Nokian Renkaat Oyj

Andrei Pantioukhov - Interim President and CEO Anne Leskelä - VP, Finance and IR

Mattias Holmberg - DNB Henning Cosman - HSBC Nikhil Bhat - JPMorgan Gaetan Toulemonde - Deutsche Bank Martin Viecha - Redburn Edoardo Spina - Exane BNP Paribas

Good morning, ladies and gentlemen let’s get started. It’s really an honor for me in my new role of Interim President and CEO to welcome all of you here to 2016 Results Presentation.

We’ll follow today the normal practice which would be that first I briefly present our results and then we’ll take questions first from the audience in Helsinki and then from the people over the telephone lines. Please remember to switch off your mobile phones here not to disturb the discussion.

Before we move into details my message from 2016 that I would like to convey is that in the end of the year where we managed to make quite a strong performance, quite a strong result which was reported by a remarkable last quarter and we are very happy about that especially that the market environment in most of our market areas was quite challenging but we’ll talk about it in more detail. So in my presentation which we published this morning on our website I will first give the overview of the company result and go little bit more detailed into financial performance and then we’ll have small deep dive into business units and then we’ll complete it with our outlook for this year and financial guidance.

So looking at the market overview in 2016 it was different in different markets, to say that in most of the developed countries the market situation was quite stable, the mature markets they didn’t grow much, they were either flat or show quite a modest growth. Russia was in the end of the year a clearly better than what we expected in the beginning of the year so it started to stabilize and in the end of the year even showed some first cautious signs of recovery, I should say.

GDP growth was flat or small increase in western countries and in Russia the first estimate is that GDP went down by 0.6% in 2016. New car sales was in good growth in Europe and both in Nordic and Central Europe and it means that even though it isn’t being quite substantial increase to the demand for tyres this year but we expect it to help with deferred demand in later years.

In Russia the result of the new car markets for the whole year was 11% decreased but course of the end of the year the pace of decrease went down and December figure was only 1% declined compared to December, 2015. And the first estimate forecast for this year, they vary of course, there is also uncertainty still but the car manufacturers in Russia themselves give a combined forecast of 4% increase at this point.

Our view is that, the car manufacturer [ph] industries expected to increase between 5% and 10% this year compared to 2016. As to tyre market it was quite flat or showed small growth in most mature markets.

And Russia is declined by about 5% which was actually better than what we expected, we anticipated in the beginning of the year, a bigger decline. And one important factor for our year results was of course the development of exchange rate and I must say that all main currencies in which we operated about from Euro gave a combined negative effect to our performance last year, but we will come back to that.

As to our performance, I’m really pleased that we managed to deliver positive development in all key market areas. We were not able to grow in all market areas because some of the markets that we’re operating actually declined, but we managed to at least maintain or in many cases improve our market share.

A little bit more detail about the markets I’m now on Slide 4, in Nordic countries our sales increased by about 2%. In other Europe which for us practically means Central Europe mostly were managed to grow by almost 14% which is quite remarkable achievement because we’re talking about quite mature markets which didn’t grow itself, so we managed to improve our market share there.

In North America our sales decreased but vessels [ph] caused by the decrease in the tyre demand especially for winter tyres in 2016 which was caused by two factors. First was hike area was tough from 2015 winter season which we reported before and the second is, quite mild winter.

The opposite - the winter in Europe especially in Central Europe was actually colder and with more snowfall than previous years, I think this is what statistics shows and that helped supported the demand for winter tyres in Europe. In Russia, our sales for the whole year in Euro terms declined by about 3.5% again that was better than what we expected in the beginning of the year and when we come to the fourth quarter you will see that we actually managed to deliver even growth in Q4 in Russia.

In terms of volume our sales in all key market areas apart from North America increased including Russia and that means that our market share development was quite positive in all markets. A few words about profitability and demand factors, which influence that.

First of all, already mentioned the negative impact of the exchange rates and the total negative impact of exchange rate for 2016 for the whole year for the company’s net sales was about €30 million. When we take only the last quarter separately it was already different and there it was actually positive for us about €4 million positive because some of the currency that we operated primarily the Russian Ruble actually strengthened in Q4, 2016 compared to the same periods the previous year.

The ASP in passenger car tyres have slightly decreased but we’re talking about the decrease less than 5% and about half of that decrease was caused again by the currency fluctuations. Raw material cost impact on profitability for the whole year was actually positive, the raw material cost for us decreased by slightly more than 5% compared to the previous year, but this trend clearly changed towards the end of the year and we’ll talk about it later in a bit more detail.

Our production volumes grew as the total for both factories combined by 5% and productivity also continued to develop positively despite the fact that we expanded our product range significantly and through that added the complexity for production which always makes it more challenging to keep or even improve productivity, but regardless of that we managed to improve it. And our distribution also continued to developed positively we managed to add our partner shops in our branded networks in all our key markets.

Let’s go into financial performance and I’ll move in to Slide 6. Not going to go through in detail through all these figures but maybe highlight just the main, the most important figures.

So our net sales for the whole year increased by 2.3% and operating profit increased by 4.9% to almost 5% compared to the previous year. So net profit of course different factors influence that including the tax rates and the ongoing tax dispute in Finland, but finally the profit for the period grew also by 4.6%.

Financial position, financial standing of the company remains quite solid and actually even strengthened in 2016, cash flow was very strong and reached more than €360 million improved significantly from the previous year and at the end of the year, we had negative net debt close to €290 million of clear improvement compared to the previous year. As I mentioned already the whole year result was affected very positively by a very strong last quarter.

You can see it here from the figures that in Q4, if we take it separately the increase in net sales was more than 9% and increase in operating profit more than 14% compared to the previous year’s last quarter. What is very positive in this development is that all our main market areas contributed to this growth.

