Good afternoon from Helsinki, welcome to Nokian Tyres Q3 2020 Results Conference Call. My name is Päivi Antola, and I am the Head of Investor Relations in Nokian Tyres. Together with me in this call, I have Jukka Moisio, the President and CEO of the company, and Teemu Kangas-Kärki, the CFO. Jukka, you have now been some five months the CEO of Nokian Tyres. What are your key impressions so far?
Thank you, Päivi, for the question. First of all, on my behalf, also welcome to this results call. What are my feelings or thoughts right now? I would say that we are very much on track on doing things that we set out to do. First of all, to try to sell more tires and focus on that, and also launch new products because that is the lifeline of the company and allows then the future volumes and better price points. At times like these, when COVID is still around and hasn't disappeared, it's really important that we have been focusing on cost and cash flow. I think that the important continued focus in that area will help us also in the fourth quarter and early into 2021.
My summary is that we are very much on track on doing things and executing the actions that we set out to do.
Very good. Let's move on to Q3, as usual, start with the presentation, what we have prepared, continue with the Q&A. Jukka, please go ahead.
Okay. Yeah. Thank you, Päivi. I move to page two on our presentation and just reflect on the sales development. Our net sales at slightly below EUR 350 million, somewhat behind 2019 third quarter, but if you take comparable currencies, we are about 3.3% ahead of prior year. Obviously, the market developed - 2% in the third quarter in Europe. When we went into the quarter, we didn't quite expect that our revenues and net sales would develop so favorably. In fact, when we thought about the second half in the connection of the second quarter results announcement, we were expecting that the volumes and the revenues will not recover to a level that we achieved in 2019 in the second half. Even though we had a very strong quarter in the third quarter, we are still quite cautious about the full second half.
The season hasn't really started yet, so obviously there are a number of uncertainties in the air in terms of what to expect from the fourth quarter. Having said that, we are pleased on the second quarter performance. Passenger Car Tyres growth was driven by North America, Central Europe, and we had a relatively good performance in all business units in this volatile environment. Also in the third quarter, what was helping our net sales development was that some of the sales that we had in 2019 in the second quarter shifted into third quarter in 2020. There's some tailwind in the third quarter, which came from the second quarter of 2020. Operating profit at EUR 69.3 million, segments operating profit versus EUR 74.9 million, slightly behind in 2019 performance.
Obviously, we had some help from the raw materials, clearly a strong manufacturing performance, cost-cutting helped our cost side. Currencies were providing some headwind and also the weak volumes in Russia. Also of the quarter, the board decided the payment of a second dividend installment of EUR 0.35 per share. If I move to page three, there is a summary of our financial performance. Things to point out from here is that cash flow from operating activities was a positive EUR 7.1 million versus EUR 89 million negative in 2019. Also main reason to achieve that, you see below capital expenditure in the quarter, EUR 31 million versus EUR 88 million in 2019. Very good development of segments operating profit under the circumstances at 19.8% in the quarter versus 21.1% in 2019. Top-line advancement in the third quarter, 3.3% in constant currencies.
As I said, just to want to reiterate that when we went into the second half of the year, we didn't quite expect that the volumes would recover so strongly. Still of the opinion that when we look at the fourth quarter, there are lots of uncertainties in the air. Therefore, we are of the opinion that the second half is unlikely to be stronger than previous year. Obviously, still the final quarter is ahead of us. Uncertainty is there, and we will see what we can do, but obviously aim for the best possible performance. From our point of view, of course, the key to achieve results and the performance right now is to focus on cost. Surely we sell as many tires and want to sell as many tires as possible, and we focus on the revenue plan.
Working capital cash flow is something that is very important in this year. This is essentially the summary of financials, and now I hand over to Teemu. I have still, sorry, the page number four, there we have a little bit of the statistics in terms of new car sales, car tire sell-in and heavy tire segments. As you look at through the various geographic areas, it is, in the first nine months of 2020, a negative development. As I mentioned, the car tire sales in the third quarter was -2% in volume versus 2019, and car progress was 3.3%. That's in summary, the financial and the market. I hand over to Teemu to talk about the business segments. Go ahead, Teemu.
