Nokian Renkaat Oyj

Good afternoon from Helsinki, and welcome to Nokian Tyres Q2 2025 Webcast and Conference Call. My name is Annukka Angeria, and I'm working at Nokian Tyres Investor Relations.

Together with me in this call, I have our CEO, Paolo Pompei; and Interim CFO, Jari Huuhtanen. As usual, we will start the webcast by first reviewing the financial results and some other topics from the quarter, and then we will have a Q&A session.

So the floor is yours, Paolo.

All right. Thank you very much, Annukka, and good afternoon, everyone.

Thank you for joining our call this afternoon. Obviously, it is summertime.

It's a beautiful week here in Finland. So we appreciate even more for those who are located in Finland your participation to this call.

And let's start today with the headlines, which is a strong operating profit improvement in the second quarter and, of course, action ongoing to further strengthen the financial performance. Moving to Slide #2.

Yes, so this is the agenda that is related to the financial performance in quarter 2. Then we will talk -- Jari will support us in describing the trend of the business unit.

And then of course, we will end with the assumptions and the guidance for the year-end. Let's start with the quarter 2 and the financial performance.

So we move to Page #4. We had a strong quarter, as we said.

We had a strong sales -- we had a good sales growth of approximately 6.9% in quarter 2. Our operating profit improved significantly by almost 31%.

And of course, this is also the result of the ongoing action that we are putting in place to improve our financial performance at the moment. The ramp-up of the operations in Romania is proceeding according to the plan.

And some good news also from the sustainability side point of view, we are obviously ranked among the world's most sustainable companies by the TIME Magazine. We will tell you something more later on.

And of course, we will also talk about tariffs that are creating some uncertainties in the short term and, of course, we have in place mitigating actions in order to reduce the potential impact. Moving to Slide #5.

Let's talk specifically about the performance. As I said, the sales were going up by 6.9% up to EUR 343.7 million, and our segment EBITDA was up by 22%, up EUR 57.2 million.

The segment operating profit was EUR 26.3 million. That was 7.7% in relation to sales and up by almost 31% compared to previous year.

The increase was mainly driven by the passenger car tire segment that was well supported by price increases and lower manufacturing and supply chain costs in quarter 2. Moving to Slide #6.

You will see that we were able to outperform any market also in terms of market share development. So we were growing in the Nordics.

We were growing nicely also in Central Europe considering all the actions that we have in place, but also we were improving two digits in the North American market. As you know, this is a very important growth area for us, and we are very pleased about the performance in the second quarter in a market that is pretty stable at this stage.

Moving to Slide #7. I would like to highlight a few items of this slide.

First of all, I will focus on the growth year-to-date, which is 9.3%. And I would like also to focus your attention of the segment EBITDA, that is up by 18% year-to-date and segment operating profit that is up by 56% year-to-date.

But also bottom left, you will see that our CapEx, as expected, are going down, and we are at the moment at EUR 89.7 million invested in our business, significantly lower than previous year when we had obviously -- we have investment, in particular, in Oradea in developing our new manufacturing facility in Romania. In quarter 2, also the cash flow had a strong improvement as a result of better control of the working capital, but also as a result of lower CapEx.

Moving to Slide #8. This is our guidance in terms of CapEx for this year remain as it was.

We will be between EUR 180 million and EUR 200 million, so everything is going according to plan also from the CapEx point of view. But what I would like to highlight once again,is that we are ending a strong investment cycle that was necessary to rebuild the footprint of Nokian Tyres in Europe as well as to build the, to extend the one in North America.

So at the moment, we are estimating to be perfectly in line with our guidelines in terms of CapEx. And of course, the CapEx level from after 2025 is expected to go back to a normal level, more or less in line with the depreciation.

Moving to Slide #9. As I mentioned at the beginning, obviously, we continue to focus on our -- the improvement of the financial performance.

I was very clear also during the closing of quarter 1 that this is going to be very important to focus on profitable growth. And this is where our guidance is coming from.

Of course, we have three important focus areas that are extremely important for our future development and for our profitability development in the next future. Obviously one is the commercial area.

We are, as I told you already in quarter 1, accelerating our effort to gain premium market share in the North American market. And of course, the key opportunity is in enlarging the sales network in the United States.

