Nokian Renkaat Oyj

Good afternoon from Helsinki and welcome to Nokian Tyres January-March 2020 results conference call. My name is Päivi Antola and I am the Head of Investor Relations in Nokian Tyres.

And together with me in the call, I have Hille Korhonen, the President and CEO of the company and Teemu Kangas-Kärki, the CFO of Nokian Tyres. We will start the call as usual with a brief presentation by Hille and Teemu and then continue with Q&A.

So Hille, please go ahead.

Thank you, Päivi and good afternoon everybody. Thank you for joining us today and I hope you are all safe and healthy and so are we.

There are two topics I want to focus today overall, business performance during the first quarter in 2020, including our actions in roster and what has been the impact on the first quarter results and then of course, the corona pandemic, what are the measures we have taken and how it has been impacting our business during the first quarter and also how we are moving ahead towards end of the year as a company. So, let’s start from the corona and the measures we have taken immediately when it was realized that the pandemic situation will be spreading to Europe and North America as well as to Russia.

So first of all, the top priority for us is to take care of our people and also to make sure that we can continue the business in a safe way and continue to support our customers. We have been taking immediate actions to ban travel and start remote working.

Fortunately, we have global IT systems in place so that almost everybody has been working remotely since mid-March, and we don’t see any direct impact on our business. And even customer meetings have been taking place through the video.

There are then also additional operational measures that we have taken to secure our business. First and most important thing is to manage our production capacity according to demand that we are tracking twice a week.

And we have also taken enhanced actions to monitor the customer payments in order to make sure that we have the financing position in place and securing the cash flow. Cost reductions have been planned already during the first quarter, and the biggest impact of those actions will be visible in the second quarter.

We have been implementing temporary layoffs for both production personnel in Finland and in Russia as well as temporary layoffs for white collar workers and so-called [indiscernible] our bite in Central Europe for the white collar workers. And the aim is, of course, to reduce the cost and also to make sure that we are working efficiently throughout the year.

We have been suspended production temporarily release in Russia, Finland and in the U.S. and this has been mainly driven by the local coronavirus restrictions, and now at the moment, all the factories are in a mode of up and running, except for the Russian factory, which is due to Russian National Holiday.

But otherwise, we have the preparedness to run the production and having safety measures in place. Regarding the financial situation, our Board of Directors proposed the AGM to divide our dividend into 2 halves.

And the first half, €0.79 per share has been paid already, and for the rest, the Board has authorization to decide additional payment and timing until the next AGM. We have also carefully reviewed our CapEx plan for this year.

It was already on a much lower level compared to previous year, and we have taken down the CapEx down to €170 million. Unfortunately, majority of that is already being spent during the first half, and they are mainly related to completing our strategic investments in Dayton and regarding the Spanish test track.

And we continue to look at all the CapEx spend in a very careful manner. We have taken actions to further strengthen our liquidity position.

And it’s also important at this time to have the strong balance sheet which is supporting us through these challenging and difficult times. Then going to the first quarter performance, it’s clear that we are suffering from low volume in Passenger Car Tyres which is impacting our net sales and operating profit and the three key drivers behind are roster, coronavirus and winter.

In Russia, this is resulting from the actions we have taken to reduce our channel inventory in distribution and this is according to what we have been announcing already in February. So we are reducing the sale-in and taking actions to improve sell-out support to our customers in order to take the inventory levels to a normal level.

And this is mainly related to the winter tire inventories and in the B segment. And regarding the winter, it’s clear that none of our key markets had proper winter.

And usually in the first quarter, in Nordics and Central Europe, we are selling the winter volumes, which are being replenished directly to the retail. And usually, in the first quarter, we start the Russian deliveries to the channel.

Then what comes to the segments. Operating profit is clearly lower compared to what we have been expecting.

And the main impact is coming from Russia, €20 million. And corona virus is the thing that we were not planning in a way which is €10 million.

And of course, when we have lower volume, our whole supply chain is geared towards the higher capacity utilization and therefore, we have a lot of extra cost, which is not absorbed by the volume. We will have positive raw material effect as we go ahead, and it was already visible in the first quarter.

