Welcome to Nokian Tyres Capital Markets Day. My name is Paivi Antola, and I'm the Head of Investor Relations in Nokian Tyres. Yesterday, we announced our new review our reviewed mid term strategy, growth strategy and new financial targets and non financial targets. And these topics will, of course, be high on the agenda today. We will have 6 interesting presentations.
We will start with Jukka Moisio, the President CEO followed by Teemu Kangaskarki, the CFO. We will then move on to Passenger Car Tires With Parik Uter, Anna Huven and Andrei Pantyakov followed by Heavy Tyres and Manu Salmi. And we will finish the afternoon with a Q and A. And during the afternoon, you can send questions via the webcast platform. And we will take those then at the end of the event.
But we will start with Jukka Mois. So Jukka, please.
Good afternoon. My name is Jokka Moisio. I'm the CEO of Nokian Tyres. Welcome to our Capital Markets Day. And as Paivi said, we shared some of the highlights already yesterday.
And therefore, today, we want to focus on the discussion behind those ambitions and also provide more color on our thinking and our way forward. However, it's clear to all of you That what we want to achieve is ambitious leap forward, and we want to achieve €2,000,000,000 in net sales. That is something that is a very important target when we go ahead. Why do we expect that we achieve strong organic growth? There are a number of things.
One is that we have completed our large investment phase. So many of the programs Investments that we've undertaken in the past years are now ready. Just mentioning a few Dayton Factory, Spanish Test Track, investments in heavy tires. And as those are ready and we are now in the implementation phase and expansion phase, It's time to deliver. The other is that our team is ready.
So we are ready to grow faster than market. And our team is strong positioned, well positioned, competent and has achieved major success in the past. And therefore, we aimed success in the future. We will also use continuous improvement to ensure strong performance. So it's not only about growing net sales.
It's equally important to achieve strong profitability in terms of operating margin and in terms of return on capital employed. Our key midterm ambition, however, is to achieve €2,000,000,000 in net sales. In fact, we have renewed our purpose and I jumped too much ahead on that one, so As part of our strategy process, we have renewed our purpose, which is to empower the world to drive smarter. This captures the Nokian tire spirit. Our spirit is to innovate new, go beyond current and find ways to serve current and future generations with sustainable and safe tyres.
We have also spirit to achieve beyond expectations, and we are very strong in delivering those results. Let me share a quick video about our purpose.
Grit, determination, courage to explore new territories, with our commitment to a sustainable future. This is the spirit of Nokian Tires. And services designed to give greater peace of mind to data that enables more controlled and fuel efficient driving Paired with education that can help drivers minimize their environmental impact. To innovations that help reduce wear and tear and the total Cost of ownership. We are with you.
This is our commitment to listen and respond to the needs of our customers to innovation, collaboration and support. Our purpose and our promise are embodied In everything we do, they are a reason to exist. They unite our teams around the world and propel us to the future.
By the way, our video you also saw our brand promise, we are with you. When we then go And look a little bit about the environment where we operate. We have a strong expectation for accelerated growth for premium and sustainable tires. There are a number of reasons why we expect this to happen. 1 is that there are new car models.
They are hybrid electric vehicles. They require premium and sustainable tyres. Equally well SUV crossover vehicles penetration will help the growth of premium tyres. New tyre features are important to help the growth and innovation. Innovation is an opportunity to find better price points and also growth.
We see that there is performance expectations, noise cancellation, rolling resistance reduction, durability, many items that are actually very important for premium tyres. And sustainability as such, when we look at raw materials, More and more of renewable recyclable materials are being needed for the products. And therefore, of course, that helps innovation. And again, That is very, very important for Premium Tyres. When we think about our markets in specific and look at our Various geographic areas, we see that Nordic markets in the replacement tires is expected to grow from 2020 until 2024 by about 4%.
Russia clearly higher at 7% Rest of Europe at about 4%. All in all, the operating environment where we are is expected in replacement tire market to grow approximately about 5% per annum until 2024. Our ambition is to grow faster than the market at about 7% level. And we expect to reach €2,000,000,000 in net sales in midterm. This €2,000,000,000 is actually if you look at then where do we start in order to achieve that €2,000,000,000 Our starting point is now rolling 12 months, so last 12 months until the end of June.
And our net sales is roughly €1,520,000,000 Our operating segment operating profit is at the level of 19%, and our return on capital employed is at the level of 14%. This is our starting point. And when we look forward, what do we want to achieve and what can we achieve? First of all, we are market leaders in the mature markets for us, Nordics and Russia, what we want to do is to strengthen our number one position and achieve even better penetration of the market and also launching new products. And especially in Russia, where Andre, my colleague later on, will talk about our increased market share, we want to maintain that and even improve.
In Central Europe, we want to grow the sales by 50%. Starting point in the last 12 months rolling is about 6,000,000 tyres. The growth of 50% means that we move from 6,000,000 to 9,000,000 tyres. In North America, the starting point in the last 12 months is roughly about 2,000,000 tyres. Our ambition is to grow 100%, and we want to achieve about 4,000,000 tyres in midterm.
And Heavy Tyres, Again, the starting point in the last 12 months is about €200,000,000 and our sales growth ambition by 50% means that we will achieve €300,000,000 in net sales. And these are our midterm sales targets. Some of the cornerstones that are success can allow our success is of course the new products and safest tires for all conditions, strong supply chain and capability to manufacture, Strong brand, sustainability actions and being leader in sustainability, but most importantly, our team. Our capable people who've been able to achieve success in the past will achieve success in the future. And this is how we do it.
Some of the highlights here. We in Nordics, we rely strongly on Vianor. In Russia, we continue to improve our market as we have gained already this year quite significantly. Central Europe, we expand our market coverage and penetration. North America, Equally important to expand our distribution in the U.
S. And in Heavy Tyres, growing premium segments. My colleagues in the Coming presentations, we'll talk more details about this, how we do it. We have 5 cornerstones, And let me go through those cornerstones step by step and start with new products. So in the past Couple of years 2020, 2021, we have launched a record number of new products, and this will continue.
So it's a glimpse of the past 2 years. But going forward, we have quite an important program to launch new products. But if you take an example that We have introduced in the past couple of years 20 new products to Central European markets where we expect to grow significantly. In passenger car tires also in North American markets and in CE markets, these 20 new launches will help us to gain More volume, more market share, but also more tailored and focused products on those markets. The same number of 20 new products have been launched also in heavy tyres in the same markets.
So we have quite a strong new product launch going on, and that will help our revenue plan. One example of the latest The launches is Nokia and Hakka Pelita 10. This was introduced in the markets early in 2021. And now when we look at the recent test results of Hakka Pelita 10, so it's been participating now in 3 tests that have been published. And it's been actually a winner in all of those 3 tests.
2 of them are in Russia. 1 of them is in Finland. We are quite proud of this product and it's going to be our flagship product to winter season in this year and in coming years as well. However, behind this product, we also have quite many successful winter products like Nordmann 8, which is also introduced as a new product. So we have a very complete winter tyre offering going into the season.
Especially for the, Nokian Hakka Pelita 10, we have a superior winter grip, comfort and reduced noise level, better on road stability. And then we have also SilentDrive technology, which is very suitable for electric vehicles. We have also 140 different production size selections. So very important and very successful launch so far. Let me share a quick video about Hakapelet 10.
So Hakka Belita 10, very successful so far in tests. We have high expectations for the performance already in this year, but also in coming years. However, one another cornerstone is importantly to make sure that those products are being manufactured, so our capacity and capability development in manufacturing. So we are right now ramping up the factory in Dayton, And we achieved about 1,000,000 tyres in 2021. And then we have a progressive growth to 4,000,000 tyres by 2024.
That plan is in implementation. The equipment purchase have been authorized, and so we go on stepwise implementation so that we hit 4,000,000 tyre capability and production in 2024. In Finland, we have Nokia. So Passenger car tire capacity is about 5,000,000 tires. We are actually doing productivity improvement programs, which are ongoing.
And therefore, You can expect that this volume is achievable. And then we have also heavy tire expansion, which is going on. So we moved to 32,000,000 kilos by the end of 2023, this is a 50% increase from 2018. That allows about €300,000,000 net sales, which is our ambition. We have added shifts in North America, Dayton, and we also added shifts in Nokia, so that we're actually boosting production as we speak.
And in Russia, we have one of the most efficient tire manufacturing units in the world, 17,000,000 tires. You add up all the Capacity in passenger car tyres, we have about 26,000,000 tyres by 2024, and we have about 32,000,000 kilos of heavy tyre capability by 2023. So this is enough to allow us to achieve a €2,000,000,000 and higher revenue plan. What is important to continue to work is our distribution. In Nordics and Russia, which are mature markets for us, We already have very established and strong distribution, and so therefore we want to add and help Vienaude to be more successful and also our partners and in Russia.
Lots of this work is ongoing, and we continue and this is in line with our achieving higher market share and be the leader in the markets. North America, we clearly want to develop the distribution, especially in the United States. Anna will come back to that. And in Central Europe as well, We will do the same and we will help then the multichannel distribution with retail and online markets. Important thing that what we experiment And Pilot in Central Europe is the fleet business, and Bahri will talk more about that.
Heavy tyres equally well. Distribution is important to continue and expand our brand. So we have started to work on to improve and Strengthen our brand. So this work is ongoing right now. We started that late in 2020.
We continue now. You will see more of these steps in coming months quarters. However, what we want to do is to getting closer to consumer and strengthen loyalty. We want to provide strong sell out support, and we also want Digital solutions so that there's a seamless experience in online and local point of sales. And that is something that is ongoing.
You will see more results of that work in coming quarters. Sustainability, another cornerstone of our success. We've been 4 years part of the Dow Jones Sustainability Index. We will continue that. A lot more work will be done and more targets and more and more ambitions will be achieved.
However, I highlight few of here few of them here. 1 is the securing safer and Better work, that means that we reduced the accident frequency by 20% per annum. We also want to bring environmental safety and environmental and safety innovations, for example, provide 50% of the recycled or renewable materials in our tyres by 2,030. We also continue to reduce our CO2 emissions in line with our science based targets. And we want to continue auditing our high risk suppliers so that sustainability audit is 100% covering all of them.
We are proud of some of the achievements here. There are more achievements in our net page. So but here are Some of the key achievements, we have reduced lost time injuries by 73% since 2015. We've also reduced rolling resistance, reduced our CO2 emissions, have achieved 100% production waste recycled in Finland and 99% in Russia and in the U. S.
And we have 90% of the major rubber processing plant audited. So quite important achievements. We will continue this work. Sustainability is very important for us. Our team without our team, None of this is possible, so therefore our team is the foundation and reason for us to achieve results, achieve higher sales, achieve the profitability, achieve new products.
And we have our Hakka Pelita Foundation, our heritage, we are proud of that. Going forward, our key values are we care. We care about our colleagues. We care about our customers, our suppliers and the globe. We drive innovation, important in our history and also especially as I mentioned lots of new products being launched in the past years and this will continue.
And most importantly, we deliver high results together. This is our history. We've always delivered high results. We will continue to do that. I quickly talk about the financial targets.
Teemu, our CFO, will actually come back and give more color on the financial targets, but let me summarize quickly the financial targets. So we want to achieve net sales and we want to grow faster than markets, so we want to achieve €2,000,000,000 in net sales. Remember, the starting point is last 12 month rolling. Our net sales is €1,520,000,000 So the ambition is to create approximately €500,000,000 more sales in midterm in order to hit €2,000,000,000 We want to provide high returns, high profitability. Our segment operating profit in last 12 months is 19%.
