Nokian Renkaat Oyj

Ari Lehtoranta - President and CEO

Tom Skogman - Handelsbanken Artem Beletski - SEB Kalle Karppinen - Danske Bank Ari Rajala - Kauppalehti Tommy Ilmoni - Carnegie Nikhil Bhat - JPMorgan Henning Cosman - HSBC Gaetan Toulemonde - Deutsche Bank Thomas Besson - Kepler Cheuvreux Martin Viacha - Redburn

Good morning, everybody. Once again, welcome to Nokian Tyres first quarter result call.

We are here in Helsinki room with media and finance distinguished representatives, professionals and then about 200 people behind the lines. Once again, material is available in our website and I remind the people in this room to turn off your phones or at least put them on the silent mode.

I try to keep this quite short this time, maybe just a half-an-hour update. First quarter is typically quite let's say small quarter for us, few of course extraordinary items this quarter.

I have taken a habit to shortly describe at the beginning how I feel about the quarter and I actually feel quite good about the quarter business when I look at the business results and what's happening in the market. It went actually a bit better than we expected ourselves.

Our volumes were higher than last year. But I'll come back to this; this is a bit of a timing -- delivery and sales timing issue.

But also of course good success in some of the markets. The situation with winter tire inventories, and here I talk about the customer inventories, what comes to Russia and North America bus, exactly like we expected.

We delivered clearly lower volumes of winter tires but then we were able to more than compensate the volumes with good summer tire sales and then Nordics being -- continuing to be a strong market for us and then clear market share improvement in Central Europe. And we continue to sell still winter tires to Central Europe.

Then of course we had two let's say extraordinary actions or items, topics during the quarter. One was this agreement we got in the Nokian plant, a very rare historic agreement which improves our flexibility at that factory.

Also it gives now two and a half years guarantee for employees that there will be no lay-offs at that site. And then of course the magazine test issue that was immediately after that.

I'll come back to this later on. So the structure of the presentation will be exactly the same as earlier.

I'll give the general overview about the market and then kind of our scorecard, how we did in the market and then go through the financials and then deep -- a little bit deep dive on the business units. The only difference from now onwards only is that we don't dedicate a separate session or slot for Russia although Russia is one of our markets.

And then go in and remind about the outlook. There are a few items that are actually changed in the assumption side and then the updated guidance for the year.

So the markets themselves have been pretty much as expected. GDP growths are mainly slightly positive except in Russia.

We don't know yet official figure for the Russian GDP but the full year is estimated to be somewhere between 1% and 2% negative. In Russia the new car sales ended up being exactly at the midpoint of our range that we gave for the full year, so 10% to 25%, which is still of course greatly negative.

However, once again I remind that this year there will be about 1 million more cars sold in Russia than in Sweden, Norway and Finland together, so it is still a big market. New car sales elsewhere has been developing very well, especially Europe has been doing extremely well.

And in Nordics this time, Finland has taken now the lead and is the fastest-growing car market in Nordics, Norway, because of the oil situation, being the worst one. North America steady, 3% growth in new cars.

Car tire markets, and once again I remind you we talk about the sell-in, so sales to distributors, car dealers and so on, have been a little bit more modest growth. We have 1% growth in Nordics but in North America we had 6% growth and now we start to see the impact that those 2014 Chinese tire deliveries have been now consumed and now we start to see a more normal development in North America for this year.

And Europe overall 3% growth, so quite nice growth. Heavy tire segments have been positive for us, positive but stable because some of the segments are in quite high position already now in Nordics.

Europe in general and Russia we have now felt that the situation is a little bit stabilizing but on the very low levels. North America however has been now more positive.

Currency impact, I really wish that someday we would see here more green colors. Only all red colors this time, EUR15 million impact on our net sales about overall mainly coming from Russia but also from the oil currencies, meaning Canada, which is for us typically quite strong for the first quarter and then Norway as well.

And this is the main impact for the average selling price decline once again. Well our performance in this situation, we continue to grow in Nordics very well.

Our market share improved in terms of volumes there and we were able to increase the volumes. Our market share slightly declined in Finland but then increased in both Norway and Sweden.

