Nokian Renkaat Oyj

Ari Lehtoranta – President and Chief Executive Officer Anne Leskela – Vice President, Finance & IR

Tom Skogman – Handelsbanken Artem Beletski – SEB Alexander Hysel – Credit Suisse Gaetan Toulemonde – Deutsche Bank Henning Cosman – Berenberg Thomas Besson – Kepler Cheuvreux Paul Hartley – Bank of America Merrill Lynch

Okay, good morning everybody and welcome to our quarterly announcement session. In this room we have present media representative, honorable analysts, and then investors.

Welcome all here. Behind the lines we have international audience.

The material has been in our webpages already from the morning time, so you have had a little bit time to browse through. I try to remember when I go through the material in which page we are going for the audience behind the lines.

I will not remember it every time but I try to keep the story anyway smooth so that you can follow it even if you are not exactly on the same page. If you could kindly just remember to check your mobile phones that they are on the silent mode.

There will be a little bit of repetition because I will first I will go through the kind of summary about the market, about our performance in that environment and then summary figures. And then when I go deeper into the business unit and some of the key drivers, I need to repeat some of the key messages there.

My presentation should hopefully take only about half-an-hour, and then we reserve the rest of the time for your questions. And if I start from the market situation, market has been of course quite special the whole year, not only third quarter.

By the way, when I talk about the messages and figures here, I by default talk about the whole year and specifically when I talk about the quarter, I try to point it out. So Europe, if I start from little bit browsing the other markets and then going to the Russia and CIS specifically.

Europe has been going actually quite okay. Towards the year-end, even the European market has little bit slowed down when it comes to our specifics meaning the new car sales and the tyre market, but the market itself has been in a good 5% type of growth, so that's pretty okay.

U.S. – or let's say, North America is the driver for the whole global economy at the moment, even more so than the China which is kind of okay, so U.S.

also about 5% new car sales and about the same for the tyres. In our key markets in Europe, Nordic car sales have been going actually quite well boosted by the quite strong growth in Sweden.

But then when we go to our challenged areas, which are the Russia and the CIS, I specifically mention CIS because some of the CIS countries like Ukraine has been quite big for us in the past and then even last year at the same time, and of course Ukraine is a country at war basically, so there is quite little happening. And Russian economy started to slow down already 2013, but this slowdown has drastically boosted of course by the Crimea crisis and devaluation of the ruble, which is more than 12% year-on-year during this period, and the recent oil price drop doesn't help the situation at all.

So that has impacted purchasing power quite a lot. In our heavy tyres business unit, the demand has been pretty good on our selected segment, so that supports us going forward quite nicely.

Then when we look at our performance in that market, we can say that if I – if I look at the positives, our volumes have remained the same. So even with this drop in Russia and CIS, and the drop has been in volumes less than, for example, the car sales drop has been, but the drop we have been able to compensate in other markets.

We have been able to improve not only together with the market, but more than the market in almost every other market than Russia and CIS. There our market share has remained the same, but in Scandinavia, in Central Europe, and in North America, our market share has improved.

I'll come back to these test results, but I have never seen in my 30 year’s professional life such kind of test results and then kind of public praise for your products. We have been winning more tests than ever before, so the portfolio has continued to improve.

But then what has happened on the negative side is the average selling price, which has had quite a drop, but it's good to now recognize that there are three elements in the average price. First of all, you have devaluation that has now actually the biggest impact, so more than half of the average price reduction comes from the devaluation of the currencies.

And then the rest, there is big mix impact. So about half of the remaining part comes from the mix change, and mix again has several different elements.

Mix has first of all the country mix. So when we have been having higher than average prices in Russia and we will – we are compensating the volumes in our new growth areas, the average price even though the unit prices remained the same, there is price impact.

And then the remaining part is coming from the actual local unit price decreases in certain markets. But once again, if looking at some of the Russian positives, we have not been forced to give up our premium product price position in the market compared to the competition.

And in Russia, the actual unit price reduction don't play any role in this average price reduction. There everything comes from the mix and devaluation.

On the profitability side, raw material cost have been continuing on the positive side for us, so overall this year quite a significant drop, about 14% drop on the raw materials. So that's impacting, of course, a certain part of the whole product cost.

And this is of course one of the drivers for this few percentage kind of price reductions on certain markets. Many of the suppliers have been able to afford it with this benefit.

Winter tyre sales, we remain quite a strong focused player on the winter tyres and the share has remained on quite high level. Profitability supported by the fixed costs, which is at the lower level than last year.

Russia sales, share of the whole share quite a significant drop from 37% to 27%. I'll come back to this a little bit more in detail what's behind this later on.

Production, we have been completing our kind of final production improvement productivity actions that we have started in the past and the production is now at the highest level we have had and it is on the good level. Production itself has gone up, so we've been producing slightly more than last year.

This is typically impacted by the kind of sell-in, sell-out balance what we have in our own customers. Distribution continued to grow, so again this is in the better shape than ever before, so we added quite a good number of own outlets and NAD partner outlets during the quarter and throughout the whole year, and I'll come back to these figures later on.

We have more than 1,300 Vianor outlets there who are eagerly selling our test winners, and we have more than 700, close to 800 already the NAD partners. I'll show you a little bit about the geographical split later on.

And then looking at the results, the quarterly – and now I mention the quarterly impact, so the quarterly sales drop was slightly less than the year-to-date sales drop has been. And we have this quarterly phenomenon, so specifics, for example, second quarter typically is already the Russian winter season sales.

