Nokian Renkaat Oyj

Ari Lehtoranta - President & CEO

Tomas Skogman - Handelsbanken Artem Beletski - SEB Kalle Karppinen - Danske Bank Sheila Weekes - Bank of America Merrill Lynch Thomas Besson - Kepler Cheuvreux Martin Viecha - Redburn Partners Henning Cosman - HSBC Austin Earl - Marshall Wace Rauli Juva - Nordea Bank

Good morning, everybody. Welcome to our quarterly results call.

I say traditional for me, because this is already my third quarter that I will be communicating, please take your mobile phones in this room. We have a room full of familiar faces, professional here at this end and then about 200 people behind the telephone lines.

The material you can find from our website. And I do the same as last time that I'm not going to repeat the page numbers when I browse through.

It should be easy to follow behind the lines anyway. Mostly, this will be a bit shorter than the previous ones, because I'll leave the future part.

I will leave a little bit to the lighter mood this time, because we have our CMD coming in about a few weeks' time and more there. So the quarter, if the first quarter was a bit better than planned, the second quarter was a bit worse than planned, then the third quarter was again a better one.

Sales, we are still fighting to get the growth on the sales side, but actually the big story this quarter was the profitability. The structure of the presentation is the same as earlier.

I'll go through some general findings from the quarter, then go through the actual key financial results and then dig deeper into some of the business units and geographical areas. And then repeat the outlook assumptions and guidance for the outlook.

So the markets, I start from Russia, still the economic situation there has remained very weak. And the real wages development and the retail development have both been around minus 10% for the whole quarter, meaning that the purchasing power has been very low and basically all purchases have been in volumes lower and the trend that people buy less premium and more the lower-end products continued strongly.

New car sales, even though the quarter itself plus 25%, so clearly better than year to date, the negative trend there has continued. And then clearly we see that it's going to be clearly over the 30% for the full year, the decline, remembering that at the end of last year, there were quite a lot special purchasing, while waiting for the price increases in Russia in all categories, not only cars.

The tire markets have gone down less because of the replacement market mainly, but it has also gone down more than 20%. Overall, once again, I repeat a couple of time, the season that the season has not really supported us either in the third quarter in any of the places.

Last time we already had the highest peaks in some of the Scandinavian countries inside the third quarter when it comes to new winter tires and replacements. Maybe then talking about Europe, in general Europe has been doing much better.

Some of the indicators, like for example new car sales, have been very strong, 9% even. However new car sales, if it supports us strongly in Russia, in Europe it's not that big indicator for us, because it supports more the summer tire [indiscernible] type of sales, especially while when we look at that this growth, European growth, is coming more from the Southern European countries and the countries in Nordics have had clearly lower new car sales.

Development in Finland has been about flat as an example. The tire market has been only growing 1% in Europe and inside this figure the winter tire market has gone down 8% still.

And that is of course on important reason behind our sales figures, so that they still are negative in terms of revenue development on the sales side. Then North America, quite okay, so engine, road engine is still doing quite well.

New car sales 5% up, people always wonder why the tire market is not going up. These Chinese anti-dumping cases and the penalties, that has a very long lead time impact.

Last year they filled in all the possible inventories with tires and that of course was visible in sell-in figures last year. And those have been consumed now and only now we see that the market figures are going up.

The sell-out figures have been positive. And then on the Nordics, quite nice, mainly driven by Sweden, already now we see Norway that there has been some less growth because of the oil-driven industries in Norway.

And that has impacted the situation in Norway and Finland. The kind of sentiment in the market has impacted also our Vianor side.

I'll come back to that later on. Car tire sell-in figures however are quite strong, 6%, but they are still supported by some special fill-in deliveries by a few competitors.

And therefore, our figures, for example, have been smaller. However, we have been now - every month we have been able to gain our market share back in all of these markets.

Currency still the whole year from Russia will be like this. There is a big negative impact.

We got further €10 million on net sale level negative impact overall in this quarter. Basically, we have negative impact also from Nordic currencies, Sweden, Norway and then Ukrainian currency.

All of those negative impacts, however, now are compensated by the North American positive ones. And then we have a few other positive ones from Europe and then reduces the Russian over €60 million negative impact to a little bit less, €48 million I think is the net sales impact overall this year.

Okay then, how did we do that in this environment? In Russia, the trend continued that we are - we have been losing volume market share, the main reason being that the - or two reasons being there that the purchasing has gone more to the C segment and lower B segment, not on those segments where we are playing.

And then our price position has been clearly higher than some of the competition. Value-wise our market share has been about the same.

There has been a few other - a few aggressive players, mainly from Asia, who have been increasing their market share in Russia. We had a little bit of inventories from the last year as well impacting a bit.

Again, every month here we have been able to gain back. And maybe the most important comment regarding this market share is that in the sell-out our market share this year has actually increased.

North America, clearly faster than market growth from the low basis, so that's therefore more relatively easy to grow. But it looks - the North American market looks pretty good.

Other Europe, the negative market share developed comes from the fact that the segment where we are strong, meaning the winter segment, has gone down actually 8%. Here as well, I think, that throughout the season towards the end of the year even this market share figure will continue to improve.

That's how it looks at the moment. And Nordics also, the market share will balance, when the season now actually is starting.

Of course it has started, because tire hotel people typically change already at this time. But the guys who really want to replace their tires, they wait until the first snow comes.

So we say that the snow is our best sales guy and we are expecting him to arrive. So nothing drastic in this, I feel quite confident about this market share development as well.

