Nokian Renkaat Oyj

Good afternoon from Helsinki, and welcome to Nokian Tyres Q3 2025 Results Webcast. My name is Annukka Angeria, and I'm working at Nokian Tyres Investor Relations.

Together with me in this call, I have Nokian Tyres' President and CEO, Paolo Pompei; and Interim CFO, Jari Huuhtanen. As usual, Paolo and Jari will start by presenting the results.

And after that, there will be time for questions. With these words, I will hand over to you, Paolo.

Please go ahead.

Thank you, Annukka, and good afternoon also from my side. Let's start this presentation with our headline, which is a stronger operating profit improvement in quarter 3, driven by announced pricing in passenger car tire, actions ongoing to further strengthen our financial performance.

We are closing an important quarter. And I have to say that I'm very pleased to tell that we are really moving in the right direction.

As we said in the headline, our operating profit increased significantly. And obviously, this is very encouraging for the future journey that we have ahead of us.

But what we are going to do this afternoon, we are going to talk about our quarterly highlights, the financial performance. Jari will comment on the business unit performance.

And then, of course, we will close the presentation with assumptions and guidance. Now let's go to the quarterly highlights.

In Slide #4, we had double-digit sales growth. We were able to grow in all the regions.

The sales growth was 10.8% in comparable currency. The operating profit improved significantly, plus 427%, and this was mainly driven by our effort in improving our pricing in the passenger car tires.

We still have a lot to do. There are still a lot of actions going on in order to improve our financial performance.

We're also very pleased about our ramp-up of the operation in Romania that are progressing extremely well, and we are now actually running 24/7. This -- in the month of September, we were also expanding our product offering and brand partnership.

We will tell something more in a minute. And of course, there is also starting from the 1st of September, a favorable tariff development in North America for Nokian Tyres.

Moving to Slide #5. Let's talk about our new factory in Romania.

We are very pleased to say that we are in line with our plan. We will reach 1 million pieces by the end of this year, and we started now operating 4 shifts 24/7.

We have now all the people we need to carry on our journey and to make sure we will be able to achieve the target of this year of 1 million pieces. We also released a few weeks ago a new product line that is completing the summer product range at this stage after the all season range that we released only a few months ago with the start-up of the operation in Oradea.

Moving to Slide #6. This is also an important step forward for the factory, but also for Nokian Tyres, in particular, for our business in Central and South Europe.

We released our Powerproof 2 a few days ago. This is our premium offering in the ultra-high performance segment summer tire.

This range is performing extremely well, has been certified in terms of performance and tested by the TUV SUD. And we were able to launch in this new product in the beautiful scenario of our test center in Spain, HAKKA RING, together with more than 160 customers and journalists coming from Central and Southern Europe.

This obviously will support our growth in the Central European market, together, obviously, with our winter tire range as well as our all-season tire range. Moving to Slide #7.

We're also pleased to tell you that we received once again several testimonies of our premium performance in the winter tire segment, in particular in the Nordics, where we were able to be tested in several magazines or by several associations being scored as #1 tire or on the podium when we talk about studded and not studded winter tires. So we keep our leadership, and we still have new projects coming up in the next few months that will actually reinforce our leadership in the winter tire segment.

But we have also some good news related to the heavy tire business. We will receive in a few days silver metal for our Intuitu 2.0 smart tire technology that is going to be fitted in our agricultural tires.

This is a very important step forward in terms of connecting the tire to the machine and the operator of the machine, measuring the load of the machine or the pressure and optimizing the operating performance of the machine at the right pressure. Moving to Slide #8.

We're also reinforcing our effort in terms of communication. We signed an important agreement for 2 years with the IIHF Association, which is actually Federation, sorry, which is actually going to support the world competition in the Ice Hockey segment in Switzerland in 2026 and in Germany in 2027.

We are very pleased to be partner of this important sport because it reflects our value and also it is giving the possibility to Nokian Tyres to be visible to millions of Ice Hockey fans that are obviously happy to view and to support this nice competition. Moving to Slide #10.

We are going to look at our performance. Quarter 3 was in some way, stable in Europe, a little bit down in North America.