Thank you, Jukka. Starting with the Passenger Car Tyres as usual, looking our comparable net sales. The net sales increased close to 5% in the third quarter on comparable currencies, as said, strong performance in North America, Central Europe, and also in the Nordics. In Russia, the net sales declined as planned because of the measures reducing the carryover stocks in the distribution channels. Now the stock level in the distribution in Russia has decreased, and we are expecting that to continue to decrease in the fourth quarter this year. Moving to our segment operating profit. We were on a level of EUR 72 million, a couple of millions behind last year period. There, Russia is the main driver. That on top of the negative currency impact, the lower raw material unit cost was partly offsetting the negative headwind.
In terms of our production in Russia, September was a record high production volume, so we start to reach the normalized level in our Russian factory. Still in Finland, we have adjusted the production according to the demand still in the third quarter. Moving to the net sales quarterly changes, and if we focus to the price mix development. In the third quarter, our price mix was negative about - 0.3%. There we had a favorable mix effect, and then our price effect was negative, and then the aggregate number is then slightly below last year in the price mix component. Currency in the third quarter had a major effect. As we all know, for example, the Russian ruble is significantly weaker.
On top of that, other currencies in the third quarter are weaker, like Norwegian krone, USD, as well as Canadian dollar. Moving to the Passenger Car Tyres mix impact on the segment operating profit. Here you can see the biggest two components in terms of absolute euros. Material tailwind contributing about EUR 11 million to the third quarter result positively, the same amount we lost in the currency headwind. All in all, PCT of segment operating profit, EUR 4 million down compared to the period last year. Moving to the Heavy Tyres business unit. In the third quarter, the comparable net sales development was - 2%. There the OEM sales, meaning the forestry, was clearly down, as we all know how that industry has been developing in the recent months.
The positive side in the Heavy Tyres in the third quarter was the good truck tire sales. Now when we are heading to the winter season, that then offset the negative development in the forestry and agri side. The segment operating profit in the third quarter was almost on the same level than previous year's quarter on a level of EUR 8 million. Our third business unit, Vianor, we had a good performance in a typically low season as we all remember the seasonality of our business there. Net sales was slightly down on a level of EUR 67 million and in percentages, about 1% on a comparable currencies. Nevertheless, the segment operating loss was smaller than in third quarter 2019 on a level of EUR -3 million.
There we have been able to adjust our seasonal workers in a good way in order to offset the declining top line. As a reminder, we divested in U.S. our small Vianor network with 10 service centers that was completed in August, and we now continue to sell the tires in the same service centers, but we are not operating those by ourself. That was in brief the three business units in the third quarter.
Thank you, Teemu. I move to our final page to summarize our priorities. Page 10. Clearly, it's important that we keep on launching and developing new products, and we have a very strong pipeline. Every month and in coming quarters, we hope to introduce new products and launch them successfully. At the same time, it's important we focus on the key core competence and area where we can make a difference, which is to sell more tires. Also, if you think about the environment and the uncertainty related to COVID and so on, equally important it is that we keep costs in strict control and also that we protect our cash flow by making sure that we only invest what is necessary and at the same time, manage our working capital well.
Some activities are not necessary right now. We can delay them and make sure that in that sense, our organization focuses on the key activities and some of the development activities and so on. We can delay and maybe do next year if and when things look better. Season is still ahead of us. Clearly the final quarter is season-dependent. We are well prepared for the season, but it hasn't really started. Some snow in Finland, other countries. Surely we've seen demand picking up a little bit, but it's still not yet the real winter. Therefore, some excitement still ahead of us. In summary, we can say that Q3 was good. We are pleased about that, and it was better than we expected when we went into the quarter.
In that sense, at this moment, we are in a good position to enjoy what will come in the fourth quarter. Clearly we focus on cost, we focus on cash flow, and we will make, of course, most of the season when it comes. This in the summary where we are.
Thank you, Jukka. Thank you, Teemu. Now operator, we would be ready for questions from the audience, please.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name has been announced, you can ask your question. If you find it's been answered before it's your turn to speak, you can dial zero two to cancel. Our first question comes from the line of Akshat Kacker of JPMorgan. Please go ahead, your line is open.