Ambition is 20%, and our segment's return on capital employed is about 14%, slightly below, and we want to achieve 20%. So if you Think about the stretch targets. The stretch targets are really in the net sale development as well as in improving return on capital employed. This doesn't mean that we don't focus on the segment operating profit and make sure that that is at the level that satisfies investors and our teams and owners. But this, in terms of stretch, is less than the net sales target and the return on capital employed target.
On top of that, we want to grow the ordinary dividend and that to be more than 50% of net earnings. In summary, when we achieve those targets, it's important that we generate strong free cash flow and here are The priorities, how we want to spend the free cash flow and how it could be used. 1 is that we want to secure organic growth. We want to secure the dividend, predictable growing dividend. We explore M and A, mergers and acquisition opportunities.
So we have a short list, long list like any company, and then we look at those targets. And they are important on our agenda. On top of that, if indeed we have excess liquidity on the balance sheet, we will not collect that. We will then do share buybacks. So in summary, we are well positioned for organic growth and strong performance.
Our investment phase is completed. Our team is strong and ready to execute. We will deliver attractive growth, profitability and cash flow. And indeed, our key midterm ambition is to achieve €2,000,000,000 in net sales. Thank you for your attention.
Now I hand over to Paivi, and Paivi will then introduce the next topic. Please.
Thank you, Jokka. And we will now continue with Teemu Kangaskarki, the CFO, and then take questions to Jokka and Teemu after
Absolute pleasure to be here today and present our updated financial targets. We have ambitious growth target, €2,000,000,000 net sales with set of other balanced financial targets like profitability. Let's review how we will deliver sustainable long term shareholder value and what are our lag and lead performance indicator in our business. Our balanced targets are net sales, profitability, on capital employed and growing dividend. Our last 12 months net sales At the end of Q2 this year was another level of SEK 1,520,000,000.
We are growing faster than the market, which is expected to grow on annual level about 5%. We maintained a high return on profitability and our last 12 months segment operating profitability was at the level of 2019 and segments operating segments return on capital employed was on a level of 14% and now the target is at the level of 20%. We are targeting to grow our annual ordinary dividend step by step. In order to reach these Return on profitability targets, it means that our asset velocity should be at the level of 1. And these targets have been set by using the actual currency rate, especially the Russian ruble in the first half of twenty twenty one.
We are improving our risk adjusted return by diversifying the portfolio while growing to the level of SEK2 1,000,000,000 net sales. If you look our net sales Breakdown in Passenger Car Tyres, we will maintain our high share of in the stronghold areas like Nordics and in Russia. And we are increasing the share In North America and Central Europe with all season tyres, as we have been consistently communicating. We maintain high share of the most profitable winter tyres And we are developing the winning market relevant offering, which means also higher share of bigger rim sizes and EVs. In order to meet the growing demand, we are producing more tyres in U.
S. Factory and in the Finnish factory and therefore their share is increasing if we look at the production mix. Our Russian factory in absolute volume terms will produce the most of the tyres while the share is decreasing. And if we compare these two graphs on the right hand side, You can see comparing the product mix development and the factory mix development that the biggest Change is coming from the factory mix development and having also some slight impact to our profitability. Let's move to look our passenger car tyre performance.
As you all have seen this year, cost inflation is impacting all businesses. We anticipate that to continue entire industry also beyond 2021. If you look our material cost development trend line, you can see that We start from a low level in year 2020, and therefore, the increase in 2021 is significant, and we expect that to continue also next year. Half of the cost increase this year is coming from the inbound logistic cost. Having said that, if we look the level of 20122013, We anticipate to be well below the 2013 level in 2020.
Here you can also see the relative performance Of our business areas and product categories in terms of net ASP, region Profitability and Category Profitability. Nordics and winter being on the top in respective dimension. We have been talking about currencies in the past. And we all by now know that the Russian ruble has significant impact on our performance. Here we present our net sales by currency and you can see that the Russian ruble It's the 2nd biggest after euro close to 20%.
We have shown here the sensitivities for the key currencies. If the currency depreciates or appreciates 10% or 20% as an example. And I would like to point out here that the scale for ruble or the Euro scale is 2x compared to the other currencies on the right hand side. Another Point worthwhile to mention is the USD impact, which is the opposite to other currencies because of the net short position of USD due to raw material purchases. Ruble has been the most volatile currency in the past decade.
Let's zoom in to look in more detail the ruble impact on our performance. I anticipate this illustrative sensitivity impact of Russian ruble on our profitability being of high value to you all. Here you can see how the exchange rate has developed against euro starting from the level of 40 in the year 2012 and being on a level of 90 in the first half of this year. On the right hand side, you can see what is the impact Of the Russian ruble with different currency rates starting from 90 going to the 40 against euro. And what is the impact for the segment's operating profit?
And clearly, you can see that there is a Significant impact. And here, we can show you the directional impact if the currency is changing. And as I said earlier, our financial targets have been based on the actual currency rate of NOK 90 in the first half of this year. These Calculations are based on several assumptions and therefore this is directional indication to help you to evaluate our performance against the currency. As Jokka pointed out, major part of the investment phase is completed and the growth continues.
We continue to invest in new product development because the products And their performance is one of the key cornerstones of our long term shareholder value delivery. We will invest in the front end and back end of our systems in order to ensure consistent and seamless consumer experience. That delivers us the organic growth in order to reach the SEK 2,000,000,000 net sales target. We are also focusing On asset efficiency, in order to have sustainable high returns in the coming years. And if you look some of the data points here below, you can see that the asset velocity dropped last year due to the fact that our net sales dropped because of the COVID and we completed our investment phase.
Now we will focus to the top line growth, the working capital rotation and to have optimal capital outlaid for the business. And by doing that, our return on capital employed will be on the level of 20% in the coming years. Nokian Tyres has a strong gas conversion And it starts with high profitability and our target for the next midterm is to be at the level of 20%. We will continue to improve our working capital rotation and our CapEx spend will be on a level of €150,000,000 We can see that approximately SEK 120,000,000 It's the normal CapEx level and then we are investing about SEK 30,000,000 debottlenecking of our supply operations in our factories. We have a balanced capital allocation principles to deliver sustainable shareholder value.
We prioritize first to the organic part to grow our top line and our profit And by doing that, our absolute net profit will increase. We are committed to grow our annual ordinary dividend step by step from the current level and then the last is the M and A opportunities and the share buybacks. We are comfortable of having a net debt EBITDA ratio below 1. And we don't want to have excess liquidity on our balance sheet. To sum up, our financial targets are balanced that provide long term shareholder value.
We are growing faster than the market to reach a SEK 2,000,000,000 Net sales level, we maintain high returns and profitability at the level of 20% And we will reach the asset velocity of 1 in the coming years. And as I said, these financial targets are based on the actual Russian ruble rate of the first half 21. Our ordinary annual dividend continue to grow steadily. With this set of financial targets and insights on our performance, I hope that this has been a valuable walk through to you all and I thank you, your valued time.
Thank you, Teemu.
Thank you, Pavin.
And now I would like to invite you to join the Q and A together with Jokka. Let's see what kind Questions we have received so far?
Excellent.
Questions now are ready and then continue after the business area and the business unit presentations with additional questions. And you can continue sending questions via the webcast platform. Let's take the first question. This is actually something what was discussed already. But In order to be clear, Jokka, what is the time frame of the €2,000,000,000 target?
Thank you, Paivi. Thank you for the question. Time frame midterm means 3 to 5 years. And we start from the last 12 months, So 12 months ending June 2021. We didn't want to take the comparable year from 2020 because that was an exceptional year.
On the other hand, 2021 is not yet complete. So we wanted to start from last 12 month rolling. And this is our ambition time frame.
So you don't want to give an exact year, 2025, 2024 anything?
I think that we want to achieve it as quickly as possible. We believe that there may be a downturn or something on the way. But Obviously, we want to achieve our targets as soon as possible. If we can achieve them in 3 years, we are happy. If it's 2.5 years, we are even happier, but Needless to say ASAP.
Thank you. Then the next question is about OpEx. How much additional OpEx will you need for the growth target? Teemu, this is probably for you.
All right. So we will Invest also in OpEx, especially after last year low level, in line with our financial targets. And we are expecting to gain operational leverage while we are growing the top line to the level of SEK 2,000,000,000.
And let's continue with the M and A strategy. So what is your M and A strategy? What types of deals could you consider?
Thank you for the question. First of all, the M and A is an important opportunity to Strengthen the company position at the value. So we look at, for example, Heavy Tyres, a number of opportunities to add on and to strengthen the position, It's about the new product or technologies equally well when we look at the passenger car tires, look at the M and A opportunities which take us closer to customer and consumer rather than further away from them. So this is essentially what we are looking for. Also in the M and A, we have a normal way of approaching.
So we have a long list, we have a short list and we work on those List. Unfortunately, it's not possible to disclose what kind of targets we are talking about in specific. But I believe that in most companies, this is the same, that No specific targets are being discussed. And M and A is something that one assess. And then it takes time to develop them and then to negotiate.
And then finally, it takes 2 parties to agree on M and A action.
Thank you. M and A is, of course, something where Nokian Tyres has not had the history. And the other area is share buybacks. So, Teemu, how would you describe the balance between dividends and share buybacks? You did cover that partially already in your presentation.
If I recap the order of priorities, we start with the organic growth to support. And that one then is the dividend and We don't want to have any excess liquidity on the balance sheet. So if no other means available then the share buybacks is one of them tools.
Good. Thank you. And we continue with M and A. Are there any M and A assumptions included in the included in the €2,000,000,000 revenue target?
No, they are not. In fact, these are strictly organic targets. And Whatever M and A and deploying the capital in M and A and adding value to the company, this is on top of the organic growth target. So on top of the €2,000,000,000 target and on top of our profitability targets as well.
Thank you. Then we go to production. And let's start with Dayton. Jokka, can you give a general update on the overall progress on the factory ramp up.
Yes. I believe that that has been discussed in connection of the quarterly results and so on. But Let me give a current situation. So we are basically running at the annualized rate of 1,000,000 tyres At this moment, we've authorized the capital spend to add the additional equipment in order to Build the capability up to 4,000,000 tyres. And this is ongoing, so the equipment will come step by step.
And we have also started The 3rd shift in the second quarter and the 4th shift in the third during the Q3, so we are progressing. So, so far so good. We are on our way to 4,000,000 tires.
And there is another question about production and that is related to Finland and Russia. Can you talk about rationale to increase passenger car tires capacity in Finland versus Russia? Can you increase so that is the first question. And then can you increase the Russian capacity further than 70,000,000 tires?
Thank you for that question. First of all, in Finland, what we want to do is that as we have this capacity and capability available With modest productivity investments, we can go up to 5,000,000 tyres. So this is an obvious thing to do because it doesn't require capital. It also allows us to make premium tyres and to service the market quickly. So therefore, we have added shift in Nokia and continue to explore what more can we do.
At the same time, it's normal work in productivity and de bottlenecking and so on that can we make more tyres in Russia? We all understand that Russian factory is one of the best in the world. Whatever new tyres we can manufacture there and supply to the market, we surely study and we have some ideas what we can do. Let's come back to those when we go down the road and maybe can even increase the capacity in Russia step by step. And that then will allow us to go beyond that 26,000,000 tyres I mentioned midterm, and that can also happen relatively fast.
But let us come back to that when we are clear on the opportunities.
Thank you. And then A follow-up question on CapEx. This €150,000,000 CapEx, how long will that be enough? And are there any needs for additional CapEx investments in sight? Tim, I'll give that to you.