When we look at the performance now year-to-date, we have the market pretty stable in Europe, and we see the market gradually declining in North America when we talk about passenger car tires. The market in truck tires or in the agri tire has been stable in truck tires, while in the agricultural segment is still down compared to previous year, both in the replacement market as well as in the original equipment market.

Moving to Slide #11. Despite the, I will say, difficult market condition or stable market condition when we talk about Europe, we are very pleased to say that we were able to grow by 10.8% with comparable currency in the quarter, and we were able to grow in all the regions.

But we did really an exceptional good performance in the North American market in a declining market environment. So we are finally doing extremely well in North America, and we are very pleased about the journey that we have done so far.

Our EBITDA as well has been increasing up to EUR 65.4 million. This is actually now 19% in percentage of sales.

And our segment operating profit has been growing by over 6% to EUR 32.4 million. It's very important to remember that the comparability when we talk about segment operating profit is heavily affected by EUR 13.3 million exclusions or write-down related to the write-down of the contract manufacturing product that we did last year in quarter 3 2024 that are in some way impacting the comparability.

This is why we are very pleased about the extremely important growth of over 427% in the operating profit performance that is reflecting really the performance of the company at 360 degrees. Moving to Slide #12.

As I mentioned before, we are growing in terms of net sales in all the regions in Europe by 4.6%, in Central Europe and Southern Europe by 9.2%, and we're growing by 27% in North America, supported by good pricing and mix. Moving to Slide #13.

We move to the cash flow, in particular, we were able to improve our cash flow performance. This was mainly driven by lower investments, but also by improved working capital as we will see in the next slide.

Overall, year-to-date, we are growing in terms of sales by more than 9.4%. And of course, we are improving our segment EBITDA as well as our operating -- segment operating profit.

Looking a little bit deeper to the cash flow. You will see that, obviously, the improvement of cash flow was coming, obviously, from the EBITDA improvement of EUR 33 million, then, of course, by an improvement of the working capital, we've been able to grow, reducing our inventory level in our operations.

We are also obviously investing less. We are getting step-by-step to a normal level of investments.

And of course, we have higher financial expenses. And obviously, we had a lower dividend, but obviously higher debt.

So overall, year-to-date, we are improving. And obviously, our target is to become cash positive, meaning generating positive operating cash flow already next year.

As we mentioned, we are now guiding EUR 180 million investment level at the end of 2025. This will basically close a long cycle of approximately 3 years that was necessary to reinforce our operations and to build our new manufacturing footprint, in particular, with the latest investment we did in Romania in Oradea.

The CapEx are expected to return then next year to a normal level. And of course, we -- as you know, we are entitled to get state aid from the Romanian government up to EUR 100 million, and we are expecting to receive the first part of this incentive by the end of the year or in quarter 1 next year.

Moving to Slide #16. I would like to pass the stage to Jari for the performance of the business units.

Okay. Thank you, Paolo, and good afternoon.

I'm moving to Page Passenger Car Tyres. In third quarter, we continued sales and profit growth.

Net sales was EUR 234 million and the increase in comparable currencies plus 13.2%. Our average sales price with comparable currencies improved and the share of higher than 18 inches tires increased significantly.

Segment operating profit was EUR 38.9 million or 16.6% of the net sales. And the segment operating profit improved due to price increases and favorable product mix.

Moving to Page 18. Here, we can see Passenger Car Tyres net sales and segment operating profit bridges in third quarter.

Net sales improved from EUR 210 million to EUR 234 million. And clearly, the biggest positive contribution is coming from the price/mix, plus EUR 35 million.

Sales volume was slightly down comparing to last year, minus EUR 7 million. And in addition, we had some currency headwind coming mainly from U.S.

and Canadian dollars. In segment operating profit, you can see that there are 2 components which are clearly coming visible.

First of all, this positive price/mix, EUR 35 million. On the other hand, in supply chain, we have a negative impact of EUR 25 million.

Here, the reasons are mostly related to non-IFRS exclusions what we had in last year third quarter. Contract manufacturing inventory write-downs and Dayton ramp-up related exclusions.

In material costs, we still had a slightly negative impact, minus EUR 3 million. However, we can say that we are very close to previous year cost level at the moment.