So if you want to ask about is there any impact of the magazine test issue, it was such a slight decline and in sell-in that I would say that it's too early still to say because we need to see the second quarter sell-out statistics as well. But overall Nordics still positive.

North America, net sales as such in euros declined. The volumes however grew and also the market share there.

Other Europe as well this time continued to be doing as strongly as the last couple of quarters have been, so very strong growth and we continue to increase our market share. I think our situation with our customers in the rest of Europe is at the moment on very good level.

Russia, decline, very strong decline, again almost 30% decline in sales. Market share we were now able to keep, maybe even slightly increase the volumes market share but the volumes declined from last year, as expected.

Currency impact I already mentioned, EUR15 million, close to EUR15 million negative impact. So without this, we would have also had a growth in the net sales.

ASP went down about -- more than 8% decline in the ASP, clearly the biggest chunk, two-thirds, from currencies and the rest from the mix and prices. We did not lower the prices except in one or two cases.

In Russia, we made one change for the Hakkapeliitta 7 position. And typically what happens at the beginning of the year is that you get quite many extraordinary items to make this analysis of the ASP quite difficult.

Here for example, we need to also compensate some of the inventories for that particular product and you get a kind of a bit more negative impact therefore than the actual delivered volumes would otherwise have. Therefore I don't feel too bad about this ASP development.

Second quarter should already correct some of this. Material cost decline continued to be still very strong, even if we are really on the very low historical levels already.

Fixed costs stable. They were growing, we are investing on the growth areas but ruble helped us on the euro terms.

Production volumes, well this time they were higher than last year, production -- productivity 4% up. So we have had quite a long history now of constantly being able to improve the productivity, which we measure in terms of kilos per man working hours.

Distribution network. There we had clearly slower growth.

So we have now an issue with Russia and CIS that we have quite a lot of stores that are being closed and then even if we are growing elsewhere, we did not get similar type of growth and we duplicate. So only net growth for the whole network, which is about 20 outlets.

Then going for the actual figures. So net sales declined about 2% for the quarter, even if the volumes were increasing.

Profitability was supported by various things, raw material naturally helped here, the ASP declines were -- the price declines were clearly lower than the raw material decline. But then we had here stars like for example heavy tires that had very drastic relative profitability improvement.

Our price position, except for these one or two examples like this Hakkapeliitta 7, our price position in the market stayed or typically increased. And that is of course according to our strategy and that's supported our profitability.

While Central Europe was the fastest-growing market, we did not have a negative impact on our profitability from that growth. And that is of course strategically extremely important going forward.

Then we come to these difficult items of profit for period and taxes. We have this tax dancing and the impacts.

I'm getting a little bit tired of always explaining it; therefore I would say that if we exclude this tax decision impact, the profit for the period increased about 14%, so quite positive development there. Balance sheet continued to improve.

The equity ratio went up. Cash flow from operating activities, we now use a little bit different terminology way of reporting our cash flow here.

There is a clear decline and that is explained by this taxes that we paid, EUR51 million that we paid during the quarter. So nothing as such changing.

If you take that impact away actually cash flow was even better than last year. Capital expenditure at about the same level as last year, slightly lower.

So we are reporting or estimating higher CapEx for this year so the timing will be more back-end weighted for the year. And this is now the geographical split of the sales.

Drastic changes continue still for some time. Naturally hoping that this Russia would return to a little bit higher at some point of time, so 19%, still of course it is more than every other area except other Europe.

It's good however to remember that all the Nordic countries include the own Vianor equity which includes then this lower margin retail business. So Russia for us is not only the biggest single country still but we do continue doing there profitable business also on the local tire business.

North America now remained its share at about the same level as the Nordic countries but other Europe now one-fourth of the sales. So there this already earlier started development we expect to continue.

Raw material. We keep the full year guidance of about 5% decline.

The first half will be still on decline and then we now already have seen, and some of our competitors have also reported, that for example the natural rubber prices have started to go up already. But the quarter was not only lower than last year by 12% but it was also lower than the last quarter of last year.

So we were a little bit supported by the Russian ruble here once again ourselves. So a little bit specific in that sense.