So all market areas increased their sales in this quarter, but what is remarkable is that Russia was the biggest contributor to this growth for the first time on a few years. And now moving to next slide, which is number 7.

I think this illustrates even better the development of our performance during the year. We can see that when we started the year in Q1, the level operating profit was on the same level as previous year and very far from for example our peak, our best year of 2012 actually it was twice about twice lower in 2012, but when we look at the following quarters we see that this difference started to equalize and already in Q4, our operating profit was actually the best in four years and more or less on the same levels as in 2012.

So it means that during the year, towards the end of the year performance clearly improved. Looking at the geographical breakdown of our sales, no major changes happened here, we are very pleased with the fact that we managed to, within very short period of time so compensate the volumes and the sales which we lost in Russia due to the decline of the Russian economy and the market with growth in other markets and their developments actually continued and strengthened in 2016 as a result of implementation of our strategy, successful implementation of our strategy.

The biggest change in this geographical mix is probably that the share of the Central Europe continued to increased and reached in 2016, the level of 29% whereas the share of Russia remained at relatively low level of 16%. So if we look at this mix now, it’s clear that the share of our so called core markets which include Nordic countries in Russia it comes [ph], it is about 60% of our total sales and about 40% comes from what we call growth - market for us it’s North America and Central Europe and of course when the Russian economy and the market start to recover again it means that we can add our business in Russia without jeopardizing growth in other markets.

So in this respect the company business is in very good shape. Few words about raw material.

I’m now on Slide number 9. And this is a very important factor not only today but most probably for the future into the whole year 2017 because in the end of the year there was a clear change in the trend of raw material prices for the whole year of 2016 the impact of raw material cost for us was still positive, it was about €15 million, so positive impact on our result and the raw material cost decreased for the whole year by about 5%, but already in Q4 the situation changed clearly and if we compare the raw material cost in Q4, 2016 through the previous quarter Q3, then raw material cost actually increased by 5%.

And based on the best information and analysis that we have now at this point, we expect raw material costs for us to increase by about 15% to 20% in 2017 compared to the last year. Of course this is development which is common for the whole global tyre industry and this is a challenge which all our competitors will meet also and that means that there will be quite a strong upward pressure on prices in the whole tyre industry and we have already started to receive the first signs of - the first signals of price increases that our competitors either announce publicly or implement already in practice with their customers.

Of course the first signal of endgame from Eicher [ph] with Chinese players and some other Asian players but recently during the last few weeks and even days, we also received clear information about major tier 1 tyre manufacturers announcing price increases in North America and Central Europe. So this development already started and we also started already to implement necessary price increases to cover the increased raw material costs and of course the target is to maintain our profitability despite these development and of course this should be noted that despite this big increase which we observing now, the index of raw material cost is still on a relatively low level.

So even compared to the level of 2010 which is a benchmark, it’s still even with the expected increase it will be still below that level not to speak about the peak levels of 2011, 2012. And finally this means for us that, if this increase in raw material costs realizes then it will generate headwind for us in the range of €40 million to €55 million this year.

But as already said we plan to cover that with necessary price increases and before we move into business units on the corporate level still an important piece of information that I’d like to share at this point because we promise to communicate this to you before and that concerns the decision about the third factory, so as planned in the end of the year operative management presented its initial plans and proposal to the board and based on that discussion we agreed to implement necessary additional investigations and analysis and these are now ongoing. These include for example motor or market studies operation of detailed business plan, but also putting together comprehensive condition package with potential locations.

So this work is now ongoing and we agreed with the board that this topic, this proposal will be considered again during the spring and the final decision about this investment is expected to be made during spring 2017 not later than in the end of second quarter. Of course I cannot promise, it’s the board decision but at least this is the plan that we agreed with the board and we are continuous contact with the board on this topic.

I think this is all that I have to communicate on this topic right now. Little more about business unit starting with brief overview, I’m on Page 12 right now.

And here in the structure of the business there are no bigger changes in 2016 compared to the previous year. The share of our main business unit passenger car tyres remain approximately on the same level, so it’s now about two-thirds of the overall business of the company and the shares of Vianor and heavy tyres remain about the same level.

Development of passenger car tyres was very positive and actually it practically decided affected the whole Group’s result for the year. When we look the financial results of passenger car tyres division, net sales increased by 3% and EBIT increased by more than 7% compared to the previous year.

EBIT margin improved compared to the previous year and reached a level of 31% which we think is quite a strong result given the market requirement. A few more words about passenger car tyres so there are a lot of things on the plus side in terms of performance.

However we mentioned we managed to increase our sales in Central Europe substantially and that’s a very good performance for us. Winter season was quite good and Nordics countries and Russia it was maybe an unusual one because it started quite early and continued strongly but maybe for a shorter period of time than normally, but in the end of the day it was quite good.

In Q4, as I already mentioned all our market areas increased their sales but Russia was the biggest contributor to this growth and actually in Q4 our sales in Russia increased by more than 40% compared to the previous year’s last quarter. That doesn’t mean that the Russian economy or the Russian market or our sales in Russia will start now to fly like it used to be like in previous crisis for example.

We do anticipate a recovery in the market and we do anticipated in 2017, the markets in Russia will turn to growth but unlike the recovery from the previous crisis. This time we expect the recovery to be more moderate and to have lower growth rate compared to the previous year.

Another positive thing is that, summer tyre sales increased in all our key market areas. This is a very positive development for us because it means that we will have more balanced portfolio of our products that we sell in our key markets and of course when we speak about summer tyres we’re still doing very profitable business with the summer tyres.

