Good afternoon from Helsinki and welcome to Nokian Tyres plc's third quarter results conference call. My name is Päivi Antola, and together with me I have in the call the President and CEO Jukka Moisio and Niko Haavisto, the CFO, and as usual, we have some prepared notes, and then after that we have a Q&A, so Jukka, please go ahead.
Thank you, Päivi. Welcome on my behalf. And indeed we have some prepared notes, and we have a presentation with the page one heading is "Market gains driving sales growth in a weak market and Romanian factory progressing on schedule." And I move to page two, which is then Q3 net sales and segments operating profit increased. That's the heading. So our net sales were 314 million EUR, which is about 14% higher in comparable currencies. We had market gains, which were driven by the improved passenger car tire availability. Geographically, the strongest growth in the quarter were Central Europe and the Nordics. Segments EBITDA at 58.8 million EUR versus 46 million EUR prior year, and margin percentage 18.8% versus 16.7%. Segments operating profit in the quarter at 30.4 million EUR versus 19.6 million EUR a year ago, 9.7% margin.
Main driver for the profitability improvement is higher sales and lower raw material cost.
Also, overall statement of the quarter is that the car and tire market is weak, and it's difficult to estimate market and consumer behavior going forward. I may move to page 3, some of the key figures. First of all, to say that the investment phase is approaching its end, and therefore the net debt in 2024 is peaking. From 2024 onwards, the net debt is expected to go down, and the cash flow is turning positive. We've had a negative, strongly negative cash flow in 2023 and 2024 based on the investment requirements and the build of the Romanian factory, as well as the completion of the Dayton investment. At the same time, having shortage of or weak availability of tires because we lack the production capability. I call out some key numbers on page 3. One is the capital expenditure.
In the quarter, we spent EUR 101 million, mostly in the Romanian factory. Year to date, nine months, EUR 260 million versus EUR 157 million a year ago. Also, net sales after nine months, EUR 875 million versus EUR 805 million. And segments EBITDA at 13.5% versus 12.2% in 2023. Return on capital employed at this moment, 12-month rolling is 4.2%. Equity ratio of 49.6% versus 6.1%, and indeed gearing at 64%. And interest bearing net debt at EUR 800 million. This is the highest number we will see from this moment onwards. This number will go down. And I now hand over to Niko to talk about financial numbers. Niko, please go ahead.
Thank you, Jukka. I will go through the segment numbers. So on page four, in the passenger car tire segment, we had higher sales and improved profitability. And this was driven especially by our Central Europe. And the average selling prices with comparable currencies, however, decreased. Profitability, we improved there due to the higher volumes and lower material costs. I need to point out that in our Q3 numbers, the non-IFRS exclusions included the inventory write-downs of the contract manufacturing. And as we've said earlier in the year, these are the products that came in late, and we wanted to sell these contract manufacturing summer products during the Q3 now. We tried that earlier in the summer, or in the season, didn't manage to do that as they came in late, but did that now in Q3.
In the table there below, you can see the segments operating profit landed at 34.4 million EUR, and with the operating profit percentage of 16.4% compared to last year's 11.1%. On the page five, we have the passenger car tire business spreads. So first, there is the net sales spreads, and there you see the volumes impacted heavily. Then on the price side, price and mix, it was a negative minus 18 million, as well as the currency still had been there minus 2 million EUR on the sales level and landed at 210 million EUR in terms of net sales.
On the operating profit table, there on the low bottom on that page, we see that once again the volume gain on the profit was EUR 26 million, price and mix EUR 18 million, and then the rest netted roughly EUR 8 million, and we landed with EUR 34 million in terms of segments operating profit in Q3. Then a little bit split year- on- year, the Passenger Car Tyres, the quarterly changes, there you see that the sales volume gained 35.4%, so clear increase, and the trend there is what we want to see as well. And then in terms of price and mix, you see there minus 10.5%, but without this exclusion with the write-down, it would be on the level of 3% in terms of price and mix. And that would come mainly from the mix.
Then the currencies, of course, still headwind, but on much more moderate level than in the prior year. On page seven, when we go to our Heavy Tyres segment, there the story continues. The net sales are decreasing, and that's mainly due to the weak OEM market. I think we have visibility, but it doesn't look too promising when we are looking towards the year end. Profitability, I think that is on the level that we can be proud of. The 12.9% is actually better than what we did last year. So this tells that we have the costs in control. And we had the production temporarily adapted during the summer break to meet the demand in the market. And then finally, the last segment, the Vianor, there we see that the sales are at the last year's level or slightly increased compared to last year.
But what we are facing is the negative segments operating profit, and this is mainly due to the inflation, which we've said earlier. And also we are facing quite a weak business-to-business market there. Of course, now when the Q4 comes and really the season kicks in, we believe that we are well positioned there going into the Q4. Then the final, the guidance for this year, we've said that it's unchanged, i.e. that our net sales with the comparable currencies and the segments operating profit are expected to grow significantly compared to last year. And with that, I hand back to Jukka.