I then move on and look at the business units a bit more in details. We kept -- the passenger car tires kept the 30% level that we ended up at the end of the year in EBIT for the passenger car tires, almost 31%, so a nice improvement from last year, like I said, but supported by for example the raw material and productivity improvements.

Vianor is always hardest hit depending on the timing of the season. So this was clearly worse.

We have been growing the own equity and that means that when you don't have a seasonality -- when you don't have a season your actual negative impact will be bigger but when the season then comes it corrects. I'm not too worried about the Vianor this season.

It's now happening in the second quarter and all the indications are that this looks like a normal year for the Vianor and Vianor's annual result will be then based on what kind of winter season we will have this year. And then heavy tires, no growth in sales which is naturally a disappointment.

The forestry segments are on the high side already but for example truck business is a little bit have been on the lower side in our markets. EBIT however improved almost one-third, so 33% improvement on the EBIT.

There are some one-time items on some of the issues that typically come sometimes negative, sometimes positive. So there is a clear improvement, but we are not going to be able to keep these kind of EBIT margin levels throughout the year.

We have been talking about this kind of 20% level as our targeted for the annual performance of the heavy tires. The reason for the improvements for this particular quarter were also that we were selling more our own production tires and not offtake tires, and we had -- this time, we had more weight on the replacement market.

Last quarter we had the OE market having a little bit more weight. So that explains these seasonal differences and excellent performance of the heavy tires.

Here you can see the bridge nowadays looks a little bit different than in the earlier quarters of the Russian decline. So car tires improved, also heavy tires, and then Vianor declined because of the seasonality.

So in that respect this looks quite okay. We had some extraordinary items here, like for example further bad debt provisions of 4 point something million in Russia, but also, like I said, we had some positive ones as well about compensating those.

So this is a pretty clean as such. Like I said, first quarter typically you get some kind of special things impacting it.

For example last year we had – for North America we had the pricing mistake for key customers that we corrected in the second quarter and this impacts for example the comparison slightly when we compare it to the last year. Just to remind about the factory situation.

So we did last year this capacity reduction in Finland. Therefore relatively speaking we are producing more in our Russian factory this year, so starting to approach 85% of our production in Russia.

This of course gives on the cost side benefits like earlier already reported. Passenger car tires, maybe from the negative – starting from the negative.

So like I said, the ASP decline was there, two-thirds of the decline impacted by currencies and the rest by the mix and local price reductions. Not really anything else but this Hakkapeliitta 7.

It was more of the mix issue elsewhere. But then magazine test practices, we corrected our practices and we are now working on publishing the new principles and hoping that the industry will follow.

So Russia continued to decline, as expected about, and then especially Central Europe was a star in this quarter. Maybe worth mentioning here that this whole season tire sales is increasing.

So we went from about 9% last year to 12% this year. Summer tires were about 44%, as were the winter tires.

So clearly highest or lowest winter tire weight ever for our first quarter or ever, but at least for last 10 years. And then reminding about the flexibility agreement from Nokian plant.

We are now executing this agreement and the opportunities that it gives us. And this is the bridge where you can see that two-thirds about the decline from the ASP comes from the currency and the rest from this price and mix.

Lots of different types of special items, therefore I'm not going to talk too much about the ASP but we can return back to this after the second quarter. Volumes were supporting this time.

Material cost here is a little bit different than what we talked about the raw materials. This includes all materials, including rims, it includes some kind of inventory, valuation differences and so on.

So you can't compare this and the previous raw material figures totally. Production cost because of the ruble continued to support us and then in other costs we have for example the freight costs and import duties impacting us.

On the product launch side, I'm extremely optimistic about our new Central European winter tire, asymmetric friction tire. Very, very excellent feedback from our customers.

I'm expecting this to do very well in the coming season. And then when this all season segment where we have this winter tire specific or weather proof concept, this has been also doing very well and it will continue doing very well.

New innovations in these products constantly coming and, as I said, differentiating our products from the competition. So portfolio wise, we go for the year and for the coming winter season in a very good shape.

And then about these tire magazine testing issues, I've been now personally meeting most of the Nordic testers, test organization magazine people who are doing tests and discussing about these practices. Very fruitful, useful discussions and now we have a document, about 15, 20 page document, about different types of issues and what we believe that should be the recommendation.