This year we had a little bit more splitting to the third quarter. Third quarter itself has been traditionally CIS winter season and now, of course, that is basically gone or in a very low level, so that has impacted.

We have a little bit of balance in the Europe. It looks little bit odd but in the quarter the Central Europe sales went down, but it's because of the huge deliveries, kind of earlier than before deliveries that we did on the German markets in the second quarter.

But year-to-date the growth, both market share and the kind of nice volume growth we have had in the Central Europe. Operating profit level for the year, so far at the level about 23%, so which is of course good to remember that both the whole company and our Russian business are nicely relative – nicely profitable business, even if there is a temporary drop.

Equity ratio remains on a very healthy level and gearing even improved by a percentage point unit. One of the best kind of KPIs in this chart is, of course, the cash flow.

Cash flow typically is an excellent indicator of the healthiness of your business in the long-term and naturally it's one of the enablers of us being able to continue the kind of positive dividend policy that we have had. Cash flow has been clearly better this year and we’re also estimating that the full-year cash flow will be on a very good level.

So challenge is coming from the, let's say, Eastern side of the markets, market positions remaining good or improving product competitiveness, product quality, further improvements there. Distribution network in a better shape than before, and then the kind of better balance in the market split taking place all the time.

I'll go next to look at some of these key drivers in bit more details. Now I'm now in Slide 7 for the online audience.

So here you can see that what has happened basically on the kind of share of sales from our business. So CIS together with Russia, 10% drop in sales that's about one-third drop, so a significant drop.

North America, you can see here how strong sales growth has been, over 20%. And then a bit more euro sales – a bit more lower euro sales growth in the Nordic and other European markets.

So this 10% reduction from the Eastern side has been quite nicely equally gone into the different other existing key markets, and then the kind of new growth markets. Central Europe here the highest growth, relative growth 3% adding from the sales, and then North America, Finland, Sweden getting 2%, and then Norway 1%.

Finland, Sweden, and Norway, of course we have a strong position in all possible tyre segments. Raw materials, as I said, 14% so far this year.

The quarterly sale was already a little bit lower. And I'll come back in the outlook at what do we – what is our feeling about the next year.

We estimate the full year to be about 13%. We are communicating that this tailwind that we are getting from this raw material cost reduction is about €50 million this year.

And how we calculate it is that we take our production volumes and we look at that, what's the benefit in the average annual material price, and then with those volumes, then we get this what – €50 million improvement, so that is of course nice, very nice development. This is – in Slide 9, we are looking at this quarterly development.

And like I said, that we have differences between the different quarters. Fourth quarter typically is a nice quarter for us because we are talking about Nordic winter market to be continued the kind of feeling of the retail stocks in the Russian market with typically little bit better prices, and then our heavy tyres and Vianor have also – they’re good quarters in the fourth quarter.

Let's look at this business unit split, so we’re reporting three different businesses. By far the biggest one is the passenger car tyres and there of course this full Russian and CIS impact is very visible, so more than 11% sales drop ending up in about 31% EBIT margin.

So healthy EBIT margin, but clear 4% unit point drop. At the same time, both Vianor and heavy tyres continue their relative profitability improvements.

Vianor has also had planned sales improvement in heavy tyres. We have a small decline, but we will now – it looks that we are going to compensate that small decline in the fourth quarter.

Both have improved by about 2 percentage point relative profitability, which is of course good. But of course, they being so much smaller in size, this compensation doesn't compensate the drop what we have in the car tyre side.

I'll actually skip Slide number 12, on the car tyre side – car tyre business side, I'll take up this test wins because this is a quite remarkable and kind of leading indicator for us. We have been winning close to 97% of the tests, magazine tests that there has been now in the last 12 months.

And this is bigger share that we have ever had. The good thing about these wins are not only that there is such a significant part of the wins are coming to our lap, but we are not only winning the studded tyre winter tyre tests, but we are also winning the friction tyre winter tyre tests, but we are also winning the friction tyre winter tyre tests.

Not only we are winning the winter tyre tests, but we are now increasingly winning also the SUV tests, and we are winning the summer tyre tests. And maybe now most importantly looking for what we have been able to now add also the wins in the Central European markets.

So that is of course an excellent kind of future, forward-looking indicator or leading indicator for us. And some of the wins have not been all in a row, but they have been quite significant.

From the portfolio, it's – I think it's important to understand also that not only this kind of quality – qualitative praise comes from the market, but we've been able to increase the application range. So we support better the different markets, different types of cars, different types of usage.

And inside those product range is the kind of size range support that we can provide to our customers is by far better than it has ever been. So portfolio-wise, I think that we are in an excellent shape.

And I use this opportunity to little bit translate this in layman's language. So what does it mean for the end-user these test wins?

Typically we get this kind of brand image for our consumers that, yes, these are the best tyres in the market. But what does it mean?

And I'll tell you these examples because it was a little bit news to me when I started and I got so proud immediately about it. Then when I'm driving with Hakkapeliitta and I stopped from the 80 kilometers per hour in an icy road with my studded tyres, my neighbor who is using the cheaper Chinese products will still continue 16 meters, 1-6 meters.