And the only negative thing that I would like to mention about passenger car tyres is a slight decrease in the average price, but as I already mentioned about half of that decrease was caused by currency effects and the rest mostly by the downward pressure caused by the decrease in raw materials especially during the first half of the year. We can see that on the next slide, which is number 14 in the EBIT bridge and it’s very positive for us that the positive impact of the materials cost development was bigger than the negative development of the price effect.

Particularly instead we had to decrease the prices clearly less than the cost of raw materials decreased. A very important thing for us for passenger car tyres is of course the launch of our new products.

We recently announced about the launch of two new families of studded winter tyres to model of in our flagship line Hakkapeliitta 9 for passenger car tyres and Hakkapeliitta 9 SUV for SUVs. These tyres will make a revolution in the studded winter tyres because for the first time ever we used in this model, in this product two different studs on the same tyres.

No one has ever done it before and the logic of this solution is that different studs ensure different performance, different characteristics of the tyre in different conditions. So according to our tests, the performance of this tyre will be clearly better than our previous flagship product Hakkapeliitta 8 not to speak about competing our products.

Simultaneously we launched also two models in our B segment range Nordman 7 and Nordman 7 SUV which are positioned as value for money products and these are quite important products for the Russian market and for the markets in the Nordics countries. So all in all, this year we launched four new studded winter tyre models and throughout the whole history of Nokian Tyres this is the biggest launch of studded winter tyres ever and these product category being the most important for us in terms of our sales of passenger car tyres that’s why I’m emphasizing so much, that this is a big deal for us and we ensure that this launch, these new products will give a clear boost to our sales in this year and the years to come in our core markets Nordics countries and Russia.

By the way we started the launch event for customers with this new products over the last week and they will continue throughout this beginning of the year and the first group of customers who already seen and tested these tyres they’re very happy and they received these novelties very, very warmly. So they’re very happy about that and we can see that in our order stock already now.

A few words about other business units moving to heavy tyres. The financial result was pretty much the same as the previous year based on the figures net sales and operating profit remained practically on the same level as the previous year, so heavy tyres proved to be quite steady [technical difficulty] business for us in 2016.

That doesn’t mean that it was just a copy paste of the previous year actually inside these figures there are quite big changes which happened in different segments, some segments grew, some segments declined, but the end result was similar to the previous year. The growing segments in our sales in 2016 were forestry which is our key segment in heavy tyres and also mining was a growing segment.

The ones which declined were truck tyres and [indiscernible] that we trade in business. Moving to Vianor, I think I first will take the development of the - our distribution chain.

So I’m in Slide number 20 and the positive development of our branded networks continued and we actually aided almost 300 outlets through our partner networks that includes Vianor, N-Tyre and NAD - Nokian Authorized Dealer and the positive development continued in all market areas and expansion of the chains with an expectation of Russia, where actually the number of partner Vianor outlet declined by about 50 shops in 2016 which was the result of customer and partner bankruptcies back in 2015, which was again the impact of the financial crisis and the decline of the economy and the market. But this development of distribution will continue to play an important role for our business also in the future because these partner outlets tend to sell much more Nokian Tyres than other shops and they tend to also recommend to the consumers Nokian Tyres is the first choice, so that’s why we continue doing that.

Second about the equity-owned operations of Vianor. There the result was clearly below our targeted level even though the net sales for Vianor increased in 2016 by about 2%, but that increase was also below what we expected and especially disappointing was the development of the operating profit which was actually negative at about €8 million and half of that comes from non-recurring items which was in this case write down of ICT development projects which was decided not to discontinue and half comes from operational results.

So in order to achieve a positive result for Vianor in the future, we’re launching a comprehensive profit improvement program already this year. Let’s move on and now I’m ready to come to the outlook and the guidance part of the presentation.

A few words about assumptions first how we expect the market to develop. The sales of new cars is expected to slightly grow in Europe and as already mentioned in Russia we expect stronger growth up to 10% compared to the previous year, but we should remember that sales of new cars in Russia are now on the bottom level of €1.4 million which is quite a low level and there is a lot of deferred demand also for new cars and we think that in the years to come, this deferred demand will achieve [indiscernible].

Speaking about passenger car tyres, we expect some growth in all our key market areas including North America, Central Europe and Nordics countries and in Russia again we expect that the demand for tyres and the selling of tyres in the Russian market will increase in the range of 5% to 10% compared to the previous year. This growth is actually expected to be stronger in winter tyres and a little bit softer in summer tyres, but the total result is likely to be in this range as we see it now.

I already talked about the raw material cost so at this point of time the expectation is a growth increased of raw material cost between 15% and 20%. But the situation is changing very rapidly so we should see how it develops towards the end of the year.

Speaking about our investments, I didn’t mention about that before in 2016 we invested a total of about €105 million and in 2017 our plan is to increase the level of investment to about €190 million as a total and the big increase comes mostly from the land expansion of the Vsevolozhsk factory. The installation of production line number 14 which was delayed by a couple of years due to the demand situation will now be implemented which will enable us to increase the capacity of the Vsevolozhsk factory by approximately 1.5 million tyres annually and saved annual capacity of the Vsevolozhsk factory in nominal terms up to 17 million tyres and together with this installation of this product line we were going to also expand our mixing capacity in Vsevolozhsk which is necessary for this additional capacity and also to build raw material, storage and continue expanding our finished good warehouse.

So this is probably the biggest increase in investments in 2017 compared to the previous couple of years. And of course we expect that the financial position of Nokian Tyres will remain as solid as it is right now.

Speaking about outlook we do expect that our position will remain strong and will continue to improve in all our key market areas. We managed to maintain or improve market shares in all our key market areas in 2016 and especially the positive improvement of market share was achieved in Russia and we plan to continue this development also in 2017 and especially now with this new products I think we have all the elements in place in order to achieve that.