In Central Europe, we have a similar challenges even though we are a little bit more mature in this market. We are expanding at the moment our existing network, and we are also entering new markets and we are also implementing consistent price realization in line with the premium branding positioning.

This is a long journey that we will carry on from now on because obviously this is the position that we want to have in both the Central European and the North American market. In the Nordic, we are doing pretty well at this stage.

We are managing very well the pressure that is coming from the raw material increase. And of course, we keep protecting our premium position and our strong product portfolio, utilizing Vianor as a strong asset of the company to accomplish our objectives.

From the operational point of view, we are also working at 360 degrees. Obviously, the ramp-up of our factories in Oradea and in Dayton are supporting economy of scale, consequently better absorption of the fixed cost.

We are moving in the direction of driving higher efficiency across the organization because we need to improve our efficiency and our productivity in our own factories. And of course, you will see later on more and more the importance of our development in Romania in terms of ramp-up because obviously this will give us a competitive base for our future development in Central Europe.

Last but not least, we are working very hard in improving our efficiency when we talk about supply chain, and our local-for-local business model will give us the opportunity to become more efficient in managing our working capital and our inventory. We said also at the beginning of the year that we want to also improve from the procurement point of view, enlarging our supplier portfolio and obviously become more efficient in the way we spend our money.

And this is what we are doing at the moment, and we see already an important improvement in our P&L in quarter 2 also in this dimension. All the three dimensions are delivering good results at this stage and all the three dimensions have contributed to the good improvement that we had in quarter 2.

Moving to Slide #10. Obviously, this job, this continuous improvement plan is requiring a clear structure.

Of course, our new operating model is helping to have a stronger focus on the P&L and, in some way, the KPI ownership that we have built around the organization has been driving to better accountability of our own business. We have in place at the moment, a lot of different work streams that are working in a systematic way to follow up and are giving us the possibility to follow up and to have a clear reporting of our practices but also about our results.

And then, of course, today, we have an organization with an enlarged management team that is giving us the possibility to be more agile and to react quickly to any business opportunities or challenge. Moving to Slide #11.

We had also some good news on the sustainability side, Nokian was recognized within-- to be one of the top 500 most sustainable companies in the world by the TIME magazine. Actually, we were #98 in the list made by the TIME magazine.

This is obviously rewarding our effort in becoming a more sustainable company, reducing the CO2 emission, increasing the level of renewable and recyclable material and, of course, being a social responsible player in the industry. And we will carry on this effort, and this effort has been recognized not only by The TIME but, as you can see, by many other organization.

And of course, I would like to highlight again our EcoVadis Platinum status is one of the also best indicator to tell how good is our effort at this stage of our history. Moving to Slide #12.

I will ask kindly, Jari to take the control of the presentation.

Okay. Thank you, Paolo, and good afternoon from my side as well.

Starting from Passenger Car Tyres, in the second quarter, we reported higher sales and improved margins. Our net sales was EUR 206 million comparing to prior year EUR 189 million.

Net sales increased in comparable currencies by 11.3%. Average sales price with comparable currencies improved as well as the share of higher than 18-inches tires increased significantly.

Segment operating profit was EUR 15.9 million or 7.7% of net sales comparing to last year EUR 7.1 million or 3.7% of net sales. Profitability improved in Passenger Car Tyres, mainly due to higher sales and price increases which were implemented in the first quarter.

Also, our manufacturing and supply chain costs were lower comparing to prior year. In the first half, we have been able to improve our inventory rotation in Passenger Car Tyres.

In the next page, we can see Passenger Car Tyres bridges in the second quarter, net sales and segment operating profit. In net sales, we can see that both sales volume and price/mix component developed well.

Sales volume impact was EUR 12 million, and price/mix, EUR 9 million. Currency, we had some headwind coming mainly from USD and Canadian dollar.

In segment operating profit side, sales volume impact was EUR 5 million, price/mix impact, plus EUR 9 million. Still in material costs, we had some negative impact, minus EUR 4 million.

However, I want to highlight that it's good to see that price/mix component is now clearly higher than the material cost. So basically, we have been able to offset the higher cost in the second quarter.