And if there happens to be a 300-kilo moose or a train or neighbor's wife, you kind of regret your savings at that point of time. Or if you’re using the friction tyres from us, and your neighbor is using some of our mainstream competitor tyres – not only the Chinese tyres, but some of the mainstream tyres, he's spending almost half-a-liter more gasoline per 100 kilometers because the ride resistance is so much better in our tyres.

So this kind of very concrete benefits you get. At the same time, your ride comfort, your durability is better than the other products.

So the product themselves, they deserve this premium position that they have. And in all of the markets we have been able to kind of maintain or improve the actual premium product price position.

And then in this new markets, typically what happens is that when you start there and you start growing, you want the users, end-users to get the experience of the products, and then the reputation starts to spread and your price position gradually improves that’s, of course, looks very good, especially for the Central European, North European markets. And then on summer products, I'll take this one example here, this very exciting aramid innovation.

So quite often with a heavy SUV car, when you are parking your car against the kind of stones on the street, or if you are in the bad quality road somewhere in Russia, you are driving over the hole or over the bump, the heavy car makes a dangerous situation that your sidewalls can broke or you can broke them to the cornerstones at the street, quite easily actually. And when you are – especially when you are driving fast, you can cause quite a dangerous driving situation.

With this aramid material, which is the same material that are used in the bulletproof vests, our sidewalls will be okay. So when you are driving fast over the sharp bumps or you break – or you park your cars a little bit uncarefully, these babies will last.

So this kind of very practical improvements are the reason why the premium position I expect will continue to further strengthen. Then Russia, and starting from the economy, maybe it's good to remember that even though there has been a decline, there has been a heavy devaluation of the ruble, oil prices are down, confidence index of the consumers has got a hit, these – all these levels are still clearly higher than they were when the – last time when the bump happened in 2009, sharp drop here.

So it's not dead, the market, it's definitely not dead. There are quite a lot of things happening.

Ukraine is pretty dead, but Russian market is still alive. GDP I expect for this year will be very close to zero, even slightly maybe negative if things continue.

And what is maybe little bit negative on the Russian side is that it's quite difficult now to estimate for anybody what's happening there, quite fast – quite fast changes. I'll come back to this as well.

Car sales, maybe it's good to now also remind you that what does this new car sales mean to us. Of course, the car park itself in Russia even this kind of tough times continues to increase almost by 1 million car every year and that is supporting our business.

But the best for us, of course, always is the new car sales and especially the kind of mid-and high-end segment sales because those guys, typically they buy winter tyres at the same time and they buy our tyres. And when they buy a new car, they want the best tyres as well, which is our tyres.

Now the car market itself in Russia has gone down 13% this year. But it little bit hides the fact that there has been also a mixed change inside the car sales more towards the low-end segment.

The recent months' decline in Russia has been even more than this 13%, some of the months have been over 25% decline, September was about 20% decline, so kind of starting to improve. One of the reason is, that there is a recycling program that we’ll bring to market at best something like 200,000 new cars, but this impact – positive impact again will mainly support the low-end locally produced cars.

Maybe I'll tell this example, concrete example about what this high-end car sales can mean for us at the best from some other markets. Tesla electric car has become extremely popular in Norway and it's now the most-sold car in units in Norway; 90% of the Tesla buyers buy Nokian winter tyres, 90%.

And this now is a familiar picture to many of you, showing this segment change is volume decline, actually not that significant, but it has hit maybe relatively most A segment and for us we have been selling clearly more – relatively more our B segment product range, the Nordman's than our Hakkapeliitta chains. Typically, when the market starts to improve and the new car sales picks up, again then of course, this partially goes back.

However, it's good to note also that when this replacement market, the car park itself grows at the same time. So that will have an impact.

This will never go back – well, let's never say never, but it will never go back to same levels between the segments in value that we had in 2006 and 2007. But from the kind of 30% level compared to 70% B segment this year, it can go to 30%, 35%, 38% levels quite easily when the market starts to pick up.

This is – I like this slide, there are couple of key messages. So first of all, here reminding about the Russian drop which is quite significant itself, close to 30% in sales.

But also a reminder about this CIS, so almost 70% drop, €30 million, that's quite a big part. Our drop in sales this year has been €100 million, so €30 million out of that comes almost from Ukraine alone.

And Russia, you can see Russia drop here is what’s it €130 million, so €30 million from CIS countries, €130 million from the Russia, and then the improvements come from all of the other markets to compensate part of it. What happened here in 2009, that's the third message from this – important message from this slide.

So there was a huge drop. Our company at that time was not in a shape than it is today and it had much bigger relative impact to our overall performance than we have at the moment.

And at that time we were desperate on how long it will take. Well, it took two years to come back to the previous year's highest level and three years and it was – more than tripled our sales there.

And I think that the important message here for us from this is that, what happened at that, what did we do? We stayed with our customers.

We supported them. So that when this market started to go up again, our market share and our premium price position improved.

And this is what we are going to do also now both in Russia and in CIS countries.

Ukraine has come down fast, most probably that will – when this geopolitical situation calms down that will also faster come up. The levels are quite low at the moment.

In Russia, we have remained our market position. We are the market leader there, not only the market leader in terms of sales share of the volumes, but also we are the clear distributor leader.

We have been able to expand further our sales-force through the partners there. We have 3,600 partner stores that are selling our products and about half of our Vianor stores are also in Russia.

Heavy tyres maybe – just to mention there that order book in a great situation. Production, we have some production ramp up issues here which we have now been able to correct.