Hi, thank you for taking my questions. Akshat from JPMorgan. Three, please. The first one on the temporary layoffs in Finland. Is it possible to quantify how much benefit do you have from this temporary actions in Finland this year for the first nine months or the third quarter specifically? How should we think about this going into the fourth quarter in 2021? How much flexibility do you still have on these programs? That's the first one. The second one is on Dayton and recruitment of the second shift there. Does this expand capacity to 1 million tires? What is the associated cost of this ramp-up that you forecast going into next year? When do you plan to hit the 2 million units? From what I remember, that was planned on three shifts. The third question is on the EBIT bridge for passenger cars.
Can you detail out what is exactly within the EUR -9 million bucket linked to supply chain impacts in the quarter, please? Thank you.
All right. Thank you for the questions. Let me start with the temporary layoffs in Finland. Obviously, Finland is a particular country where you can do that. We still have flexibility in the final quarter if the demand is weak and so on. We still have flexibility to do temporary layoffs if needed. We will see how the demand continues. We are not talking about significant millions here. My guess, and this is not scientific, in the range of EUR 3 million max, what we can get out of this one. Then you asked about Dayton. The second shift is being hired right now. As we speak, we hope to be fully on two shift operations starting 2021.
The final 2 million capacity will require three shifts, and we expect that during the course of 2022, assuming that the demand evolves, that we will be there. We have the question that at which point we trigger expansion equipment so that we can actually move from 2 million- 4 million. This is something that needs to be decided during the course of 2021, 2022. There is certainly time when we get to that 4 million tires. What the cost impact of that is essentially we talk about indirect employee, less than EUR 5 million, I would say. Of course, there are other operating costs and so on. Teemu so take over.
The bridge question and regarding the supply chain block there. As you all know, the supply or the COGS piece in general, that represents the biggest cost item for Nokian Tyres. If we take away the raw material unit cost, which is then included in the EUR 11 million positive development, and then looking other components in the bridge, like the volume, price mix, SG&A, bad debts, and currency, then the residual is in the supply chain pocket. There you can see, for example, one part of the explanation is the Nokian factory under absorption in the third quarter. There are also other supply chain related costs.
Understood. If I could just follow up on the temporary benefits, I think you said you expect a maximum of EUR 3 million in the fourth quarter. Is that right?
The full year level, maximum EUR 3 million.
Okay, the full year level in terms of temporary benefit.
Yeah, the temporary layoffs are not as such. They are an efficient way to regulate the capacity, but in terms of how much you save in cost, it is not a significant cost item. It will help for its part, but in absolute euros, it is not significant.
Understood. Thank you.
Thank you. Our next question comes from the line of Mattias Holmberg of DNB. Please go ahead, your line is open.
Thank you. Hello, everyone. On the raw material side, we see in the bridge, and as you mentioned that the prices and costs are down quite considerably, but you seem to have been able to keep this for yourself and not having to let that pass through to your own pricing. Is this a result of a lag, or do you believe that you will be able to maintain these lower prices yourselves?
In our forecast for the fourth quarter is that the raw material prices continue to be on a level as in the third quarter. In terms of pricing, well, the prices are more or less fixed for this year. Going to next year, that's then a different story and maybe just to share with you the current year of the raw material prices in 2021, we are expecting to see an increase in raw material prices in 2021.
Great. A second question from me on the dividend, just to be clear, I read in the statement that it could be sort of the remaining EUR 0.79 that was discussed earlier this year could be made in one or several installments. Just to be clear, is this EUR 0.35 announced today, is that sort of the final, or could there be an additional installment beyond this?
I believe that this is final, so there is no additional installments this year.
That's all for now. Thank you.
Thank you.
Thank you. Our next question comes from the line of Thomas Besson of Kepler Cheuvreux. Please go ahead, your line is open.
Thank you very much. Thomas Besson, Kepler Cheuvreux. I have two questions, please. The first one is on your North American performance in Q3. Your volumes seem to have jumped dramatically more than the market, while in the first half they had underperformed the market. Can you explain if that's part of what you were talking about in terms of volume or elements shifting from Q2, Q3, and elaborate on whether there's any one-off linked with these Q3 volumes and whether you expect a similar development in Q4 in North America as in Q3? Basically explain a bit more this very substantial jump in the region. The second question is about the bad debts you've reported, I think EUR 4 million in Q3. Can you talk about that whether you believe Q4 and in 2021, or whether this is well under control and we have seen most of it now.