Thank you for the question. We see that this SEK 150,000,000 level is sufficient to reach SEK 2,000,000,000 and beyond. And as I stated there, you can split that in 2 buckets, SEK 120,000,000 for the normal CapEx level and then the SEK 30,000,000 is debottlenecking of supply operations in order to increase the capacity.
Thank you. Let's take one question about sustainability. How are you adapting to the risk of warmer winters due to global warming?
I think that thank you for the question, first of all. And It's important for us as we've discussed about the winter tyres that we will see in our key markets that the winters will be there. So snow grip, ice grip will be important. So we have Hakka Pelita then and subsequent models in the winter. And we will defend our Snow belt performance and position across the world, no doubt.
At the same time, we have introduced the friction tires. And then as I mentioned about the new product launches, so a number of products to Central European markets, a number of products to North American markets, which are not necessarily required targeted to winter or snow belt. And this means that we are actually diversifying our portfolio as well as we also have introduced a number of new summer products and all season products. So It's quite important that we recognize this, but we defend the snow belt and the performance in the snow belt. Lots and lots of people and lots and situations where the winter tire and studs are needed.
Thank you. Then about R and D expenses. What is the trend in R and D expenses for next year's staying at the previous year's levels somewhat lower or could it be higher?
As we have been communicating already earlier that we are investing in new product development. And as an example, The Spanish test track will increase our R and D spend. So we will see decent increase of our R and D spend in line with our financial targets again.
Thank you. And it's time for us to move on. So we will continue with the questions After the business area and business unit presentations. And our next speaker, we have our topic is Central Europe And our next speaker is Bari Korther. We are contacting Bari in Prague.
So, hello everybody. My name is Barry Kurtter and I'm calling in from our Central European quarter here in Prague. I joined Nokian Tyres around mid of 2019 and since then, I'm leading the business here in the Central European region. And as you can see from the slides, I see now that the slides did not move. Now it's there, sorry.
As you can see from the cover slide, our objective in Central Europe is to capture and accelerate high value and at the same time to grow overall business by 50%. And as Jukka already mentioned, This is a target of about 9,000,000 tires. And I'm really pleased today to share with you that in 2020 2021, Despite COVID and other external factors, the team did a great job in our business and market share has increased significantly And we are fully on track to reach the overall growth target of plus 50%. So in the next 15 minutes, I would like to present you first of all Some ongoing trends shaping our industry. Secondly, I'll show you where our how our strategy is and obtain results.
And last but not least, to highlight our direction going forward how to further accelerate our positive business development here in Europe. Okay. Now let's start with the ongoing trends that have an influence into our industry. We see actually 4 major developments in the European tire market driven by 2 bigger consumer trends and these are convenience and Sustainability, in order not to repeat already what you have seen before, I would like to step into 2 of them. And first one is the rise of the all season business.
I mean, you will notice in Europe, The climate and the weather conditions are changing. At the same time, consumers becoming more convenient and products are becoming better. And that's why consumers can now meet different weather conditions with one set of tires and avoid seasonal tire changes. And the overall business share of all season tires has more than tripled to 14% over the last 5 to 6 years. And it continues to rise by the way.
And as the all season market increases, so does the demand for bigger rim size of 17 inches and plus. And the overall share of this segment has almost doubled to 23% in the same period. So, what we can summarize is that in Europe, people like to drive big cars and they want to have bigger tires. The other point which I would like to mention as you might experience by your own as well is And COVID-nineteen has clearly accelerated that consumers' behavior regarding online. They leverage online throughout their shopping journey and tires are no exception in this any longer.
And depending on the country where you are in Europe, Actually 60% to 80% of tires are already searched online and 10% and even up to 40% are bought online. And when we look now onto the total market development, of course, these developments have an impact onto this and that's why we expect that the overall market will grow approximately 4% on a yearly level to up to more than 300,000,000 tires in 3 years from now. And when we look into the left side you see that Germany is the key market. It represents a quarter of the market like 25% and it's actually Setting the standard for many developments. It is the biggest winter market, the biggest all season market, the biggest market for rim sides, electric vehicles and so on and so forth.
And as you can see on the right side, traditionally being a more winter tire company, our current market shares are the highest in Eastern Europe between 10% even up to 15%. However, if we go to the Western and to the Southern parts, these market sales are decreasing. But As we go ahead, we will increasingly focus our efforts to key markets like Germany, France, Italy and Spain where our market shares So, what have we done during the last 2 years? And during 2019, we already developed and launched our strategy with a clear focus on high value capture and overall business growth. And within this strategy, we applied what I call the 3 Cs and which are category, country and channel expansion.
And we have actually 4 building blocks within that. So while we continue our Stronghold Winter business, We now started to expand our focus on the most profitable and fastest growing categories of the market which are all seasons, which are all season tires and large rim sizes with the launch of better products. Similarly, We recalibrated our go to market approach in key markets and introduced a new sales area structure To further leverage synergies and better focus on different market and weather conditions like in Eastern Europe, in Germany, Austria and Switzerland, what we call DAP and Western and Southern Europe. And from being Traditionally a more wholesale driven organization, we heavily increased our efforts to build a successful multi channel approach in retail but as well in online. And to underline the 3C strategy, We strengthened our go to market with a higher share of marketing allocated to sell out and specifically into consumer activation.
Finally, we have streamlined our operations for better effectiveness and efficiency. For example, We centralized and relocated our whole supply chain organization including customer service to our European headquarters in Prague. And at the same time, we introduced a new senior sales team at European level to support our multi channel and marketing activities which are key to succeed. Well, how about the results then? As I just mentioned, Our systematic strategic plan execution result in significant market share gains and successful value capture.
Our overall market share increased to up to 3% but with strong improvement in the all season segment while gaining in our Stronghold winter business at the same time, so not at the expense of. And similarly, our focus on large rim sides has been very successful as we gained market share and growing faster than the market. So, we can say that we were growing exactly where we wanted to grow. And as you can see on the right side, how the market will still further develop. So the share Of all season tires will further go up to even almost 20% in 3 years from now.
But however, Combining winter and all season together, this pie is becoming bigger and this is our big opportunity. Here is just an overview about the product launches that we have done in the last 2 years which were actually Very important for our growth. First of all, is the Snowproof P and the Seasonproof tires for our winter and all season segment. And this was done for passenger cars and for SUVs. And now just recently, we have actually filled the gaps with our van tires in Snow Pro C and Season Pro C.
So, going forward, what are we going to do? Actually, we want to continue where we have been successful. This is our 3C strategy, but we want to strengthen and expand our strategic priorities at the same time. And that means We will grow our product for Puglia now with CE market based offerings, especially with winter in all season tires because conditions in Europe are different and consumers are different. In addition, we will seriously start to capture the summer tire behind our new testing center in Spain, but I will talk about that a bit later.
And then we want to win and be in the biggest tire market in Germany. And we said Germany is important in many aspects, but as well continue to expand our geographical presence in markets where our market shares are low like Italy and Spain today. And of course, we will further develop our multichannel execution beyond retail and online and we are going to kick off to pilot in the growing fleet business. And underlying this approach, we will not only invest a higher share of marketing to consumer activation, actually we want to increase the overall to consumer activation. Actually, we want to increase the overall spend that we do in marketing to increase our brand awareness in markets where we are just entering or expanding our presence.
And at the same time, we are going to invest into our branded retail and that I will show later on as well. So as we expand into new categories, Countries and channels, we will redesign as well our supply chain network to meet and exceed Future industry service levels. Of course, when you grow to 9,000,000 tyres, you need a different supply chain footprint than what you have today. So in the next few slides, I would like to go a little bit deeper and highlight, let's say the key adjustments we are going to make. So when I start from the product side, the key change will be a dedicated R and D team With products specifically designed for CE markets and the focus will be on premium product and performance and quality and that will enable us to achieve top rankings and independent test magazines and to win in the most challenging market Germany.
And these product innovations will be supported by our test centers that we have already in Finland, but With the new one, so in addition to our existing ones, new test center in Spain will provide us with a unique advantage going forward. The state of the art facility will step change development of next generation products in the all season, but as well in the summer category Too many markets like, as we said, Germany, but in more summer based markets like France, Spain and Italy where our market shares are still low today. So with this set of test center capabilities, I would say we are very well positioned to offer premium and high performance products for different tire categories, weather conditions, consumer needs and markets in order to become what, A truly European tire manufacturer. And as I just mentioned, what is our actually kind of Country focus, of course, it is Germany. And due to many aspects, it is the biggest market For winter, all season, winter then electric vehicles, fleet business for everything.
It is the biggest market and sets the direction for Europe. That's why the biggest growth will come from there. Then of course, France, Italy and Spain. They are important for coming years due to our widening category and product portfolio and with our new test center in Spain. And of course, Eastern Europe, this is our stronghold.
We have currently market shares from 10% up to 15%. This is what we want to keep, but we want to further leverage and there are opportunities there to further increase our business. And Forward, what are we going to do from a marketing side? And I just said to support our category, country and channel expansion, We will increase our overall marketing spend to build brand awareness. I think this is the area where we are focusing on.
And Of course, on the other side, we will further increase our presence at digital and physical retail via our NAD RetailNerdberg and Concept, NAD are the Nokian authorized dealers in Europe. Today, we have around more than 2,100 NAD outlets in Vinyl Stores across Central Europe. Actually, that generate currently approximately 25% to 27% of our business and we are developing right now The next generation of NAD concept and this is key for us going forward. You know why? Because to connect The winning hearts and minds of European consumers going forward.
And with this, actually, I'm at the end of my presentation and just to sum up and for you the most important key takeaways. First of all, Central European tire market is big. It is growing and it is changing. Changes are driven by the consumer trends with all season tires, bigger rim sizes, fleets, electric vehicles and online as and recognized opportunities for us. And more importantly, we have already a growth strategy in place and we are executing accordingly.
And the achieved business results are very positive. So With this tailwind, we now accelerate our pace further and we want to do that by expanding our product portfolio in new categories, leveraging our state of the art R and D and test facilities and secondly, expanding geographically into new countries And of course, implementing a clear multi channel approach and at the same time improving our supply chain, which is key. And finally and to finish with that, we will increase our total investments into marketing and branded retail to build Of course, our brand awareness and get connected closely to the consumer. So with this plan in place, We are on track, I would say, to accelerate high value capture and growing our business by 50%. Thank you very much And I really hope that was helpful for you.
Thank you, Bari. And let's reconnect to Prague in the and A after a while. And from Central Europe, we move on to North America and Nordics. And our next speaker is
Thanks, Paivi. I will first talk about North America and then I will move to Nordics and Vianor. So the target set for us is growing by 100%. That means that we will grow from 2,000,000 tyres to 4,000,000 tyres in next 3 to 5 years. It is a challenging target, but I'm very confident that we can do it.
We have been introducing new tyres for North American market. We have been investing vastly in the Dayton factory. And we have a great sales team in place, who is building on the snow belt success. Let's have a look at the market first and then our growth engines. The North American replacement tyre market is about 270,000,000 tyres.
It is growing gradually towards €300,000,000 And for us the most interesting segment is the light truck. It is the fastest growing segment. As you know, the market is very mature, And the only way to grow there is to take market share from others. Here you can see the main growth engines that we have in place. Snow belt, we will be building on the customer relationships that we have there.
And the target is to secure the wind tire market share. Growing in all season. As I said, we have been introducing new all season products, And that will be driving our growth. The Dayton factory is in the core of the growth. And then developing our distribution network.
We will build the distribution network together with our key wholesale partners, and we will go directly with selected large retail accounts. And we also have our own distribution in the northeast of U. S. Let's have a look at this in a little bit of detail. Snow belt.