Currency impact, lower volumes, purchasing changes, that has however impacted that the sales still is 5% in the quarter below last year. Pricing-wise the average selling prices have gone down.

Nothing drastic changed from the last quarter. So currency is clearly the biggest impact.

Currencies take about 8% down, 7%/8%. Then the mix takes about half it back.

And then there we are, some percentage points lower ASP. But then raw material totally against what we saw in the earlier part of the year, the raw material.

Of course what has happened is this China impact, so China economic cool-down or growth decline, let's put it like this, has meant that the raw material prices overall in the whole world and all industries have gone down instead of even stable or increases like we estimated earlier. We have also several other impacts.

Some of them it's Nokian Tyres specific that has impacted our cost levels. We made some very good timely purchases of certain key materials in the second quarter that we then benefited in the third quarter.

We have this delay factor from the currency changes, the ruble U.S. dollar connection.

The prices are in U.S. dollar, but before they are again updated to the new ruble rates, there is typically a delay.

We benefited from that. So we had quite a few specific impacts on our case in the third quarter that made it especially negative, meaning that there was a further, further decline of the prices, of course in our case for the raw materials.

Fixed costs have stayed about the same. We have grown the fixed costs, because we are entering and growing in the new markets, but then the currencies have helped a little bit.

Volumes are down still about the same as last year. Last quarter we reported 10%, which is quite a significant thing.

But one of the key messages here is the next thing, which is that productivity up 5%, despite the decline of 10% of the volumes. This is not typically what you see.

And this is a remarkable achievement from our organization. And I'll come back to that in the heavy tires.

But in heavy tires the productivity improvements are clearly even more. And there the reason is that there the volume growth is supporting the productivity.

Good quarter also in terms of distribution, over 170 new outlets, quite a big number for the quarter, so very, very happy for that. And we are now clearly over 2,500 outlets.

They are out there already selling our tires. These are our kind of most important sales points.

Okay and then going to the financials. Like I said, quarter 5% down.

Overall this year we are 7% down, remembering that our guidance is 5%. So in order to keep in that level, we need to have still a good sales quarter for the fourth quarter.

Naturally, we would be hoping to have a season and this is not looking like winter when we look outside here in Helsinki area. So we still have levers for the fourth quarter that swings our sales and therefore profitability to one direction or another.

But then operating profit supported by the mix inside the sales figure, the productivity on the cost side and then the raw materials, and we are very happy to report now, after two years, now the first quarter that we have a growth in the operating profit. Then going - and operating profit level now is 23.3%.

It starts to be on the level where we - at least in this situation we start to be more happy with the level. Then on the financial side on the quarter, nothing extraordinary here.

We bought back our bond and we paid €2.7 million extra or a premium for that, so that's visible here on these figure. We gained that back and then a little bit more than in the coming couple of years.

So that's an extra. We had €3.9 million bad debt provisions as well that we booked for the quarter.

The quarter as such I think that is of good quality, so we have been doing good work. There are nothing special that we should get penalties in the future.

It looks solid and good. Cash flow better than last year.

One of the reasons is that we have less money tied on the capital and secondly, the new commercial terms in Russia make the payments a bit more forward or front-weighted. And then if you look at some of the balance sheet items, so we gained back over 70% in the equity.

And gearing is - even if it's positive, it's going towards the negative towards the year end, but it is at a better level than last year. I forgot to mention that the profitability here is supported by heavy tires; continuous good progress.

However, this quarter there was also a negative impact from the Vianor side. I'll come back.

So they kind of compensate each other. Nothing extra to report from the tax cases, so I don't have any news.

It's the same as it is that the case is being reconsidered by the tax authority. Something will come out at some point of time.

And we still have in our receivables, we have that €43 million that the tax authority - illegal may not be - from our point of view illegally collected already from us. And this is quite remarkable.

So in this quarter and this year so far, so this has been a very special year. When you look at the figures like this that Russia and CIS countries form now, for year to date, form 18% of our sales.

And this has been clearly more than 40% at some point of time. Also summer tires share this year has been clearly more than ever before, almost 30%.

And there is no season started yet. So in that respect we are happy for the profitability.

And I think that the main message there is that the business system that we are now running is stable, it's sustainable and it's quite resilient. So even though Russia is not there anymore, boosting our profitability, we have been able to return back to the good profitability levels by having the sales coming from all of the other areas.

And notable here is the North American continued share growth, so it has now exceeded all of the Nordic countries, except Finland. And Central Europe, this is going to show bigger figures in the coming quarters.

I'm pretty sure this winter tire specific market decline is driving this, so a very balanced situation going forward. And this now shows the raw material impact.

Instead of staying in the same level as the second quarter, the third quarter was exceptionally low. We expect the fourth quarter to go higher from this.

We have had, as I expected, we have had some special timing impacts that have supported the third quarter. We now estimate the full year to be about 10% and the tailwind about €30 million, so a clear upgrade on this estimation from the last time.

Oil prices have remained very lower or going even lower due to the, for example, expectations of Iran returning back to the oil markets. The Russian rubble as such stayed reasonably stable, of course variated, but reasonably stable now throughout the quarter.

Okay, moving on then to the business unites, passenger car tires, we have always said that for us we this 30% as a level where we believe that with our products and with our business model we should be. And now we returned back to the 30% level.

Very happy for that. I'll come back a bit more to that in coming slide.

But then Vianor clearly already a decline on the margin and sales have been growing this year, but the profitability not. Throughout the season, we will be returning to the positive also in the Vianor case, but not yet there.