So now the coming quarters look pretty good. And of course the – say, similar type of raw material impact and bit of an average price that are clearly less than in the car tyre side.

Also here, Russia doesn't play such – and currencies don't play such a big role here in our heavy tyre business. And also new, nice products, and maybe again I'll take this – emotional into the play looking at our products.

For example, in Finland we don't have yet proper winter tyre legislation for the heavier trucks. And we have just launched the new truck – winter truck tyre, when I am driving my truck, 40-ton truck, and again I'm stopping – I'm forced to stop from the full speed the truck, when I stop, my neighbor using the typical kind of Central European all-weather tyres that are still legal here, when he is also braking at the same time, when I stop he has 40 kilometers per hour speed with his truck.

And these are the trucks that you see on the side of the roads even when there is a little bit of snow, snow on the roads. Vianor business unit, we added 42 Vianor stores during the quarter and 101 NAD, Nokian Tyres authorized dealer, dealer stores to our portfolio.

Profitability improvements are taking place. What we are doing here is that we are trying to balance the seasonal workload by adding both the tyre service and a car service itself to the portfolio.

And this is now gradually improving the profitability of the Vianor chain as planned, and this year we will be going now nicely to the positive levels. This is a good illustration what this network now means, so we are – we are the big best distributor network in the Nordic countries, in the Russia and CIS countries, and increasingly in the rest of the Europe.

This NAD concept we typically do for the growth markets, and therefore the focus for the NAD stores is in the Central Europe, some of the East European countries, and then increasingly also in China. Now starting to gradually summarize investments, that's a kind of positive story here.

Capacity investments not needed here, we have a nice capacity situation we will be investing less than €100 million and this support quite nicely our cash flow. We are only about less than 60% of our last year's investment levels.

Typical investments are further automizations so product improvements in our factories. There are, of course, some kind of replacement investments all the time.

Some capacity bottleneck investments for the heavy tyres. And then Vianor, for example, acquiring this kind of service, car service stores or tyre stores continues all the time, so these are the typical investment that we have in this kind of situation here, and naturally some ICT investments, for example, for the online business.

Capacity, now it's over €20 million, it's not all in use at the moment. We can go to this over €20 million by – without any investments in Nokian.

For example, we can – with new resources or additional shift arrangements, we can easily double the capacity and then we can then further add another €1.5 million capacity to our existing factories with some further investments without going for the heavy planned and land acquisitions. So capacity situation is pretty good, and then productivity has improved by 4% when we calculate it kind of kilos per man working hours.

And this is the outlook, we estimate the kind of price competition remaining on the same, but maybe little bit less aggressive levels going forward. This raw material cost boost will help us in the fourth quarter.

Next year we estimate that – it's little bit difficult now to estimate because of the kind of recent sharp oil price changes and also the currency changes, so both of them impact raw materials. And we estimate anything between kind of 0% to 5% improvement also next year.

So the positive improvement should be continuing, but little bit difficult to estimate at that point of time. We will give you a more accurate estimation when we announce our fourth quarter results in February.

Fourth quarter typically is not such strongly impacted by the Russian and CIS sales, so this is a kind of more normal fourth quarter. Naturally it's bit difficult or not the nicest position to give a kind of accurate estimation about your profit when you are just about to start the season.

Season does has an impact to our fourth quarter. In the Nordic countries, everybody changes the winter tyres but especially in Central Europe the season has an impact.

The season has started pretty well in Russia. It has started quite well also here on the Nordic side, a little bit later than last year, but so far there's nothing to indicate that there wouldn't be such a – at least a normal season or even a good season.

And we are well-prepared for the season. If the season comes nicely then we will be able to do pretty well.

We have now made a more accurate operating profit estimation €320 million. Vianor will do a nice quarter, and like I said the heavy tyres will do a nice quarter as well.

So challenges coming from the kind of geopolitical and economic situation from the east. I've been in working life for 30 years and then of course have seen ups and downs.

Good to remember now, when I look at, at least, our figures and performance that in this kind of challenge is coming from the east, our balance sheet is in the excellent situation. Profitability levels are in such levels that I could only dream of when I was working for Nokia or KONE.

Cash flow, going to be the best net profit. Good to remember that net profit will be better for this year than last year.

Product range; the market position we have achieved has been achieved with a clearly diverse product portfolio in terms of availability of the sizes and different types of applications. Market growth supports us in Europe, and especially in North America, our distributed has been expanded.

Quality, which has remained good now for the last few years has again a bit – not better situation than in the past. And an organization that is with the full Hakkapeliitta fighting spirit.

So looking forward very positively, with this kind of situation in the east I feel that we will remain as a growth company. And of course, when the Russia starts to come, we will be a fast growth company again.

There will be most probably ups and downs also in the future for my career. I hope that all the downs in the future will be similar what we are having at the moment.

Okay, at this point I think that we will go for the questions and answers. We will start first from this room and then kind of empty the room's questions, and then we will go for the online side.

Yes, of course, there was a bit stronger impact on the devaluation than we expected, and then, of course, the CIS was also a bit stronger disappointment, it was sold. Other than that there were no kind of significant changes.

Now, our kind of profit split between the first quarter – first year and then the second year is in a pretty balance.

Are you satisfied with the 20% growth year-to-date in North America given the hard blizzards last year and the fact that you have an exceptionally favorable currency situation? Or could you have done more there or do you plan to do more there given the currencies?