Thank you, Niko. Some of the other highlights of the quarter: Romanian factory, first of all, progressing on budget and on schedule. We had the first tire manufactured in July and had a grand opening in September. Production will begin with the manufacture of Central European winter and all-season tires. Also financially, we got EUR 150 million European Investment Bank loan to finance the factory. Also in August, we got the European Commission approval for Romania's state aid to be paid, and that to support the establishment of the factory. As mentioned, this state aid has been approved but hasn't been paid, will be paid progressively step by step in 2025, 2026, and some remaining amounts in 2027 based on the completion of the factory. On page 11, you'll see the aerial photo of the factory, so 100,000 square meters, about 16 football fields.
If you look at the European football field size, about 16 under one roof, and the build-up area consists of a building mixing building on the left-hand side, production building in the middle, including the office on the right-hand side, not the blue one, but the one which is attached to the production building, and then finished goods warehouse. And as mentioned earlier, that this footprint land area allows tripling the size of the factory in the future years. So the original investment is up to six million tires, but you can triple that size in coming years if the investment decisions are being made. On page 12, Romanian factory about benchmarking sustainability. So it's going to be CO2 emission-free. That means that all electricity used at the factory is CO2 emission-free.
Part of the electricity will be generated by on-site solar power units, and the rest will be sourced without CO2 emissions. We have innovative electric boilers, which will then use the CO2 emission-free electricity to generate steam for curing. Energy efficiency, obviously, the tire manufacturing process is very energy efficient and using the most modern technology and the machinery. On page 13, just to remind that the birthday product of 2024 is a winter tire, so it celebrates 90-year anniversary. That's our innovation a long time ago, still a very strong product. As the winter season is coming, just reminding everybody that the world's first winter tire was invented in 1934. Even today with Hakkapeliitta 10 and Hakkapeliitta R5, number 10 being a studded tire, R5 being a non-studded tire, they are in the podium places in several magazine tests, performing extremely well in winter conditions.
That will remain also in the future, that the key of our innovation will be to make sure that we have tires made for demanding conditions. Also in the quarter, Paolo Pompei, who was appointed the President and CEO of Nokian Tyres, and he will start in January 1st, 2025. Finalize the presentation prepared comments with our purpose. We want to make the world safer by reinventing tires and how they are made over and over again. With that, I hand over back to Päivi. Päivi, please go ahead.
Thank you, Jukka. Thank you, Niko. Before we go to the questions from the audience, I would actually have two questions for you, Jukka. So we have a new president and CEO starting in January, but you will continue until that.
That is correct. So I will continue until the end of December and then hand over to Paolo. And we have, of course, overlapping transitions during the month of November and December, so that Paolo will be full speed when he starts in January. And obviously, those take place in the budget meetings and various other management team meetings, so that indeed it's not so that I leave and he comes, but we overlap at this moment and in coming weeks and also month of December.
Very good. And another very important question, do you already have winter tires in your car?
I have actually in my wife's car. We have studded tires, Hakkapeliitta 10, and tomorrow I will change to my car, Hakkapeliitta 10 winter tires. I am a true believer of studded tires. I know, Päivi, that you are a true believer of friction tires, and I know that people are varying between these beliefs, that some people like friction tires, other people like studded tires, and really depends where you drive and how you drive. I go a lot to countryside, and so therefore I rely on studded tires, but I know that you are a city person and you have friction tires.
That is correct. Now, once we have discussed these two very important questions, we would be ready for the questions from the audience, please.
If you wish to ask a question, please dial #5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial #6 on your telephone keypad. The next question comes from Akshat Kacker from J.P. Morgan. Please go ahead.
Thank you for taking my question. Two from my side, please. The first one on the Passenger Car Tyres bridge. Could you just explain what drives the supply chain improvement year- over- year, the 8 million that we see in that bucket? And also on the bridge, if you could talk about your assumptions for raw material costs as we think about the next two quarters, that would be helpful. The second question is mainly on working capital. Yes, there's a seasonal pickup in the cash drag on the business in the first nine months, but I noticed that the receivables look much higher than what they are usually. So could you talk about your expectations for working capital improvement in the fourth quarter, and how should we think about that for the full year as well? And the last one is on the ramp-up in Romania.
Could you just talk about your expectations for volumes coming out of that plant for 2025 as of today, please? Thank you.
Okay. Yeah, this is Niko. So if I start from the raw material, so we've said that we see that they are moderating the prices. Of course, there's a lot of fluctuation as we speak, and as most of you know, that they are really dependent on the oil price, so there is a big correlation. Going into next year, I think the EUDR and the kind of the certified natural rubber will have an increase in the raw material prices, but at this point, we see that that's quite moderate. Then in terms of the net working capital, yeah, you are correct that there were increases there, and the receivables are on the high side.