Many thanks.
The first question was regarding the North American and sales, and you rightly pointed how that partly is the shift from Q2 to Q3. It's also good to remember what I've been saying in earlier discussions that our customer base is more concentrated than maybe in other companies' customer base. When they are doing their internal decisions, how they want to stock, that will influence our sale yield. Those are a couple of reasons explaining the North American sales development. In terms of the second question, the bad debts development. As discussed in the Q2 call, these are the bad debts provision that we foresee. They are not yet realized bad debts. Now, when all the companies have introduced since 2018, the IFRS 9 approach where we need to start providing bad debts provision according to the IFRS rules.
This is the fact that we have seen now this year increase in the bad debts provision, and most likely it continues in the fourth quarter as well.
Okay. Thank you.
Thank you. Our next question comes from the line of Artem Beletski of SEB. Please go ahead. Your line is open.
Hi, this is Artem from SEB. Three questions from my side. First of all, you talk about some sales shift from Q2 to Q3. Would it be possible to maybe quantify what has been the magnitude of it? The second question is relating to mix side of your operations. You stated that your mix improved year-over-year. Is it fair to assume that your mix will be also improving going forward, as you are talking quite a lot about new product introductions? Maybe just a number, if you could provide on how much your mix improved in Q3. Lastly, regarding, so to say, big focus on working capital and the cash flow of the company. In Q3, your inventories were down by 20%, I think trade receivables more than that.
Do you see much of a potential to squeeze further or basically improve your working capital in the company?
Okay. I'll take that shift from Q2 to Q3. Clearly, it's difficult to quantify, but I would say it's a single-digit percentage of the total volume, what you talk about. There clearly was some shift. Scientifically, it's difficult to quantify, but just to let everybody know that that did happen. Mix is improving because we obviously have less sales in Russia and then other markets which are higher value, higher ASP, and that's how the mix improvement is also visible. Currency, of course, is another one which we then see as an item which was discussed. In terms of launching new products, I think that we are in the moment of launching them. Many of them will be introduced for the summer next year or season next year.
Many of those launches don't have an impact right now, but they will have an impact in coming quarters.
In terms of working capital efficiency, clearly that will be our focus area also, not only short-term but also mid-term, because maybe in the past, the working capital component hasn't been that actively managed, but now it is the core of our focus.
That's part of the story that we move into return on capital employed type of a target setting, and that's why the working capital and asset velocity and all those matters are quite important and so address them. Of course, the Teemu's team has started to work with our business teams quite intensively on these matters.
All right. Very good. Thank you.
Thank you. Our next question comes from the line of Gabriel Adler at Citigroup. Please go ahead.
Hi. Thanks. Gabriel Adler from Citigroup. My first question is on Russia. Could you help us understand the level of winter tire inventories in the distribution channels in Russia following the efforts you've made to normalize stock levels? You mentioned further declines will be required in Q4. Will this be a similar level of declines that we saw in Q3, or are we getting close now to normal levels of inventory in the channels there? My second question is on the comment of top line being a priority for the company. Can you comment, please, on what this means for margins in the coming years? Clearly margins in Q3 were very strong, do you think mid-term the business is able to recover to, say, 20%+ margin while at the same time prioritizing top-line growth? Thank you.
Yeah, I think if you start with Russia, so we had a plan when we went into the year that we get to a normalized inventory level in the pipeline, and we are very much on track to do that. Clearly, we've made progress in the previous quarters, and we expect that by the end of the year. Of course, this assumes that the season is relatively normal. It doesn't have to be aggressively positive, but if it's strongly negative, so it also has an impact, but basically we are on track to achieve the target level by the end of the year. When it comes to the margin profile, then obviously, we said earlier, and we haven't gone really looking in the strategic targets at this point of time, so we believe that 20% margin can be achievable.
We haven't done a lot of work at these times on that one. We will revisit targets in 2021 when the situation with COVID hopefully is behind us and we can go back to normalized operation. At this point of time, we set the bar at the level that 20% can be achieved. That it will be and needs to be confirmed in 2021.
Okay, great. Thank you very much.
Thank you. Our next question comes from the line of Henning Cosman of HSBC. Please go ahead. Your line is open.