The rapidly growth in raw material cost is a factor which will shape the development of the whole global tyre industry in 2017, I already spoke about that today and we also expect that our profitability will be continued to be supported by efficient cost structure and improvements in productivity in our factories. Based on all the information available here’s the outlook and the guidance that we can give at this time for 2017.

I must say that there’s a lot of uncertainty involved at this time. This uncertainty concerns of course the exchange rates because as I mentioned before the impact of exchange rate was negative for us in the previous year, we expect it to be somewhat positive 2017 but you never know.

The uncertainties further enhanced by political factors this time coming not from Russia but from the United States and the possible impact of political decisions made in United States the political effects on the World Trade potential protection measures and so on is an uncertainty factor in 2017. And of course the biggest uncertainty factor as already mentioned is the development of the raw material prices let’s see how it develops, I want to share these are current view on this topic.

So taken all these uncertainty factors into the account and the best estimate of what we have this time. We expect that our net sales and operating profit will continue to improve in 2017 and we expect them to grow by at least 5% compared to the previous year.

So this is how we see and the main message here is probably not to think about figures is that, the positive development which we demonstrated in 2016 it is likely to continue this year and we’re talking about coming back to the track of profitable growth, we already stepped on this track last year and we plan to stay on this track in 2017. I think that concludes my presentation and I will be ready now to take the questions starting from the Helsinki audience please.

Two questions or tips and first one starting with raw materials. Could you maybe comment what kind of price actions you’re planning or implementing in different geographies we have seen that the North America Tier 1 players came out with 8% price hikes?

You did basically the same feature for Europe and I guess Russia is a bit different due to softer currency movement.

Thank you. First of all, it remains to be seen what price increases will be implemented by our competitors also in practice because we often - there is a time lag between the public announcement and the specific implementation of this price increases in the markets and this is also like an uncertainty factor for us, the action - competitions especially in the markets where we are not so dominant as we’re in Nordic and Russia.

But as I mentioned before what we plan to do is to make necessary price increases to cover the increased raw material cost so that our profitability remains at least on the same level and this is different in different market areas as with different product categories because also the margin levels are different. But as a total, we expect to be able to do that.

Yes and then, second question on Russia and so it’s kind of all 40% growth was delivered in Q4, what has been predominant drivers there I guess currency helped a bit versus there’s kind of strong summer tyre season which was also supported for Q4 and also looking at 2017 how did winter tyre season develop in Russia, it has been pretty cold and then I guess the new products would be helping you to sold, should we still assume that it will take market shares of this year?

Okay, thank you. Speaking about Q4 in Russia there were multiple factors for which positively affected this result.

Of course currency had a strong role in that, but we also managed to significantly increase our sales volumes in Q4 compared to the previous year both in winter and summer tyres. In winter it was seasonal demand because the season was quite strong and we also had a better availability compared to competitors who better prepared for the season.

So our sales of winter tyres increased and also summer tyres contributed a lot to this result. Of course we sold a lot of summer tyres also the previous last quarter of the previous year, but what was remarkable in Q4 last year was that very strong demand was caused by exceptionally low carryover stock from the previous summer season actually that was the sell-out of summer tyres during summer season 2016 in Russia, was the best in at least five years maybe even more and practically they’re one off stocks left after this season.

So the demand for summer tyres was very high and we started to ship off summer tyres starting already from November. Speaking about winter season 2016, 2017 winter.

I should say that it was not exceptional in any case, it was quite a normal winter season. The only difference was that it started really early with quite strong snowfalls and freezing temperatures but then it continued normally, so nothing remarkable about that and we expect that also the carryover stocks from this winter seasons will be on a normal level, once the winter is finished but of course it’s too early to make any conclusions about that, right now.

Okay, great. Thank you.

Thank you.

[Indiscernible]. What kind of market share impact do you expect from your new flagship winter tyre products?

Thank you. It’s really difficult to quantify the effect of a specific product.

I would try to say that it’s continuous development of our sales and partnerships with our customers and the brand awareness and brand loyalty of our consumers to our brand what matters. They do expect that once in a few years we come up with a new products which are always better than the previous ones and clearly better than the competitors.

And this is what we continuously do, so very hard to quantify but I would say that it will of course help to further increase our market shares. What is remarkable that we were able to increase our market share in winter tyres last year even though it was already at the ending phase of the lifecycle of our previous flagship products, if we ever managed to do that.

So it should be better this year and the years to come. Thank you.

[Indiscernible] OB Bank. You mentioned in your report that you’re going to invest roughly €80 million for global development projects what are those projects?

Well actually that was a combined figure both for Nokian factory investments and global development projects, we didn’t divide them. And the bulk of the sum actually goes to the Nokian factory where we plan to implement a few modernization technology and equipment modernization projects installing new equipment, investing in through the increase of automation of the factory.

But also this includes this global development project. For example in the ICT field or also the figure includes our planned investments into the new tyre test center in Spain.

[Indiscernible] of course at his point while we’re coming with the new product lines etc. of course quite a big share of that is the new moulds.

Thank you, Anne. Do we have any other questions here?

If not, thank you. If not then we go - we’re ready to move for the telephone lines.

Mattias Holmberg from DNB here. Regarding the financial guidance consensus expect sales to grow about 6% and EBIT by about 10% in 2017 which implies full year EBIT margin of 23.2% while you guide for same growth of more than 5% in both sales and EBIT which would in that case mean that, your EBIT margin would be intact from this year at 21.8%.

So could you just please clarify that if you believe that consensus is too high on its margin estimates and if you believe that EBIT will grow faster or in line with sales in 2017, please.

Thank you. At this point of time it’s very difficult for us to give like more accurate forecast for this financial performance.

We cannot actually give like a more accurate figures right now but to say that both net sales and operating profit are expected to grow by 5% or more and if we’re able to make it more accurate later on towards the end of the year we’ll do that but this is all that we can say right now.