Of course, much of our sales also were tilted towards the end of the quarter, so in that sense, that increased as well. And in Q4, as you know as well, that we are getting most of the accounts receivables paid in the month of December. And as Jukka said in his presentation, that net debt is at its peak as we came out from the Q3. So in terms of cash flow, we feel that we are well. It's in good hands also going forward. Then you had the question about the supply chain, so Jukka, will you take that?
Yeah, that was the Romania factory. And what do we expect in 2025? So obviously, we've said that we start the commercial production in 2025. We start with the winter and all-season tires.
We expect that the volumes are, if the installed capacity at this moment is about 3 million tires, and we keep on investing new equipment throughout or installing new equipment throughout 2025, we will then ramp up towards halfway, more than halfway in 2025, and then of the currently installed, and then continue in 2026 with the new installations that we do during the course of 2025. Progressively, step by step, we ramp up. To give an exact number is difficult, but then obviously, ambitions are that as the equipment are being installed, we ramp up them as they come on stream.
Thank you so much. One quick follow-up from the end of the stage. Could you just explain the EUR 8 million positive on the profit range that comes from the supply chain on a year-over-year basis?
Yeah, there we have quite a few positive things. One is, of course, that we've been able to lower the kind of external warehouses that we have been heavily involved with, especially now that we have the finished goods warehouse in our Dayton factory as well, and we see the full impact going towards the year-end. I think that's the main or those are the main drivers there.
Thank you. Maybe just.
The next question comes from Artem Beletski from SEB. Please go ahead.
Yes, hi. First of all, I would like to wish you all the best, Jukka. Years at Nokian Tyres have been definitely pretty challenging with first COVID and then war in Ukraine, but you navigated well through these exceptional conditions and the repositioning of the company. But maybe then going to a couple of questions, what I had on my mind. So first one is, in general, what comes to winter tire season, could you maybe provide some comments how it actually has started what comes to Europe and also North America? And then maybe one question relating to the guidance, which was kept unchanged. There has been some expectations that maybe it could be detailed. Could you provide some parameters what comes to, for example, Q4? What should we expect in terms of PCT volume growth? How do you see the outlook?
Is, for example, Q3 a good proxy for it? And maybe some commentary in terms of price mix development. Thank you.
So first of all, thank you, Artem. Thank you for your kind words and so on. We obviously have been through a difficult time and demanding time for Nokian Tyres. We have repositioned, and not me, it's the team. I have to say that the resilience of the team has been remarkable, given that we faced some unusual times, not only us, but many other companies having been active in Russia and facing the situation that happened in 2022. However, we are now in front of something new because things are going well and new things are happening in terms of innovation and capability and so on. Let's go to the situation of the winter tires. So obviously, we see a winter tire season about to start.
You look outside and you see the sun is shining. However, the forecast is that things will change. We see a relatively good momentum in winter tires in Nordics. We see a good momentum in North America, especially in Canada. The US is more weather-related, and you see that it's quite warm in the North American side. We had good pre-orders for the season, but of course, the season to materialize required that all those pre-orders to materialize. We need that the season starts and the weather changes. But when going into the season, it looked quite strong in terms of pre-orders.
What can we expect in terms of volume development compared to Q3? Perhaps you see somewhere between Q2, Q3 type of a volume development, maybe not as strong as in Q3, but nevertheless a progress in terms of where we are going.
And this is in line with our ambition for 2024, when we said that with better availability, with more tires, we aim to gain market share. And this is what we have been doing, and we try to continue to do that till the end of the year. Guidance is that we continue with the significant top-line improvement expectation as well as significant segment operating profit improvement expectation.
All right. Excellent. Thank you, Jukka. And all the best. Thank you.
The next question comes from Miika from DNB Markets. Please go ahead.
Yes, a couple from my side, so first, in America, you delivered flat year-over-year growth, which should imply that there is some fixed cost under absorption as you have increased your capacity there recently. At the same time, you had this overall positive supply chain impact in the passenger car tire EBIT bridge, so I'm just wondering what explains this. You mentioned the positives, but can you explain, did you actually experience a lot of cost under absorption in North America due to this, and you could perhaps a little bit give color on the North American replacement and your expectations?
Yeah, if I start with North America. So there, yeah, it's true that our volumes are picking up in terms of the own production. At the same time, though, I need to say that, as I think we've discussed in these calls as well, that it seems that consumers are moving towards the kind of the Tier 3 and 4 brands as well. So that's clearly seen in the market environment. And also kind of the pricing element that has been there is a thing that we need to be really careful, i.e., that we are able to keep the prices going forward in the North America market as well.
Having said that, you asked about the volume development and so on, but every week we see an improvement in Dayton volume. So the latest week was the highest ever volume.