But heavy tires then 30% improvement on EBIT so far and then EBIT margin now climbing. Again, we have kept 20% as a level of reasonable profitability for heavy tires and we are coming closer to that.

But the fact still is that what we lose in car tires, volumes and currencies, we can't gain back with other business units. They are still so much smaller.

And this is of course a reminder that when this business starts to grow again, with these margins the Company's overall profitability, relative profitability will then benefit. Passenger car tires, so Nordics about flat, Europe on somewhat of a decline, but then positive star is North America.

Product portfolio continues to improve, continues to improves. Several different new sizes available for our customers and then one notable launch as well.

EBIT percentage for the quarter was already very good, over 33%, so clearly better than last year, so this is of course an achievement. The notable launch for the quarter has been this new Hakka Green 2 family, again full of innovation, for example, using this Coanda feature or Coanda phenomenon, which directs the water from the tread pattern away from the tire, patented innovation, one of those things that gives us the premium position and the best performance.

This will benefit our next year's summer sales further. Magazine tests are important for us.

They are especially important of course for the new car tire buyers, the ones, the people who have been using our tires and especially the ones who have been using our tires and the other tires, particularly if they don't need magazine tests to help them on the decision. But we've been doing extremely well, especially on those tests where the weight on the winter parameters, ice grip, snow grip, acceleration and these kinds of things, is high, a kind of winter-like rating, then we typically perform there extremely well.

Notable has been this new weatherproof product that we have been launching. It has basically won all the tests where it has participated, especially those tests where there is any rate at all on the winter tire functionalities.

So what does this mean - what does this - that you win in a test? So it means that you have a good product.

But what does it mean? So I wanted to translate this to the layman's language.

So this is a comparison from some of these magazine tests. If the braking distance, not to the worst ones, but to the other mainstream big global players, is 18 meters, it's much more comfortable and safe to drive overall.

So for example, the noise against these mainstream competitors is clearly lower. And then if the rolling resistance, therefore fuel consumption, is better, meaning that you save in gasoline, so the overall cost for the tire throughout the life of the tire is lower or at the same level than any of the other brands.

So basically, you save your life or expensive car. You drive more comfortable and don't pay any extra.

So there is really no reason not to buy the tires. That's what these test magazines tell.

And I also wanted to use this time to educate a little bit. People talk about these all-season tires, that they are going to eat the market and so on.

They are not going to eat the market. So this is a good comparison, I think, where we position these different winter tires.

So if you have real winter and you need to drive in the real winter, the Nordic types of winter tires are the only option. They have the grip and they manage ice and they manage also the snow.

If you have occasional times of proper winter, then you can have non-studded Central European winter tires and this is of course meant for the Central European type of environments. But then this all-season, for example, which has been now talked quite a lot, it is dangerous.

It's not a winter tire, when you compare it with a little bit of snow and ice capabilities. But when we talk about 18 meters between the best winter tires here, then we talk about 100 meters brake distance about.

So it's not a winter tire. It's a compromise tire which is basically nowhere better than the basic summer tires and very much worse than, for example, the non-studded Central European tires.

This tire I would us at the level of Rome or maybe south from there. But other than that, I would take our all-weather type of tire or a real winter tire and change once a year.

I would - this is almost like a mother of all compromises, this kind of tire. So this is a bit of a training on these different types of tires.

Russia, our mix has been extremely good here, supporting us extremely well. More premium, more premium summer.

Our price, local price increases have been more than 10% we have been doing this year. We are maintaining our volume and market leadership and especially the leadership in the A and B segments as a market leader.

New car sales, as I said, 25% for the quarter, but we expect that the third quarter or fourth quarter should be a bit more negative than that. But the car part itself continues to grow.

That's the positive side of the picture. And then heavy tires, we achieved now in this quarter this milestone, 20% milestone for the quarter EBIT.

Extremely good work. Double-digit productivity improvement, supported by the actual efforts that we do on the productivity, but then also the nice volume growth.

Reasonably stable outlook for the segments. Agri is negative, but then forestry still keeps being on a pretty positive level, at least for the few quarters to come as well.

And once again, some examples of extremely good specific tires for the trucks who come occasionally to the areas where you have some winter tire conditions, this kind of all-season, all-weather type of application for the trucks as well. These are exactly those kinds of things that help us to gain the premium position and be able to work on a niche market or niche segment with smaller volumes.

And then Vianor, like I said, especially the Finland market is sensitive. People service their cars less.

They change their tires less. Overall a bit negative.

That has impacted our sales, so that it was now flat year on year for the quarter. We had been growing so far this year, but this is also now negative.

Naturally, we had season already impacting last year, so this season impact from the last year is year to date, because it will come now in the fourth quarter. And therefore, we still estimate that the full year will again be positive on the EBIT side compared - and should be at the same level or a bit more for the full year.

The service part continues to grow here still, car services more than the actual overall services that includes standard tire services here. And about 100 and 77 new outlets are distributed.

Mainly, they are from the eastern part and then from the central part. We increased and strengthened our distribution leadership in Russia, CIS and Nordic countries.

No particular one big acquisition or any specific, but maybe worth mentioning the first shops in Turkey and in Iceland, so two new countries added to the network. Okay, a few updates on the outlook side.

So new car sales is now updated to 9%. And then the raw material side is updated to this 10% decline.

There are some elements here on the market shares. We have fine-tuned the market share estimations here.

But then overall summary of all this is that we repeat our full-year guidance. So slight decline for the net sales and the this range €270 million to €295 million on the operating profit side.