Supply chain component, plus EUR 3 million, coming mainly from manufacturing, sales rates and warehousing. SGA cost, somewhat EUR 3 million negative comparing to prior year.

And in -- what comes to currencies, the impact is very close to neutral, minus EUR 1 million. Going to page -- Passenger Car Tyres net sales.

Here, we can see quarterly changes by our sales components, sales volume, price/mix and currency. Here, I want to highlight price/mix in the second quarter, which was plus 4.9% coming from both higher sales prices and also better sales mix comparing to last year.

Then to continue to Heavy Tires. In the second quarter, we had solid sales development.

However, weak market affected Heavy Tires margins. Net sales was EUR 61 million comparing to last year's EUR 60 million.

Change in comparable currencies was plus 1.3%. In Heavy Tires, net sales increased in all regions driven by aftermarket sales.

Segment operating profit was EUR 6 million or 9.9% of net sales comparing to last year EUR 7.6 million or 12.7% of net sales. Profitability decreased in Heavy Tires mainly due to weaker product mix in sales.

And in Heavy Tires, finished goods inventories are on a lower level comparing prior year. Moving to Vianor P&L second quarter.

We reported stable sales development there. Net sales, EUR 98 million comparing to last year EUR 96 million.

So net sales with comparable currencies increased by 1%-- 1.2%. Segment operating profit was EUR 7.1 million or 7.2% of net sales versus last year EUR 7.5 million versus 7.8% of net sales.

Segment operating profit was slightly lower year-on-year, mainly due to cost inflation in the Vianor business. In Vianor, finished goods inventories remained stable in first half.

Then handing over back to you, Paolo.

Thank you, Jari, and thank you very much for explaining the performance in the single business units. Now we go through the guidance.

And from the market point of view, we don't see major changes in the market. Of course, there is a lot of uncertainty related to the market development in North America due to the tariff situation, we will watch this very carefully.

But in general, we can see the market,-- the aftermarket where we are a strong player, we'll see at the moment to remain pretty stable both in Europe as well as in North America. The Heavy Tire business is down, will be down.

We are expecting that will remain down in the second half of the year at this stage, also looking at the market development in both the replacement and in the OE segment. When we talk about North America.

Of course, as we mentioned already during the closing of quarter 1, we will keep a pretty flexible strategy. What I mean is that we are a local-for-local.

We have a local-for-local business model. And fortunately, we are not exposed heavily at all to the tariff, in particular when we talk about U.S.

We are basically 85% of our business is made in U.S. for U.S.

so we don't see this issue. But of course, we will need to be ready to look at any kind of opportunities in the months to come based on the negotiation between Europe as well as U.S.

and Canada because obviously we are also exporting to Canada. I remind you that on the winter tire business that we sell in Canada, which is obviously an important part of our business, is made in Finland.

Consequently, we should not be exposed on that side. So we are, at the moment, looking at different options and scenarios.

There would be some uncertainty that is more related to the consumer behavior than uncertainty related from the manufacturing side. And so we will need to carefully watch the development from the consumer side, and this is really my main message today.

But we are well equipped from the pure manufacturing point of view to face any kind of ending scenario. Moving to Slide #21.

We keep our guidance for the year where net sales are expected to grow and segment operating profit as a percentage of net sales will improve. We are expecting, as we said, the remainder to remain in line with previous year level.

And then, of course, the global economy as well as the geopolitical trade and tariffs are creating some uncertainty that we are watching day by day in order to understand better the business development. Of course, we have an important opportunity, having our capacity moving up in Romania in particular, and this obviously supporting better viability of finished goods and, at the same time, better sales.

I would like to take this opportunity also to drive your attention to the following quarters. Last year, we had very high level of exclusions in our P&L due to exceptional items that were coming on the agenda last year.

This year, we are forecasting by far lower exclusions. So when you build a model, please look at the improvement of the EBIT or the profit level more than segment operating profit because this is very important to understand the development of the company for the future, for the future months.

We will have -- obviously, we guided less exclusions for the next couple of quarters. We have also today announced three important changes in our management team.

We welcome Chris Ostrander, who has been a Board member, who is today still a Board member of Nokian Tyres team. He will step down from the position as a Board member and also as a leader of the Investment Committee and he will join the management team, starting from the 1st of September, leading the North American team as a Senior Vice President of Passenger Car Tyres in North America.