So of course, the progress happens, but we still have a lot of work to be done in order to make sure that the throughput gets to a level where we want it to be, as well as the efficiency and all that. This work is very much going on, so we have all the focus on that work. But no new investments are needed or anything like that. So it's more work on a daily basis to improve the efficiency, throughput, and so on. But so far, so good. Things are going forward.
Thank you. And then just follow up on the raw material cost. So I kind of read from Q2 that you expected the raw material cost to turn into headwind during the H2. However, now we saw that you benefited actually from lower raw material costs. At the same time, you removed the cost outlook assumption. So how should we read into this? You mentioned that there should be a modest increase into next year, but how about on the underlying costs for passenger car tire, especially?
For the rest of the year, I think it's quite moderate, that what we see there, and in terms of this year's kind of the profitability, what I'm seeing more and discussing now is 2025 and what we see there in terms of raw material. Yet I need to say at the same time that, of course, we are hedging part of the raw material purchases, but it's fluctuating a lot at this point.
So how should we think about that passenger car tire margin into Q4 now at sort of a stronger level, much stronger level year on year? But should we think that there are now some temporary benefits that won't support you in Q4?
We expect that the mix should be quite favorable in Q4, and therefore the margin should be at a good level. But obviously, the raw material has a slight impact, either depending really on oil prices and the shorter fluctuations. But mixed-wise, we expect that the Q4 is quite beneficial to us.
Okay, that's all from my side. Thank you so much, and all the best.
The next question comes from Thomas Besson from Kepler Cheuvreux. Please go ahead.
Good afternoon, it's Thomas at Kepler Cheuvreux. I have three questions as well, please. Firstly, on contract manufacturing, I'd just like to clarify completely what you've said. Could you confirm exactly how much has been written down? I think it's EUR 10-15 million. And just tell us exactly what happened, who was the supplier when the products arrived, if some of them can be sold or not, and whether contract manufacturing is still part of the plan while your Romanian plant warms up. That's question one. Question two is a lot easier. North American volumes, can you just remind us how much of what you sell in the US is built in the US and how much is imported from Europe?
And lastly, debt may be peaking, but it's quite high, EUR 800 million. Can you remind us your available liquidity and your 2025 CapEx plan, please? Thank you very much.
Jukka, best wishes as well for the next part of your life.
Okay, I'll start with the liquidity so we have the 300 million RCF, the revolving credit facilities untapped so that is available, the EUR 300 million in terms of cash available on top of what we have in the bank accounts then on the breakdown of the inventory so that was roughly EUR 11 million that related directly to the inventory breakdown, and that was due to the Red Sea crisis and for the product, summer product arriving more or less after the summer and Jukka, you'll take the North America question.
Yeah, so the North America, it's pretty much the same mix so we sell studded winter tires, friction tires out of Nokia to North America, so predominantly Canada, northern part of the US. All the rest in the market, all season, all weather, light truck, etc., is made in Dayton and sold in North America.
There are no products made in Dayton that come to Europe.
Yeah, thank you. Can I follow up, Niko, with the 2025 CapEx plan, please?
Can you repeat your final question?
Yes. What is your estimated 2025 CapEx at this plan?
Yeah, I don't think we haven't disclosed that yet, but my understanding at this moment is roughly EUR 200 million.
Okay.
It's going to be significantly down because essentially it's new equipment that are TBMs, so tire-building machines and similar in Oradea. And those are the commitments that we made when we built the factory. But beyond that, the capital outlay is relatively modest. Yes.
Great. Thank you, both of you. And again, best wishes, Jukka.
Thank you, Thomas.
The next question comes from Mika Karppinen from Danske Bank. Please go ahead.
Yeah, hi. This is Mika from Danske. You sold quite a lot of summer tires during Q3 compared to sort of the typical Q3 quarter. So could you elaborate a bit to sort of inventory level development and distribution, especially in Central Europe, ahead of the sort of next season in 2025?
Our understanding is right now that when we look at the inventory levels, whether it's about winter tires or all season and so on, that they are becoming normalized. So obviously now, just ahead of the winter season, which is about to happen, so the winter tire inventories are higher, but otherwise they are approaching the normalization. This is our understanding at this moment. Obviously, if you look at the overall demand in Europe compared to the years prior to the Ukraine war or COVID, then we are still below in terms of overall demand. But inventories are normalizing.
Also in summer tires?
Also in summer tires.
Okay. Good. Thank you and good luck going forward.
Thank you.
As a reminder, if you wish to ask a question, please dial #5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers.
If there are no additional questions, then it's time to finish the call. Thank you all for participating and joining. And thank you, Niko. Thank you, Jukka.
Thank you, Päivi. All the best.
Thank you.
Thank you.
Bye. Bye-bye.