So like I said, a bit less on the future-looking items this time, we will be returning in great extent to these issues when we go through our strategy and we give our financial targets for the market in about two weeks' time. So with this, I conclude the general presentation part.

It took exactly half an hour. And we go for the questions.

We'll start from this room and then go for the telephone lines.

Yes. This is Tomas Skogman from Handelsbanken.

So I ask to get some kind of help with foreign exchange impact in the results. Can you first give the translational impact split into the different currency areas?

So how much did you gain from North America, the stronger dollar and the weaker ruble, how much lost from that? But then please help me to understand the transactional impact this quarter and now in Q4 and going forward for next year, if the ruble remains on the current level.

Okay. So I repeat what I said already.

The main impact on the sales side, that's how we typically comment on the currency translational impacts, whilst we've been losing now over €60 million in Russia because of the ruble, we've been losing about €12 million, €13 million on the Nordic countries and gained about the same from the North American countries and about €7 million we've been gaining from the other European currencies, so that the overall impact on the net sales level is €48 million for the full year. This quarter was about €10 million out of this €48 million, so similar type of ratios, but €10 million.

So €38 million in the first half and then €10 million for the third quarter. And actually, we should not expect very big numbers for the fourth quarter, because last year already the fourth quarter was the one where the ruble went weak.

Then what was your second part of the --?

Then the transactional impact from the weaker ruble.

I've been saying all the time that whatever we lose in transactional translations, we lose on the sales side, we get half of it back to the EBIT on the cost side. And that's still about the same.

Actually, we are now exporting 70%, so a bit more than in the past we are exporting. So we are - the ratio is a bit better now, but it's still not - it's less than 60% still.

So this rule of thumb is that half we gain back. So what does it mean?

So it means that we still are hoping for the strong ruble. But fortunately, this business model, where we have also the fact that there is now - at this cost level it's very beneficial for us.

So just to open it up a bit more, how big part is really local costs in ruble out of the production in Russia?

Well, I'm not going to go to the exact details, but you can a little bit calculate it, when you think about the cost of the - if you take the cost of the tire, 70% of the tire's cost is materials, raw materials. And all that is U.S.

dollar based. We have a little bit of that in rubles, but connected to the U.S.

dollar. We have only - less than 10% of really local ruble-based purchases that we do in our Russian factories.

However, then we have had this gain, delay gain, a little bit, so gain on the implementation of the new rates. So 70% of cost are raw materials and basically U.S.

dollar based. And only 30% is the rest and not even that is all ruble cost related.

You have there some depreciation and some - so you have about 10%/20% out of the tire that are labor cost related. And that's why even with this big export, we are not going to be able to gain all back from what we lose on sales on the cost side.

Artem Beletski, SEB. As you mentioned, your profitability improved for the first time in two years in Q3 and in light of this raw material gain what you had during the quarter.

So how comfortable you are that you have turned the corner, so to say, when it comes to margin development?

Well, it's not only, of course it's not only the raw material. It was also supported by the productivity and then the mix on the sales side.

We need the sales. We need also the sales to support.

That would be good to get that support, because we have not really got that support yet. And if we now are in 7% year to date and we should go to the 5%, it means that we need to have a clearly better sales also in the quarter and then going forward.

We will go through the reasons why I believe that for the coming years we should be able to go back to the growth. We will go through those reasons in the CMD meeting, but [indiscernible].

Okay. Maybe then a question regarding the Central European market then.

This price increases what you - we have been talking about one quarter back, how successful you have been in increasing prices and have those been [indiscernible]?

Better than the rest. Better than the rest.

So we've been holding them better than the rest. For some of the players we have seen that they have not really held, but we've been holding.

But they are not big increases. They are just a few percentage point units.

And repeating that they don't have any impact for this year's average prices, because they are mainly for the deliveries from October onwards.

And maybe a last one from my side relating to your product portfolio and there has been a lot of buzz relating to this weatherproof product what comes to like magazine tests and the - it's getting more attention. So is it already a meaningful business to you in terms of volumes?

Can you repeat the early part of the question?

Weatherproof product.

Weatherproof product?

Yes.

No. It's not a big volume.

But I don't believe in big things that suddenly happen. But it's - again, it's a nice new product, especially in our new markets, which is Central Europe and North America.

As an example, we have been able to use that product to now start gaining also some sales in the UK where we have also. For that kind of tactical moves it is a very good addition, but not in volumes.

It doesn't mean that [indiscernible].

Is there a material difference in the timing of winter tire deliveries to Central Europe compared with last year? Could you even perhaps quantify the order book [indiscernible]?

Significant changes, partially also due to our own decisions and actions that the weight of the deliveries is clearly now is more on the fourth quarter. But on the other hand, we are still more dependent on the season as well.

But no matter what our sales for the quarter will be, the weight of the deliveries clearly is different from the year, so more backward-weighted deliveries. So the reason for this is that - for this trend that has continued for many years is, once again, that when raw material goes down for the retailers, it's beneficial to wait until the last minute that you really tires, because you will always get a little bit discount from somebody to get the volumes.

Secondly, there is availability. There are many players, more players in the market.

And the third reason is that after three no seasons or bad seasons, people take less risks, so the inventory levels are lower. They don't take so much more stock.

So when the season comes, the seasonal deliveries weight will increase.

But you don't have the orders?

Our order situation is good. But it's not enough to cover the whole season, so never get the orders for the seasonal sales.

Hi. Kalle Karppinen from Danske Bank.

Looking at the EBIT guidance, there is still a €25 million range from the bottom to the top. Probably the key variable is the season in Central Europe, but what are some of the other major uncertainties still left?