As I said that we will build on the existing customer base. We have very good market share there and excellent customers like Gal Tyre and Stoxx. In the U. S, we want to increase the in store share. And as I mentioned, we have the own distribution in place in the North East, which is the most important winter area in the U.
S. Side. We will develop that further. When it comes to the products, Our winter products are seen in very positive light in North America. We are 4 Runner in Europe in the winter, Winter tyres and our reputation in winter is legendary.
The market is developing towards just on time deliveries, And that is putting pressure on wholesalers and manufacturers. We are doing close cooperation with the customers With the collaborative planning, we will be expanding our warehouse network, And we are increasing our stock levels in our warehouses. This is to improve the availability of the tyres in the market when they are needed. Next, let's move to the all season growth. During the last 2 years, we have been introducing new products to the market.
We have been renewing the portfolio. And as I already mentioned, the Dayton is the key When it comes to the North American over season products. We will focus on light truck. The light truck vehicle count is growing approximately 5% per year. And one element the all season product development is that we are doing that together with our customers.
I'm sure that you know that we are not in the same level of marketing spend than the big players are. We have introduced a new dealer program dealer sales program 2 years ago, And that program is paying for growth. The feedback of the program has been extremely good. We are doing collaboration with our wholesalers and with our retailers to increase the brand awareness and the consumer pool. Let's remember one thing in the North American all season market.
We are not going to have our tyres sold in every store in the U. S. But we will be selective and we will work with the partners who want to develop the business with us. This is the way to ensure the earning potential. I would like to introduce a couple of new all season products in the North American market, and let's Start with this one.
Nokian Tyres Encompass, it's an exclusive tyre for Discount Tyre. And it was designed together with Discount Tyre. The tyre was launched in January this year, and it's A tyre for passenger cars and crossovers. It comes in 13 most important sizes, And it is a product for all year round use. It's officially approved for winter use.
And you can see the snowflake on the tyre. Then I would like to introduce you 1. This was a product that we also designed together with the customers. When we were asking the customers that what they actually like, What they want to have for all season tyres? They said to us that it has to be safe, it has to be reliable, it has to be easy.
So a tyre that is no hassle. We introduced the HT tyre last year in January. It is a tyre for large SUVs and light trucks for highway use. And then, Nokian Tyres 1 all season touring tire was introduced in January this year. It is a touring tyre for family cars for everyday use.
It covers 91% of the vehicle segments, And the feedback of the tire has been extremely positive, and it is selling really well. Next, let's go to the distribution network. I want to divide this into 2, so Canada and USA, looking them a little bit separately. In Canada, our market penetration is much, much higher than in the U. S.
And as I already said that we will be building on the existing customer base and developing the business there like that. When we look at the point of sales in Canada, we have over 1,000 point of sales. In U. S. Side, we have close to 5,000 point of sales.
In Canada So aside, we want to capture the growth potential in Ontario and in Montreal area. And this is the way that we will then secure and grow our winter market share. Then in the U. S. Side, we will be expanding our footprint with wholesale partners and with large retailers.
We will expand especially in South and West. And as I already mentioned, we will be developing our own distribution network further in the Northeast of U. S. Just to remind us, not selling tyres in every store in the U. S.
But to ensure the earning potential, we will be selective. We want to find partners who will commit to the targets that we have and who will develop the business with us. So key takeaways for North America. We will double our sales. Our growth engines are solid.
We have very loyal customer and partner base. Our new products are performing really well. And Dayton is in the core of the operation. And we do have a great team in place. I'm sure that we will deliver on promise.
Now I would like to move to Nordics and Vianor. Nordics is our stronghold. We have been doing business there for a long time. It's a we have a long heritage in there. We are number 1 in the market And the business is profitable.
Our One Nordics team is very strong. Looking into the details of the Nordics business. As you know, we are the only tire manufacturer who is designing tires for Nordic market. It is our home market, and our position is very unique there. The brand awareness is very high, and our customer base is very wide.
But at the same time, when the customer base is very wide and loyal, they are also extremely demanding, demanding in a quality product quality side but also in the service level. What the service level demand means that the customers are expecting to get the tyres on time for the season in summer and winter. So our job is to make sure that our customers have the tyres in time for pre season, during the season. So what we are doing there is that we are developing our delivery capability. We are optimizing our local warehouse network, and we are developing further our Vianor service center network so that they can better service the last minute deliveries.
I would like to introduce now one product that we launched actually last year for the previous summer season. So this is Hakka Green 3. We made a survey last year where we asked the drivers that What do they value in Summit Tyre? And they said this. They want to have good wet grip.
They want to avoid aquaplaning. They want to have long lasting tyres, and they want to see that the tyres are saving fuel. And this was our answer for that. We launched this last autumn for the previous summer season, and it sold really well. Now moving to Vianor.
Vianor is our biggest distributor in Nordics. We distribute 1 third of our sold tires through Vianor network. We have currently 174 own service centers and around 150 partners in the Nordics. And you are Aware of the fact that we have been improving our performance during the last couple of years, and Vianor is profitable standalone. We are not planning any acquisitions during the next few years.
But we will be developing our business through greenfield operations and partners. And then there's one trend in the market where we want to invest, and that is the Thai hotel. We have currently around 100,000 Tahoe Hotel customers. And we will be investing more in the Tahoe Hotel capacity. This is a very good way to strengthen and keep the customers with us.
So the key points for Nordics. We are very strong and profitable, and that's what we will be also in the future. We have a very wide, loyal and demanding customer base. We have an excellent distribution network. Vianor is in the core of our operations.
Our products are very high in quality. And the team is very strong and positive. And to finalize my presentation, I want to introduce our latest addition to our Hakka Pelita family Hakka Pelita 10. Here it is in person. So this tire will be available for the next winter season.
There's a lot of interest in the market for this. So we are very confident that it does extremely well. And for me it is a beautiful tire. Thank you.
Thank you, Anna. And from North America and Nordics, we are moving on to Russia. Our next speaker is Andrei Pantikoff, who is responsible for our Russian operations, Asia and Global Marketing. So let's connect to Andre.
Thank you, Payevi. Hello, everyone. Great to have you all at this Nokian Tyres Capital Markets Day. Yes, indeed. Let's now move to another stronghold of Nokian Tyres, Russia.
Russia became The market Nokian Tyres became the market leader in Russia back in 2,005 and we have retained this position ever since. Of course, the Russian market has been quite volatile, as many of you know, and also our business have seen some ups and downs, But our leadership remains undisputed. So, in the next About 15 minutes, I will talk about how Nokentires is doing in Russia, what to expect from the market and how we're going to achieve our ambitious targets to keep and further strengthen our undisputed market leadership in Russia. In 2020, last year, we built a very good foundation for our success already this year years to come. Many of you remember, we had an issue with the high carryover stocks In distribution after the winter season 2019 and in 2020, in order to deal with this issue, we revamped our commercial and marketing policy quite significantly and shifted our focus from sell in to sell out.
So our approach was to maximize Sell out last year while limiting sell in and that was the way to normalize Stocks and distribution. And I can say that we very successfully managed to reached that target and normalized the stock. But this change Shifting the focus and focusing mostly all on sell out, this is a continuous change Into our approach, we believe that this is the most effective way also to ensure strong sell in in the current market position. So already in 2021, this year, We regained very rapid profitable growth. Based on the data that we have, we are clearly forming competition this year and we expect that our market share in Russia will reach its historically highest level already this year.
And within a couple of minutes, I will share a little bit more details about our performance So as we expect the market to continue growing, we believe that we are well positioned to benefit from this growth and to become even stronger in the future and I will talk about how. But before that, let's spend just a couple of minutes looking at the market and first New car sales, which is a very important indicator for us as about 1 third of demand for winter tires in Russia is driven by new car sales. New car sales peaked in Russia back in 2012 when new car sales reached almost 3,000,000 new cars sold, but all following years So a clearly lower level of new car sales, reflecting the overall economic situation and consumers' purchasing power. In 2020, the decrease in new car sales was actually quite modest compared to compared with many other markets. And already this year, the new car sales Regained quite healthy growth and we expect that new car sales will grow by approximately 10% this year compared to last year on the annual level.
And I'm pretty sure that this growth could have been even faster if not The clear shortage of supply in the car industry globally, but it's especially strongly felt in Russian. When we look into the future, we expect the Nucar cells to continue steadily growing, but the level of NUCAR cells is unlikely to reach its peak levels within the next few years. Now moving to the tire market. And here you can see a long historical series of data, the total Replacement tire market in Russia divided by segments and also our forecast for the next 5 years. As you can see over the last decade, The Russian time market has seen 2 major downturns, 1 in 2015, 16 and then the last one last year in 2020.
But as a matter of fact, The downturn in 2020 was recorded more on the sell in level, whereas on the sell out level in consumer sales, The market was close to flat, even slightly positive because many players were Restocking and normalizing their stock level. That created very good Opportunities for growth already in 2021. And actually, the growth that we are experiencing this year in the market has been quite unexpected by many players. When we look into the future, we also expect The market to continue growing, driven both by new car sales and replacement demands. And there are many factors behind this growth.
But at the same time, we, of course, should remember the volatility of the Russian market. And I am pretty confident that the growth will not be exactly as smooth as this chart illustrates, but At least the trend is there. Another trend is that the B segment or value for money as it's often referred to has been growing fastest and we expect that to continue also in the future. A segment or premium segment is expected to remain more stable, but also showing quite nice growth. And Nokian Tyres continues to focus On the profitable A and B segments which combined represent about 1 half of the market.
As I promised, a couple of highlights about our performance This year based on the results of first half of the year, we are clearly boosting both So in and sell out in 2021. As I mentioned already, our main focus Nowadays is on sell out and here we have had an excellent summer season, you can see from the left hand side chart that our sell out of summer tires in Russia almost doubled compared to last year and reached a level which is significantly higher than over the last several years. Also sellout of winter tires has developed quite Positively, but of course, the main consumer sell out season for winter tires is about to start in a few weeks. But we have all reasons to believe that it's going to be very successful for us as well. This positive development of sell out has driven also good performance on the sell in level, As you can see on the right hand side chart, but you can notice that The structure of our reported sales in the 1st 6 months of 2021 has been quite different compared to the previous years with the share of summer tires clearly higher than in the previous years.
The Russian market experienced quite a severe shortage of tires driven by many factors. And we saw a business Unity and we decided to take this opportunity as some attires represent important strategic focus for us and that enabled us to significantly increase our sales of summer tires in Russia. As for winter, we still have time to deliver remaining winter tire orders and ensure very good results also in the winter tire season for us, which remain Our key priority, of course. But overall, our sell in in the first half of the year, twenty twenty one, increased by over 90% in terms of sales volume in Russia. So we are looking at Very excellent prospects for the full year 2021 and for the following years, but still of course remembering the volatility and the uncertainty in the market which will remain.
Now, the key question is, of course, How are we going to ensure that we are also successful in the future, that we are able to keep our very strong position in the market and to strengthen our leadership in the future. Our very highly efficient large scale local production in Siolorsk in Russia remains the foundation of our commercial success. But When we think about the ways, the tools to reinforce our leadership, We have defined 5 key strategic priorities on which we're going to focus over the next few years. Let me quickly walk you through these priorities and then give you some highlights and examples on each of them. So priority number 1 is about product leadership.
Number 2 is about optimization of revenue and profitability driven by smart price positioning. Priority number 3 is about consumer pool and ensuring sell out through both direct promotion and sell out support to our partners. Priority number 4 is about developing and utilizing digital business solutions, e commerce online services for consumers and customers, which is very important in Russia. And priority number 5 is Continuing to build our multichannel distribution and further develop branded Retail. As I promised, each of them in a little bit more detail.