Good afternoon from Helsinki and welcome to Nokian Tyres' third quarter result conference call. My name is Päivi Antola, and together with me, I have in the call the President and CEO, Jukka Moisio, and Niko Haavisto, the CFO. And as usual, we have some prepared notes, and then after that, we'll have a Q&A. So Jukka, please go ahead.
Thank you, Päivi. And welcome on my behalf. And indeed, we have some prepared notes, and we have a presentation with the page one heading is "Market gains driving sales growth in a weak market and Romanian factory progressing on schedule." And I move to page two, which is then Q3 net sales and segments operating profit increased. That's the heading. So our net sales were EUR 314 million, which is about 14% higher in comparable currencies.
We had market share gains, which were driven by the improved passenger car tire availability. Geographically, the strongest growth in the quarter of Central Europe and the Nordics. Segments EBITDA at EUR 58.8 million versus EUR 46 million the prior year, and margin percentage 18.8% versus 16.7%. Segments operating profit in the quarter at EUR 30.4 million versus EUR 19.6 million a year ago, 9.7% margin. Main driver for the profitability improvement is higher sales and lower raw material cost. Also, overall statement of the quarter is that current tire market is weak, and it's difficult to estimate market and consumer behavior going forward. I may move to page three, some of the key figures, and first of all, to say that the investment phase is approaching its end, and therefore the net debt in 2024 is peaking.
From 2024 onwards, the net debt is expected to go down, and the cash flow is turning positive. We've had a negative, strongly negative cash flow in 2023 and 2024 based on the investment requirements and the build of the Romanian factory, as well as the completion of Dayton investment. And at the same time, having shortage of or weak availability of tires because we lack the production capability. I call out some key numbers on page three. One is the capital expenditure. So in the quarter, we spent EUR 101 million, mostly in the Romanian factory. And year to date, nine months, EUR 260 million versus EUR 157 million a year ago. Also, net sales after nine months, EUR 875 million versus EUR 805 million. And gross margins have been at 13.5% versus 12.2% in 2023. Return on capital employed at this moment, 12-month rolling , is 4.2%.
Equity ratio of 49.6% versus 6.1%, and indeed, gearing at 64%. And interest-bearing net debt at EUR 800 million. This is the highest number we will see from this moment onwards. This number will go down. And I now hand over to Niko to talk about financial numbers. Niko, please go ahead.
Thank you, Jukka. I will go through the segment numbers, so on page four, in the passenger car tire segment, we had higher sales and improved profitability, and this was driven especially by our Central Europe. And the average selling prices with comparable currencies, however, decreased. Profitability, we improved there due to the higher volumes and lower material costs. I need to point out that in our Q3 numbers, the non-IFRS exclusions included the inventory write-downs of the contract manufacturing, and as we've said earlier in the year, these are the products that came in late, and we wanted to sell these contract manufacturing summer products during the Q3 now. We tried that earlier in the summer, or in the season, didn't manage to do that as they came in late, but did that now in Q3.
In the table there below, you can see the segments operating profit landed at 34.4 million EUR, and with the operating profit percentage of 16.4% compared to last year's 11.1%. On page five, we have the passenger car tire business split. So first, there is the net sales split, and there you see the volumes impacted heavily. Then on the price side, price and mix, it was a negative minus 18 million EUR, as well as the currency still had been there minus 2 million EUR on the sales level and landed at 210 million EUR in terms of net sales.
On the operating profit table, there on the lower bottom on that page, we see that once again, the volume gain on the profit was EUR 26 million, price and mix EUR 18 million, and then the rest netted roughly EUR 8 million, and we landed with EUR 34 million in terms of segments operating profit in Q3. Then a little bit split year- on- year, the passenger car tire still, the quarterly changes, there you see that the sales volume gained 35.4%, so clear increase, and the trend there is what we want to see as well. And then in terms of price and mix, you see there minus 10.5%, but without this exclusion with the write-down, it would be on the level of 3% in terms of price and mix. And that would come mainly from the mix.
Then the currencies, of course, still headwind, but on a much more moderate level than in the prior year. On page seven, when we go to our Heavy Tyres segment, there the story continues. The net sales are decreasing, and that's mainly due to the weak OEM market. I think we have visibility, but it doesn't look too promising when we are looking towards the year end. Profitability, I think that is on the level that we can be proud of. The 12.9% is actually better than what we did last year. So this tells that we have the costs in control. And we had the production temporarily adapted during the summer break to meet the demand in the market. And then finally, the last segment, the Vianor, there we see that the sales are at the last year's level or slightly increased compared to last year.
But what we are facing is the negative segments operating profit, and this is mainly due to the inflation, which we've said earlier. And also, we are facing quite a weak business-to-business market there. Of course, now when the Q4 comes and really the season kicks in, we believe that we are well positioned there going into the Q4. Then the final guidance for this year, we've said that it's unchanged, i.e., that our net sales with the comparable currencies and the segments operating profit are expected to grow significantly compared to last year. And with that, I hand back to Jukka.