Do you think there could be a much-better-than-expected or weaker-than-expected situation in Russia, for example, or any other big moving parts here for the last couple of months in the year?

Yes, for various reasons we are a bit more careful. If you remember what was - how was the last quarter in Russia last year, fourth quarter, it was a nightmare.

The ruble rate went over the board, huge, huge swings, also, these special purchases in the last weeks of December. So there are very many things, remembering that there was a very special quarter behind.

That can happen in the quarter. But it's mainly the season in Central Europe that is critical for us, to a certain extent, also the Nordics and Russia, the season impact.

Now the North American part is for us quite strong, also the season in North America, unfortunately. It's stupid always to put the blame on the snowmen, but that's how it is, that in the North America we are also expecting snow.

Plus 15 degrees yesterday in the northern part of continent. So the swing of the rain, still, unfortunately, we were forced to keep it intact.

Okay. So we don't have no more questions from this room, so we start taking the questions from the online audience.

A couple of question, if I may, and I take it one by one. The first is on the raw material guidance.

You've indicated a negative impact into the fourth quarter, and if we have done our maths right it should be round about €5 million, €6 million into the fourth quarter. So how much buffer you have again here on the upside on the raw materials or do you have good visibility that raw materials really turn negative into the fourth quarter?

That would be my first question.

Yes. We had special things also in the third quarter that impacted the third quarter raw material cost.

So the guidance, what we have there, it can go few millions to both directions still, even if we have only one and a half months to go this quarter.

So basically, a few million means it could be neutral, but it's more likely between this 0% to minus 5%, minus 6% into the fourth quarter?

Yes, we talk about single-millions impact to one or another direction.

Okay. My second question is on the cost side.

When I look on the gross margin development year over year, you're up 4.8% versus the third quarter 2014, and [indiscernible] raw materials savings of €14 million, €15 million during this quarter. This is round about 300, 400 basis points already.

So my question is, what is the positive mix effect? If you can share some thoughts on the gross margin development year over year, because if I purely take the raw materials as a set, this would capture the majority of it.

Yes. Like I said, but the only thing that I'm going to say about that is that in average selling prices, which quite well correlates then to the gross margins we have had, the negative impact, about 7% to 8% from the currencies.

And then the local prices already this year, they have been reasonably stable because we have had a big growth in the Russian side and then more decline on all the other markets. But then the mix have taken it back, about half of that loss that we lost in the currency side.

Okay. My next question is also on the cost side.

When I look on AC&A, year over year you're up from 1.6% to 2.3% during this quarter. I do understand that the majority of these other costs are in euros.

So if I adjust for currency, the top line, you're still up quite significantly. What is driving this increase in costs year over year?

As I said, it's 160 basis points on the currency-adjusted base.

Yes. One item and correct me if I'm wrong.

One specific item this quarter was these €3.9 million bad debt provisions that we booked. As an example, we have - overall, like I said, the fixed costs, they are going to be a bit higher than in the past.

And the reason is that we are operating in the new areas, where we are starting from the very thin organization and reasonably low service levels and then we are increasing those.

Sorry, just to clarify, these provisions, are these in the other operating expense or in the SG&A line?

Other operating expenses, yes.

Sorry, then I wasn't clear. I was asking about the SG&A development because last year you had 19.6% of sales.

We're now at 21.8%, and on FX-adjusted basis, 21.1%. So my question is more like what is driving this actually in the increase?

No. It's going to remain on a bit higher levels due to the reasons that I mentioned, that new areas, new growth areas requires a bit more.

Sorry for all the questions. My question on currency - and sorry to come back on the translation and transaction impact - did you recover half the losses from the translation via transaction on the positive side?

This should be a function of margins that you make in Russia which impact the translational impact. And if I remember correctly, in Russia you did margins 45%, 50% in the past, but at the beginning of the year were indicating, on Group level, i.e.

25% margin. So wouldn't it change this equation and the ratio, that the transaction impact is getting more and more positive versus the negative translation impact?

I don't know where you get the 25% margin in Russia. We are making there clearly better margins than that.

I think it was mentioned during a conference call early this year that the Russia margins are on par with Group level. I'm sorry if I got this wrong.

Russian, what I have said is that Russian average selling prices have been at about the Group level. But if you think about our Group gross margins, our EBIT percentage is already over 20%.

That means that the gross margins must be clearly better than 25%. So - and I repeat that we are doing, still, excellent business in Russia.

We are just doing less of it. And besides that, we have the factory that is now helping us.

So the Russia prices are now a bit lower than the corporate average. So are the Central European ones.

Nordic ones are a bit higher. That's what I saw also with North America.

And, sorry, my last question is more of a technical question. Since you increased the raw material guidance from €15 million to €30 million, why have you not changed the full-year outlook respectively given that this is a non-operational gain?

Or does it imply you're going for the upper end of the guidance now?

Yes. EBIT is a factor of multiple things, including, for example, the season, delayed deliveries and all that.

So there is a risk upside-down estimation, and with that upside-down estimation we believe that we are still within that guidance level. Naturally, all the time the currencies, once again, they are - at this point of time they are different than they were when we gave our guidance after the second quarter.

After half the fourth quarter done, would you at this point see your profits in the fourth quarter versus last year up or down, this €78 million you achieved last year?

Well, you can make some easy calculations by taking now what we have gained so far and then taking what is our guidance. And at least when I calculate it, it means that we need to make a pretty good quarter still in the fourth quarter to reach the guidance.