Regarding the guidance, it was already withdrawn in March as we saw that there is increased uncertainty in the market due to coronavirus. Then, let’s take a look at the different markets.

I will start from the Nordics. In Nordic, our volume decreased but positive thing was that our share of – market share increased in winter and also in large rim sizes in summer and winter.

So we have been keeping our high profitability in the market, and we even had some price increases for the summer tires for the first quarter due to currency. The new car sales has been down and the biggest decline we have seen in Norway which is due to a very high comparison base.

And that has been also impacting our winter tire sales in the car dealer channel. In the Nordics, the tire shops have been kept open while the shopkeepers have been taking the virus safety measures very seriously.

It means that also the capacity of the tire shops is lower due to that. So that has been impacting the sell-out volume.

In Central Europe, the volume has declined. And at this point, our volume decline was mainly related to lack of winter.

So, our winter tire sell-in was about 50% lower compared to previous first quarter. And we have been actually increasing market share in summer tires and in all-season tires.

And the volume has been close to previous year level, which is – I think in this situation, a very good achievement as the market has been declining by 19%. And in many countries, the tire shops have been closed and lockdowns have been preventing people to go out, and sell-out from retail has been declining even up to 70% during end of March.

We have seen geographically biggest volume decline in Italy and France and Spain. And – anyway, the positive thing is that these are not – have not been our focus countries.

So our focus has been in the DACH area and in Eastern Europe. As we move forward, it’s very important for us to stay in very close contact and collaboration with our customers.

We have been restarting our sell-out support campaigns with the customers who have been now opening their doors. And we are focusing on supporting the DACH and Eastern Europe and, of course, not neglecting the Southern European countries when they start to ramp up their businesses.

Now in the second quarter, it will be important for us to start collecting the winter season preorders and we will make sure that we have availability for those products. In Russia, as I was explaining, we had significant decline in our sell-in during the first quarter, which was over 40%.

And this was in our plans, in order to make sure that we are reducing the winter tire inventory levels towards year end. So, we are selling in the winter tires during the first half and the actual impact will be visible then towards the year end.

So, the second quarter will be similar to the first quarter when we are talking about sell-in in Russia compared to the previous year. As we all know, the coronavirus did not have any business impact on Russia during the first quarter and we have seen the lockdown activities and other restrictions only starting in the second quarter.

The new car sales has been increasing, especially in March and this was mainly due to the fact that people wanted to buy cars before price increases due to weakening ruble. And our estimate for the full year, new car sales is roughly minus 20%, down to 1.4 million cars sold this year and as we are already starting from a very low level.

Then when we look at the coronavirus impact further, at the moment in Russia, they are changing summer tires and the season for summer tire sales has been extending because the big cities, they are basically in lockdown, including Moscow. And it means that only online business can be conducted.

And this is, of course, taking also the capacity down. So all-in-all, Russia and the coronavirus impact on the economical situation, together with the oil price changes is still a question mark, and that’s why the visibility to the Russian forecast is still quite weak.

Then when we take a look at the North America, our sales increased in U.S.A. and decreased in Canada.

And in Canada, the strict measures taken due to corona closed many of the tire shops fully for a certain period of time. And when talking with our key customers, their capacity has been down even up to 70% due to safety reasons.

In U.S., in the market, the sell-in to replacement market declined over 10%, and the biggest decline took place in March. So we have been increasing our market share by having growth in the first quarter.

Sell-out has been very much dependent on the states and restrictions taken in each of them. And what we have seen is that the value and economic segments have been gaining some market share in the sell-out.

But very much, it’s regionally dependent. In general, when I look at the markets, one note is related with the pricing, so pricing environment has been surprisingly stable.

We have been and also, I know many competitors have been adjusting the back-end programs according to declining volumes, but no major changes in pricing environment. And also, it seems that the retail and wholesale, sell-in has been lower compared to sell-out in many markets.