Thank you, Niko. Some of the other highlights of the quarter. Romania factory, first of all, progressing on budget and on schedule. We had the first tire manufactured in July and had a grand opening in September. Production will begin with the manufacture of Central European winter and all-season tires. Also, financially, we got EUR 150 million European Investment Bank loan to finance the factory. Also in August, we got the European Commission approval for Romania's state aid measure to be paid, and that to support the establishment of the factory. As mentioned, this state aid has been approved but hasn't been paid, will be paid progressively step by step in 2025, 2026, and some remaining amounts in 2027 based on the completion of the factory. On page 11, you see the aerial photo of the factory, so 100,000 square meters, about 16 football fields.
If you look at the European football field size, about 16 under one roof. The build-up area consists of a building mixing building on the left-hand side, production building in the middle, including the office on the right-hand side, not the blue one, but the one which is attached to the production building, and then a good warehouse. As mentioned earlier, that this footprint land area allows tripling the size of the factory in the future years. The original investment is up to six million tires, but you can triple that size in coming years if investment decisions are being made. On page 12, Romania factory about benchmarking sustainability. It's going to be CO2 emission-free. That means that all electricity used at the factory is CO2 emission-free.
Part of the electricity will be generated by on-site solar power units, and the rest will be sourced without CO2 emissions. We have innovative electric boilers, which will then use the CO2 emission-free electricity to generate steam for curing. Energy efficiency, obviously. The tire manufacturing process is very energy efficient, and using the most modern technology and the machinery. On page 13, just to remind that the birthday product of 2024 is a winter tire, so it celebrates 90-year anniversary. So that's our innovation a long time ago, still a very strong product. And as the winter season is coming, just reminding everybody that the world's first winter tire was invented in 1934. And even today, with Hakkapeliitta 10 and Hakkapeliitta R5, number 10 being a studded tire, R5 being a non-studded tire, they are in the podium places in several magazine tests, performing extremely well in winter conditions.
And that will remain also in the future, that the key of our innovation will be to make sure that we have tires made for demanding conditions. Also in the quarter, Paolo Pompei was appointed the President and CEO of Nokian Tyres, and he will start on January 1, 2025. And finalize the presentation prepared comments with our purpose. We want to make the world safer by reinventing tires and how they are made over and over again. And with that, I hand over back to Päivi. Päivi, please go ahead.
Thank you, Jukka. Thank you, Niko. Before we go to the questions from the audience, I would actually have two questions for you, Jukka. So we have a new President and CEO starting in January, but you will continue until that.
That is correct. So I will continue until the end of December, and then hand over to Paolo. And we have, of course, overlapping transitions during the month of November and December, so that Paolo will be full speed when he starts in January. And obviously, those take place in the budget meetings and various other management team meetings, so that indeed, it's not so that I leave and he comes, but we overlap at this moment and in coming weeks, and also month of December.
Very good. Another very important question. Do you already have winter tires in your car?
I actually have in my wife's car. We have studded tires, Hakkapeliitta 10, and tomorrow I will change to my car, Hakkapeliitta 10 winter tires. I am a true believer of studded tires. I know, Päivi, that you are a true believer of friction tires, and I know that people are varying between these beliefs, that some people like friction tires, other people like studded tires, and really depends where you drive and how you drive. I go a lot to countryside, and so therefore I rely on studded tires, but I know that you are a city person and you have friction tires.
That is correct. Now, once we have discussed these two very important questions, we would be ready for the questions from the audience, please.
If you wish to ask a question, please dial #5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial #6 on your telephone keypad. The next question comes from Akshat Kacker from J.P. Morgan. Please go ahead.
Thank you for taking my question. Three from my side, please. The first one on the passenger car profit bridge. Could you just explain what drives the supply chain improvement year- over- year, the 8 million EUR that we see in that bucket? And also on the bridge, if you could talk about your assumptions for raw material costs as we think about the next two quarters, that would be helpful. The second question is mainly on working capital. Yes, there's a seasonal pickup in the cash drag on the business in the first nine months, but I noticed that the receivables look much higher than what they are usually. So could you talk about your expectations for working capital improvement in the fourth quarter, and how should we think about that for the full year as well? And the last one is on the ramp-up in Romania.
Could you just talk about your expectations for volumes coming out of that plant for 2025 as of today, please? Thank you.
Okay. Yeah, this is Niko. So if I start from the raw material, so we've said that we see that they are moderating the prices. Of course, there's a lot of fluctuation as we speak, and as most of you know, that they are really dependent on the oil price, so there is a big correlation. Going into next year, I think the EUDR and the kind of the certified natural rubber will have an increase in the raw material prices, but at this point, we see that that's quite moderate. Then in terms of the net working capital, yeah, you are correct that there were increases there, and the receivables are on the high side. Of course, much of our sales also were tilted towards the end of the quarter, so in that sense, that increased as well.