For the premium company like we, you need to be very careful, you need to go for the quality growth, meaning maintaining your price position. It's a new market for us.

U.S. dollar, euro rate has meant that the average price there is – has been less than for example in the Russian market.

So we have been selective, and I think that this is now an excellent situation also a part of this kind of my optimism in the situation is that we are growing fast in North America. And at the same time, the consensus says that the USD-euro exchange rate is going even as strongly as to the parity level.

So that will support our price, average price development very nicely for the North American market. We have been expanding there the distribution, getting new customers, there are no magazine test wins in North America because I suppose of the – they are afraid that they would be sued immediately by somebody in North America.

But our reputation is clearly improving there as well all the time.

And then I wonder about the mood of the Russian distributors. In H1 next year earnings typically is very dependent on Russian earnings and what is the feeling at the moment when you talk to the distributors?

Well, first of all, they are – they remember what happened last time that we stayed with them. So they feel more positive about us, but of course, they worry the overall sentiment of the market.

There has been little bit more reluctance of taking tyres to the stock. However, we feel at the moment that our share of the stock at the moment is higher than it was last year.

But of course, they are bit concerned as well about the development. They, of course, they are looking at our tyres.

Our tyres are the tyres where they make the best profits as well.

But the feeling at the moment is that they will be very careful building up inventories in the spring at the moment.

Yes, that has been the trend already for quite some time. There has been no significant change at the moment there on the Russian side, on this side.

They also know that – like for example, the season now started in many parts of the Russia and what happened? The retail have not had enough tyres in their stock, and there was a panic.

There was a lack of tyres now a few weeks ago in several parts of the Russian market. So these are excellent examples that they need to remember that still they need to sell and the seasons come and they can come even strong.

If there will be now a nice kind of season in coming weeks starting – or continuing in Russia, it's about the same temperatures there now, so not that supportive, but if the season comes, there will be very nice sales.

And then finally I wonder about your plans as a new CEO to take down the risk level and build a third factory somewhere. Could you just give your initial feeling and need of doing this, how we should just expect the CapEx and fixed cost growth over the next five years?

The third possible factory would be built based on the capacity needs, not on any kind of other needs. This low ruble, of course, it supports us also on the export side.

We are clearly exporting more of our production from Russian factories that we are delivering to the local markets, and we are benefiting from the ruble in many aspects there. I don't see any immediate need to go for the third factory.

That will come if the growth supports its – for example, from the eastern parts and then actually it would require most – Russia starting to bounce back in volumes.

So we should in other words not expect any additional CapEx in 2015 at least?

2015, if there will be any increase – this year will be very low, if there will be any increase, it will most probably not be for the capacity reasons.

Thank you.

Looking at your passenger car tyre segment and profitability development in Q3, so this margin has been still down year-over-year, it’s the same story in Q2. Could you maybe explain what these key drivers are because in Q2 it has been driven basically by this like high share of Russian sales, and pretty tough comparisons, so is it like in Q3 relating to Central European situation, and is it like CIS which is also impacting there?

Yes, like I said, CIS is clearly an important part of the third quarter because that was quite nice profitable sales, and then that is almost wiped out. Then another key driver is of course the Russian sales that took place with a clearly lower average price because of the devaluation and the mix change, and then good growth even though it now happens strongly in the U.S.

and also in Central Europe. The Central Europe third quarter was not so much growth from the last year, but still a significant part of the sales.

The average price, even though it did not drop that much, like for example compared to this Russian situation, but against the average selling price of the previous year it went down. So that impacts the sales, and sales decline.

We are not giving out exact figures. It has been, of course, a little bit driven down by this raw material impacts, and then maybe that's about the impact that we see in the Central European side.

There has been also some mix impact, there has been one particular big customer and one particular big order that we took and we've been delivering that was specifically focusing on the B segment side. So that has impacted the mix change quite a lot.

Okay. Maybe then looking at Q4, and it is very important in terms of receivables collection, how do you see picture in Russia, as in many cases where you're presumably likely to extend your payment periods and so on?

Is it like an issue in your opinion?

Yes, we have been now very closely monitoring the situation and the discipline – payment discipline has been very good in the past. And luckily it looks that – it continues to be so.

We have certain bonus elements built into the payment disciplines from the past already, and then that of course helps. And again, once again, we stayed with our customers.

Our connection to our customers is much better than it has ever been. We are now starting to get already the payments for the kind of season feel that we had earlier this year, and they have all come on time, so no change, it looks good.

Okay. And maybe last one from my side.

So you mentioned that you see some interesting growth opportunities. Could you maybe elaborate more on different regions and maybe products and so on, where do you see those?

So of course Central Europe is an excellent growth opportunity. Our share in Germany is not yet where it will be in the future.

North America looks promising, there are certain products that we will be launching soon after these quarterly announcements that will kind of expand the winter tyre scope, if I say so. You will hear a little bit more about it later on.

So that looks also a positive possibility. We expect quite nice volume growth in North America with an improving currency situation next year.

And of course, then we are looking at China. That is little bit longer term.

There is a winter tyre market in China, but it's a bit undeveloped yet, and it's not kind of – how would say, not very structural. But that will become structural, normal winter tyre market at some point of time.

And any share of that business of course with their volumes is quite nice. The winter tyre market in China can be as high as 40 million annual tyres in the future.

Okay, very good. Thank you.