We are now starting to distribute it amongst first these people that we've been meeting and then going next for example to continue the discussions with the Central European organizations. I have also delivered now the European Tire Association to be considered whether they could take a role of for example publishing this as some kind of recommendation or at least helping to complete the work.

But we will be continuing doing well on the tests and our summer tire has been doing very well on the test and that has been supporting our summer tire sales. So also summer tire wise we are doing now very, very well.

Heavy tires, there was an ASP, so selling price decline. We have for example here our OE business which we don't have in our passenger car tires and there we have raw material clauses that kind of impact the actual prices.

But then the productivity was also too rigid for the heavy tires so doing extremely well on the productivity side. Forestry segment especially is doing very well.

We believe that it's going to do well for the full year. So 23.7% EBIT is of course extraordinary good.

At least, I don't remember if it has ever been better than this. Also I'm expecting a lot from some of the new products.

Like I said, we are the market leader in cut-to-length forestry segment. There is the skidder segment which is strong, especially strong in North America, but also in Australia for example and Latin America.

And we launched now a new product for that segment and I'm expecting also this to be a clear winner in the market, supporting our further sales growth also for the heavy tires. And then Vianor.

I already went through the reasons for this. Let's see after the second quarter where we are, I'm expecting much better results for the first half.

Service sales, however, even with a sales decline continued to increase. And this is where we are investing.

This would give us the stability throughout the year. Nothing special to report on the distribution.

Branded distribution, we increased – in Finland we increased slightly the network. We had about a handful of new outlets here, just to fill in some white spots that we had.

And the growth of NAD is mainly the Central Europe and other new countries. China we are now over 100 already.

We are soon approaching 3,000 outlet milestone for this branded network. And we have a new version that now started at the beginning of April to meet the whole development of the distribution.

Anna Hyvonen joined us from Ramirent. Then going to the outlook.

So like I indicated, there are a few changes in the outlook what comes to the assumptions. So new car sales, we took a little bit more positive stand for the Russian new car sales.

So earlier this was 10% to 20% decline and now we are estimating that this will be 10% to 20%. So still quite big fork, but maybe slightly, at least midpoint is now lower than in our previous assumption.

Also we have increased slightly the new car sales growth estimation for Europe and then sell-in tire volumes also instead of 25% we now estimate that the decline will be between 15% and 20%. So it will be of course that the summer tires actually will be almost close to zero and the full decline will come from the winter tire and the inventories that are there.

Our own inventory levels are now at the pretty solid good level, actually lower than last year. Raw material, we keep the estimation, and then also the investment we keep.

The full year guidance, as such we reiterate that both the net sales and operating profit would remain at the same level as last year but then we are just reminding about this timing of the kind of how the different quarters will weight throughout the year. So second quarter will be weaker than last year's second quarter due to these various timing related issues.

As such of course we had a good start for the year. Basically we are in a situation what we expected with these assumptions, maybe even a bit more confident than three months ago.

That's about the presentation so we will now go for the questions. We will start, as our tradition has been, questions from this room.

Yes, this is Tom Skogman from Handelsbanken. I wonder about these magazine tests and the risk of mass claims, whether there's any kind of news out there you want to bring to our attention or how much the risk has declined or if there are any cases that you know.

And then about this media information that a large share of the management board has sold options and what – if you could provide some open -- how you think about this and whether there will be any impacts from that.

Regarding these mass claims, we estimated that risks of those and impacts, especially the impacts, are very, very low. And that is what we still state and nothing new to comment on this stock option case.

Like I said at that time, that it looked stupid, however everybody was overselling, they had a lot of other things to sell at the same time. They were selling only the things that are now closing immediately after this particular call and I'm sure that they didn't do anything wrong there.

I mean you have very good progress in Central Europe so can you perhaps elaborate about how you aim to build distribution there and go into the different big markets and how you see that developing?

This is exactly what I have been now preaching for several quarters, that it's very much about the quality of your customers, that you select the right customers. We have now several quarters where we have done the quarters with a very good quality, meaning that we haven't used the end of the quarters to dump volumes to some wholesalers that then dump those to those markets where our customers' prices are the highest.