And in Q4, as you know as well, that we are getting most of the accounts receivables paid in the month of December. And as Jukka said in his presentation, that net debt is at its peak as we came out from the Q3. So in terms of cash flow, we feel that we are well. It's in good hands also going forward. Then you had the question about the supply chain, so Jukka, will you take that?
Yeah, that was the Romania factory, and what do we expect in 2025? So obviously, we've said that we start the commercial production in 2025. We start with the winter and all-season tires.
We expect that the volumes are, if the installed capacity at this moment is about 3 million tires, and we keep on investing new equipment throughout, or installing new equipment throughout 2025, we will then ramp up towards halfway, more than halfway in 2025, and then of the currently installed, and then continue in 2026 with the new installations that we do during the course of 2025. And progressively, step by step, we ramp up. So to give an exact number is difficult, but then obviously, ambitions are that as the equipment are being installed, we ramp up them as they come on stream.
Thank you so much. One quick follow-up from me, I missed it. Could you just explain the EUR 8 million positive on the profit bridge that comes from the supply chain on a year-on-year basis?
Yeah, there we have quite a few positive things. One is, of course, that we've been able to lower the kind of the external warehouses that we have been heavily involved with, especially now that we have the finished goods warehouse in our Dayton factory as well, and we see the full impact going towards the year-end. I think that's the main, those are the main drivers there.
Thank you.
Maybe just.
The next question comes from Artem Beletski from SEB. Please go ahead.
Yes, hi. First of all, I would like to wish you all the best, Jukka. Years at Nokian Tyres have been definitely pretty challenging with first COVID and then war in Ukraine, but you navigated well through these exceptional conditions and the repositioning of the company. But maybe then go into a couple of questions, what I had on my mind. So first one is, in general, what comes to winter tire season, could you maybe provide some comments how it actually has started what comes to Europe and also North America? And then maybe one question relating to the guidance, which was kept unchanged. There has been some expectations that maybe it could be detailed. Could you provide some parameters what comes to, for example, Q4? What should we expect in terms of PCT volume growth? How do you see the outlook?
Is, for example, Q3 a good proxy for it? And maybe some commentary in terms of price development. Thank you.
So first of all, thank you, Artem. Thank you for your kind words and so on. We obviously have been through a difficult time and demanding time for Nokian Tyres. We have repositioned, and not me, it's a team, and I have to say that the resilience of the team has been remarkable given that we faced some unusual times, not only us, but many other companies having been active in Russia and facing the situation that happened in 2022. However, we are now in front of something new because things are going well and new things are happening in terms of innovation and capability and so on. But let's go to the situation of the winter tires. So obviously, we see a winter tire season about to start.
You look outside and you see the sun is shining. However, the forecast is that things will change. We see a relatively good momentum in winter tires in Nordics. We see a good momentum in North America, especially in Canada. The U.S. is more weather-related, and you see that it's quite warm in the North American side. We had good pre-orders for the season, but of course, the season to materialize requires that all those pre-orders to materialize. We need that the season starts and the weather changes. But when going into the season, it looked quite strong in terms of pre-orders. What can we expect in terms of volume development compared to Q3? Perhaps you see somewhere between Q2, Q3 type of a volume development, maybe not as strong as in Q3, but nevertheless, a progress in terms of where we are going.
And this is in line with our ambition for 2024 when we said that with better availability, with more tires, we aim to gain market share, and this is what we have been doing, and we try to continue to do that till the end of the year. Guidance is that we continue with the significant top-line improvement expectation as well as significant segment operating profit improvement expectation. All right.
Excellent. Thank you, Jukka. And all the best.
Thank you.
The next question comes from Miika from DNB Markets. Please go ahead.
Yes, a couple from my side. So first, in America, you delivered flat year-over-year growth, which should imply that there is some fixed cost under absorption as you have increased your capacity there recently. At the same time, you had this overall positive supply chain impact in the passenger car tire EBIT bridge. So I'm just wondering what explains this. You mentioned the positives, but can you explain, did you actually experience a lot of cost under absorption in North America due to this, and you could perhaps a little bit give color on the North American replacement and your expectations.
Yeah, if I start with North America. So there, yeah, it's true that our volumes are picking up in terms of the own production. At the same time, though, I need to say that, as I think we've discussed in these calls as well, that it seems that consumers are moving towards the kind of the tier three and four brands as well. So that's clearly seen in the market environment. And also kind of the pricing element that has been there is a thing that we need to be really careful, i.e., that we are able to keep the prices going forward in the North America market as well.