He will replace Lauri Halme, who has accepted the challenge to lead our Vianor network starting from the same day as the Senior Vice President of Vianor. Lauri has an extensive experience in the company and also in managing service operations.

So I'm sure it will do a great job also managing Vianor as a Senior Vice President for the years to come. At the same time, we are promoting Tron Gulbrandsen as a Senior Vice President, Passenger Car Tyres for the Nordics.

Tron has been in the company for many years. He knows the company very well.

He will join the management team and it will had his expertise and his knowledge -- commercial knowledge to the management team supporting our future growth and expansion in the commercial area. We are now up to the time of the Q&A.

Akshat from JPMorgan. I have three questions, please.

The first one is actually on pricing. Can you talk about all the pricing actions that you have taken specifically in Europe and North America?

Is this specifically related to paying catch up on raw materials and other inflation costs? Or are you also being opportunistic in the North American market given your positioning there?

The second question is on overall volume growth you have told us multiple times that a lot of the volume growth that you've seen is supply linked for Nokian because you are in an unique position. I've seen that number relatively slow down.

It was at 21% in Q1, 6% in Q2, and the comps get more difficult in the second half. So could you just give us a broad expectation of what you're expecting for Nokian volume growth in the second half, please?

And the third one is just a general question on the marketplace. I would be very interested in understanding what are you seeing in both Europe and North America since the month of May since U.S.

tariffs have come into force? Could you just talk about in general inventory levels in these markets, probably product flows coming in from Asia and how the competitive landscape looks like in general?

Thank you very much. Three important questions.

I would like to start answering to the first one that is related about prices. As explained very -- also in quarter 1, in quarter 1, as you may remember, we lost margin also because we were not increasing the pricing-- the prices recovering the raw material cost increase that we had in quarter 1.

There is always a sort of time gap between the raw material increase and the pricing, but obviously, this was, for us, an important action to put in place in order to compensate the lost margin in quarter 1 that were coming from higher raw material and stable prices. At the same time, of course, I also delivered the important message that it's crucial for us to position Nokian Tyres as a premium player in the Central European and North American market.

And this is a journey that obviously is starting this year and will carry on in the years to come. So we will always compensate raw material but we will always strive obviously to raise our position in terms of pricing to be well positioned in the premium market.

About the volume growth, this is also very important. I mean, there is no joy in life to grow without increasing the profit, obviously.

So we say that we were focusing on profitable growth more than only growth. At this stage, our risk is extremely important as well that whatever additional tire we sell, it will be profitable.

It will generate profit and value for our shareholders. So this is what we are doing at the moment.

So we accepting-- we accept it to be a little bit slower in generating growth, but we want to have a profitable growth for the years to come. Last is about the scenario of the tariff.

I mean, the situation in Europe, the market was pretty stable in the second half. Actually, it was down for the European player.

And of course, there was a lot of tires coming from Asia, too. The same is happening in North America.

It was happening at the beginning of the second quarter when the tariffs were just announced. There was a large number of tires arriving in the United States from Asia in order to anticipate and to reduce the impact of the duties.

I see two effects. I think the market will stabilize.

In Europe, it will be pretty stable for the months to come. While in North America, the only question mark is about the general economy and the consumer behavior related to the GDP development of the country.

Clearly, less purchasing power from the consumer will deliver decisions in terms of what to buy. The market is not self sufficient in terms of tires.

What I mean is that in the North American market, half of the market is supplied from abroad. So this also can be a problem but an advantage for us being a local player.

But we'll observe the dynamics and we will see where we'll end. Just to remind you that we are pretty small in North America.

So obviously, we watch the market day by day. But we have our own agenda and we need to grow based on our own capabilities accepting that there will be up and down based on the GDP growth in the local market.

And just a question left. On your own Nokian Tyres volume growth expectations for the second half, please?

The guidance says that we will grow up. So meaning that we are guiding a growth below 10%.

Thank you. It seems that everything was very clear this time.

And if there are no further questions, it is time to end this webcast. Thank you all for participating in this call, and thank you, Paolo and Jari.

Thank you all.

Have a good rest of the day and summer.

Thank you very much also from our side, and have a wonderful summer time.

Thank you.