And that is what is now paying off. So the situation with the customers is extremely good.

They trust us -- they are increasing their volumes. We are constantly looking at every country.

Every country is always its own specific case. What's the role of the wholesalers, what's the role of the tire manufacturer based chains like Vianors or Euromasters and so on and how about the independent chains like ATU for example in Germany?

So I think that we now -- we have now overall much better quality on how we target to develop the distribution in these different countries. We are now still having several countries where our market share is clearly too small, Germany being one of them.

And with these moves we are now constantly able to increase our market share and approaching the levels. We have some markets where we've been doing very well for a long time, for example Czech Republic is one of the good examples where our market share is already now clearly two-digit market share.

And that is a good example for the rest of Europe to follow. And then we open some new countries.

You saw the NADs in Turkey. We get there slight additional volumes but when you get those and then they continue to grow, they give you sustainable growth for the future.

If I kind of rephrase it, the next three years, where do you expect to get the biggest growth in euros? Is it the big countries like Germany and Italy for instance or what countries are you now focusing on and will it be store driven in these markets or some other model in these top three countries?

It will be most of the European countries where we will be able to grow still. But of course in terms of absolute growth, the biggest ones will be Germany, clearly, and then France, as an example.

Artem Beletski from SEB. Starting with the pricing picture, so you mentioned about some price cuts done for Hakka 7 in Russia but what is I would say the overall pricing situation for the country?

So have you been raising prices in Russia due to currencies and also what comes to especially Central European market as we are starting to see that raw material prices are going up? So are you planning for some price hikes in that region?

A good question. Most of the units, local ruble based unit prices in Russia we've been increasing.

Central Europe, the situation is like you estimated, that also the competitors are feeling now the starting of the increase of the raw material cost. And we believe that the price environment is now less aggressive.

Whether it means that we will be able to increase the prices, that remains to be seen. In Central Europe we still are so small that we can't push the market ourselves.

North America remains very competitive. There I don't expect any price increases, unless the raw material cost increase starts to really be significant.

We are in a very luxurious situation that our gross margins are typically higher than any of the competitors. That means that the others are more sensitive to the raw material cost and the pressure therefore is a bit higher.

And could you talk about this magazine issue and what kind of -- it's understandable that you don't know what has been sell-out in terms of summer tires within independent dealers but what has been the development within Vianor? So have you seen any impact in Nordics or in Central Europe?

It's good to remember that this has been very much a Finland issue, this magazine test issue. What comes to Vianor sell-out, indications are positive.

Okay. And the last one, regarding this tax issue in Finland.

So now you have been paying out slightly more than EUR50 million in Q1. So how much of so to say extra taxes you have paid out on aggregate level because --

We paid the full tax now. We paid -- you remember they collected -- already earlier they collected about EUR40 million plus and now we paid EUR51 million.

So that now takes care of all the back taxes that were at the level of EUR94 million or so, including the interest. So we have paid that now all.

Okay. And the last one, in terms of outlook for Russia so now you --

By the way, that doesn't mean that we accept the back tax at all. But because we believe that we don't get any other -- we don't get any better interest anywhere else so that was better to pay now.

And the last one regarding outlook for Russia. So now you are less negative in terms of car sales this year or slightly less negative.

Slightly is the correct word.

And what comes to tire sales, so say you have actually increased the rate of decline what you are expecting for this year. Is it due to the fact that you are now seeing a big --

I reduced the estimation for the decline. We estimated the sell-in would be as much as minus 25% lower than last year and now we estimate 15% to 20% decline.

Kalle Karppinen, Danske Bank. Two questions, one on the raw material guidance of minus 5%.

What kind of rubber price, oil price development is baked into that? Can we still see further increase in rubber and oil price this year and still be within that guidance?

And the second question about the third factory plan. You have originally said that you expect to make the decision around the summer of this year.

Is that still a valid timetable?

So the first one, the raw material cost estimation for the full year includes the estimation that the natural rubber for example will continue to go up. Oil prices, about kind of this level oil price is being assumed.

Then the second question was -- what was your second question about? It was about this --

Factory plan decision timing still this year.

So in the Capital Markets Day we changed the timing a little bit. We informed that we are going to make a decision in the fourth quarter this year.