Okay, great and just one more question from me. On Vianor you talked about very challenging retail business environment in Q4, could you just please specify that what these challenges were please?

It was about very weak retail sales especially in December in Nordic countries and specifically in Finland. It was close, it was into our estimates both by the overall development of the retail business which was quite weak in December for a number of reasons in the Nordic countries and especially in Finland, but also we think that the nature of the winter season which we already described also contributed to these development because demand moved more from December to November and even October and the season was shorter than normal.

Okay, great. Thank you very much.

Good morning, Andrei congratulations on the new role. Three questions from me please.

The first one is just a clarification on the guidance when you talked about uncertainties you included FX as well, so is it right to assume that the guidance of 5% growth already includes positive FX effect and also just to clarify if it includes the swing in the bad debt provisions that you no longer expect, I think that €17 million is basically a 5% increase in itself. So if I include both of these it would imply that the underlying EBIT would actually go down if you like, is that accurate?

Thank you. To clarify we said that this is our expectation the growth of at least 5% with current exchange rates.

But the current exchange rates are already for us more favorable than the average exchange rate, the rates in last year. So there is already a small positive impact in this figures, but really small one.

But of course when and if the exchange rates will change throughout the year, it can change the picture also for us. As to the impact of this credit loss system and provisions.

Yes there is certain positive impact in this figures because we don’t expect the same amount of credit provisions to be realized in 2017 compared to the previous two years. If in 2016 we recognized about €18 million as credit losses and provisions and most of them come from Russia from 2015 actually from customer bankruptcies originated in 2015.

But they were recognized in 2016, we don’t expect that to be repeated again and we expect to come back to a normal level of credit losses and provisions which is below €10 million so on annual level typically and we have all the reasons to believe that this is going to happen at least in Russia because if we look at the collection of the current receivables in Russia in 2016. The rate of collection of current receivables was actually 100%.

So they were no new bad debt cases in that respect. Does that clarify?

Yes, that’s very clear. Thank you.

The second question is on the - and I think that’s a big one probably the raw material impact to the EBIT bridge because maybe because you’re new to the debate I mean we’ve had this before with Ari. The €17 million that you have guided for the year as raw material headwind for 2016 that actually translated into almost €50 million in the EBIT bridge so of course now you know there is rationale right to say 5% headwind in 2016 translated into €50 million in the EBIT bridge now the headwind will be three times as much in 2017 as the tailwind was in 2016.

So does that mean the swing in EBIT but just equally big or could you please explain what your guidance implies for the EBIT bridge because of course the material element of the EBIT bridge and the raw material has been guidance, the two numbers aren’t really the same and it’s quite difficult to reconcile them.

Okay, thank you. I’ll try to explain that.

I think what we did here in terms of guidance for raw materials is actually in line with the 2016 results because when we got 5% decrease in raw material costs and that brought our savings about €15 million last year that is now turns into a growth between 16% and 20%. This year and as we reported here headwind of between €40 million and €55 million.

And last year as I said, we received some positive impact from these development because even though we had to decrease prices a little bit in for example Central Europe following the competition but this price decrease was not in line with the decrease of the raw material costs and this was one contributor to the improvement of our profitability, but this year of course we will have increase prices to cover this increase of raw materials and our target is to maintain the level of operating profit on the same level. Anne has addition here.

Hi, Henning. It’s good to remind you that the material that we now charge not only material, it’s also closing including other items and for example inventory difference is etc.

So it’s not a plain material estimate as such.

Do you think it’s possible at all to give us an indication for the gross material impact in the EBIT bridge in 2017, so comparing to the almost I think €48.9 million in the 16 EBIT bridge, what do you expect for that element in 2017?

Let’s see if we like split it more, they’ve not decided yet.

All right and the final question please on the heavy tyres. Could you please update us on where you stand with respect to your original 2018 target of €210 million sales and 20% margin?

Yes, we can reiterate that we still have the same targets, we had it also last year in terms of profitability but it felt a little bit short of that target, but overall we’re quite satisfied with the development which this heavy tyre business is having.

All right, thank you very much.

[Indiscernible]. I have few questions please.

I’ll start with question on the timeline of potentially new CEO hike and the implication is good have on the third plant announcement. Do you think you’ll need to have this new CEO in place before confirming us, before the end of June, this third plant location and expenses?

And can you say if part of €190 million CapEx planned for 2017 is related to the third plant or nothing at all?

Can you please repeat the second part of the question? I didn’t get it.

So the second part of the question was, do you assume some expenses related to the third plant is in your €190 million CapEx guidance for 2017.

Okay, thank you. Answering the first part of the question, I think I outlined the expected timing of the decision making and it’s not really linked now to the situation with the recruitments and appointment of the equivalent CEO because this is the timing that we face in terms of our business plans and in terms of the need for new capacity in our key markets and so far we go in with this timing.

And as to investments yes our plans for investments in 2017 do include a small figure for these investment for the third factory but it’s really small one because if we start the project in 2017, it will be on initial phase and the bulk of the investment will go into 2018 and 2019.

Very clear thank you. Second question, I’d like to come back one more time on this bridge on Page 14 on the passenger tyre margins.

In 2016, you showed us that you managed to get a fairly decent positive number €18.7 million spread between price mix and raw materials as you present them in that bridge. Do you expect this spread to reverse to be positive neutral in 2017?

Can you comment on that please?

At this point of time we cannot expect that we will be able to increase the price level more than the increase of raw material costs we’ll require. So we’re talking about maintaining the level of profitability and clearly if this difference between the price mix and materials effect will be positive for us and our profitability would improve.

At this point of time we cannot forecast that, but we do plan to make necessary price increases to cover the raw materials increase.