Both on the sales side and profitability sides. That's to be noted now.

And remembering that we had not a bad quarter last year. Because of this tanking or inventory fill-in from Russia, our comparable quarter from last year from Russia is actually a pretty good one.

So I still consider this fourth quarter as a challenging one and therefore we don't see any reason to change the guidance on the EBIT one, even if this third quarter was a good one.

I have just a couple of questions left. First thing, on the passenger car tyres volume growth in the fourth quarter, I was wondering what are your initial expectations of the passenger car tyre volume growth overall?

Yes. Like I said, that we need to have a very good quarter, and sales wise, we need to beat the last year's sales in the fourth quarter in order to get to the guidance.

So it is a nice development. Volume wise, it would not mean exactly the same because, like I said, that we have had the mix that is supporting us quite nicely as well.

And last time you mentioned that your mix was positive, primarily because - or reason for it was strong summer - the high-margin summer tyre sales of yours. Is it - is that still the case now?

That's still here today, but it will be, by the way, also for the fourth quarter because it's good to remember that the fourth quarter for us is already the start of the summer tyre deliveries. So in Russia we - last year we delivered a big number of summer tyres.

We have a very successful sellout behind us. Our inventory levels for summer tyres is in a very good level in Russia.

So the likelihood that we should have reasonable summer tyre sales also in Russia this year is there. And it's not only actually - when I talk about the premium, it's good to remember that also on the winter tire side we have had a mix improvement.

So we have been selling more premium this year than we have been selling in the past.

And my last question, I was wondering if you could give us, based on what you see today, an initial expectation of what you see in 2016, probably the Russian tyre market and the European tyre market.

Yes. I would say there the same that I have been saying in the last few months, that the only visible way to estimate Russia at the moment, from our point of view, is that it would be flat, that it would be flat.

It's - there are no fundamentals which would start driving it upwards, which means that there would be either a growth in oil prices, therefore the ruble. But what would cause that big oil price increase, I don't think so.

Or if there would be some very successful structural changes in the Russian economy, and I don't see either those happening. Russia is struggling.

At the moment they balance - the budget, government budget is still in balance because of the barrel ruble price is supporting them. But because they need to also - they can't get any financing from outside, so they are forced to finance the ongoings with the reservoir.

The reservoir itself is declining. It will last until the end of next year.

They will have of course tools and means to manipulate it. For example, just by adjusting the very strong military spending they are able to adjust the reservoir fund utilization.

But there is no fundaments to private, really, one way or another, so there can be some further decline or slight growth. But at least in our case, we are assuming it flat, on what we consider very low levels this year.

Sorry, and in Europe?

Sorry, was there another --?

I was wondering about Europe as well, if you had any indication on how Europe tyre market will be in 2016.

No. I'm not going to comment.

Once again, for Europe the season is quite a tricky animal. So when you get a good season you actually get two good years for the tyre business because you get your - your inventories are sold out, you get extra seasonal sales, and then going to the next year, the inventories are down and then the mentality, the attitude is more positive for taking the inventories and so on.

So we are hoping for a good season in Central Europe, which would give us the good end of this year and then good next year volume wise. Markets here and competitiveness wise, I'm actually very confident for next year.

Just a couple outstanding for me. Firstly, just to return to some of those price mix effects and what you've actually been seeing in the quarter in terms of this mix benefit, is it that the - was it much in the way of summer tyre SUV that was occurring in Q3 or where were the mix benefits coming from?

Mixed benefit in the quarter comes from the fact that we've been selling more premium winter tyres. So summer tyres' share of the third quarter was not anymore that significant, so third quarter starts to be pretty much winter tyre weighted.

But then there has been still -

And when you're referring to the premium there, do you mean more within the A segment or more in terms of the greater than 17 inch size tyres?

Well, in a way both, so all SUV tyres for us are premium because of the size. And then it's more Hakkapeliitta type of tyres that we've been selling.

And one notable change is that we took one of our B-segment products away in the Russian market for this year, so that all is now improving the mix, when that product is not anymore there as an example.

And then just secondly, in terms of thinking about the profitability of your business you're doing in North America, now that that's becoming a bigger portion of the business, how does the passenger car tyre margin compare relative to your Group passenger car tyre margins?

Like I said, but the prices, average selling prices in North America, they are now over the corporate average. So that means that the business there is not diluting our corporate averages.

Naturally, we get a little bit of extra cost because of the logistics and import duties, but we have import duties also to some other key markets and logistic costs as well. So it's not that significant, even though there is some impact.

But the average selling price is now already over the corporate average. North American business for us is good business.

It's good to remember the average size of the cars and therefore the tyres in North America, and therefore the tyres in North America is higher than it is in Europe, for example.

A few questions, please. Is it possible first to get a bit more color on the productivity improvement?

And could you mention whether the recent adjustments you've made in your finished plants still leave some potential upside for the coming quarters on the productivity front, please?

I start from the second question and then return to the first one if I remember it still. So the - we completed now the production capacity reductions negotiations and planning in Finland, that we take the capacity from 3m to 2.5m.

In the third quarter, by the way, it's good to remember that we had - inside these productivity improvements there were three days of no work at all in our Finnish plant while we had this one day of general strike. And then we had two special days related to this process that we had.

So productivity wise, we are not going to gain anything on the contrary in the last quarter from the Nokian plant. However, we are going to gain in next year.

Like I said, that we are having about €8 million annual saving with this side, and at the same time we get the productivity improvements. Well, then coming back to the first part of the question, you wanted to get a little bit more color on the productivity itself.