Having said that, you asked about the volume development and so on, but every week we see an improvement in Dayton volume. So the latest week was the highest ever volume. So of course, the progress happens, but we still have a lot of work to be done in order to make sure that the throughput gets to a level where we want it to be, as well as the efficiency and all that. This work is very much going on, so we have all the focus on that work. But no new investments are needed or anything like that. So it's more work on a daily basis to improve the efficiency, throughput, and so on. But so far, so good. Things are going forward.
Thank you. And then just follow up on the raw material cost.
So, I kind of read from Q2 that you expected the raw material cost to turn into headwind during the H2. However, now we saw that you benefited actually from lower raw material costs. At the same time, you removed the cost outlook assumption. So how should we read into this? You mentioned that there should be modest increase into next year, but how about on the underlying costs for passenger car tire especially?
For the rest of the year, I think it's quite moderate that what we see there, and in terms of this year's kind of the profitability, what I'm seeing more and discussing now is 2025 and what we see there in terms of raw material. Yet I need to say at the same time that, of course, we are hedging part of the raw material purchases, but it's fluctuating a lot at this point.
So how should we think about that Passenger Car Tires margin going into Q4 now at sort of a stronger level, much stronger level year- on- year? But should we think that there are now some temporary benefits that won't support you in Q4?
We expect that the mix should be quite favorable in Q4, and therefore the margin should be at a good level. But obviously, the raw material has a slight impact, it depending really on oil prices and the shorter fluctuations. But mix-wise, we expect that the Q4 is quite beneficial to us.
Okay, that's all from my side. Thank you so much, and all the best.
The next question comes from Thomas Besson from Kepler Cheuvreux. Please go ahead.
Good afternoon, it's Thomas at Kepler Cheuvreux. I have three questions as well, please. Firstly, on contract manufacturing, I'd just like to clarify completely what you've said. Could you confirm exactly how much has been written down? I think it's EUR 10-15 million. And just tell us exactly what happened, who was the supplier when the products arrived, if some of them can be sold or not, and whether contract manufacturing is still part of the plan while your Romanian plant warms up. That's question one. Question two is a lot easier. North American volumes, can you just remind us how much of what you sell in the U.S. is built in the U.S. and how much is imported from Europe?
And lastly, debt may be peaking, but it's quite high, EUR 800 million. Can you remind us your available liquidity and your 2025 CapEx plan, please? Thank you very much.
Jukka, best wishes as well for the next part of your life.
Okay, I'll start with the liquidity. We have the EUR 300 million RCF, the revolving credit facilities untapped. That is available, the EUR 300 million in terms of cash available on top of what we have in the bank accounts. On the breakdown of the inventory, that was roughly EUR 11 million that related directly to the inventory breakdown, and that was due to the Red Sea crisis and for the product, summer products arriving more or less after the summer. Jukka, you'll take the North America question.
Yeah, so North America, it's pretty much the same mix. So we sell studded winter tires, friction tires out of Nokia to North America, so predominantly Canada, northern part of the U.S. All the rest in the market, all season, all weather, light truck, etc., is made in Dayton and sold in North America. And there are no products made in Dayton that come to Europe.
Yeah, thank you. Can I follow up, Niko, with the 2025 CapEx plan, please?
Can you repeat your final question?
Yes. What is your estimated 2025 CapEx at this plan?
Yeah, I don't think we haven't disclosed that yet, but my understanding at this moment is roughly EUR 200 million.
Okay. So that means significantly down because essentially it's new equipment that are TBMs, so tire-building machines and similar in Oradea. And those are the commitments that we made when we built the factory. But beyond that, the capital outlay is relatively modest. Yes.
Great. Thank you, both of you. And again, best wishes, Jukka.
Thank you, Thomas.
The next question comes from Mika Karppinen from Danske Bank. Please go ahead.
Yeah, hi, this is Mika from Danske. You sold quite a lot of summer tires during Q3 compared to sort of the typical Q3 quarter. So could you elaborate a bit to sort of inventory level development and distribution, especially in Central Europe, ahead of next season in 2025?
Our understanding is right now that when we look at the inventory levels, whether it's about winter tires or all season and so on, that they are becoming normalized. So obviously now, just ahead of the winter season, which is about to happen, so the winter tire inventories are higher, but otherwise they are approaching the normalization. This is our understanding at this moment. Obviously, if you look at the overall demand in Europe compared to the years prior to Ukraine war or COVID, then we are still below in terms of overall demand. But inventories are normalizing.
Also in summer tires?
Also in summer tires.
Okay, good. Thank you. And good luck going forward.
Thank you.
As a reminder, if you wish to ask a question, please dial #5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers.
If there are no additional questions, then it's time to finish the call. Thank you all for participating and joining. And thank you, Niko. Thank you, Jukka.
Thank you, Päivi. All the best.
Thank you.
Thank you.
Bye.
Bye-bye.