And that is still intact. We have a feasibility project ongoing for the location and also a little bit about what kind of factory and this kind of thing.

So we are constantly progressing on our planning.

Ari Rajala, Kauppalehti. Will you please tell us more about the market share drop in Finland?

And is this about winter tires or summer tires? Would you please tell us more about that?

First of all it was a modest drop in the sell-in market share, and like I said, these kind of drops we have seen in the past for example coming from the timing of the seasons. And this was on the winter tires, the drop, if I remember correctly, slightly, very small drop.

How about the ASP? Did you mention how much did it decline?

I said that over 8% was the calculated ASP decline which two-thirds was impacted by currencies. And of course the currency impact was mainly in translational currencies from Russian ruble, Norwegian krone and the Canadian -- especially strong negative impact this quarter was from Canadian dollar.

How about the share of the winter tires in sales? You said something about --

44%.

And it's the lowest number in --

At least to my knowledge it's very low. Of course we have now this new reporting so that we have this all-weather as a new segment which comes somewhere in between the winter and summer tires, and that's now already 12%, it was 9% last time.

But winter and summer tire sales with this new categorization were the same, 44%. This is a kind of continuous trend.

Summer tires are more and more being delivered closer to the summer season and not anymore in the previous year and then fourth quarter.

Tommy Ilmoni, Carnegie. You said that the second quarter will be weaker because of a change in the shift from Q2 to the second half.

Now is there a risk in that statement considering that the earnings need to be generated during a shorter period of time and I guess most of your competitors are also trying to fill the channel during the third quarter?

Based on what happened last year I don't see it as a risk. Already last year we were clearly going more and more towards the third quarter and fourth quarter situation with the customers.

I'm pretty confident. Okay, I think we have now exhausted the questions in the room and we will now take the questions from the line.

Thank you. This is Nikhil from JPMorgan.

I have three questions if I may. The first one on raw materials and I'm sorry if you've covered this earlier in your remarks.

You said the EUR15 million improvement tailwind guidance for 2016 is not comparable with the EUR18 million that you saw in the first quarter. So I was wondering if you could give us a comparable number for the first quarter which compares to the EUR15 million for the full year.

And how confident are you on the 5% raw material price decline given how rubber price has increased over the past couple of months? The second question is on the second quarter guidance.

You said it will be weaker than last year. Could you give us the moving parts in terms of how do we think about it.

Should we expect volumes to be lower? Should we expect price mix or FX to be weaker year on year as well?

That will be really helpful. And last question is on FX.

At current exchange rates how do you see it impacting your revenues and EBIT given the ruble has appreciated a bit but the US dollar is depreciating? Thank you.

Okay. Raw material, I don't have a kind of corresponding first quarter figure for this full year EUR15 million estimation.

So like I said, this figure that you saw in the bridge includes all kinds of other elements as raw materials. So with this 5% decline we have this EUR15 million impact.

It's good however now to remember that when we state this we take the corresponding volumes. If the volumes this year are higher than last year's volumes then the actual absolute positive impact is bigger than this EUR15 million because also the volumes are bigger.

So that's maybe the answer. And then also in this question you asked about this 5% forecast and basically how confident I am with the present situation and Russian ruble and so on.

I am now more confident about this 5% than I was three months ago. Second question was about the second quarter.

First of all the first quarter was now higher than we estimated. The volumes were actually more than last year.

So this is partially impacting the second quarter weighting. This will be about volumes, so delivered and sold volumes, and nothing really more about the EBIT side.

Pricing. I think that the pricing situation shouldn't get any worse than what it was in the first quarter.

And then foreign exchanges. The Russian ruble has strengthened a bit.

Our estimation can sustain a variation. The Russian ruble most probably will not stay flat.

There are all kinds of variations all the time. So small variations we will be able to sustain.

Russian share of the sales has now clearly gone down from the past years. And US dollar level is about the same that what is the level at the moment and that's the forecast as well.

If I may have just one follow-up on the raw materials. I understand if you don't have a corresponding number to the EUR15 million.

In that case, could you help us think about how raw material tailwinds or headwinds will progress over the next couple of quarters? Do you expect second quarter to be a slight tailwind and then turn into a headwind from third quarter onwards?