Okay, so the target is to balance it basically.

Yes.

Okay very clear. You said in the presentation that you will be started implementing price hikes at Nokian.

Can you tell us what you effectively announced in terms of price hikes and give us some details by geography please.

I’m afraid I’m not in a position now to give specifics about different market areas especially given the fact that for 2017 most of the market areas they are only at the initial stage and for example the winter tyre pricing is not decided and announced yet and most our market areas apart from Russia, but in Russia where the both summer and winter tyre pricing is already implemented and our delivery is already started, we did make necessary price increases in rubles which will cover this increase of raw material cost and of course we’ll see what kind of effects the development of exchange rates will have on our average price in Russia. But of course if the ruble exchange rate will remain on the current level then it means that we’ll get positive effect from the strengthening of the ruble compared to the previous year.

Okay, very clear. The increase we see in your concern of about 10% in inventories at the end of 2016.

Can you help us understanding what the impact of already raw materials or is it the volume of tyres you have that drove inventory increase at the end of 2016, please.

The increase in raw material, the increase in inventory is caused mostly by raw materials which comes both from the volume of raw materials and the value of raw materials as I said already in Q4 the cost of raw materials was higher than the previous quarter, as to the inventory finished goods, it was actually at the end of the year at relatively low level and there was no increase compared to the previous year in that.

Okay, one more please given the ongoing tax disputes can you help us or guide us for the expected tax rates for Nokian in 2017 and 2018 please at this point, what’s your best guess for the tax rate?

We expect the tax rate for Nokian Tyres Group to increase to the level of about 19%, but this is not caused by the ongoing tax dispute in Finland it’s caused more by the changes in the legislation in Russia which actually considered to a low tax rate for the whole Group for many years through the tax benefit agreements that we have had with the regional administration in Russia and these agreements they continue for our companies in Russia but because of some changes in the legislation for example a higher share of the federal government in the corporate profit tax then before and also the change in the regional legislation based on which we received certain tax benefits. We will get lower refunds of the taxes that we pay in Russia in the future and this is the basis for higher tax rate for the whole Group compared to the previous year.

Thank you very much and congratulations on the Q4 numbers.

Perhaps I say something about the existing tax dispute which is 2007, 2010 and of course there we have the situation that we have now filed a claim with the Administrative Court in Finland, but unfortunately the estimated time when this case will be taking into handling there varies from 1.5 to 2 years but that is the situation the tax dispute at the moment.

Thank you very much.

I have a couple and sorry to come to the raw materials discussion on the bridge. So you mentioned that there are other items in the materials basket other than raw materials.

I appreciate you’re not able to give us a number, but could you give us a direction is that expected to be a headwind or tailwind in 2017, so in our bridge should we put a number higher than the 40 to 55 that you’re guiding or lower in our bridge.

I’ll let Anne let me helping with this.

Yes, it’s good to understand that in the material unless you have all the currency difference and positives also in that one material slide, so it’s not divided between production cost, fixed cost. So you can see the price mix and the currency effect on the sales side in the grades but you cannot see in the cost side and it’s all embedded in this material bracket.

So looking at this year of course if you have like posted some positives in our sales side in talking about the currency then of course we have the same not at the same level, but the same negatives in the material bracket.

I understand and the raw material guidance you mentioned value and volume. So your guidance for €40 million to €55 million assumes higher volumes or does it assume, is it on a base of 2016s volume.

Actually it assumes the volumes at the plant to produce and sell in 2017 with the prices which we had on average in 2016.

Understood that’s clear and last question from my side. Is the dividend, could you explain the rationale behind it?

The $0.03 increase compared to the $0.05 increase last time given the strong performance.

I think I’m not in the position to explain that was the decision of the board to present that, the proposal to the annual general meeting and the annual general meeting of course will make the decision. I think I’m not in a position to comment on that.

Understood. Thank you very much.

I’ve four questions I could perhaps take them one by one. The first is to clarify what is the raw material bill for tyres.

Am I correct in thinking that if the effect was €15 million move for 5% that you had the raw material bill of €217 million on an annual basis, is that correct?

2016, yes the average - the cost of raw materials was 5% below the previous year and the positive effect of that for us was €15 million.

Yes since does that imply that your raw material bill is something like €217 million.

I think I cannot answer that question because I think I don’t remember the figure, sorry. Again we can come back to that.

Sure the next sense to understand is, I’ve understood I think the guidance that you’re saying that you think raw materials are going up 15% to 20%, now to offset that in terms of pricing which you intend to do, does that imply something like 3% to 4% price increase across the group.

Of course it’s a little bit different for passenger car tyres and heavy tyres because of different level of margins, should be remembered of course that in heavy tyres substantial part of our business is sales to OE manufacturers and there are actually built in pricing schemes in the contracts which automatically link it to the raw materials, but in passenger car tyres. Yes, based on the margins we need to increase price in the range that you indicated to cover that.

Okay, the next question which is to clarify well I guess maybe if I can follow-on actually on that. And so I mean raw material prices the moment are rising and they seem to continue to rise since December.

I mean if that doesn’t stop I assume then that 3% to 4% price rise could become 7% to 8% or even 10% if necessary.

Yes absolutely, this is what I indicated that based on the current situation, this is what we need to do in order to compensate that, but if the increase of the raw material will be higher as expected right now. It will mean a need for higher price hikes and not really for us but also for competitors, but for us there can be some time lag between the decision and the implementation of this price increases because we are in a season of business, so there could be a time lag in that but it’s going to happen anyways.

Understood. My next question is just on currency you said that you expect positive currency impact and then I can see that the ruble is stronger so I assume that you mean on the translation of your business in Russian ruble is back into Euros that will have a positive impact on the revenues.