And they definitely value the premium brands as we know. Other questions?

I'm Thibarihum [ph] from Arval [ph]. The recovery in 2009 I think was assisted by rebounding higher oil prices.

And now with oil prices should they continue through the recent decline, how strong dampening affect do you see from this on the recovery this time, both what comes to ruble, but also the consumer spending in Russia?

Yes, that is a good question and fair remark as well that it required oil price increase, but also the overall confidence – investor confidence increase. And the same would require also this time for any kind of stronger and faster change.

Of course, now there is a very specific reason. So if we get this geopolitical situation improved, there will be already an improvement coming from that.

Estimation range for the gross national product development for Russia for next year varies quite a lot and then nobody's estimating it to be anything clearly positive. So at best slightly positive or then some percentage points of negative growth.

If there would be a further deterioration, there would be of course a similar type of continuing trend in the purchasing behavior. Confidence index still are quite on a good level.

Already now the interest rates for the consumption loans had been on quite high level, on 20% level or so. So that has already been there.

So I don't expect any kind of huge impact even if the oil prices wouldn’t go down. And of course, now with these declines, with these average prices already now the Russian sales of our total sales is 27%, which is totally different than 37% in the past.

Car pool or new car sales in Russia, maybe it's good to kind of compare it to some of the more mature markets. This year there will be only about 2.3 million-2.4 cars sold in Russia.

There has been a debate at what are the kind of material level. There have been even talks about some 4 million cars.

If the economic situation would stabilize and there would be a nice, normal growth for some years, the new car sales could reach as high as 4 million, I don't believe that it will be going as high, but maybe 3.5 million is the level – 3 million to 3.5 million is the level that new car sales could reach when the situation stabilizes. So we are already quite far away from that level today.

And of course Russia has pools to invest and support economy. We have seen now in the very recent days the stop of the decline of the ruble devaluation, most likely impacted by the government support actions.

Okay, at this point of time we will take also now questions from online.

Yes. Good morning.

This is Alexander, Credit Suisse. My first question would be on Russia.

Can you explain a little bit the volume development that you've seen in the first nine months? You indicated that the revenues are down 30%.

if I'm right, currency is down 15%, which means organically you're down 15% as well. Can you explain a little bit the market share development in Russia?

Yes, basically you would be able to calculate it when I say that we've been able to keep our volume market share and I showed you the volume segment split. There is about 5% to 10%.

So that's the range that I can give at the moment, 5% to 10% volume decline in the Russian market and we've been following it.

Okay. The other question on Russia is one of the major problems in the second quarter was the mix A and B tyres, anything changed here or can we expect any changes in terms of better mix in Russia?

Yes, this new car sales decline has impacted and like I said this mid-class, up-class, high-end segment decline has impacted the segment split. And of course even in those new car sales, there is a purchasing behavior change.

There has been a higher decline of the new car sales in the third quarter than there was year-to-date so far, so that of course impacted this mix change in a similar way.

My other question is on the regions. When I go back to your second quarter indications, the only region that you have really downgraded is the Nordic region.

So you now see it flat versus plus 2% to plus 4%. This is also the main driver for lower profitability that you have indicated now versus second quarter statement?

Yes, I don't – going now forward Nordic looks actually – looks good. Car sales have remained strong.

Overall car sales in Europe has little bit declined towards the year-end, but still it is on the positive side and we are taking market share. So I'm looking at a pretty good fourth quarter for the Nordic markets.

Okay. My other question is on the currency, the €60 million top line loss you've had in the first nine months, in your press release you indicated has knocked off some 340 basis points margin.

Is it just inflation effect or does it basically also include price hikes you have been able to achieve in the Russian market? So can you just explain a little bit this 340 basis points margin impact on profitability?

Yes, this €60 million is only the kind of devaluation impact and then that does not include any other impacts which are mainly like I said are these mix impacts, and then the actual unit price reduction or changes in different markets. The overall ruble impact for us because of our presence in Russia and because of our export is about plus-minus zero.

So we are getting benefits from the export production and we are getting benefits also for our fixed cost that we have in the ruble basis.

Okay. My last question is on the cash flow generation for the full year.

Would you expect that free cash flow after dividend payment is positive for the full year?

Would you like to answer this one? Now, the question was that after the dividend payments.

Now you're actually asking something that I can't answer because you are asking already the dividend and that's up to the board still to decide the dividends. I expect that the dividends should not be very different from this one.

Cash flow, we are expecting clearly better cash flow than last year. So far this year, more than 30% improvement in cash flow.

So cash flow situation for the full year looks very positive.

Okay. And then my sort of my last question on strategy and then capital allocation going forward, I mean, you have quite significant spare capacity you could bring back in the market with relatively low CapEx and given that the industry overall growth is slowing to normalized level.

Would you consider returning more cash to shareholders or you're still looking for growth opportunities? So what's your priority in terms of capital allocation going forward?

We are not a volume company, so I'm not going to go aggressively after the volumes even if there is capacity left in the factories. That's just what you don't do when you are a premium, when you are a product and kind of profitability leader.

So that is a good spare that we have now there. Easily, we can have change this, for example if the season now starts and we can have easily good reasons to again boost up the nuts [ph], and there what we have now done, the kind of reductions at the end of the year that we had also last year, good to remember, are still quite small part of the overall capacity.

We expect that our volumes this year are about the same level as last year. So there is not a significant kind of a buffer for the maximum capacity.