Exactly. That's exactly the thing.

The first half will be still lower and then we should start seeing negative development on a year on year comparison from third quarter onwards.

Thank you very much.

Yes, thank you very much. The first question maybe just to follow on from Nikhil's question on the net pricing.

Again obviously I understand you don't have the comparable number, but just in terms of directional commentary, would you say that you have exhausted or maybe even more than exhausted already now the full-year number of 15 million?

Not really, not fully exhausted. Like I said, I estimate that the second quarter will still be lower than last year's second quarter.

Yes okay. And then could you say what other elements play into this material element of the bridge, just so we can understand that better?

In the bridge, we have for example all kinds of other materials than just raw materials. We for example have rims, both in passenger car tires and then also on the heavy tire side.

There are different type of inventory valuation changes that take place all the time based on, for example currency changes. So those were a few examples.

Okay, thank you. And the second question is on the seasonality in North America.

I think there was a bit of distortion in previous quarters because Q1 ‘14 had been very low, so Q1 ‘15 had been strong growth and so on. Can we think of a more normalized seasonality with differences in absolute net sales volume for that region to be more similar now between the different quarters?

Is that how you think about it?

Yes, North America winter tire inventories are quite high, so there this year's full volumes will be impacted at what kind of season there will be. People will be more cautious about having products.

They will be less prepared for the season when the season comes. So if the season comes good we will be doing there very well during the seasons with having the availability available.

But clearly now customers are more sensitive in that respect.

Thank you. And finally just on mix, because we've talked about the low share of winter tires, but my understanding from the previous calls was that mix has been helped a lot by the increase of premium or above 17-inch tires if you look.

So directionally isn't that even the bigger mix driver and therefore a higher share of summer tires of which quite a few are now 17-inch and above, isn't that even a positive for mix?

It's not necessarily positive but at least it's balancing it. So the most valuable tires are the big winter tires naturally and winter tire segment is more profitable than summer tire segment.

But because we have been able to improve the mix inside the summer tires by having clearly bigger end of the summer tire sales coming from for example SUV tires, that has helped us that our profitability has not suffered while the summer tire sales has relatively increased its share. This is a little bit same as what I explained with Central Europe.

The situation in a way for us is now more sustainable that we don't have big swingers, that if we happen to increase sales in some corner, it doesn't immediately mean lower or higher profitability. But all sales is positive in this respect.

Thank you very much.

Good morning. It's Gaetan Toulemonde from Deutsche Bank speaking.

I have two questions or in fact one question. You mentioned a few times that the Russian market, North American market levels of inventory were very high.

Can you give us an idea about the magnitude of excess of inventory in this region? And when you guided for lower operating result in the second quarter, can you give us an idea about type of magnitude.

Are we talking about something minus 5% or 10% or are we talking about something more significant? That's my two questions.

Thank you.

You asked first about the inventory levels and kind of how absolute levels are. They were at the levels – they were about the same levels than last year, but because the market has declined they relatively speaking, against that market they were higher.

Of course now, because the deliveries in the first quarter has not taken place, like in the previous years, that means that now the inventory levels going to the season, they are more normalized. But that has already impacted our sales.

The second question was about this magnitude of the second quarter. We are not saying any adjective, we are saying weaker.

We are just kind of preparing that this will be weaker in terms of sales. The timing of the sales, for example, in Central Europe for the first winter tire deliveries will typically happen in June or July for the first.

So these kind of timing changes we can't really estimate very accurately. But whatever the second quarter will be, and of course we are now already in May going forward, I'm not worried about the full year.

Okay, that's clear. And when you were talking about inventory, in fact you were referring to the Russian market i.e.

stable inventory for lower environment which underlines this excess of inventory. But North America, are we in the same situation?

No. Okay -- sorry, you are correct.

North America, the inventory levels, well, it's the same, even maybe a bit differently because now the inventory, customer inventory is very high, so they were not ordering new things for the inventory. So the levels now are pretty okay going into the season.

In some cases, if I look at availability and mix, there actually could be even need to continue filling in the inventories, but that will only happen if the season will come. This is typically what happens in the markets, that if you have a bad winter it impacts negatively two seasons, the particular one where the season is and then people will be more careful with their inventories in the next season as well.