Sales volume, minus EUR 3 million, but otherwise, it's very stable performance comparing to prior year. Moving to Page 19, Passenger Car Tyres net sales components, quarterly changes.

In price/mix, we can see a significant improvement comparing to last year, plus 16.5%. This is due to implemented price increases and better product mix comparing to last year.

In sales volume, minus 3.3% and in currency, minus 1.7% in the third quarter. Moving to Heavy Tyres.

In third quarter, we had lower volumes, which affected the net sales and profitability. Net sales was EUR 55.4 million and the change in comparable currencies, minus 4.4%.

Net sales decreased mainly due to lower volumes in truck and agri tires. Segment operating profit was EUR 5 million or 9% of the net sales.

Profitability declined in Heavy Tyres, mainly due to lower volumes and inventory revaluations, which had a positive impact in last year's third quarter numbers. And in Vianor, in third quarter, we reported improved sales and operating profit.

Net sales was EUR 74.9 million and the increase in comparable currencies, plus 7%. Segment operating profit seasonally negative minus EUR 6.4 million or minus 9% of the net sales.

However, we can see an improvement both in operating and business profitability. Then I'm handing over back to you, Paolo.

Moving to Slide 23 to the assumptions and guidance. Well, we have a very good news in quarter 3 coming from the North American market.

As you know very well, we are exporting all-season tire from our factory in Dayton in United States to Canada. And this -- there were obviously counter tariff implemented by Canada in quarter -- at the end of quarter 2.

Those counter tariffs have now been removed. So obviously, today, we are in the ideal situation to deliver tires from U.S.

to Canada without duties. Anything else remains as it was before 85% of what we sell in the United States is made in United States, and this is making the company much less vulnerable, being -- having a business model that is local for local.

And the winter tire business that is going to Canada is supported by our factory in Nokian based in Finland. So moving to Slide 24.

Our guidance for 2025 remain exactly the same. We are expected to grow and segment operating profit as a percentage of net sales to improve compared to previous year.

We are assuming a stable market to remain at the previous year level. And of course, we are like anybody else, we observe the development of the global economy as well as the geopolitical situation since trade and tariffs are creating some uncertainty and may create some volatility to the company business environment.

Of course, we follow our own journey. We have opportunities to grow also in a changing market environment, also supported by our new manufacturing footprint in Romania that is supporting our Central and South European market.

We close this presentation. And obviously, we are happy to reply to all your question and answer.

[Operator Instructions] The next question comes from Akshat Kacker from JPM.

Three, please. The first one on price increases that you implemented, -- congratulations on a good quarter.

If you could just put that into context for us, could you just talk about a few regions or product ranges where you've increased these price increases? And specifically, how do you think about the sustainability of these price increases going forward?

Because a couple of your peers, the bigger Tier 1s have actually taken down their price/mix assumptions in the last quarter based on the inventory situation and the price mix trade down that they are seeing from the consumers in the market. So just the first question on the price increases and the sustainability of that going forward.

The second question is on volumes. I noticed on the passenger coverage that volumes have declined by around 3.5% in the quarter.

It's the first quarter where we've seen that volume decline, obviously, somewhat explained by the price increases. But just could you talk to us about overall expectations for volume growth going forward given that the business has been in a supply-constrained mode?

And the last one on passenger car margins, please. Again, a very strong development in Q3.

Margins have improved to 12% versus the 2% that we saw in Q2. Could you talk about your expectations into Q4?

Should we still expect improving mix, improving margins as we go into Q4, please?

Excellent. Thank you very much for your question.

And obviously, I'm happy to reply to at least the first 2 questions. Talking about price increase, this is a journey that we started already at the end of quarter 1, as you may remember.

It was necessary, first of all, to compensate the raw material cost increasing in quarter 1 compared to previous year. And that was mainly valid for all the regions, in particular for Nordics.

Then, of course, we combine these price increases also to necessary to gradually reposition our products in Central Europe as well as in North America. The question is if this is sustainable?

Of course, we cannot keep increasing pricing. It was extremely important for us, again, to compensate the increasing rising raw material costs and at the same time, to gradually repositioning our products in Central Europe and in North America.

Is this affecting volume? Going to the second question, in reality, in a very small part.