Okay, thanks.

Yes, good morning. It’s Gaetan Toulemonde from Deutsche Bank.

I want to come back on the previous subject, only two questions. The first one is regarding Russia and regarding the mix.

In the second quarter clearly you have – or your predecessor has highlighted the deterioration towards B segment tyres, roughly to 50-50 between A and B and the question is that is there any further deterioration in the third quarter towards B segment tyres? And my second question is that I'm a little bit confused on the pricing.

You mentioned the pricing has deteriorated, but during your comment not that much. So can you give us an overall view on the pricing environment in Europe, North America, and mostly in Russia vis-a-vis last year?

That's my two questions, thank you.

Okay, I'll start from the first question and I'll try to remember the second question then. First one was about this mix.

So the mix change so far has been that there has been a kind of 40% A and then 60% B. And then now it's about 30% and 70%.

So there is quite a significant change and then it little bit deteriorated in the third quarter, but not that much anymore. And then your second question was again – can you remind me about the second question?

It was about…

Yes, the…

Overall pricing, yes, yes, yes, good, good, good. So now it's good to separate when we talk about the average price, then we just simply look at the volumes and the money we have received from those and then we look at what has impacted.

And like I said that there has been a drop of the average price where half of the drop is coming from the devaluation only, and the remaining half is impacted by the price changes. So with the price changes, we mean local currency prices for given products and there, half of those remaining, less than half of the change is coming from those unit price changes, and the rest is coming from the mix.

And mix again comes when you have either a country mix or a product mix changes. There again the actual price of the products doesn't change at all.

Okay. And this kind of order of magnitude, is it the same by region, or when we look for example at Russia, is it in terms of pricing?

Because if I understand properly, I ended up with something like minus 2% in pricing in the third quarter which is roughly more or less equivalent to the tailwind of the raw material. Out of those minus 2%, is it worse in Europe, is it worse in Russia, is it the region where there's a little bit better?

Yes, like I said already earlier, in terms of Russia, there was basically no price changes at all. So unit price changes in rubles they remained on the same level.

There were, of course, some kind of maybe product-specific changes, but the price changes are about flat. So there the impact comes only from the devaluation and a mix change.

Okay, that’s clear. Thank you.

Hi, good morning, thank you. Can I just please ask you about the competitive situation in the Russian market?

So I think we know about this acquisition of about 8 million units on part of Pirelli in Russia. We know about this Kaluga plant that Continental is ramping up.

Can I please get your view on the competitive situation, because I think when the market recovers, you will get increasingly maybe a bit of a structural shift as well on this market where competitors’ intensity hasn't been so high. So is it right to assume that that will slightly offset or make your situation more difficult even if the Russian market recovers?

Yes, Pirelli, for example, acquisition is on the kind of C segment, at best B segment side, so that does not impact us so much. And these further activities you said, I don't think that any of our competitors will drastically change their plans.

They have sales organization, these few companies have even factories there. I expect that in the long run there will be more factories coming, it's an important market, and not only of course sourcing Russia, but sourcing also export markets.

These low cost levels there partially supported by the ruble will definitely support. It's a big oil producer.

Oil-based materials are important part of our industry. So I don’t expect any big changes there.

Like I said, what comes to the distribution network and the relationship to the customers, we are the clear market leader. And maybe then reminding again that import duties in Russia are at the level of 16% presently.

So, for example, the Chinese inflow of the products and besides the 16% actually, there is a minimum import duty per tyre, so that most probably will mean that that Chinese low-end product, there has been some discussions that if the U.S. puts a big import duty for the Chinese products that where do they flow, and I don't expect them actually to flow to China, because – to Russia because of this minimum import duty per tyre and this quite high level of 16% level of import duty still.

Yes, that's the question actually. So if I remember correctly that import duty was supposed to phase out, so do you think that's different now given the political situation, because I suppose that adds to the structure of that as the import duty size, or do – you wouldn't even have to have competition go local in terms of production?

Yes, there are plans to reduce it, but not to kind of 0%, but to 10% level by time – by years going by, and it has now reduced from 18% to 16%, if I remember correctly in this year.

Okay. And maybe final question on distribution then, is that really your main barrier to entry as compared to competition with your Vianor chain and your significant market share there, or, like, how do you see yourself fending off these competitor threats?

Yes, we are now very well covered in Russia, and I think that learning from some big companies in other industries is that, you need to have a good grip, and in wide distribution, you can't work from the kind of headquarters – national headquarters only. And we have succeeded extremely well in that.

That helps you to understand also the consumer behavior and what that the stock levels – we know well now what is the whole distribution networks' stock situation and our share of it. So these kinds of things are very beneficial for you in many aspects, including your production planning.

Naturally, when we go to the new markets, there the handicap is that if you are not – if you have not been present, then there are less sellers who know our products and there it's important to constantly expand your NAD and then Vianor store coverage. And that's what we will continue definitely doing.

Like I said, this NAD concept is mainly focusing on the Central European countries, some CIS countries, and China, and you will see more of those coming in the future. We are at the level of 733, and I can see that in the kind of near future, we will pass 900 mark on those.

Thank you very much.

Yes. Thank you very much.

This is Thomas Besson. Can I ask you to give us some more details about the localization of your current inventories and receivables?

I mean, both in number of days are at very high level, so essentially, I would like to know how much of these inventories and receivables are Russian-related please?