Hi, good afternoon. Thank you for taking the question. I just have a clarification, really. When in your opening remarks you said that you're still not sure or you, in fact, expect that the second half this year will still remain below the second half last year. It's good, of course, to see you match the volumes virtually of last year, exceed them quite significantly in the U.S. and some regions outside of Russia. I think Teemu also said that pricing should be okay in the fourth quarter. I was hoping we could just explore a little bit more where your reservations lie. Obviously, the winter season last year isn't a very difficult comp. You're saying you're ready to take opportunities when the season comes. Is it really just fully attributable to uncertainty around how cold and snowy the winter will be?
Are there any particular regions or product segments where your reservations are mainly attributable? Thank you.
We are basically looking at the environment and, of course, very careful about the COVID and the environment. Obviously, the season hasn't started. It's every year with us, therefore, of course, everybody knows that this is something that will come either strong or weaker or normal. At this point of time, when we went into the second half, we expected that the volume will not fully recover to 2019 level. Now we are very pleased with the third quarter performance. What we are saying is that still, nevertheless, we would be happy to be pleased with the fourth quarter performance, but it's not achieved yet. We have number of weeks and couple of months to make it happen.
It's sufficient to be careful at this point simply because the uncertainty in terms of the demand picture is there. Are we ready to grab the opportunities? Yes, we are. Do we have the cost competitiveness? Yes, we have. Do we focus on cash flow? Yes, we do. Nevertheless, the uncertainty and that is around us. Having said that, again, I just want to emphasize that we are very pleased with the third quarter performance.
Maybe building-
And-
Yeah. Maybe building on what Jukka said, we shouldn't be expecting any kind of a similar shift from Q3 to Q4 like we did in Q3 from Q2-
Yeah
...that is to take into account.
Sorry, that would've been my other question. When you talked about your customer concentration, this wasn't meant to indicate that there was possibly a bit of a pull forward where now your concentrated customers have now taken a lot of the sell-in and will potentially be taking a little bit less into Q4 in turn. That's not what you were implying then, is it?
No. We try to run pretty normally, so we have no extra push or anything of the volumes. We run as the customers run, so we match our run to our customers.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Pierre-Yves Quemener of MAINFIRST. Please go ahead, your line is open.
Yes. Good afternoon to you all. This is Pierre-Yves with MAINFIRST. I would need to come back on the price mix versus the raw material development over the full year. Over the first three quarter of the year, you have a very minimal price mix headwind of EUR -4 million, but you had a significant raw material tailwind, a cumulative one of EUR 20 million over the first nine months. I just struggle to understand how that is possible to maintain and to carry over into the next quarter, into next year. Don't we have to expect at some point that one of the two buckets needs to give either on the price mix that needs to go down or either on the raw mat that needs to go up or be a headwind? That would be my only question. Thank you.
Didn't you draw the conclusions? I mean, understand what you were saying, but didn't you draw the conclusion as well? On the other hand, of course, it's important that the pricing of our products and the markets is aligned with the market pricing and then when we operate and have a competitive raw material cost. Part of that is our own sourcing, part of that is currencies, and part of that is where we operate and make the products. Of course, a significant part of our production is in Russia, where the currency is soft.
All right. If I understand correctly what Teemu said, raw material should become a headwind at least for the first part of 2021, correct?
My comment was for the full year 2021.
Yeah.
Full year 2021. All right.
Yes.
Far, it's difficult to say what will happen. I think Teemu was saying that the latter part of this year will be competitive and then early part of next year, we will see. Full year 2021, assuming that the economies recover, there will be increased raw material.
For the full year.
Yeah. Expectations. May not happen.
Okay. Just one last to squeeze in, if I may, because the other surprising bucket in your bridge has been obviously volumes, at least for me, but obviously for consensus as well. Can we be sure that there has not been any inventory building in the third quarter into the network explaining the very strong 5.5% volume effect? No inventory building there. Nothing we should be concerned about.
I think that this is probably one of the areas where we have tried to be very careful, extraordinarily conservative, not shipping into pipeline or inventory. It's been one of the most important things that we paid attention throughout our system, that the inventories in the pipeline should be quite competitive and at good level.
Okay. Thank you, Jukka. Thank you, Teemu.
Thank you.