Yes, absolutely in revenue terms our domestic sales in Russia converted to Euros or there should be a positive effect compared to 2016. Of course there will be also negative effect in costs in ruble based costs in our production in Russia and with the current balance of our production in Russia whereas about 70% of the production volumes that we have at the Vsevolozhsk factory is exported to other markets and about 30% is sold domestically, that represents a very good natural hedge for us and defends us from currency swings.

And is that hedge using is roughly imbalance in the sense of 70% is exported to Europe and North America that won’t hurt more than the translation benefit from your business in Russia.

Yes I think it’s in balance but of course if the rouble is stronger than we get upside impact on our topline and if ruble is weaker, other markets cannot compensate that topline but in that case we will, our export deteriorations will be more profitable from Russia, this is why I’m talking about this balance.

Okay, and my final question is just on the Vianor and the restructuring that you planned to pertained or profitability planned. Do you think that will allow Vianor to become profitable in 2017?

This is clearly the target, but I cannot at this point this cause any details about what kind of measures might be needed to make it happen. This measures could also include something which will come with a cost and like a one off costs, but that has not been decided yet and we don’t have any details right now, but the target is yes, that the Vianor will be able to make a positive result.

This is the target also for this year, but whether we’ll be able to deliver that in practice this year that remains to be seen.

Okay, that’s great. Thank you very much for your help.

Two question, the first one is very simple what is the lag effect between the raw material price increase we can see on the screen and the impact on the P&L. is it three to four months?

Is it a little bit more, is it little bit less can you help us to better get an idea on that?

This is quite a difficult question because there are different timing impact in that for example when we see the increase of raw material prices of course they don’t go directly into our P&L because we always have some inventory of raw materials which were acquired by old prices and we do source our key raw materials for few months ahead. So this increase comes with a price lag but then there is also on the opposite, if there is a price lag also in the price increase implementation as I already said especially in the seasonal business.

So I cannot really quantify that but yes there is a timing effect in that development. Anne has to add here, please.

Yes, if you think about how the prices are seen in our production cost that falls under price increases. So you could say that there is roughly like three to six months’ time difference between the time of the price increases to the production cost and that varies between the different raw materials.

Okay, so when you said that the headwind of raw material, the gross impact the 15%, 20% increase this year. If I understand well that means the approximately 70% of it will be in the second half and only a small portion in the first half of this year.

Is it the way I should understand that?

Yes absolutely because right now the increase of the raw material cost which we already have is clearly lower than what we expect for the whole year. So the most of this impact will be in the second half of the year.

Okay, that’s clear. Now I’ve another question, I’m little bit loss with different comment and I want to come back little bit to the previous question from Austin.

In Russia, 70% of the production is exported and 30% sold in Russia. So when you have a weak ruble clearly the impact on export should be much bigger than the translation impact of Russia earnings.

So that’s where I’m a little bit lost because you mentioned that the ruble was fairly neutral and my perception is that the weak ruble should be positive for the earnings and not neutral.

I think you’re right provided the domestic sale prices and our export prices are the same then you would be right. But of course they’re not the same because we - from Russia we don’t sell directly to customers in other markets but it goes through our sales companies and there is a certain margin which stays with the sales companies or the parent company in these sales and also the product range that we sell for export for example, some products for Central Europe, North America.

They might have different price level than the products that we sell in Russia. So when we said that, it means that the domestic sales prices and our export prices which actually transfer prices within the group are not the same.

Therefore there is a difference.

So if the ruble appreciated by 20% this year besides the impact on the revenue, the impact on the operating profit should be fairly neutral.

The impact on the profit that we make in the Russian company yes.

But today we get the next one correct. So if the balance of the - which we have been describing or up to 30% from the production sold in Russia and two-thirds exported and sold in foreign currencies in other countries they - effect is pretty [indiscernible].

Yes, but probably stronger than of course our topline in Russia and for the whole group will be higher.

Okay, that’s clear. Thank you.

Just one quick question. How do you see the development of A, B segment or I guess the mixed development in Russia over the next year.

Do you see this getting any better or do you continue to see kind of deterioration in the market from your perspective. I guess maybe how you position yourself given kind of how you see that development in the mix.

Thank you. The structural change of the Russian tyre market which started already a few years ago it continued in 2016 and it’s likely to continue in 2017 and that is about increasing of the share of C and B segments in the whole market, than decreasing of the premium segment.

This is what we have observed also in the previous year in 2016 where and the share of A plus B segments combined fell slightly below 50% of the year, of the total market. The development is different in winter and summer tyres.

For example in summer tyres actually the share of premium tyres is significantly increased in the previous year and the same goes for our sales as well. But overall we don’t expect any drastic changes anymore.

We think that the share of A and B segments will remain pretty stable maybe it will slightly improve over the years with the recovery of the economy overall, but probably at least [indiscernible] like peak and rapid changes in that picture. We are present only in the two segments the A and [technical difficultly] segments and we are in Russia the clear market leader in both of these segments.

And as we reported before for us this ratio between A and B segments sales on average has clearly improved in 2016 especially in winter tyres where we talk market shares from other premium manufacturers.

Okay perfect that makes sense. Thank you.

I wanted to ask about EU ex-Nordics which you guys referred to as Central Europe. Would you be able to tell us what sort of winter tyre market share do you have there, at the moment?

How is your brand perception developing? And also are you able to gradually start increasing prices as well as you’re getting the traction with your brand.

Thank you.

What we have done in Central Europe throughout the last year, gradual work through increase our brand awareness among consumers but also to increase our price positioning, this still not on the same level as our premium winter tyres for example in Nordic countries or in Russia, but it’s clearly improved compared to the situation a few years before and all these last few years year-by-year we have been able to gradually improve our market share so that in winter tyres depending on the country of course Central Europe is in our case, almost 30 different countries and situation is very different there, but in the beginning markets we command a market share which is up through 10% of the year winter tyre market in this country. In some countries even the higher level and the main markets for us in Central Europe, Germany, Italy, Switzerland, France but also such countries as Poland and Czech.