Product leadership. This is where it all starts and you have seen already Hakapeliitta 10 tire and even demonstrated life by Anna. This is a really very special year for us Because studded winter tires is a very important category in Russia representing about 80% of demand for winter tires. With this new product launch, we Russia received special product tailored specifically for the needs of the Russian market, which will enable us to maximize Safety on wintry roads by our consumers while at the same time complying with all local Technical standards and regulations. And as Jukka mentioned already in his presentation, the first 2 magazine tests where Alcapinita 10B participated in were very successful for this new flagship Simultaneously, we renewed the whole product range in winter tires and started winter tires in Russia and launched A new leading product in the B segment in the value for money category, Norman 8, which I'm sure we'll be very successful in this segment in Russia this year and in the years to come.
And we're absolutely confident that Also this new flagship Hakaprita 10P will be very much appreciated by Russian consumers in the upcoming winter season. Now moving to the 2nd priority and this is about using smart price positioning in order to Maximize our results to optimize our revenue and profit. Hakapeliitta by Nokian Tyres Has been an iconic brand in Russia for many, many years and that enables us to keep our flagship product At the top of the price range in the Russian market, as you can see from this chart, we continue to be The price leader in the winter tires in Russia, but simultaneously As the market is quite versatile and there are different segments, we have pretty full coverage of different segments, Specifically targeting certain competing brands and models with each of our models in the brand, thus contributing to this optimization of revenue and profit that I have been talking about. In summer tires, our approach has been slightly different. We chose to be more competitive in within the premium segment.
But again, this is we see it as a way to optimize the result by being slightly more competitive but making very good Revenue and profits and that enables us actually to be not only the leader in winter tires, which is quite obvious, But also, to be the leader in summer tires, in Russia. Priority number 3 about maximizing sell out and consumer pool. As I said, we have a very strong brand already, but we continue to invest into this brand. And also we are doing quite a lot In order to support and sell out of our products, we have a number of different programs running in order to ensure this consumer pool. Let me mention just one of them, the Extended hacker guarantee, which has quite a long history in Russia and which is a very powerful tool to support the sell out.
And there are almost 5,000 points of sale across the whole country which participate in this program and which offer our Hacker Guarantee on behalf of Nokian Tyres to the consumers. Priority number 4 is about E commerce, digital business, online services, extremely important in Russia because Russia happens to be one of the most advanced markets In the tire business globally in terms of e commerce, it has very high penetration, very high share of Consumer sales for the whole country, including like all towns and villages In a country with 9 time zones, the share of e commerce today in the tire business is estimated close to 40%. But in the large cities like Moscow and St. Petersburg, the share is already over 80%. So Online has become the main sales method of tires to consumers.
And of course, many of our customers I actively involved in this business and this is why tire manufacturers also have to be involved in order to operate in the same environment together with our customers. Nokian Tyres has been an early adopter of e commerce in Russia. We Some of you may remember that we launched our 1st direct consumer web in Russia already 10 years ago in 2011 and built a lot of capabilities because of this. But last year in 2020, we converted this web shop into a single branded marketplace operated by Nokian Tires, which connects Consumers across the whole country with hundreds of professional tire retail shops. Another example of A marketplace also operated by us is Vianor.
True, which generates consumer business for the Vianor network in Russian. And last but not least, distribution remains to be key. We continue to work with the official is our main distribution channel. And these are integrated wholesale and retail operators, also with a very active online presence. And we work with in very close partnership with them.
As a matter of fact, I just returned only yesterday from 2 day conference with our top distributors, which we held in Karelia, here in Russia and had very interesting discussions and fruitful negotiations and this traditional annual event reconfirmed our close partnership and The community of Nokian Tyres partners, which continue to build Nokian Tyres business together. At the same time, together on top of official distributors, we operate with many other customer categories, including automotive Customers such as car manufacturers and car dealers in order to make sure that our products are available and attractively presented to consumers in Russia regardless of their point of entry, regardless of the channel that they selected for their tire purchase. And on top of that, we develop Some new channels like corporate fleet customers, for example, including the quickly emerging and even booming car sharing and taxi operator category. So this is how we work. As I outlined already, we made certain changes into our commercial policy.
It turned out to be Quite successful. We regained very rapid growth this year. We Clearly outperforming competition and the intent to keep it this way. We continue to focus primarily on sell out and we believe that it will drive very strong sell in as well, but at the same time, it will ensure that the Stocks in our distribution will remain on a healthy level. We actively use pricing and product mix management in order to improve our average prices and profitability.
And we believe that all With all the uncertainty and volatility of the market, with our long term experience and continuous improvement of our business model, we Well positioned to mitigate these risks and to benefit from the market growth and here I I must mention our very experienced team in Russia with many people who have worked in the tire business and for Nokian Tyres for 15 years and more like myself and we believe that this is the strongest asset which will help us to reinforce our leadership in the future. Thank you very much for your attention. And back to Pavi.
Thank you, Andre. And let's reconnect in the Q and A after a short while. Now we are moving from passenger car tires to heavy tires. Our next speaker is Manu Salami, who is responsible for heavy tires and the Finnish factory in Nokia. But let's first look at the video.
Tire system, they are good in every condition. They need to work well also In hot conditions, driving in summertime and also in icy or snowy conditions in wintertime. At the moment, we drive with the same tires all year around.
Good afternoon. I'm very excited to lead you to Nokian Heavy Tyres growth strategy and by that video You got the flavor how we work with our customers, what kind of products we have and what kind of overall business we are doing. So, we have clear target to grow by 50% during this strategy period. As you know, Heavy Tyres business is roughly €20,000,000,000 plus market globally And it is steadily growing above 4% per year. Biggest segments there are Construction tires and Agriculture tires And also Mining and Industrial tyres are remarkable.
We are present in all those Segments. Mainly we focus to the biggest ones so agriculture which includes forestry and then Construction Tires. The market is divided between original equipment and aftermarket Like 35, 65 roughly. And actually our Heavy Tyre business is the same. Of course there is A bit variance between the quarters, but it's roughly the same 35%, 30% to 65%, 70%.
How are we going to grow? We have 4 main growth drivers. Our target is to grow more than 10%. As I said before, the market is growing a bit above 4%. So it's an ambitious target.
An overall target to grow by 50%. To be able to grow we need distribution. Our strategic key markets are Central Europe and North America. And there we will strengthen our sales team and also focus to new distribution customers. We will build capacity in Nokia.
In past years we have been lacking some tires And the availability has been tight, but we will solve this by building new capacity from 20,000,000 to 32,000,000 kilos. And this investment project will be ready by 2023. It is ongoing. We started it already 2018. We have done a lot of things and I will tell about those in next slides.
Also, we will widen our product portfolio by 50%. We will go to the segments where we have not been before. There we can find and get new customers and make their business easier and better. Then we will develop digital capabilities Both to our own processes, production, sales, logistics, but also connect to the customers directly via different electronic systems and also via smart tires. And we are not only growing, we want to grow profitable have profitable growth.
We have already now world leading productivity in Nokia and we will continue to have that leading position by doing these investments. We have a lot of automation there, robots, we have great manufacturing excellence execution system and so on. Then we will maintain our price position through quality and service. Of course, Customers want to have the best tires with best service and we are ready for that. Then we have our lean leadership model.
That means that we have clear Target, it is communicated to everyone. Everybody knows what is expected. So the whole system in different functions, not only in production are using that and it is making the process so efficient. And then whatever we invest to operations in long term or short term we want to have good payback for that so that also our owners are happy and we can be happy and really be profitable.
First,
driver, the distribution. We are already strong in Europe, in Nordics. We will continue that and we will strengthen it and also in North America. East is important for us. Russia is, for example, the world's biggest Forestry Machine Market and therefore really important for us.
There is also a big Mining Sector and Port Tyre Business where we are involved. South America it's an agri market and forestry market and therefore also potential and already now important for us. Australia, New Zealand, same thing. But really we need to concentrate somewhere and it will be Central Europe and North America. Then the capacity question.
So from to 32,000,000 kilos by end of 2023. It has started, as I said. We have done, for example, mixing Capacity Improvements in Nokia site, compound building capacity, Also new curing lines and ready made tire handling by robots and an inspection of the tires by visual inspection. Those are already ready for this 32,000,000 kilos. An ongoing project are the tire building machines which we are now installing.
We are very well in schedule. The total value of the investment is about €70,000,000 and it's for both Production and R and D capabilities. R and D includes for example test molds, new testing machines and so on. We have built to Nokia a brand new R and D center where we can really meet the customer and authority demands and also make the new innovations and test those accordingly. It's really high quality efficient place.
And new machinery what we have in that testing center are really something what I think They are our own design, so there is nowhere else in the world. Products, that's the key, that's what customers are buying from us. We are the global number 1 in Forrester Business. Biggest OEs are our customers and we work very closely with them And we want to be satisfied and they want to be satisfied about that cooperation. We are developing the next generation Forrester tires with them and that's why customer and customer view is so important for us.
From the previous slide where you saw that we are strengthening our sales people around the world, part of their job is really Listening to customer and collecting the information what kind of tyres we need to produce and design. New area where we are really targeting the growth is agriculture. And there especially new technologies like very high flexion tires for the high horsepower tractors and implemented tires for trailers. That's a huge market with big potential in both OE and aftermarket. And 3rd, Product segment where we are including investments to new products is on road, which means Trucks and Buses, Tires.
In Central Europe, regional and long haul Truck tires are the next thing what we are going to launch. That market is growing and the demand for our specialty tyres is high. Next, I will tell you about one Big development thing what we have done together with our customers. So we have combined All Terrain Mobility and On Road performance in our new tractor tire. It's called Nokian Ground King.
We launched that last year and it has been really a success as that kind of tire has never been on the market. Many times, many years already customers have been asking how we could drive on the road with the same tyre than we are working on the field. And actually the demand for that kind of tire is just increasing because Areas where the farmers and constructors are working, it's just widening. For example, in Central Europe, Farmers can drive 100 kilometers from field to field, so the road condition, road performance is really important. But you can't lose anything what you need on the field.
Then 4th, the digitalization. Our vision is to be the industry leader and that includes our own production process, customer interface and also the smart tires. In our digital factory, we have Manufacturing execution system which is, I would say, world class. We can follow every tyre from the raw materials to the end user and back and that's really important when we are following the quality. When getting feedback when the tire is really successful or if there is a challenge in hard conditions, we can follow what has been done, who has done from with raw materials.
That's really important to be the premium. Then from customer point of view, we are connected to their systems. We get the forecast. We get feedback from quality point of view and everything helps us to be efficient in our own production and also plan the availability and be right in the seasons. An Intuitu Smart Tyre which we have already launched.
1st to agriculture tires. Tire is telling to the user How they are doing? What kind of pressures, temperatures and in the future other things you should do and how you can be the most efficient in your work. And also the tire is telling to the producer, Nokian Heavy Tyres, how they are working. What should be done better?
So we are focusing on premium segments. As you have been following, We are, let's say, the top brand in those segments where we are working. We want to grow by 50%. We need more distribution. We are working for that.
Customers are with us. We are increasing the capacity. That is going well. We will reach that 32,000,000 by end of 2023. We will increase the product range to serve better to get into those segments Where we have not been before, that will widen our sales and then these digital capabilities which are supporting all of those.
Even how good technology or whatever systems, processes, if the team is not right, It doesn't work. I'm very happy and proud about the team what we have in Nokia and globally in all functions. They are committed to make this happen and we have already shown the results that we are on the way. Thank you very much.