And naturally the inventory levels at the starting phase are higher.

Okay. Thank you.

Thank you. Hi, it's Thomas Besson, Kepler Cheuvreux.

I have a few questions please. I'd like you to please clarify one point on the level of the ruble and the sensitivity of Nokian to that level of the ruble.

You sharp pricing to react positively when the ruble strengthens. Is it correct rather to believe that right now you are actually benefiting from the weaker ruble rather than anything?

No we are not benefiting from the weaker ruble, we start to be quite close to the balance what comes to the translation only. So that's important to understand that because of our good cost base in Russia, we benefit from the low ruble there, but then on the market we benefit – we are balanced by the low ruble.

So that's on the translation side. But then of course the higher value of – or if the ruble starts to get stronger, that means that the whole market gets stronger, so you get more volumes, you get the mix impact.

And that's why we still prefer to have a stronger ruble, Russian ruble.

Okay, thank you. On your slide 13 where you give a useful bridge for the passenger business, could you give us your assessment of the full year development between price mix, currencies and materials?

That was a slight positive in Q1. Do you expect this spread to stay marginally positive for the full year or do you believe that it might actually be a negative for the year?

I'm not going to give a guidance on the balance, whether it's going to be positive or negative. But I'm pretty sure, okay, now of course, it depends on the currencies, but my estimation is that the ASP development for the full year will be clearly less negative than the first quarter.

Okay, really clear. Last question for me please.

Your predecessor used to give us an idea of the balance of Group EBIT between the first and the second half. Could you actually help us here as well, so you're guiding for lower second quarter.

Does it mean that we get back to a kind of seven, eight years ago seasonality of profit with a bigger second half again, like 55%, 60% of earnings in the second half or should we read nothing into your guidance?

I think that you need to now only calculate that the first year now we were slightly better, second quarter we are saying that we will be weaker. So that means that most probably the first half will be about the same or weaker and then the second quarter will – second half will be then better.

It is constantly becoming more and more back weighted, the timing of the deliveries.

Okay. I actually have a follow-up question please.

You've discussed that the kind of coming out on the old practice on tests doesn't seem to have much impact on your retail business at this point. Could you as well confirm that you haven’t -- there hasn't been any legal consequence to that thing nobody is actually suing Nokian for previous test practice?

No we don't have anything to communicate in that front.

Great. Thank you very much.

And of course, it's good to remember one of the biggest worries in the initial media coverage was that there will be big mass claims in US and, like I explained already earlier, there has never been any magazine tests in North America.

Okay. Thank you.

Hi there. It's Martin Viacha from Redburn.

Thanks for taking my questions. I have two questions if I may.

Firstly, just to follow up, would you consider that the whole target scandal is done and dusted and there's nothing from the finance authorities in Finland, there's nothing on the consumer side, if for you this is a completed, a finished issue? Is that correct?

I can't say that it's totally complete. This is just one or two months from the actual incidents and let's see.

Typically these kind of things may take even longer time. We don't have anything to report on the matter.

Okay. And the second question would be with regards to Russia.

You are still guiding for Russian car market to be down about 10% to 20%. But if I look at the share [ph] in Russia, it looks like we're going to get very, very easy comps since about the second quarter, since April 2016.

Would you – is it possible to say that that estimate of minus 10% to minus 20% is on the conservative side?

In case of Russia, I wouldn't say that we have been too optimistic mostly in the last quarters and last few years. First quarter is minus 17%, which is on the higher side of this range.

Of course but that was the last – this is the last quarter with a tough comp. From now on, from April 2016, the level is significantly lower than it has been during the first quarter.

So that's why I'm just baffled by that guidance, because it seems that if the Russian market does not deteriorate further sequentially, we shouldn't see any declines anymore this year.

I think that we will see still declines this year. But naturally we took down the negative side of the estimate slightly, so we feel a bit more optimistic about the new car sales.

Okay. Thank you very much.

Okay, seemingly we have now exhausted the questions also on the lines. We have used about one hour for the session, so I thank you for the active participation and see you again in three months' time.

Have a good start for the summer.