And would you be able to tell us sort of in like the core markets which have a local brand such as Germany, France and Italy. How is your market share developing in those countries?

I’m afraid I’m not able now to disclose like exact market shares in these specific markets. I seem to don’t remember all these figures right now, but I think the indication which I gave you is valid for this biggest markets overall.

Okay, thank you.

Yes, thank you and maybe for Anne once more and apologies to come back to that. You said that the material part of the bridge contains part of currency as well and for 2016 that was negative of course.

So if you like, it makes the unexplained portion of the materials bigger rather than smaller, right. Because if I take out currency the materials part of the bridge would have been bigger making the difference between the EBIT bridge and to €17 million guidance bigger.

So I’m sorry to come back, but maybe can you help with that again.

We should have like discuss and then spend some time on that, but of course the fact is that last year of course the positives which came with the currency were weaker than, we’re expecting this year, so it’s going to turn around that way.

Turning around meaning that?

Meaning that because we last year lost like in the same side of course we gained in the cost side depending on the current season, of course this year if we expect that the currencies are favouring us compared to the last year. Of course the vice-versa effect is going to happen in the cost side.

It seems to me that we’re not going to such details, it might be better to take offline, this question and have a separate discussion. Okay.

Sure. Thank you.

Thank you very much. I just want to confirm something which I think seems to be clear on your presentation but would like a confirmation from you.

You said your total market share has improved in all markets. If I remember correctly at one point there was a fear that the comments made by Ari in the press in the spring of 2015 may affect the perception of the Nokian brand in some of your home countries not only in Nordic countries.

Can you concern that the brand perception of the Nokian brand not been touched at all by the comments on the industry best practices?

Thank you, when I said that we maintained or improved our market share in all key market areas. I was talking of course about like bigger market areas like Nordic countries overall and I can confirm that our market share in Nordic countries as a total actually was impact in 2016 compared to the previous year.

There are differences we’ve seen that figure and specifically in Finland based on the statistics that we get from the market. Our market share decreased slightly compared to the previous year.

Whereas in other Nordic countries it improved a little bit making like the total market share for Nordic the same as the previous year and as to Finland, whether this discussion about the tyre tests had any effect on that, it’s difficult to say probably there has been a limited impact of that for consumers and customers. But we think that bigger reason was actually some structural changes which were happening in demand and shift from the premium segment more towards B segment demand into cheaper brands.

We feel that has a bigger impact on this development specifically in Finland, but I can confirm that in all other countries including other Nordic countries in Russia. We haven’t felt any impact of that tyre test discussion at all.

Great. Thank you very much.

Thank you for taking my two quick questions. [Technical difficulty] one on China, if you could update us on any upcoming regulation recent changes [technical difficulty] and also about the authorized dealer number that I think as declined during the fourth quarter and the third quarter and also compared to last year for Nokian of course and the other question is on Russia and Scandinavia region and Nordics in terms of pricing power.

You said that you’re market leader and I think that are first to the market share. Can you tell us, if you think that you can basically be the first one in those regions to put the price increases up or do you think that normally you would wait for maybe another company to do it first.

Yes, thank you. First on China, our business in China remained on a quite a low level.

We only making the first steps and we’re now working at the whole Asian strategy to build potential for growth in the future including China, but that is probably going to happen a little later than 2017, but we feel that yes the Asian market and Chinese market represents a good long-term but growth potential for us. But currently our business there remains on quite a low level and there is really nothing specific to report about because of that right now.

As to your second question your pricing power and our situation in the core markets Nordic countries and Russia. Yes typically we don’t wait for competitions announcing the price increases for the reason that we have clearly bigger volumes than our competitors have and in order to deliver this volume we have to come out with our pricing conditions first, not for any political reasons but simply in order to make sure that we are able to deliver all volumes to our customers.

So this is what we typically do and this is what we do in this year as well.

Very clear, thank you.

Just looking on your guidance you see markets coming up especially in Russia where you have very low or where you see very low summer tyre inventories. You’re going to have raw material cost compensation, you’re going to have positive FX, you’re going to continue to gain market share especially with your very big new model launch.

It seems almost impossible not to get the 10% sales growth. I think it’s reasonable to be conservative this early in the year and till you get the permanent CEO, but are there any factors that we’re missing there or is that at least 5% looks extremely conservative.

I think the answer to your question is sales and it’s reasonable to be little bit conservative from the beginning of the year especially with all this uncertainty factors which I listed and this is what we are right now. But speaking about Russia that you listed a few positive factors, which I remember a couple of things.

First is that, Russia represented last year 16% of the Group net sales so it’s even if it’s strong enough it will still have quite limited effect on the whole Group result. And second is that specific comment about summer tyres, the way the cycle for our business is built is that we deliver the bulk of summer tyres for the next summer season in Russia over in the Q4, previous year and this is what the reason in 2016.

Of course there are some deliveries still continue in the beginning of this year [technical difficulty] bulk less quarter than previous year where as in Q1, we start summer tyres delivery in other markets like Nordic countries for example and looking at the sales volumes for Russia in 2017, the most of the volume of summer tyres will be actually in Q4 for the summer season of 2018 and of course this is clear uncertainty, we don’t know what kind of summer season we’ll have and what kind of carryover talks we’ll have of the summer season of 2017.

Great. Thank you very much for that confirmation and look forward to continuous guidance update.

Thank you.

Thank you very much. By any chance do we have any other questions here?

Are we done? Then thank you very much for your attention and have a nice day.

Bye, bye.