Thank you, Manu. And this Heavy Tyres presentation concludes the presentation part of this Capital Markets Day. We will now have a short break of 10 minutes and continue with the questions which you have already been sending to us. You can continue to do so via the webcast platform. But let's see in 10 minutes' time.
Welcome back. And already now thank you for all the questions that you have been sending So far you can continue doing so. Let's start with the questions which we have received. And the first one is about the BA targets And the starting point of these targets, maybe we'll do so that Anna, if you can answer for North America and comment on Nordics as well. And then maybe, Jocke, you can cover the other areas.
For North America, the starting point is the rolling 12 months. So we use as a basis the 2,000,000 tyres, and we will grow to 4,000,000. And as Jukka said that it's in midterm, 3 to 5 years. And then Nordic strengthening the number one position in the market, that is something that we do constantly.
And just to continue and build on that, that indeed we didn't pick 2020 as a starting point because that was an exceptional year. Also 2021 is not completed, so therefore we picked 12 month rolling. If you look at Central Europe, the starting point is Roughly 6,000,000 tyres and ambition is to go all the way up to 9,000,000 tyres in midterm. In Russia, we've gained recently significant market share, as Andre was telling. And therefore, we want to build on that and continue improving that and strengthening that position.
And Heavy Tyres, as mentioned, the rolling 12 months is roughly about €200,000,000 and our ambition is to grow by 50% to €300,000,000
Thank you. And let's continue with North America. Anna, how are you growing your dealer network in North America?
I mentioned in the presentation that our distribution is selective and that is working really well. So we the dealers are contacting us and they want to work with us because they see that there is earning potential for them in the cooperation. We are developing our NAD program All the time. And then I also mentioned that we want to grow with the wholesalers. But it doesn't mean that we disappear from them.
We want to be very strong also with the wholesalers in the market. So it means that We need to have a very strong sales team in place. And we are recruiting more people now in the growth areas to make sure that we have the presence.
And how are you increasing the consumer awareness? That has also been asked.
I think that Through this cooperation with our partners and dealers and the wholesalers, it is the way to improve the brand awareness and improve the consumer pool. So we do advertising with them in the areas where they are present. We do product training and so forth, so all the usual sort of marketing activities. But I think that the key is that we take care of our dealers, And then they want to work with us and achieve the common and, let's say, the mutual targets that we have.
Thank you. And the same question has been asked for Central Europe as well, Bahri. How are you increasing consumer awareness in Central Europe?
Yes. Thank you very much. So very good question. I think here, first of all, we need to differentiate in which markets we are looking at. So, like in Eastern Europe, we do have already very strong brand awareness And that's why our market share overall is already pretty high and significant.
However, now if we move into new markets like in Western and Southern Europe, I think we will work intensively with our partners there, with existing but as well with new partners because they know the best the consumers but as well the shoppers. And core marketing will be very key and sell out activations in store. And because we need to make sure in new markets like If we expand our distribution that consumers have the opportunity to try our products, that's the most important thing, try and because then we are convinced that they will stay. And there is another concept that we have just introduced. This is the 2 year tire guarantee, you know.
And with this, we are going to Build up the credibility. So because we are convinced of our products, if they try, they will stay. And last but not least, And our NAD concept that we are putting our efforts in as well, we want to expand that in line with our growth opportunities. And all this together will make sure that our brand awareness steadily will improve.
Thank you, Bahri. And next question is to Andre and about Russia. Andre, how has the competitive landscape changed in Russia over the last 2 years?
Thank you for the question. Actually, I should say that not only competitive landscape Has changed, but the whole market situation has changed quite dramatically. As to our core competitors, I should say that As far as we know, all of them continue their normal operations in Russia, but many importers that rely on importing tires to Russia, especially from Asia and especially from China, have clearly cut their supply to Russia last year and this year. This is partly driven by the weak ruble And then also reinforced by huge increase in the container transportation costs which represent a very high share now of the total landed cost for these imported products when imported from China, for example, and that resulted in a situation that, for example, the Chinese Players which used to account for close to 10% of the total replacement time market in Russia All but disappeared and that drove I should say the severest shortage of tires in the Russian market and also driven the consumer demand up in terms of segments from C to B and from B to A. So of course that changed the market situation dramatically and I should mention also that one Impact of these changes that the financial standing of our distributors has improved significantly because they in this situation they are able to earn better margins than before.
Thank you. And let's continue with Russia. Andi, how can you increase ASP average sales price in Russia?
Thank you, Paivi. I have been talking already about smart price positioning, so I will not repeat myself with that, But I should say that we are monitoring of course the competitive situation very closely and also Our own cost development, the increase of raw material costs is not a surprise to anyone anymore. So We are taking that into account when making our pricing decisions and we I can say that we are targeting to fully cover the increases in material costs in the future. As to the current year, We are doing that already. So if we look at our average price, despite the fact that summer tires now this year in the first half Of the year accounted for clearly higher share of our reported sales in Russia despite that fact Our average selling price in Russia increased by a double digit percentage and we continue to work closely with product mix and price increases to improve our profitability.
Thank you. Let's then take a question about heavy tires. So, Manu, can you quantify the long term opportunity you see in heavy tire digitalization or elaborate on how much you expect this specific driver to contribute to the 10% CAGR target?
Thanks, Paivi. Good question. And digitalization, as I said in my presentation, it's already here and it will be in the future even more. How much it will contribute about that 10%. It is going to grow that contribution.
It's part of the whole package between a tire, the product and the service and the information what we can get via this digitalization, that's the most important thing. So The benefit for the user and for us comes by using that digital information. And so it's not Alone, it's the part of the product, service and utilization of the tire, and that's growing.
There's another question, Manu, about heavy tires and the products. What kind of new products are you considering developing and where is the greatest demand?
We are developing new products for all those segments where we are present at the moment, the biggest growth we are seeing in agriculture business. So we are strong already, for example, in forestry, market leader there. But agriculture is the place where we will grow. And there, The products for high horsepower tractors, which are extremely demanding,
So it
will be the new technologies, which really means better traction, better Fuel economy, rolling resistance and those road properties, that's where we want to be strong.
Thank you. And then there is a question about China and Japan. We did not cover China and Japan this time in this
Capital Markets Day as we wanted
to concentrate on those areas, which Markets Day as we wanted to concentrate on those areas, which have the biggest impact on the €2,000,000,000 revenue target. But Andre, could you open up a little bit what is the Nokia Entire strategy in China and Japan?
Yes. Thank you for the question. The roots of Nokian Tyres are in winter tyres. So our strategy includes to be present and build tangible market presence in all those markets where winter tires are sold. And there are not so many outside of our core markets, which are not fully covered yet.
In this sense, both Japan and China represent a good opportunity for us. And with that in mind, we Enter China a few years ago and Japan 3 years ago, first with winter tires, but then Gradually expanding our product range in those markets also to cover other product categories. Japan, for example, is The 3rd biggest winter tire market in the world, so it's obvious that it is of interest to us And we have already managed to establish a really like premium, the high end positioning in that market, although, of course, it's difficult to penetrate and the volumes develop relatively slow, but I think we are on good track. As to China, it's a smaller winter tire market, but It also exists and we also built presence there already and now we are looking at different business models to Take you know next step in our business development in China. But in a nutshell I should say that both Japan and China represents an opportunity for us, a foundation for future growth, which goes beyond the current midterm period of 3 to 5 years.
Thank you. Then the next question is for Teemu and maybe also for you, Jukka. The market share gain targets seem to go hand in hand with higher marketing and distribution costs. Will you see the cost coming in early And ahead of the volumes, I. E.
Margins should be diluted before hitting the midterm target or will it be going up step by step?
If I start and then please continue. How I see it that it is always a balance And it varies by market. So our aim is to have a balanced approach, so in line with the financial targets. So We don't see major upfront investment that dilute our profitability targets.
Yes. I would Say the same, and I think that it's important, of course, that we do the work, foundation work that we help our teams to achieve higher market share. It's about investing in brand strengthening or digital tools and similar. So but nevertheless, I believe also that we can achieve a balanced development so that there's no significant cost spike or anything like that, that you would experience. But revenue development will go hand in hand with The cost.
And the same comment goes both for passenger car tires and heavy tires?
I would say so, yes.
Yes. And there is a follow-up question. What pricing assumption is the market margin target based on?
I think the main driver is naturally the cost inflation together with the market dynamics in the markets that we present. And as I stated in my presentation, We are expecting to have also clear increase in input cost in 2022. So maybe At this stage, roughly on a level of 14 might be the good proxy that we then will be more precise towards the year end.
I think it's also just to complement and talk more about the pricing The new products, of course, give an opportunity that whenever we launch a new product, that gives an opportunity to have a new price point. And As Andre was talking about Russian pricing, for example, that the new product is at a high level and then we have a number of products that are lining up behind that. And That allows that pricing differentiation. And I believe that that is an important driver of the pricing opportunities, the launch of new product. Of course, they have to be good and they have to be successful in the eyes of the consumer.
But that is something that we believe in and that's what we aim to do.
Thank you. Then back to Central Europe and Bari. What percentage of sales are being made online in Central Europe? And is There are much country variation across Central Europe.
Yes, indeed. There is a huge I mean, the market is very diverse, whether it comes from Portugal up to Ukraine or from Denmark to Italy. And so it does with our online sales in general. So overall, we can say that we do around 10% directly with our online retailers. However, you know, our customers can place at any time the products to marketplace or in other kind of places, so they are free to do that.
So what we sell in is like around 10%, but of course this varies from market to market. And it can go up to 40% like in Eastern Europe and then be actually much lower than 10% in Southern markets like Spain and Italy.
And let's continue with Central Europe. Bari, you talk about expanding the NAD network. What is the optimal scale for this network and how much will that cost?
There is nothing where we can say is in that sense optimal. So we have a growth strategy in place. We know how much we want to grow and within that, it plays a vital role. So it is in line with the overall growth target that we have And that's why the overall investments are already implemented into our long term strategy. So this does not come in on top.
It has been as I'd say, it has been already implemented in the plan and it is for the future as well. So looking at this kind of an increase of the amount of outlets by around up to 8 between 8% to 12% depending on the market and the opportunity.
Thank you. Then I have a question for Jukka. Are Vianor and Heavy Tyres long term key To your growth strategy, could you not achieve higher valuations for these businesses by spinning them off?
I think that they are highly synergistic to our growth target, but also Vianor, for example, plays an important role in our Nordic market penetration as well as the Vianor Franchise chain in Russia is equally important and also heavy tires in terms of Nokia factory in sourcing and many other benefits that The synergistic totality is important to us. Can we achieve higher valuation? I don't think so, then we would be a much smaller company, and then we would have cost penalties of not having Vianor or not having heavy tyres and not using the synergies of those inside the company. So the answer is that no, I believe strongly that we have a higher valuation when they are included.
And we can continue with the same topic because there is a similar kind of a question, which It's for Anna. What is the long term role of Vianor in the Nordics? And how integral is it really to your success in the Nordics?
Well, we talk about 1 Nordics, so it is very integral. I mentioned that we distribute 1 third of tires sold in the Nordics via Vianor network. And as Vianor is not only selling tires, but it's also providing services Related to the tyres and car services, related to any kind of cars, We are building customer locking through those services. So it is very important for us. And as Jukka was saying that It is there to stay.
Thank you. And the next question This is for Andre about Russia. Thank you for providing your targets on Russian tyre market. Could you Please provide some color on key underlying assumptions for the optimistic targets. Understand your assumption for new car sales growth is lower than the growth in the tyre market.