Improving productivity is a factor of - again of very many, many different things. We measure it in terms of kilos per person that we are producing.

So in both factories we are within our CapEx that is about €100 million for this year. There is a significant part that goes for constant automization, renewable of the equipment, at the same time improving the processes, so automating, for example, the way that we transport tyres inside the factory with the warehouse and the production, how we transport the materials from raw material warehouses and the actual compounding and so on, new machines.

As an example, we have a set of product lines in Russia that produce about 1m tyres per year, but the new generation, there in the same factory, already produce 1.5m tyres. So while we upgrade those old ones, that's another improvement on the productivity.

So it requires investments, it requires process development. I don't think that we are still anywhere near where we can be.

This 5% needs to be any professional company's annual target on the productivity. If you are able to get it when the volumes go down, then it's a good achievement.

Yes. It's fairly impressive indeed.

Can I ask a follow-up question on the - well, roughly how many tyres you estimate you're going to produce in your Russian plant in 2015 and what upside you have left with minor investments, given that additional lines have already been installed and only need to be manned up?

Yes. We are quite careful of telling exact production numbers, because we give so much data out that it would be quite easy to start calculating all - break down everything in our business.

And we leave a little bit for you to figure out as well. But we are not using the full capacity, clearly, and that's why we were forced to do this reduction on the Finnish side.

So the capacity utilization is not even close to the 100%. So capacity increases in Russia, we have one more product line that we can fit into the present factory, so we can basically have 1.5m more capacity in that factory.

But for that we also need to then increase the warehouse, which we are going to do anyway. And then we need to do a little bit on the mixing side.

So we talk about at least some tens of millions of investment in this case.

Can I ask a last question, please? Can you give us an idea of the price mix for raw materials for Q3 and year to date, please?

Can you a little bit clarify that? What did you - besides the things that I've already said, so what specifically you want to know?

I want to have an idea of the spread between the gain in mix, the evolution of price, and the raw materials tailwind. Are we talking about a positive driver in Q3 and year to date for your operating profit or do you have a negative spread?

Okay. I'm still not quite sure if I understood the question, but I'll try to answer.

And, Anne, jump in to help me. So overall, we have had almost 17% raw material cost reduction this year.

So that is of course really huge, remembering that 70% of the tyres' cost is in raw materials. We have had currencies that have taken down the average selling price, and average selling price is quite a good indicator for the gross margins, 7% to 8%.

And almost half of that we gain back with the productivity improvements. So local price changes are less than 1%, about.

So raw materials have had a significant impact to the gross margin, and especially in the third quarter. We had - like I explained, that besides this overall raw material price, levels going down due to, for example, China and oil prices.

We have had also reasonably significant one-time impacts from our own side based on our own good, timely purchases and this delay of the ruble - new ruble prices based on the new exchange rates.

Okay. I have one final question, please.

To just rebound on my former question on your capacity utilization in Russia, is it fair to assume that you won't need to increase your CapEx [indiscernible] 2016 given the upside you still have in terms of unused capacities in Russia?

Well, we will talk - come back to this guidance, when we give the guidance for the full year. But naturally, the big thing for us next - big thing in CapEx wise will be the third factory.

And you won't see anything of that investment next year. So maybe that's fair to say, that you will not see the double of the CapEx.

We are at a very low level of about €100 million, so that can fluctuate some tens of percentages one way or another, depending on some of the timings and some of the smaller step improvements.

I have three questions, if I may. Firstly, based on my calculation which I've done, it seems that Russia only accounted for 10% of revenues, while Naphtha [ph] accounted for about 11% or revenues in 3Q.

Is my calculation correct? Has Russia really dropped to just about 10% of total?

The second question is just to confirm the FX debate in one very clear statement. Was the currency impact on profits positive or negative?

Can I - you said that you have several questions. Can we take one by one?

Because I'm -

Sure. Let's do that.

Over 50 years and my memory starts to correct me.

No worries.

So first of all, this relative share of the sales, we actually don't give it out, but you should be able to calculate it when you look at the second quarter year to date and then third quarter year to date. And then it is true that Russia went down 50% from last year in a quarter, which is really significant.

And third quarter itself never is a strong quarter for the Russian sales. So it's relative.

Share from our sales in the third quarter was very, very small. And that's of course now - if you remember that I said that Russian average selling prices are now at the corporate level or even a bit lower than that.

That then, nowadays, supported the gross margins.

The second question was, can you confirm that the currency impact on profits was negative for this quarter? Because there has been a bit of a debate whether Russia has a positive impact or a negative.

You guys are saying it's negative. Can you confirm that, overall, FX impact on profit was negative for Q3?

I repeat what I say, that we - whatever we lose on anything - and we lose quite a lot in currencies. We lost about €10 million more in a quarter.

We only get half of it back to the profit. So yes, it was negative on the EBIT side still.

Okay. That's very clear.

And very last question, how much did summer tyres account for in 3Q 2015 compared to 3Q 2014?

Sorry, that figure I don't now have, but we have been selling - maybe that you can also look at from the statements from the second quarter. But we've been selling close to 30% summer tyres this year, so up from 20% to almost 30%, so a very significant change.

In the third quarter, the impact was not anymore that big. But even in the quarter, the relative share of the summer tyres was more than in the past.

So this one is just a clarification on - to a maths question, basically, when you said you made half of the average selling price declines back through productivity. And I think earlier in the call said you made half of it back through mix improvements.

Could you just clarify, please?