What I mean is that this important improvement is also related to the strong write-off and consequent sellout of a lot of tires that we did in quarter 3 last year. This is what is affecting the comparability of segment operating profit, but at the same time, it's improving significantly our profit.

So this 3% in reality is extremely -- if we take away the action that we did last year in order to release quickly the slow-moving inventory accumulated due to the crisis in the Red Sea, then of course, we can still calculate an important growth for the company. And that is really where the volume effect is coming from.

So we are not expecting the price increase to affect volume at this stage and minus 3% is well by the comparability with the previous year due to the action we made in order to release the slow-moving stock that we have accumulated due to the crisis in the Red Sea channel. The margins are improving, obviously will keep improving because at the same time, we are not only improving in terms of prices, but we are also operating more efficiently with our own factories.

So obviously -- and now we are moving to the last part of the season, meaning that we will sell in this quarter more winter tire. And so by definition, our margins will keep improving in quarter 4.

I hope I replied.

The next question comes from Thomas Besson from Kepler Cheuvreux.

I have 3 as well, please. The first one is on your planned adjustment measures, the personal negotiations that may lead to 80 permanent white collar job cuts.

Could you put that in perspective? Is that part of your better or more efficient operations?

Or is that coming on top of what you were describing with the new Romanian plant and the substitution of your offtake by your own production? Second question will be on the EUR 180 million CapEx guide.

Could you confirm that it does not include any Romanian state aid that may or not happen in 2025? And finally, you had a tough quarter for your ag and trucks business or what I would call the specialty business or industrial tire business.

Could you tell us whether you already see a trough coming for that business and when that would be or whether it's still not visible yet when that would be?

Thank you very much for your question. I start with the negotiation.

Obviously, this is part of our journey when we want to improve efficiency and productivity. So -- and this is necessary to support the company in this journey, in particular, when we talk about SG&A development.

So we start the negotiation. And obviously, we will inform you about the progress.

But in general, I mean, it's part of our journey to improve our efficiency and productivity within the company. When we talk about the state aid, I confirm that within the EUR 180 million, there is nothing about the state aid.

So this -- at the moment, we are not including the state aid in any calculation when we talk about CapEx as well as cash. About the agri and truck business, well, this is a million-dollar question.

However, I believe the agri business, in particular, is subject to cycles. And cycles can be long or short.

But in general, obviously, we are now landing at the end of second, I would say, almost second years of downturn. So obviously, I'm expecting the agri business at the OE level in particular, to recover pretty soon in the next 6 to 12 months.

Obviously, this is not scientific. I'm just observing the history and the cycle that were affecting the agricultural, in particular, tire business in the last 20 years, and you will see there is a growing trend if you take the last 20 years, but this growing trend has gone through up and down with cycle that were lasting in a positive or negative way 2 or 3 years.

I hope I replied to all your questions.

[Operator Instructions] The next question comes from Artem Beletski from SEB.

So I also have 3 to be asked. So the first one is relating to the price/mix development in Passenger Car Tyres.

And I guess it's also volume related given the fact that it was a bit messy comparison from last year. I think you agree with it.

And maybe just a question on pricing side. So could you maybe comment whether there has been some further price changes, what you have done, for example, during Q3, which are not yet visible in the numbers?

Then the second question is related to net debt. So I understand that Q3 seasonally is the peak, what we always see in your case.

Maybe you can provide us with some type of indication where you see net debt landing by the end of this year. And the last one is just relating to winter tire season.

So how you have seen the demand picture so far when it comes to Europe and also North America?

All right. Thank you for the questions.

And I start with the first question about price and mix development. I agree with you.

Obviously, the comparability with last year is affected by the write-off and consequently by the sale of the slow-moving tires in the Central European market. However, we can say that the price and mix development was good for the company also without this effect.

Clearly, we have implemented pricing action in quarter 2 and in quarter 3. There will be a carryover in quarter 4, and that is pretty clear.

Then of course, we will not make any comment about future price development for obvious competition rules. Regarding the second question was -- sorry, the third question was about the net debt.

As you know very well, considering our seasonality, quarter 3 is always the period of the year where obviously our debts are getting to a higher level. So we are expecting the level of net debt to go down in the next quarter.