Yes, the Russian share of our receivables, there hasn't been any significant change. If I remember correctly, they are 41% at the moment, so no big changes there.

This is a quite a long-cycle business and naturally by us having a good grip on the distribution in our key markets that helps us to make sure that these cycle times don't get longer. And naturally, there are always, of course, ways to try to improve it.

I don't expect there any kind of big changes to either direction.

Okay. Inventories also relatively high if you take into account both currency trend and the decline in raw material prices at the end of Q3.

So I mean, do you think production will need to go down in Q4, or are you just waiting for the snow and that's why you built up some inventories? I mean is it fair to say that the number of tyres in your inventories has actually gone up year on year?

Yes, yes, I think that I mentioned it also in my presentation, that's the fact. And the fact is that retail and then wholesale are little bit less – little bit more careful on what they take into their stocks.

So our stock in terms of values is slightly higher than it has been last year this time. Of course, you always have this kind of sell-in and sell-out changes per different years and quarters anyway.

So this kind of fluctuations you see also in the normal situation. We are well-prepared for the season for sure.

Okay. Another question on…

By the way – sorry, if I still continue answering your question, you said that are we planning to reduce our output during the fourth quarter. We have done and executed already, so we have announced temporary layoffs in Finland and that will take care part of this output reduction.

Okay. I mean, Nokian, if I remember correctly, used to give indication on the prospects of the Russian tyre market, and this time around, your slide stops at 2014.

I mean, in your planning assumptions, what are you assuming for 2015, 2016, 2017? How long do you think it's going to take before we get back to a market that was what you used to have in (inaudible) 2012?

Yes, we discussed it already couple of times during this morning and it is so difficult to estimate at the moment. And the best forces of you and your colleagues are constantly trying to make the best guess, and I'm not going to try to participate on that guessing at the moment.

Oil price impacts, the geopolitical situation, which has not settled down, we have seen how quickly and how fast the changes can be when they started to change. So in our planning assumptions, for example, when we are now looking at the budgeting, this will not have huge impact to our next year budget.

But it will have then a little bit when we look at the kind of strategic scenarios going forward. We are already now selling next seasons' summer tyres.

That's good to remember that we have this kind of a long lead time actions ongoing already. And then actually this summer sales start looks quite positive, of course, early days still, but nothing drastic seen there.

And, again, this first message from the customers for our summer offering and the price levels, they have been very positive.

Okay. Lastly for me please, you mentioned potential for the Chinese winter tyre market at 40 million units.

What do you estimate is the size of that market today please?

It's only few millions. And the legislation is bit unclear, nobody even knows for sure what's the legislation, what comes to studded tyres, there are little bit of different opinions.

But when you look at the provinces that have snow and kind of zero temperature impacts, it's quite a big market.

Okay. Thank you very much.

Good morning. Thanks for taking my questions.

The first one is just on the free cash flow will be substantially better year-on-year because to – getting to that point, is it lower CapEx, something on the working capital side, can you just flesh that out for us?

The line was little bit bad, I'm not sure if I heard you correctly, but you have asked about the cash flow and then kind of what is impacting it I suppose. So, yes, we have impacts coming from kind of working capital, better situation, and then also investments being on about 60% only from what they were last time.

So the cash flow actually will be quite a lot similar to last year. So it really depends on how the season is falling, so when are the receivables falling in.

So if we have an early season, then of course, the cash flow is all-in-all during this 2014. And if it's very late, then it means that part of the cash flow will be next year.

But really like rather similar than last year depending on the season and when it falls.

On the CapEx point, how long can you run (inaudible) and does it mean, it's in the €100 million as per the guidance?

Now, at least, I was not able to hear you clearly, your question. For some reason your line is -- it's the first time that your line is a little bit unclear.

Sorry, is that better?

Now, it's better actually, yes.

Okay. Yes, on the CapEx point, €100 million is the guidance, what does the 60% imply, is that in line with your guidance, and how long can you run at that rate?

Thank you.

Yes. 60% was the figure that we have – what we have when we compare year-to-date investments against the similar investments last year.

€100 million is – was our estimation for the full-year. We may end up at slightly lower level than that.

If you are not forced to go for the capacity increases beyond what we can do without any investments, the typical levels what we can maintain are somewhere between €90 million and €140 million. The changes there comes from where – in which levels you have for your acquisitions for your chain.

Sometimes you get a little bit bigger opportunities, maybe some IT kind of investments that can also vary year-on-year. So that's maybe if you take then the average of that, that maybe second-half normal year.

We can, of course, little bit manage that as well and look at the -- what's the kind of economic situation, and we can little bit manage it one way or another between one year and the next one, but that's about the average.

Okay. And then one more question just on the production pattern in Q3, what is the impact of that and what does that imply in terms of cost savings going forward?

Yes, it's actually for the Q4 production reduction. We don't release the kind of figures, but we talk about some millions anyway on the bottom line.

These are, of course, something that we should be able to avoid. We are negotiating certain flexibility setups here in the Finland factory that should improve, the situation in the future, so that we would be able to get the same savings, but avoid still the temporary layoffs.

Flexibility in Finland in general should be a bit higher to enable this. I think that we are now unfortunately at the end of our time and then we need to cut the questions.

We will be able to answer them later on in the different meetings we have with you, and then you can actually – naturally contact us afterwards. So thank you very much for your participation, and see you next time.

Have a good rest of the year.