Our next question comes from the line of Pasi Väisänen of Nordea. Please go ahead. Your line is open.
Yeah. Hi. Would it be Pasi Väisänen, Nordea? Can you please say something regarding the market demand now in October? Has it been about the same than already seen in September or maybe a bit weaker in October, which actually could be the reason for your cautious view for the fourth quarter? How this October now is compared to the year earlier period in last year? Maybe if I may, a couple of more related to the third quarter. I mean, were there any kind of extra items related to COVID? Have you actually received some COVID support from the state in the third quarter? If there were, what was the figure? Lastly, regarding the dividend payment, I hear that you're saying that no further dividend payments is going to be there before the year-end.
Is there a kind of a technical chance to pay something before the next AGM still after the year change? Thanks.
The two last questions I can respond. The answer is, on the dividend, no, and also any support for COVID, the answer is no. Teemu, October.
I would say that in the fourth quarter, November is also a key sales month, so I wouldn't like to comment one specific month within the quarter.
Yeah, that's clear. Thanks.
Thank you. Our next question comes from the line of Peter Testa at One Investments. Please go ahead. Your line is open.
Hi. Just a couple questions, please. One is on Central Europe. If you could just talk a bit about the good performance in Central Europe for you and the extent to which this is broader distribution or how the product mix has worked on there, and then whether you're getting any comment on reorders or sell-throughs as you serve Central Europe. The second question is just on working capital. You had quite a good move in payables helping the cash flow this quarter, and you've brought inventories down from a year ago. If you could just give a sense on what you think you can achieve working capital-wise as we go into the year-end. Lastly, just if there's any comment you can make on the mark to market of FX, just to take that uncertainty out as people try and understand the FX at current rates.
Thank you.
If I start with the working capital part, and you mentioned the payables. That is an area where we have been focusing this year in order to improve the payment terms and that work still continues, so we are in the beginning of the journey. In terms of working capital, as you know, we have the high seasonality there, and especially our trade receivables will go down towards the year-end when the payments are due. There is a clear change.
You asked about the Central Europe reasons behind the good volume. Obviously, what happened was that we historically didn't have such a good product offer. Obviously now when some of the products have been launched prior, past year and even before, those are now carrying us today. Based on the work we've done with focusing and improving our activities in the sellout and helping our customers and the distribution in sellout has helped our volumes as well. We are quite pleased with the performance, and we expect that Central European performance continue at strong levels.
In that sense, of course, there was some shift from the second quarter to the third quarter, the overall improvements that we have done in our Central Europe under the leadership of Bahri, who joined in late 2019, those improvements and benefits are now starting to come visible in our performance.
And then on the FX-
Eastern Europe, so clearly Poland and Czechia and so on, those were good performance.
Right. Okay. On the FX, is there any mark-to-market you can give just so we've got some, you can just take that out of the bridge and just don't have the uncertainty in Q4?
Thank you. For Q4, I think-
Yeah.
...the Russian ruble is the biggest swing factor. I don't want to comment where the Forex is going.
Yeah. Sure.
Obviously, the ruble is related a little bit on the oil price and so on. Appears that when the oil price goes up, so ruble gets stronger. It's really difficult to anticipate. Maybe the best is to anticipate that they are at the level where they are right now.
That's how I tend to be that I don't try to guess the coming quarters or months.
Yeah.
No, indeed. That was my question, is if you take the current levels, just so we understand what it is here, and then whatever happens. At least as people try to model the FX impact, if you knew, say, where we are now and the Russian ruble were to stay, what that would mean for FX in Q4.
More or less what you see is what the ruble does at current levels.
Okay. Fine. Okay. No, thank you.
Okay, we have a follow-up from Thomas Besson of Kepler Cheuvreux. Please go ahead, your line is open.
Thank you. I understand you don't want to talk about monthly developments, but when we look at Q3, it seems that July and August developed more or less as everybody expected. September was phenomenal. Is that true for you as well, or has it been a more linear development?
We would say that from our point of view, the development has been more linear than in previous years. Quite a linear development. Yes, typically, historically, there has been a quarter end push, but now there was a more linear development on July, August, September. That helps, of course.
Great. Thank you
Also the supply chain in terms of cost and so on. Not ideal, but improved.
Thank you.