And about the winter tire season, we can say that obviously, the weather was actually a little bit too warm, let's say, in September, but now it's getting colder, both in the Nordics as well as in North America. So we are expecting the winter tire season to basically start as I speak in this moment in November.

We had also a good presales activities, obviously, in the previous month. So the market -- we see the market is still growing.

So obviously, we are pretty positive about the development of the winter tire sales.

I'll take the opportunity to ask some follow-up questions, please. First, I'd like to discuss a bit about your working capital, if that's possible.

I mean your inventories declined, but receivables increased. Could you indicate whether you see any risk of write-down?

And could you talk about your exposure to [ ATD ] Whether it's new, how much it increased? I mean this company went under recently.

Did you have any exposure as it moved into Chapter 11 or not? And when I look at your payables, they are higher than usual.

Could you explain why and whether this will be a headwind on the working capital front in Q4? And my last question will be on your net interest charge.

I mean your net debt obviously has gone up the last 3 years because of your investment program. We've seen the net interest charge in your P&L and your cash flow statement going up.

Could you give us some indication about what we should expect for '25, both on the P&L and on the cash flow statement and whether it will already be declining in '26 or be flat in '26 and '25?

Okay. Thank you.

I will reply to the first one and maybe Jari can also support the discussion on the last 2 topics. About the working capital, the working capital is improving with growing sales year-to-date.

So we are very pleased about this development. And obviously, this is really driven in particular by the reduction of the inventory that we have implemented in -- basically during the whole year, in particular now in quarter 2 and quarter 3.

The receivables are growing because we are growing in terms of sales. And about ATD, obviously, is a new partnership.

I think ATD today is very well supported by strong equity funds, extremely strong from the financial point of view. Of course, our exposure is relative low since we are at the beginning of the journey.

So we will grow together with ATD, and we will support -- ATD will support our growth in North America. They are by far the largest national distributor in North America, and they are able actually to very well support our sales in any corner of that country.

Payable are higher, obviously, because we are growing in Oradea. But please, Jari, would you like to comment the payable and net interest?

Yes. Thank you.

So first of all, payables, of course, we have multiple different actions ongoing to get a little bit better performance in payables. Unfortunately, at the moment, we are not -- have not been able to see, but of course, we will continue and we want to improve in that respect.

And I think the second question was related to net debt and interest expenses in our P&L. Of course, we have more net debt as we discussed earlier and interest expenses are higher than what we had in last year.

And then on top of that, you can notice from the report as well that we have some hedging costs, which are related to our Romanian operation and especially to the project to build a new factory in Romania. It's quite difficult to comment anything related to '26 at the moment.

So let's come back to that later. But that -- those are the main kind of answers or reasons behind.

The next question comes from Rauli Juva from Inderes.

Rauli from Inderes. A question still on the passenger car tire margins.

You touched this already, but just want to be clear, you posted in Q3 now around 16% EBIT margin as in last year and then your Q4 last year was really weak. So I guess you should be improving from that year-on-year.

But how do you see the dynamics on the passenger car tire margin from between Q4 and Q3?

I think the level of margins that we are reaching today are rewarding really the strong effort of the team globally in improving pricing and at the same time, improving our cost when we talk about manufacturing. So they are a natural consequence of what we are doing around the company.

And obviously, we should expect that we are improving because this is what we are here for in order to reach our financial targets. Pricing, as I told you, already has a strong impact, but we should not underevaluate as well the improvement that we are having also from the manufacturing point of view, also considering that last year, we were excluding in quarter 3, the part of the cost that we had in North America in Dayton, while this year we don't have those kind of exclusions.

So in terms of comparability, I believe that we are really progressing in the right direction, and this is really encouraging. So you should see step-by-step margins improvement.

The next question comes from Akshat Kacker from JPM. A couple of follow-up questions, please.

The first one, when I think about your production capacity and your footprint, could you talk about your overall plans for capacity additions going into next year, please? Are you adding more capacity at Dayton or in Finland, please?

And the second part of the question is, could you just clarify the contribution from the Romanian plant in terms of commercial tires in this quarter? And how should we expect offtake agreements to progress going into next year?

