qualitative comments beyond Russia on the level of data inventory as you facilitate in Nordic and Central Europe in particular please?

Okay, thank you Tomas for your question as you know you always ask the same question and I’m unable to like tell you, what we haven’t published in our report, but when you look at the like working capital and our cash flow during the beginning of the year, that would indicate that our inventory levels are down at the end of the second quarter compared to last year. In fact, the big part of the reduction in inventory value relates to the raw material prices being down, as we value our inventory based in production cost and raw material cost has been down.

So a big part of that in terms of pieces, our inventory at the moment in relation to what we expect to sell is too low, which is reflected by my comments on running full speed in Q3. So in total number slightly less but in value, like more because of little material.

Guidance for the market?

For the market, I’d say that it’s pretty much a normal situation for us in the markets as well. So we see a normal like progression.

Okay, another question on your working capital, your receivables jumped at the end of H1, more than the number you do and in relation to sales they’re pretty high, can you comment on that and where do receivables stand up in mainly linked with the expansion to Russia the proportional Euro in revenues.

Well, receivables have grown practically on all markets. So we have like some increase in receivables in Russia, more or less in line or slightly more than actually the top line growth.

And we’ve had like some increase also in the CIS countries, which showed growth and Nordic is nothing, no likely change and there are some like central European overdue, nothing dramatic, but some cases which is related to little bit.

Okay, thanks. One last question, if I may, I’m not sure I understood your question about the third brand or the possibility or third brand.

I think you said, the erosion of prices in the B segment, made you think again about it, but a final question would be taken in Q4, did I understand correctly?

Yes, basically when looking at this like the Japanese companies versus especially two which are active in Russia. How during this year in the B segment, actually one is on A segment and then the B segment product and one is operating in the B segment have declined reduced they’re like prices by between 5% or 10% and because of that, we had to follow-up with some extent or so with the normal price in order to like easy go away.

And whereas in the C segment, there has not been that much by price erosion as in B. so you could say that like, A and C pricing has been less affected by the competitive situation than the B segment.

Okay, great. Thank you very much.

Kim.

Since, the private investor. I’ve a question about the leftover.

Currently the Russian market accentuated to the point that moment, hopefully last have week leftover’s, how do you handle this situation, can you comment please?

I think, I commented already a couple of times. Are you talking about summer tyre or in fact winter tyres?

But if this was this present like, our normal operations in Russia, is to feel the pipeline. Really and that has to be between the 1st, that has to with that the fact like in a country with nine time zones.

You have to be ready for the winter tyres. As when the snow falls, you’re in autumn and early winter.

Roughly 30% of all consumers be resistant in one forth night, during two weeks. Which means that you have to be prepared on retail level in order to like be able to meet the demand from end of September to the beginning of December.

Which means that practically you have to like fill it quite early? And as we’re assuming other markets than Russia, Scandinavia, Central Europe and so on where the field rate is filling of the pieces is done later.

We have do the filling in Russia during Q2. So that relates to the pattern itself.

The most, so you have to do filling of retail, but also the wholesale points and distribution points in Russia because when the shop start selling consumer business. Buyer’s shops are fairly small, they can store tyres which represent phase of two to five days and retailer consist of more than 120 products.

So they would be running out day-by-day, which means that you have to replenish the shop in 24 hours in order for the retailers and ourselves not losing business and that means that you have to feel wholesale in order to be able to feel the consumer business. So this is part of the Nokian model, which we’ve perfected during the last 10 years.

All right, thank you very much.

Yes, good morning everybody from Equita SIM. A follow-up on the Russian prices.

I understand clearly from your previous answer that A segment was maybe was down low-single-digit in terms of prices. I was wondering, for both the three segments.

If there is a big difference between winter and summer. First question and the secondly is, it is clear what happened so far, but what you expect going forward on prices specifically by segment in Russia.

The second question is on Vianor in Central Europe, just to understand what your medium, long-term target in terms of total number of Vianor or in another way, what’s the base of growth you consider the ideal growth rate and last question on divestitures if there’s any update on this side? Thank you.

You’ve asked so many question. I don’t remember any of those, if you go through beginning.

Number of Vianor’s first of is, we are looking at more than doubling the number of Vianor’s in Russia and also totally. We are targeting up to 3000 points till the next five years, not in Russia but that as a total structure.

When looking at our growth, our strategy and long-term targets have always been the same since we were listed in ‘95, which is to provide a double in order of top line and result in five years. Which means an average growth of 50% and Russia of course is not an exception to this target on the contrary?

So we believe that we will show quite healthy growth on the Russian market. Talking about pricing, I think what’s the first point gradually coming back to me, once like you asked.

We don’t see any like huge changes as such on any of the segments, when going forward. It has been in the B segment, those – like changes.

We believe that is actually stopped, when looking at the premium and also the other segments. Seasonally prices increased during the second half, as during the first half going from first quarter to the last quarter, they’re seasonal rebates.

So starting in Q1, we see this those would have like rebates, seasonal rebates of between 5% and 10% that gradually melts down during the second quarter, third quarter and then we would have practically list prices during the last quarter of the year. So I would say that, if we take the rebates scale that more than offsets the price reduction in A segment, into the fourth quarter unless somebody is still as part of – but there is very little to gain as such for anybody as the pipeline is now to completed and we will not probably do anything like benefit by doing it.

So from now, there is slightly to price of elasticity in relation to volume.

Okay, if I may on the divestiture side and on the Vianor side, specifically for Central Europe was wondering, if there is a specific target?

There is, but we haven’t published the exact number.

Okay, the divestitures?

Sorry?

On the divestitures side, is there any news?

No there is nothing at the moment.

Thank you.

Thank you. One final question from me.

I think we discussed it every quarter. Regarding more local manufacturing in Russia from some of your global competitors, what are your thoughts here now, came in terms of risk to pricing and the general competitive environment in Russia?

Well there is nothing new as such we are looking at competitor activity. We have sooner we have Vsevolozhsk has a plant, in Russia with the same capacity which we added already to it this year and we understand has Michelin has it more plot on Abidobo [ph], which is been very stable.

We’ve heard no news on expanding it, I think they’ve would perhaps be looking at Serbia, but you’ve to ask fair (inaudible) and not me, as a plant be like started for the capacity of 4 million roughly. And they’ve announced that they’re going to look at expanding it later on and what else Bridgestone is targeting to be up to 4 million to 6 million by 2018 which is a couple of years ahead.

So our competitors are moving in and of course, the question is then that is that going to create price pressure or over capacity in my view, no. as such there is, we stated that there is 18 million of traditional Russian C segment buyers at this capacity that need to be rebuilt.

One of the rebuilders at the moment is our Italian friends, who makes Gomme Centro on the market. They have two plant in (inaudible) and they’re looking at like modernizing those plants and I believe that they made some comments on how that this progressing their Q2 results, you should look up what they said.

Thanks.

Thank you everybody. It was nice to have you here.

Let’s like work hard and hopefully there. Thank you.