No, I did not say that we get - in average selling price, the productivity has nothing to do with the average selling price. So in average selling price, we get about half back what we lose in currencies.

Okay. So this is completely unrelated from productivity and mix?

Yes. Productivity may improve your profitability, but the average - when we talk about the average selling price, there we talked about the currency impact and then the mix impact.

Mix is an extremely complicated animal, so very, very difficult to explain exactly because it's a - there is a country mix, there is a size mix, there is the premium- versus medium-segment mix, there is the summer versus winter tyre mix. So it's a complicated animal, but overall, this mix improved for us quite nicely.

Are you willing to share how much of your sales is now in 17 inch and above, just very roughly?

Unfortunately not.

Okay. Second question is - I'm afraid I have to come back to this guidance and the fact that it hasn't moved.

From everything that you are saying, like-for-like, it seems like you're expecting rather a better end to the year than you were before. We're basically looking at winter tyre volume shifted into the third quarter.

The productivity looks quite strong, so it was rather a positive surprise. And your raw material guidance itself appears to be rather on the conservative side as well.

So I'm just wondering what must have changed, negatively, like-for-like to only maintain the guidance. You touched on currencies, but I can't quite understand changes in currencies alone as compared to three months ago.

So maybe you can help me understand it a little bit again, whether it means you're just really more conservative than you were or you're seeing incremental negatives offsetting what I understand to be positives.

Even if we have a good quarter behind, it's good to remember that the sales was down 5%. So sales wise, we need an extremely good quarter and remembering this fact that last year Russia was actually a very strong quarter because of the extraordinary fill-in of the inventories.

So we still need a very, very strong and a good - if we would make a similar type of minus 5% sales for the quarter it would be not good at all.

And then finally, on the sequential volume, or rather volume/price mix changes in North America alone, if I strip out currency, this has been bouncing around quite a lot this year. I'm calculating above 30% in Q1, minus 12% in Q2, and now again above 30% for volume/price mix in North America in Q3.

Can you just talk about this volatility and the sequential development in North America, please?

Yes. North America is especially very difficult to estimate on one quarter only because it really depends that whether we are delivering winter tyres or whether we are delivering a mixture of winter and summer tyres or whether we are delivering only summer tyres to the southern states of U.S..

And that's why we have big variations between the quarters. So first quarter typically is a very good one, we are delivering the premium winter tyres into Canada.

And then in the second/third quarter there will be more summer tyre sales, and even medium-segment summer tyre sales in relative terms. So it's better to look at the year-to-date and even full-year figures when you compare North America to itself.

And would you say this year now is starting to be a normal seasonality so that growth rates could be more stable next year, even on a quarterly basis?

You mean that if the growth rate should remain at the level of 30% or so? I think that this is extraordinary high levels.

And I'm not expecting maybe as high, but clearly higher than the corporate other areas. Our absolute growth, we have been saying that in the next three years, during this financial period, main absolute growth will come from North America and Central Europe for us.

Sure. I also meant between - the allocation between the quarters though, just because the order of magnitude or even directionally it was so different in Q1 and Q2.

So I was wondering about the seasonality, if that's going - if that's at a more mature level now and the growth rates are going to be more similar on a quarterly basis.

I'm not sure if the growth rates - it depends again how we succeed in different provinces, states, Canada, U.S. segments.

But I would expect that the quarterly profiles should be more similar next year compared to this year than it has been this year compared to last year.

I just had a couple of questions, although I'll take them one by one. But the first is, in terms of revenues from Russia, going into 2016, is - as you're saying you expect the market to be roughly flat and assuming the ruble stays the same, will Russia account for, what, 10% to 20% of Group revenues?

We will come back to that question maybe in the CMD. I would - if you are okay, I'm not going to comment that.

But then if we would be able to start growing without Russia, then the growth cannot be tens of percentages points. And we estimate that Russia would stay about the same, so its share from the overall sales would slightly decline.

I'm not expecting that - if the market would stay about the same, I'm not expecting anything significant on average selling prices or margins or anything like that.

Okay, because my next question was somewhat related, which was on the other side, was in terms of North America, whether - if Russia goes - starts declining into the teens percentage, could North America climb up into the teens percentage of Group revenues?

North America is constantly - has grown now its share. I think that it will continue growing its share, but not significantly because we will be also growing in Central Europe.

Okay. And I just had a last question in terms of raw materials.

You alluded to the fact that some of the raw materials are priced in rubles, so presumably there's a delay effect seeing the dollar impact in that. Is - was there significant benefit because of the delay of seeing some of these dollar prices getting into rubles?

Last year, for example, I think we - I commented in some of the calls that we got more than €10 million impact from these delays alone. This year, there have been - there has been less, but especially in the third quarter there were some.

But we are not talking about tens of millions this year. We talk at best about a few millions.

Just one question from me. You state in the report that you are expecting the Russia summer tyre price increases to be more or less next spring, so could you give me any specific level?

What are you seeing and is that any indication for the winter tyres? Thanks.

Yes. Summer tyres' prices are now out from us and then from the others.

There has been some companies that have been raising them 10%. I don't believe that that will go through in the market.

I more expect a few percentage points of increases for the summer tyres. Whether that has anything to do with the winter tyres, that is too early to say because the - like we saw last year, that the timing - and then you make the decision, and then what is the Russian ruble rate at that point of time is a decisive factor.

At the moment, the ruble has been reasonably okay and therefore the increases have not been that significant.

Okay. Thank you very much for all participants.

I hope to see you all or at least the majority in - on November 17 in Finlandia Hall. Thank you very much.