And it’s clear that in this kind of situation, all the customers want to be very careful with their inventories. And I think this will help everybody when the markets start to come back to normal, and we will see some replenishment of these inventories.

We have been also taking actions to manage our needs very carefully. So when we saw that the winter tire market has been going down, we have been increasing our share of summer tires and having sell-out programs, we have been increasing the share of premium and also share of bigger sizes.

Then when we take a look at heavy tires, the markets have been still quite stable. The replacement market in the first quarter and the order stock has been on a good level.

What has been impacting us mostly has been due to our OE customers, having shortage of components and production stops, and this will continue to impact us during the second quarter. So let’s then hand over to Teemu to take a look at the numbers and figures.

Thank you, Hille. I will highlight some of the key figures on this slide.

So the net sales growth decline was on a level of 17% absolute terms, reaching the level of €280 million, the segment’s operating profits on a level of €16 million. So change compared to comparison period was a level of €40 million decline.

Then looking to the ratio, especially the equity ratio, there you can see that our balance sheet is strong. Equity ratio was almost at the level of 70%, decline from the comparison period.

And there, it’s good to remember that at the end of third quarter, we got negative translation difference from ruble, and that impact was about €112 million, contributing to this decline on equity ratio. Cash flow from operating activities was negative on a level of minus €39 million, less negative than in the prior year which was on a level of minus 69%, so happy for that.

And then our CapEx was in the first quarter on a level of €51 million, slightly lower than last year. And the interest-bearing net debt was on a level of €121 million, increase of €80 million from the year end, then in connection with our restated numbers.

We also prepared this kind of comparison for your benefit to get transparency, how we are performing in terms of SG&A efficiency with our peers. And you can clearly see that we are in line with our peers or below.

Having said that, we continue to work diligently to look our cost base every quarter in order to make sure that we have the resources in right places and the effectiveness is on an appropriate level. Then few words about passenger car tyres, clearly, top line got a severe hit.

So the reported numbers were almost minus 25% decline, reaching the level of €190 million, and the segment operating profit was on a level of €26 million. And as pointed out by Hille, the two main reasons were the Russia and COVID-19, impacting also the low factory utilization rate.

And naturally, we have, therefore, because of the weak demand, adjusted the production according to demand, which is the normal practice for us, starting with our Finnish factory. And here, you can see the bridge in the first quarter, so small negative impact coming from the price mix as well as from currency.

And then if we look the segment operating profit movements, clearly, the main two reasons are volume related, the sales volume impacting negatively by €27 million as well as then the lack of volume in the supply chain, having a negative impact of €13 million. All the rest is net zero.

And here, you can see how we have been performing the prior quarters, price mix negative, currency negative. And as expected, the first quarter, we got hit close to 23% down.

In terms of Heavy Tyres, there, the reported top line growth was on a level of 6%, small positive addition from the acquisition of Levypyörä, which took place in the second half of last year. And the segment operating profit almost on the same level as previous year, despite the fact that we have had more cost from the initiatives that – with we are building a good future for Heavy Tyre business, like new R&D center and investments in the production at the Nokian site.

And lastly, going to Vianor figures, the mild winter season also affected the net sales there slightly, and the top line was on a level of €54 million. And the segment operating loss was about €12 million which is common for Vianor business as we all remember that the majority of the results are made in the fourth quarter and then the second quarter is better than the first one.

Thank you, Teemu. And coming back to the business and products, as I said, we continue to support our customers in different geographies and business segments with new products.

And despite of the challenging year, 2020 will be a record year of our new product launches. And in this business situation, we need to be creative and have new approaches how to organize go-to-market events and trainings, and we have done already quite a few events online.

So this is hopefully not going to be a new normal, but new ways of conducting business as well. And as a summary, so we are taking actions to manage both the Russian and coronavirus impact on our performance.

And both of these topics will continue to impact our second quarter this year. Having said that, we have solid foundation, so we have focused on the replacement market, which in the past has been experiencing recovery from any drop faster than the OE market.

We have strong position in Nordics and in Russia, and we have very efficient production platform as we move forward. And also the big investments will be over, and we are well positioned to take advantage of the opportunities when the demand recovers.