Thank you. Our next question comes from the line of Michael Jacks at Bank of America Securities. Please go ahead. Your line is open.
Good afternoon, everybody. Michael from Bank of America Securities here. If I can please just go back to the discussion around raw materials and working capital. Notwithstanding the improvement in cash flow from operations against the comparative period, can you please just try to help unpack the seemingly low cash conversion in Q3? I'm struggling to reconcile the working capital outflows in the cash flow statement with fairly substantial decreases in inventories and trade receivables. If you could please just provide some color on that. My second question is just in relation to the disposal of the U.S. unit in Vianor. Can you just give us an indication of what sort of contribution this made to group EBIT in 2020 year to date? Thank you.
The working capital receivables. Maybe if you take that.
The receivables in the third quarter, as you know, the pattern that the receivables are peaking at the end of Q3, and then going down in the Q4 when we collect the money. This year, what has impacted our receivable development is naturally our sales, which is slightly different than in prior years. I don't know if that answers your question, but if not, then I will continue.
Perhaps just on that raw material question, maybe if I can just ask it another way. Should we expect a much stronger cash flow from operating performance in Q4 relative to the operating profit results? I.e., will there be some catch-up from Q3?
We are expecting to have a strong cash flow development towards the year end.
Yeah.
Thank you very much.
Yeah. Typically, we collect receivables towards the year end. That's why it's also beneficial to pay the dividend in December.
Thank you. Our next question comes from the line of Panu Laitinmäki of Danske Bank. Please go ahead.
Yes. It's Panu Laitinmäki from Danske Bank. I have three questions. Firstly, just to understand why the volumes increased in Q3, can you talk about what products actually were that you sold in Q3? Was it summer, all season, or winter pre-orders? Secondly, if it was winter that was driving volumes up, as I believe based on your mix, then what's your view? Why did you perform better than your peers who have generally commented that demand for winter tires is lower, especially in Europe this year? Thirdly, on Russia, I believe there is a change in the tire marking regulation that will be implemented quite soon. What's your view on the impact on the markets from this? Thanks.
I start with the mix development, as we commented in our release that the share of winter tire sales decreased, that means that then the summer and all-season were increasing, and that is the case, both summer and all-season increased. Then in the winter, there was a mix between regions. Russia was down and then North America was up, even though the absolute volume in winter was then flat.
Then you were asking about the competition, talking about the winter season and so on. Obviously, those comments were made earlier. I think that's something how they saw the market development. We, at this point of time, because the season hasn't really started, so we haven't really seen any strong weakness or any strong upside in the winter. We are prepared to take the opportunity when it comes. We surely expect to have availability in case it comes in strong and so on. Cannot comment on the competitors' behalf what their availability is and so on, but we are relatively well-positioned for the winter.
You had the question regarding the tire marking in Russia. Yes, that is coming into force in few weeks' time, and even though midterm, as we have said, it is a positive thing for the established players. At least in the beginning, it will be an operational headache for all the players because of the new regulations and how we can implement those.
Yeah. More work to shift the tires to distribution and customers.
You don't expect much benefit for this season yet from that? How should we think about that, like, in terms of reduced competition and reduced exports to the country?
Maybe not immediately. I think immediately is probably to get the shipments and the volumes and then maybe later on when the certain competitors or people cannot meet the regulations and then there may be a benefit. Immediately, no.
All right. Thank you.
Thank you once again. If there are any final questions on the line, please dial zero one on your telephone keypads now. We've got one question coming through so far. That's a follow-up from Artem Beletski of SEB. Please go ahead. Your line is open.
Yes, hi. One follow-up from my side. As you're talking about second half being weaker compared to last year, could you maybe clarify whether you are talking about volume development or basically EBIT level versus 2019?
Talk about the volume development first, then we look at the EBIT with cost and raw materials and prices and so on. Really what we talk about is the market momentum, how did we see the market momentum when we went into the second half. In the third quarter, the market was about - 2% versus prior year. We will see how that evolves in the final quarter.
Okay. Very clear. Thank you.
Thank you. As there are no further questions coming through at this time, I'll hand back to our speakers for the closing comments.
Thank you, everybody, for participating in this call. Thank you, Jukka, and thank you, Teemu. This ends today's conference call. Have a good day.
Thank you.
Thank you.