Just a total overview on overall capacity planning, please?

Thank you very much. As I mentioned several times, and this is very important, I will focus -- we will focus as a company on profitable growth.

So capacity now is there. We were able to build this capacity.

We are very pleased about what we were able to do so far, but now it's really time to focus on profitable growth. So the capacity that we have today, it's enough to support our strategic term objective for the next 3 years.

So we will not need to implement additional capacity at this stage in -- both in Central Europe as well as in North America. Clearly, we will do specific adjustments on specific lines since we are going, for instance, in terms of mix.

So we are producing bigger and bigger sizes. So we will need to do some adjustments in order to increase eventually the capacity on bigger sizes.

But in general, I would say, overall, I think it's now time to harvest what we did in the last 3 years and to make sure that we are able to saturate our existing capacity. So answering briefly to your question, we don't see the need to add additional capacity in the next 2 years at this stage.

When we talk about offtake, of course, we are reducing the level of offtake. We have indicated that from the strategic point of view, in average, 10% of our total volume will remain in offtake to keep flexibility and to make sure we will be able to get the support of somebody else for product lines that we believe is not strategic to produce internally within the company.

Romania start to contribute to the sales in the Central European market. And that is already ongoing since May, June this year.

And obviously, we can expect that in the future, more than 80% of what we sell in the European market will be supported by our Romanian factories for Central Europe as well as Southern Europe.

The next question comes from Thomas Besson from Kepler Cheuvreux.

I'm sorry for coming back in slot time, but just to come back on the previous question. I just want to make that clear because right now, you're talking about 1 million Romanian capacities, and you said you don't want to increase capacities, but you still aim to have substantially higher production levels in Romania if you plan to be able to supply 80% of your European sales with Romania.

So you mean -- I just want to clarify what you said. You mean you're not going to have to add incremental CapEx, but you're still able to increase the absolute level of production in Romania, 2 million, 3 million, 4 million in the next couple of years, knowing that the investment is behind you, right?

Thank you very much. And you don't need to apologize if there are questions.

So this is really what this section is all about, answering to your question. So we're happy to do it.

We need to distinguish about production and capacity. By the end of this year, we will produce 1 million tires, but we have already capacity to produce up to 3 million tires.

Step by step, we will during 2026, complete this expansion and obviously, adding semifinished product lines more than curing or building machineries. So this is why we say the investment in Romania for the next 3 years will be really limited because we are at the end of the process.

So in total, we will have 6 million pieces capacity already by, let's say, the end of next year, eventually, obviously, we -- this is really how the factory works. So 1 million is the production, but the capacity already by the end of the year will be up to 3 million pieces and up to end of next year up to 6 million pieces, reinforcing areas that are not strictly related to curing and building, but mainly about mixing and semi-finished products.

I hope I replied to your question.

The next question comes from Artem Betsky from SEB.

Yes. Also one follow-up from my end.

And it is relating to PCT profitability. So what we have seen during years '23 and '24 and also beginning of this year is that margins have been extremely volatile on a quarterly basis.

Looking ahead, do you anticipate this type of volatility will be clearly lower? And maybe just coming back to past development, what have been the key reasons in your view that margins have been swinging so much in that segment?

For sure. Thank you for your question.

Clearly, again, we need to look at the history of this company in the last 3 years. So we came out from the storm, and it was difficult to reach stability when we had obviously the necessity to switch and to change completely our production footprint, moving out from Russia quickly and then building our new footprint, reinforcing our factory in Finland as well as in North America and at the same time, building a new greenfield in Romania.

So it was really difficult for the team to manage all this transition. And in some way, we are still managing this transition.

But of course, we see finally good progresses, and we see finally a gradual stabilization of our performance and continuous improvement. So answering to your question, of course, you will see more stability in the development of the margins moving forward because now finally, we can leverage our increased capacity.

We can leverage efficient and efficient manufacturing footprint. And at the same time, we are improving day by day, as I mentioned, already in placing our product in the market and improving pricing capabilities around the company.

I hope this will reply to your question.

There are no more questions at this time. So I hand the conference back to the speakers.

Thank you very much, and looking forward to the next call.

Thank you.