Thank you.

Thank you, Hille. Thank you, Teemu.

And now we would be ready for questions from the audience. We would kindly ask you to limit the number of questions to one or two, so that everyone has a chance to ask questions, and we will have enough time to cover them all.

Hi, thank you very much for taking my question. The first one is really on your outlook going into the second quarter, you have already seen significant declines already for you in your Russian business and the Nordics in Q1.

Can you give us a bit of color in terms of what you’re expecting going into the second quarter and also in particular, maybe on Russia, with regards to the low oil price and how that impacts the market outlook? I know you said you expect the market to be down 20%, but are there risks that this number could be even lower due to that?

And then the second point is just in terms of the general reporting that you will be doing. I obviously saw that you are now taking out the ramp-up costs out of your segment operating profit guidance – or reporting.

Is that what you will be doing going forward as well? And can you give us – you have obviously disclosed about €7 million related to North America in Q1.

If you do report it this way, what are you guiding for that specific number for the rest of the year?

Thank you for the questions. I will start with the second quarter.

So it’s clear that the corona virus impact on businesses in our main markets will have a big impact on the businesses, both in Central Europe and Nordics and North America in the second quarter. And the Russian situation is coming a bit behind.

And there are – the virus and the lockdown of the big cities is delaying the sell-out of summer tires. Then additionally, in Russia, as I said, they have the oil crisis and weakening ruble.

And at this point of time, it’s very difficult to estimate how that will impact the rest of the year. But the second quarter will be heavily hit by corona impact and the Russian impact due to decline of sell-in of winter tires.

And on top of that, it’s good to remember that the ruble has weakened. And if it stays on this level, it has an impact on top of what was said already.

And about the reporting.

And about the reporting. And this is now the new normal for us, how we report and your specific question regarding the Dayton ramp up.

So you can assume that for the full year, if you multiply the Q1 number by four, you are roughly on a right level.

Okay, perfect. And maybe on that – and so it really was only Dayton so far because I know last time we came through sort of a tough situation in Russia, we also saw provisions being built.

I haven’t seen any of that so far. Is that a risk also going into the second quarter that some of your dealerships just cannot handle it and you might have to write-down some of your receivables?

So in the first quarter, that’s purely Dayton numbers that you see there, nothing else.

Yes. And in terms of what is the risk of what level could we be seeing for receivables having to be written down throughout this year on this whole Russia situation?

Is that something you currently are watching closely? Or you don’t see a risk right now?

Naturally, we are following that closely. And with our capabilities, we feel that we have a good understanding of the situation.

And so far, we feel that everything is under control there. But as you know, things can change rapidly.

But at the moment, as we see it, it is under control.

Okay, thank you very much.

Yes, hi, Päivi and Hille and Teemu, thank you for taking my questions. Henning from HSBC.

If I can just ask again, I’m not sure I completely understood when you were talking about the Russian impact being similar in the second quarter compared to the first. Were you referring that to the lower level of sell-in as well or to the €20 million impact on the EBIT?

I’m quite surprised, to be honest, about the difference between the sales impact and the EBIT impact of Russia in general. It appears the drop-through that you’ve also referred to is especially high.

So when I add back the €20 million to the EBIT for Russia, it appears the drop-through on the rest was quite low. So if you could just talk around that a little bit more, how exactly the €20 million was composed again and if you expect that to continue into Q2 on a similar level or what you are referring to there?

And the second question, if I may, is on the raw materials. Could you maybe give us an idea of what you’re expecting there for the full year or if it’s not possible to give a guidance in absolute terms?

If you could maybe remind us of the sensitivity when it comes to natural rubber and to oil itself and the related derivatives, but maybe also a bit to the timing and the potential impact of that? Because I imagine you won’t be seeing the full impact due to normal sensitivity because you won’t be buying as much at the low price as you would otherwise.

So yes, that’s my two questions, please.

So there were several questions and I try to answer those in a right order. So if we start with the Russian impact in the quarter two.