Yes, indeed. If we compare the expected growth rates for new car sales and for the time market, the total time market, We expect higher growth for the tire market because with every year the number of Cars on the road, the overall car fleet in Russia increases also during the years of really low cars, new car sales and that represents higher replacements demand for tires, both summer and winter tires. This is why with every year the share of replacement demand is slightly higher than the contribution of the new car sales. But the underlying assumptions for both are quite conservative Economic growth, there is no there are no reasons to believe in very rapid GDP growth in Russia for the next years, but it is expected to remain slightly positive. But of course, A lot, as always, quite a lot of things depends on, for example, the global oil price and so on.
As to tire market situation and specifically looking at the current year's growth in the market, There have been quite many structural changes in the consumer consumption including for example a huge boost of domestic travel, which has been driven by restrictions in international travel. So many people chose to travel Domestically instead using their cars and that is one of the factors which keeps up demand for replacement tires.
Thank you. And the next question is about Nordics. Anna, how do you see competition developing in the Nordics?
The competition in Nordics is they are very competent. They have extremely good products. But we want to be better. And what it means that we want to be better, it means that we want to be better In everything we do, in products, in the services that we deliver. And maybe to mention from the services side, the availability for the products And then, of course, the we already discussed Vienna network.
Thank you. Then the next question is for Teemu and or Jokka, how conservative are your midterm targets for group returns? Limited CapEx would imply a higher return on capital employed than margin midterm if sustained.
So if we start with the return on capital employed, and as we stated in my presentation, this asset velocity is one key function in order to reach the return on capital employed. And as you saw in my slide, there was a clear dip in 2020 because of the lower net sales and the ending of our investment phases. And now when we are focusing on our working capital rotation and have an Optimized capital outlay for the business in connection with the increasing net sales, we feel that we are able to reach the return on capital employed.
Yes. Building on that, I believe that also when the Investment level is relatively modest compared to what we have done in the past years. So it's Clearly possible that our free cash flow is quite strong in coming years. And then when we drive it into the future, so Growing the top line is quite important so that we get the benefit of the investment we have made. But if you then compare to, say, the last 12 month rolling that where are we?
So we are in €1,520,000,000 in sales. We want to develop about up to €500,000,000 of new sales in order to hit our €2,000,000,000 target. So that's quite a demanding target. At the same time, our segment operating profit In the last 12 months, it's about 19% level. And our return on capital employed is about 14%.
So Clearly, the stretch is in the return on capital employed and in driving the net sales. If we can overachieve any of these targets, we gladly do so. And we surely Aim to, based on our spirit and based on our purpose also, that it's part of our purpose and part of our history that we exceed the expectations. And this is course what we aim to do. But let's start with these targets and then drive it into the immediate midterm future.
Thank you.
Thank you.
And now I have quite a long list the list of questions for Bahri about Central Europe. Your Central Europe revenue grew at a 10 at a 2% CAGR between 2014 2019. What gives you confidence over the next 5 years you will be able to grow by 50 percent? Which elements of your new strategy will be the main contributors to this acceleration in growth?
So the good thing is maybe You have seen this actually during the presentation as well. We are already on track. So we have seen this growth despite COVID over the last 2 years that we have growing significantly. So, the good thing is that the strategy that we have in place And we are confident that it's really working. So it is kind of proven now.
And that's why we are continuing to strengthen that. And the key building blocks for this that makes us so confident is actually, first of all, our products, including our R and D support, but as well with the test center. So that will create another round of new products in the near future and that will definitely help us. And then the second thing is we are growing into new markets we haven't been yet, so that comes really on top and then to new channels as well, where we haven't been not exploring so far. And all of this together, we have really room to go over proportionately.
So and then And last but not least, we will increase our overall marketing investments to drive brand awareness but really to link to the consumer activation and sell out in the stores. And I think with this package, as we have proven in the last 2 years, we are able to grow faster than the market.
And there are follow-up questions on this. Why do you expect above group average gross margin in Central Europe if Growth will be driven by all season and or summer tires in the mid term. Then there's a question, how do you strengthen distribution In new markets where you are less established and does growing new distribution networks involve discounting your product in the near term?
So maybe I come to the first point, it was I think about pricing and ASP pricing. I think Important there is to look on an apples to apples conference like winter to winter, summer to summer and all season to all season. And here, of course, you know, First of all, it's the product mix which mark which products you are selling and we are as we have shown, The higher ASPs is in the growing bigger rim sizes segment. That's where we have been successful. Again, there, We are growing much faster than the market and where the ASPs are much higher.
So in everything what we do, We are going into the higher value segments of the market. I think that's the key thing. And at the same time, when we go into all season, as we have shown as well, it was not at the expense of our existing business in our stronghold winter that came on top. So looking ahead, yes, we We will grow more in all season in summer as well, but we are growing in winter. And so the market just will go up everywhere.
And then the next question was how do you strengthen distribution in new markets where you are less established?
And so we are like talking more like about the Western and the Southern markets. And here you do that with the first of all with the right partners. So you get very close to the partner selection And with them because they know the markets very well and together we can establish actually very strong collaborations In order to expand our distribution, this is the first thing. And the other thing is, you know, to have the right product because now with having the test center In Spain, we have a capability now in the region to build up the right product. And if you have the right product, You know, customers will be more rely on you and then it will go into the story if we support that and people try that.
And then And steadily with this altogether and with the marketing campaigns, you further increase your penetration of the market. But, you know, Most important and I think what we always did in the past, we are very strong in customer collaboration. I think that is our strength. And the last point is, as we have just mentioned before, is our NAD concept, you know. So this is another kind of collaboration with existing partners to showcase our product, but at the same time to help them as well to support our products, but as well to support their sell out.
And if we both make money, if you make money and our customers make money, then I think Everything will come together.
And does growing new distribution networks involve discounting your product in the near term?
I hope
not. Definitely not from our side. No, not at all, actually. It's the other way around. I would say Again, I'm coming back to R and D facilities and then the test centers.
I think our aim is to get even better products each time when we launch them and to position them each time, you know, at the premium segment. So we are a premium brand, you know, And that's how we want to position ourselves. And specifically when you go into new markets, then you need to position yourself on the right level. So it's not about discount, it's really about premium and this will be very consistent wherever we go.
Thank you. Then Jokka or Teemu, about Segment EBIT versus reported EBIT. Can we assume it's the same number when you reach €2,000,000,000 sales If the U. S. Ramp up is done?
As we have communicated that when we reach the level of 3,000,000 tyres in Dayton, then we are on a level where we shouldn't have any Exclusions in our EBIT reported EBIT. So that's the key thing and hopefully That happens before we reach SEK 2,000,000,000 net sales. It's more linked to capacity or output in Dayton than the top line at the group level.
Within this horizon, 3 to 5 years, our expectation is that segment operating profit and EBIT will be the same.
And Jukka, there is a question about the challenges, what Nokia and Tyres may have. What are the biggest challenges to achieving the growth target of SEK 2,000,000,000?
I think the one of the biggest challenges surely is that we have the right products so that we are able to launch successful products. So Whether we have Hakka Pelita 10 or we have Whole Season or we have Summer tires or in North America, the launches, I think that this is the key, Because then we have the essentially we have the capability to manufacture them. And we have a distribution network and we are building that. But inside that the heart and the core is that those products are successful and valued by our distribution and our consumers. So Surely is the key to achieve.
Good. And Teemu, are you willing to share mid To margin targets for passenger cut tires, heavy tires and Vianor separately?
We have been communicating on a level, and we feel that that is a good practice at least for the time being.
And I have a question for Manu about heavy tires. You talk about building capacity. What will that entail and how much is the investment?
The investment is roughly €70,000,000 It has partly spent already as we have proceeded with the project very well during the year since 2018. I mentioned already that we have built new curing lines, ready made tires, automatic handling robots, Visual inspection places, also compound building and next phases will be new tire building machines for radial tires And that will happen this year and next year mainly. So we will get a lot of more productivity and efficiency to our factory.
Thank you. Then there is a question about the financial targets and the margin target. Can you confirm the 20% margin target is not Lower profitability in existing segments, but rather a mix change due to increasing proportion of summer tires and all season tires in North America. Also can you confirm that this product mix shift is not going to be return on capital
If I start with the formula, so the return on capital employed, it is calculated with the method that we have been using in the past, so we are now by no mean changing how we calculate that. Then in terms of the impact between the product mix and the factory mix, and as I stated in my presentation, When comparing these two crafts, the bigger impact of the change is coming through factory mix than through product mix, which is in line with the communication already in our Capital Markets Day in 2018. So in that respect, no change of our outlook or communication.
Thank you. And then the next question is about the profitability again. Consensus expectations for 2021 are for approximately 18% margin. And the question goes, I have understood this includes track from Dayton, lagging raw materials and logistics challenges. Are not these two effects greater than a 2% margin track?
Therefore, could not margin be higher than 20% once these effects unwind?
I think that again commenting to consensus is slightly difficult. But Let's say it this way that we are looking at the margin target and we believe that going ahead this is Something that is achievable. And of course, there's also an opportunity to overachieve, but That opportunity comes when we go along and see that how things will develop. We are, of course, a company that delivers high results and it's part of our value that we want to deliver high results. And when we achieve higher or can achieve higher, we surely will do.
But commenting consensus, I would not want to do that. So
And the next question goes to Manu again About Heavy Tyres, what makes you confident of winning market share from other players in Heavy Tyres?
Two things, mainly it's a product and the service. So we are working close to the customer and delivering what customers are expecting. And the products, they need to be excellent. Of course, this is always expected. But among that, that the tractor tires are really good behaving well or any other segments what we are producing, we need to have the best service, Best availability, best cost per hour result, that's what really means to the customer and We are working a bit differently than our competitors in some meanings.
Our customers know that and I'm confident and willing to continue that way also in the future and that's how we will success.
Thank you. Then a question about U. S. To Anna. U.
S. Is a very competitive market with well established players, including on the distribution side. Could you give us more color on your plant marketing efforts and the associated costs we should have in mind?
Well, firstly, we don't spend as much money as the bigger competitors are doing. So referring back to my comment earlier regarding the cooperation with our partners, with the wholesalers and dealers, We go to market with them and we do the marketing efforts with them towards the consumers, but also For example, training product training for the wholesalers and dealers, That is something that we do together. And as I mentioned earlier, it's not enough to have, Of course, wholesalers just there, but we also need to have a very strong own sales team. And this is how we will build build the presence and we will build the brand awareness.
And then another question about the U. S. Or North America on the product mix. What should we assume between winter, all season and summer for Nokian Tyres in the midterm?
Firstly, the summer is for us is basically non existent there. So we are selling winter and all season. We will grow in all season. The winter market is Pretty stable. The growth there is not that big as it is in the all season side.
So we want to grow, we want to be strong in the winter, of course, but we will grow mainly in the all season.
Thank you. Then Teemu, what are the cost implications of implementing your new non financial targets?
How we have approached this is that it is part of our ongoing activities and We should do that in any way. So we don't see that as an extra cost. It's part of our ongoing operations.
And let's continue with costs. And this has been already discussed in with Anders Answers and Bari. It's about marketing spend. How much is your marketing spend? And are you planning to increase that?
So if I listen to my colleagues, everybody has been commenting, investing In digital and in marketing and point of sales, I think that is always the discussion how we allocate between different elements. And for sure there might be some slight increases, but they are in line with our overall financial targets. As I also stated in my presentation that These financial targets guide our operations and decision making in the coming years.
So when we think about the past, so we've invested quite a bit in the plants and equipment and so on. And now when we go into Spending marketing, so part of that is strategic spend, part of that is tactical spend. So of course, you can then regulate the spend that strategic programs and Information Technology Investments and so on are important and strategic. But at the same time, of course, you have a part of the tactical spend that how do you ensure that the sellout and various programs take place and so on. So there's 2 elements in that.