So as we have stated already in the beginning of the year, so the negative volume hit before COVID-19 was expected to come in the first quarter and in the second quarter. And that view is still intact.

On top of that, in Russia, in the second quarter, we should expect also to have a COVID-19 impact. And then on top of those two, we have this weaker ruble impact.

So if you calculate those, it doesn’t look too strong the second quarter compared to the first quarter. What else did you ask?

No. So maybe just to clarify, so it’s the €20 million, similar to Q1, plus the currency effect plus the corona effect, yes, so not the €20 million to extrapolate, but €20 million underlying and then plus the two effects that we haven’t had in Q1, yes?

So €20 million is the underlying, and on top of that, COVID-19 and weaker currency.

Understood. Thank you.

And then you asked about the raw materials. So that’s the positive thing this year because of the demand of raw materials.

We are expecting to continue to have a positive impact for the full year for the raw materials.

And are you able to qualify that a little bit? I mean, I assume not multiplying by four, I guess it will be a little bit bigger, but maybe not much bigger because you’re not buying so much at these low levels now.

Is that fair, so maybe between €50 million to €100 million ballpark?

So we are expecting that the raw material price will decline more than in the first quarter.

Okay, thank you.

Hi, thanks for taking my questions. I would just like to come back to raw materials that Henning just mentioned and more specifically, the relationship with your pricing strategy.

And if you could talk a little bit about how the lower material costs will impact your prices for the year? I mean, should we be expecting price mix raw mats this year to be positive or do you anticipate pricing pressure because of the weaker volume environment to be greater than the benefit from the raw material prices?

And then my second question is around CapEx, which came down slightly in Q1. If you could provide some color there on whether you need to cut CapEx further with volume declining in Q2?

Or do you think that the strength to your balance sheet actually means that we’ll only see quite slight reductions of CapEx this year, especially given the continued investment in the Dayton factory? Thank you.

Yes. If I take – thank you for the question.

If I take first the pricing versus the raw materials relationship, in Heavy Tyres, we have an equation in the contract with our OE customers. So the raw material price is impacting our pricing with some delay.

And when we are then talking about our pricing in the replacement market for Passenger Car Tyres, this year, we will have weakening krone in Norway and Sweden. And therefore, we have been taking our prices up slightly.

In Russia, as the ruble is weakening that might impact our pricing decisions further on – depending on the competitors’ actions. And in the rest of the markets, in Central Europe and North America, we are talking about price positioning.

And there, as we are not the market leader, we are following our competitors’ prices. And if everybody is sensible in this industry, it means that the prices would not be going down as much as the raw materials would imply.

Okay. And yes, the CapEx?

The CapEx, yes, CapEx for second quarter.

So for the second quarter, as stated earlier by Hille, the first half, those are the more or less already committed investment, and we are expecting to be more or less on the same level in the first quarter and then a small decline in the second half in order to reach this €170 million level.

Okay, thank you.

Thank you. Akshay from JPMorgan.

Two from my side, please. The first one on price mix, are you willing to split up the 0.7% impact that we saw on the revenue bridge?

I’m assuming that mix of season of summer tires was negative and – but you sold more of your large rim sizes. So I’m assuming it’s a neutral impact on mix and pricing was negative, but if you could provide more color on that?

And also if you could share more details around the magnitude of pricing adjustments that you’ve taken in Russia and the overall environment as you see it in the first 4 months in Europe? That’s the first one on price mix.

And the second one, Hille, thank you for your comments on the sell-out and retail activity. You mentioned it was declining by 70% at the end of March.

Any comments that you have on recent activity levels in April will be helpful in your key market. Thank you.

So in terms of the mix and price, so the mix impact is clearly positive. And the price mix is also clearly negative.

And then we also need to remember the country mix impacting to the positive mix net impact.

So regarding the sell-out, overall it has been varying, depending on the country and timing between minus 30% to minus 70% even. And we don’t have the latest information from all the markets, but the customers I have been talking with, have been talking about minus 40% in April.

So it’s still – it has been still clearly below the normal level.

So the minus 40% is in Nordics or is it just a general comment across your customers?

It’s a generic, I would say, it’s a generic comment, has been minus 40%.

Okay. Thank you, Hille.

I trust you all are doing well. I have a follow-up on the CapEx guidance of €170 million.

It seems like you’re sort of pushing a bit of the investments forward here. So I’m just curious if this means that we may see sort of CapEx not coming down in 2021 and 2022, maybe as we had expected before, but rather that some of these investments will be pent up.

So we are evaluating our CapEx spend all the time, and we are pushing it as low as possible and maybe it’s too early to make any comments regarding next year, but we are, for sure, expecting to do everything to reduce the CapEx spend in ‘21 as well.

Great. And just one more question from my side.

Looking at the closures that you’ve had of your factories, could you give us an indication of how many days that impacted production in Q1 and how many days of production that has been impacted in the second quarter?

So the Russian factory started to work on the 9th of January, as they always do. So the factory in Russia was closed only one – practically one day during the first quarter.

But the Finnish factory, there we had already negotiated in advance temporary layoffs just in case. And we had lower daily output, and we had, I would say, 2 weeks of production closure during the first quarter.

And when we look at the second quarter, of course, the volume – or the number of days we have been close with closing the factories is much higher. But it’s important to state here that we have specific products that we are producing in the Finnish factory and specific products that we are producing in the Russian factory, and we have to run both factories in order to secure the availability for our customers.

And the most optimum situation is to run the Russian factory as high as possible.

And just so that I understand you correctly because I recall some comments earlier in the quarter or earlier in April that there were public holidays announced in Russia, which essentially was what forced the closures. So has there been any production in Russia in Q2 as of yet?

Or are you still sort of in shutdown and starting to ramp up now?

Yes. That’s a good question, actually.

As you know, Putin announced national holiday, which has been lasting for almost one month. And we closed the factory for one week.

And after one week, we got a special permission to keep the production up and running as long as we are taking care of the safety measures. So we have 2 teams.

So we have social distancing in the factory. And the other team is on layoff and the other team is working.

So that’s also securing us if there would be somebody getting sick that not everybody would be impacted. So – yes, we are running the factory.

Now in May, we have 2 weeks closure due to the 1st of May holiday, which is kind of the normal holiday.

And Mattias, for your information and for everybody else as well, we update – we have an updated information about the factory situations on our website under the News Room. So there you can find the up-to-date information about the factories.

Great. Thank you.

Hi, there A couple on – firstly, on Russia, please. Could you talk a bit about what’s happened in Russia by segment?

You mentioned that it was most of the B segment that was impacted. But if you could take us through that a bit more in Q1, that would be helpful.

And also where do you see your market share overall in Russia? Do you think you’ve lost some?

Secondly, you mentioned also that in restarting for service centers and so on, some of the safety measures mean that capacity is a little bit reduced there. Could you talk about the magnitude of that?

How long you think that might have to continue and also on – while we’re talking about safety measures, do you see any overall reduction to your ability to produce in your factories with the new safety measures in place or are those quite manageable?

So in Russia, the actions we are taking is to reduce the channel inventories of B-segment winter tires. So we are selling less B-segment winter tires to the channel during the first half of this year.

And what comes to market shares, there has not been any major changes in our market shares for summer or winter as we speak. Then regarding the service centers in Finland and in the Nordics, where we have our own Vianor stores, we have kept them open all the time.

But as I said, the capacity is slightly lower, but it has not been impacting our business that much yet. And when it comes to our customers’ service centers, they need to follow their local regulations.

And as I said, in some of the countries, they have not been even able to keep the shops open. So like in Italy or even in Germany, they have been closed for a while.

And then when it comes to the safety measures in our factories, so we – at the moment, we have full capability to run our factories, both in Finland, in Russia and in U.S. and we are having social distancing.

We are disinfecting the space. We have the masks for the personnel.

And we are measuring – in Russia, we are measuring the person’s temperatures every day. So we are fully aligned with the local restrictions and regulations.