But yes, of course, we want to make sure that we achieve go towards the €2,000,000,000 net sales.
Thank you. Then there is a question about working capital drivers. Where do you see the improvements coming from And how much improvement is possible?
Naturally, The components are the normal ones, the trade payables, Inventory and receivables. So the receivable part is in connection with our business models. And currently one main driver there is our business model in Russia that has been working well so far. Then in other markets, we always need to pay attention what are the terms and conditions when we work with our customers and there we need to find the balance to reach the top line and also the working capital part of relating to that. Inventory levels, There it is also going hand in hand with our business models that we are developing, But maybe the easiest part that we can impact already short term is the trade payables and there we have taken already actions to improve that.
But I would say more to come.
Thank you. Then there is a question about our production units. Can you quantify your units in 2021 in 1,000,000 units.
I think the year is still Ongoing, so I think that that would be then something that when we achieve the end of the year we quantify. But essentially, the capacity mentioned that up to €70,000,000 in Russia, up to €5,000,000 in Nokia. And as we said, the shifts will go in Nokia the latter half. And then we have also 3rd and 4th shift in Dayton. And as at the run rate, expect it to be 1,000,000 tyres.
But to be specific, I think we need to let the year run till the end, and then we know and can tell how it went.
Exactly. Then Teemu, in the press release, which we published yesterday, we mentioned improving operational efficiency. What do you mean by that and in which areas?
Maybe I can also refer to Manu's presentation about the lean. I think lean is a good example that we want to improve in everything, what we do, starting from production and also going to the Vianor side. And for example, in Vianor, we have made some good learnings during the COVID time that we are continuing and building on also in the future.
Then maybe another element is that we work there was a question in the previous session about that. Can we also consider that we can increase the capacity in Russia from $17,000,000 higher. And can we do why do we do this up to $5,000,000 in Nokia? So part of that is a productivity improvement. That's part of the lean.
Some of that is related to de bottlenecking investments and efficiency improvements and things like that. And this is a normal part of the manufacturing company. And we will intensify these efforts in many ways to help ourselves in order to have a more efficiency, lower cost and also opening up capacity.
Right. Then I have a question about Central Europe again, Bahri. What single initiative was the most influential in achieving the market share gain in 2021?
Actually, we had many, but if you ask me about a single one, then I would definitely point out the All season development. And, you know, we basically doubled our business over the last 2 years despite COVID. So that put really us on a different kind of positioning. And that was the overall support for the overall market share gains. But at the same time, as I before and I think this is very important, it was not of the expense of the other categories.
So, we were growing winter tyres and even a little bit into the summer business as well. And, yeah, so all season, that's One of the biggest supporters of our market shakings.
And then I would have another question For Bahri about Central Europe, could you elaborate on the pilot in the fleet business? What are you doing? And what would you like to achieve?
You know, I don't know if my listeners are aware about this market. This fleet business is really growing and if we look into the future changes in consumer behavior as well like instead of owning more like leasing cars or especially changing in the mobility, this business is growing and it will even further grow in the next 4 or 5 years. It will really accelerate and there are many studies about that. This is the first thing. So, this is going to that one.
And the second thing is, today already like In Germany, like 60% of all new cars, between 50% to 60% are actually leased cars, corporate cars and 20% of the tire market is coming complete. So I think you cannot neglect that. So our objective is to study this business and that's why we are piloting it to study this business what is the right angle for us to enter And as we are a premium brand, premium products, so we will look into that how it can work out for us. And this is actually our objective. Then if it works out, we will continue and further expand.
But I would say piloting means really learning and then to the right steps. But I think Going forward, you cannot neglect.
Thank you. Then About the financial targets again. You put a clear accent on the fact that your key target mid term is €2,000,000,000 of revenues, does it imply you are prepared to compromise to some extent on returns if needed to reach this sales ambition?
Obviously, we see an opportunity to drive the top line into €2,000,000,000 And It's based on the fact that we made a number of actions in terms of investments and also launching new products and expanding our sales network and so on. We are not looking to compromise in margin targets or we are not looking to compromise in return targets, but we Expect that we can improve our operational efficiency. We can launch the new products at the right price points. And we are not sacrificing our existing products, their margins. So that's why we have an ambition that this 3 to 5 years midterm, and we want to work on a balanced way to achieve that.
But we know that ramping up a new factory, for example, as Teemu was saying, It is something that you have to accept that there is steps which are not as lucrative in Dayton as they are in Russia. If you could do all the Same products in Russia and not in Dayton, then you would have a different margin profile. But we believe that it's very important that we have a balanced Manufacturing structure, and we actually have Russia, we have Finland, we have North America. And €2,000,000,000 allows that full known capacity usage, but we have right now allows that.
And if I build on that, for the Obvious reasons, we emphasize also the word balance all the time. It's not eitheror. It's a combination of these that we need to manage as prudent leaders of this business.
But why we say that we emphasize €2,000,000,000 is simply that many of the We've taken in the past are basically building that capability to achieve that sales growth. And now it's about time to deliver. And so it's not only in passenger car tires, but also in heavy tires. All those actions are actually ready or almost ready. And now we need to Deliver.
And I think it's a great opportunity, a great position. Let's deliver.
Then there is a question about the share buybacks. Share buybacks make sense for the owner if the share price is attractive. Do you have Do you have criteria for share buyback price level?
For sure, we are not Being that specific in our open communication and as we prioritize the capital allocation principles, that is the last option in our toolbox. So I think it's premature to comment that any further.
But I believe that the comment is Quite right. And of course, we follow the professional practice even when we go into share buybacks that We would then apply these financial guidelines and best practices in that.
And then going to raw material prices, how are raw material price increases, inflationorinflation affecting the business in 2021?
As we have been commenting, the overall raw material price increase for the full year will be roughly on a level of 13%, 14%. In the first half, we saw a positive development for certain reasons. And the heavy headwind is coming in the second half on a level of 25%. So the Aggregate impact for the full year is on a level of 13%. And therefore, we have been doing The price smart pricing already since beginning of this year, and we continue to focus on that beyond 2021.
Thank you. And then there is a question about the role of the Finnish factory. What is the role of the Finnish factory going forward? Previously, you have indicated that it would focus on heavy tires, but now you are instead going to increase capacity to 5,000,000 passenger car tires in Finland.
I can start and Manu can continue. Yes. Let's do that. Obviously, heavy tires It's an ongoing investment, and we want to increase the share of heavy tyres and expand to heavy tyre revenue by 50% to 300,000,000 Now at the same time, the recovery in the market has provided us an opportunity to make more passenger car tires in Nokia. We obviously are pleased about that.
And therefore, we also wanted to increase shifts in Nokia and also make sure that the productivity gains and opportunities to increase the production to 5,000,000 is there because the market and our success allows that. Manu, please continue.
Yes. Of course, Heavy Tyres has a big role in Nokia and we are growing that production even further. At the same time, we have a good technology for passenger car tires in Nokia side. We have professional employees there. We have the know how.
It's I would say from some point of view even easy to develop that factory and that production to be efficient and productive and really improve the availability of our Group. So Nokia is the right place from that point of view to develop the business there.
So we have uncovered productivity gain opportunities when we looked at where can we find more volume and More production capability. And we also will do exactly the same in Russia that we will see how we can expand the production in Russia because we all understand That Russia is highly efficient. And if we get more tyres out of Russia, we will obviously and definitely do that. But when we have Gains and Opportunities in Nokia, both things can happen simultaneously and that helps us to be a stronger and larger company. And this is an opportunity the market has given us, and we are happy about that.
Good. Then a question about gross margins. Considering that you expect the share of all season tires to increase significantly, doesn't this imply That Nokia and Tyres gross margin will weaken in the coming years? Or can you mitigate this with better gross margins in other categories?
As I have been discussing with you investors in the past years, The product mix will have a headwind impact on our gross margin on a like for like basis. Having said that, how we are developing the product offering, focusing to the bigger rim sizes and EVs, that should partly offset the headwind. And just repeating myself, the biggest headwind in Gross margin development is coming from the factory mix, not from the product mix.
And we continue with currencies. Talking about currencies, especially the ruble and their impact, Do you have any ways to hedge the currency impact, at least partially?
We have been in the past hedging The equity part and as you know, the cost for hedging Russian ruble is At least as costly as the benefit. So therefore, we haven't hedged the Russian ruble in many, many years. So the cost of hedging is significant.
Then there is a question about the bigger rim sizes. Can you talk about the share of bigger rim size tires in the passenger car tire business today? And how do you expect this to evolve over the medium term?
Maybe if you take market by market a quick comment, so Andre, Bari and Anna.
Yes. Let's do so. Let's start from Anna.
The share of bigger rim sizes, of course, will grow together with the vehicle development. So It is very visible and that's the way we go.
And then we continue with Bari in Central Europe. How do you expect that to develop?
So, I just had a problem with my connection, so I hope you can hear me. Yeah, so I think in Europe, it's the same. I mean, today, Approximately in century, 35 percent of the market is already in the bigger rim sizes, which is huge, you know. And so wherever you go, whether like Portugal or Ukraine, on average, on each market, The bigger rim sizes are increasing. And today, there is actually no limit to that.
It continues to rise. And therefore, it will be actually further accelerated with electrical vehicles. They need bigger rim sizes in general, bigger tyres. So that's actually a very positive development for the overall ASPs, but as well for the overall profitability going forward.
And then Andre?
Yes, I would say that the same trend also exists in Russia, although the starting point for the Russian market is a little bit lower because the car park tends to be smaller vehicles and smaller rim sizes compared to Europe or especially North America. But the trend is clearly there. And to illustrate that, I could mention, for example, the fact that in the new car sales Over the last the 1st 7 months of 2021, the current year, The share of SUV and crossover cars in Russia has been 45% of the total new car sales and it's increasing year by year. So that's a clear trend, but it will take some years to fully materialize.
Thank you. We still have time for one final question. That goes to Jukka. What are your biggest competitive advantages in comparison to your peers that you will utilize to grow faster than the market?
Think that compared to our peers, we have to go back to our heritage, of course, that we are coming from the winter tire country and we have unrivaled offering in winter tires. And Based on that, we have a premium quality and standards. And we've been able to expand from that basis our know how into new categories and new tyres in various markets. And I think that, that heritage is still quite a strong Starting point. Then look at from the manufacturing point of view, we have a one of the best factories in the world in Russia, and we have a Strong heavy tyres knowhow in Nokia.
And then obviously, we are building based on those then capability in North America. But if you look at then the long horizon, we have a strong team. We have Strong culture. We have strong values, and we have a culture to focus on delivering high results. I think that in combining where we come from, what we have in our hands, what we is the opportunity and the team and the culture, That makes us unique and special.
And we need to protect that and we need to safeguard that we keep on delivering on those parameters. But the single biggest thing is our heritage, our starting point and how we have applied that to expand.
Thank you, Jokka.
Thank you.
Now this Capital Markets Day is starting to be at its end. I want to thank all the participants. I want to thank all the speakers here in Helsinki. And I want to thank Bahri in Prague and Andre in Russia. And to finish, Jokka, any Closing remarks from you.
Thank you, Paivi. I want to on my behalf, I want to thank, first of all, Our audience, all of you who've been together with us today, our team, our customers, and most importantly, I hope that this has helped you to understand where we are coming from and what is important for us. The important is that we sell more tires and we achieve high profitability and we deliver good results. And with that, I believe that it ought to be very clear what we are set to do. Thank you.