Great thank you.

This is Artem Beletski from SEB. Two from my side.

So you mentioned about cost reductions and impact will be visible starting from Q2. Could you maybe talk about magnitude what we should be anticipating going forward?

And the second question is relating to actually Heavy Tyres and Vianor with quite resilient performance in Q1, what we should be assuming in terms of Q2? Should we – should there be any clear COVID-19 negative impacts?

Could you please comment on these two questions?

So with regards to cost-cutting measures, we are implementing measures to save salaries as we have announced in Finland and also in other areas. And then we are cutting activities where we see it is feasible in a way that not jeopardizing our sales.

So the magnitude is several millions.

And then regarding the COVID impact on Heavy Tyres, it’s coming mainly because of the production stocks at the OE customers, mainly in forestry. So the second quarter will be impacted by that.

And Vianor, the full year impact will be visible, of course, later, but our estimate now is that the business is slowing down now after people have been changing their summer tires. So there will be negative impact during the second quarter as well.

Alright. Thank you.

Hi, thank you. I just wanted to talk a bit about Russia and the €20 million.

Is this is essentially just reduced sell-in volume or was there any price support and take-back activity that also augmented that?

It was a combination as indicated in the beginning of the year of volume and the impact of price positioning.

Okay. Was it mostly volume or mostly price positioning?

The volume was the biggest one.

Okay. And then as you’ve had to execute this into a more difficult market environment with the winter effect and COVID, when you look at the carry-forward effect into Q4, when you talk about – given effect during the winter sell-out season, do you have a sense on how that influence might be changed now by virtue of the circumstances in which you’ve had to act?

It’s difficult to estimate at this point of time, having the Russian economy being impacted by the COVID and the ruble. And we will know actually about the channel inventory of winter tires only at the year-end.

Right. Okay.

And then the last thing was just on Central Europe, where you note that the inventory is at higher level than the previous year because of the soft environment, which obviously hasn’t been made any easier in the last month or 2. Can you just talk a bit about how you plan on managing your own production and sell-in to winter tires or inventory and price position?

Just how you think you can manage your way through that to maintain your brand integrity?

Regarding the winter tire season, of course, the positive thing is that the COVID has not had any impact on that yet. And we are, of course, getting prepared to gather the preseason orders.

But as I was explaining, most likely, the customers will be buying the winter tires closer to the season. And if there’s no winter, we are prepared to put a lot more focus on all-season tires and summer tires.

So we are not only getting prepared for the winter tire sell-in.

Okay. So my question was around the summer tire inventory that you remark upon and how you’re going to manage your way through that part of it?

Well, our – we don’t have excess summer tires at our customers. So this is one reason why we have been able to keep our summer tire sale in volumes on previous year level.

Right. Okay.

So that was a market comment in the report, not like specific to yours. Yes thank you very much once again.

Thank you for taking my question. I just have one left.

In this delta between your segment operating profit and the reported operating profit for the Passenger Car Tyres, does that include the depreciation cost for Dayton as well? And how do you – I mean, once the U.S.

plant starts ramping up fully, then how do you start accounting for this? And then also what is the targeted volumes for the U.S.

plant in 2020 given that you postponed the second shift? Is it fair to assume its maybe 300,000, 400,000 that you are at best planning to produce in the U.S.

this year?

So if I start with the bridge. So this Passenger Car Tyres segment operating profit excludes the Dayton ramp-up costs

And what comes to the production volume, you are in the right ballpark. So between 200,000 and 400,000 would be the volume.

And of course, the main focus is ramping up the new products that are specific to the North American market.

So can I just clarify, when you said it excludes the Dayton ramp-up cost. Does that also exclude the increased depreciation cost that you have from the U.S.

plant? Or is that – or is it the increase in ramp-up cost ex depreciation?

That includes the depreciation.

Okay, thank you.

Okay, thank you. And now I am afraid we have run out of time.

So at this point, I want to thank you all for participating. Thank you, Hille.

Thank you, Teemu. And this ends today’s conference call.

Thank you.

Thank you.