I'd like to hand the call over to Päivi Antola. Please go ahead.
Good afternoon from Helsinki, welcome to Nokian Tyres's Q2 2023 Results Conference Call. My name is Päivi Antola from Nokian Tyres Investor Relations, and together with me in the call, I have Jukka Moisio, the President and CEO of the company, and Teemu Kangas-Kärki, the CFO of Nokian Tyres. In this call, we will go through the Q2 results and how we are proceeding with building the new Nokian Tyres. Now I'm handing over to Jukka and Teemu. Please go ahead.
Thank you, Päivi. Jukka Moisio here, so welcome on my behalf. Indeed, we have a presentation there that heading is building the new Nokian Tyres is on track. I move on that presentation to Page 2 and talk quickly about the strategic projects, they are proceeding as planned. First of all, we have the Romanian factory, so building work is underway. We had the groundbreaking in May 2023. We got building permit on the same day, so we are very much progressing on the building. Main equipment, as you may remember, were ordered already in 2022, so that we secure the availability and delivery times. Our timeline is such that first tires are expected in the second half of 2024, commercial production will start in 2025.
Application for the investment subsidy of up to EUR 99.5 million is under EU review, so that they approve the state aid as proposed by the Romanian government. Another project in Finland, so we have a passenger car tire capacity increased and in use as we speak. In the U.S., the ramp-up of factory is proceeding, so we've hired additional employees to the production and the equipment installations are ongoing. New production lines are being started sequentially in this at this very moment, and towards the end of Q3, we expect that they all are installed and then we start them step by step by the end of the year. Contract manufacturing volume of 1.5 million tires have been secured for 2023.
First thing, the all season tires to Central European market will be in the second half of 2023. No significant minor volumes, only of the contract manufacturing, has been delivered in the first six months of the year. Most of this EUR 1.5 million secured volume will be benefiting top line and the company in the second half of 2023. I move to page three about the profitability. These numbers in Q2 are excluding Russia. First of all, the segment's net sales at EUR 293 million versus EUR 332 million in 2022. This is a 12% reported decline, but, if we exclude the currency impact, so 7.3% decline in constant currencies. Main reasons there were lower passenger car, tire supply volumes.
This is a reflection that we did not have the full capability to deliver in the early part of the year. We get additional tires and additional volume in the second half, that will help our top line. The car and tire market environment for the replacement tires, they're quite demanding, including also the currency headwinds, which we experienced mostly versus the EUR in the Nordic markets. Norway and Sweden. Norway being the most or the biggest headwind in terms of currency conversion. Segment operating profit at EUR 50.2 million versus EUR 0.9 million in 2022. Price increases to combat cost inflation led to higher ASP. Segments, EBITDA was EUR 41.3 million, versus EUR 25.9 in 2022.
We reported 14.1% segments EBITDA versus 7.8% in 2022 in the corresponding quarter. Move to page four. Here are some of the key financial numbers. I call out some key numbers that I didn't mention earlier. segments operating profit at 5.2%, segments EBITDA at 14.1%, and a small earnings per share of EUR 0.05 per share in the quarter. If you look at the capital expenditure, we spent EUR 3 million in the quarter versus EUR 19 million the prior year, and cash flow from operating activities was minus EUR 67 million versus EUR 109 million a year ago.
months, if you look at the top line, all in all, we had a reported change over -19%, so EUR 529 million in 2023 versus EUR 655 million in 2022. In constant currency, the change was -16%. Segment's EBITDA for the first six months in 2023 was 9.9% versus 13% in 2022. As mentioned in our guidance, the segment's operating profit was up EUR 1 million, and we said that the profitability and profit of 2023 will be generated in the second half of the year. However, we are at EUR 1.1 million, slightly positive in the first half, and that compares to EUR 35.5 million in 2022.
in terms of equity ratio, we are still at the high level, 60%, gearing at 60.2%, and net interest and net debt at EUR 220 million, out of which EUR 130 million are IFRS 16 leases. Capital expenditure in the first half, EUR 87 million versus EUR 33 million in the prior year, and cash flow from operating activities in the first six months, EUR 124 million negative. Again, we experienced a strong seasonality, explained by the fact that most of our products sold and our top line will be consisting of winter tires. With that, I hand over to Teemu to talk about financials. Teemu, please go ahead.
Thank you, Jukka. Moving to Page 5, here we are talking about our diversified debt portfolio that we discussed at the end of April in our CMD. As we speak, we are in a good position in order to secure the funding for our investment phase. Just to call out some of the activities that we have taken in recent months, in May, we draw EUR 300 million long-term bilateral credit facilities, in June, we issued EUR 100 million sustainability-linked, five-year bond issue. From here on, we are, in a structured way, building the debt portfolio with a balanced maturity as we go to the next quarters and years.
As I said, we are in a good position today. Then if you talk about our cash flow, as you all recall, it is our normal tracing, how the cash flow is going. In the first half, we are tying capital in our working capital, and then in the second half, we are then releasing it when we get the payments in from our, especially from our winter tire sales. We are expecting to have a positive cash flow from our operating activities in the second half. Moving to the page number 6, talking about the passenger car tire performance. There, our net sales in the quarter was on a level of EUR 153 million, and our segment operating profit was on a break-even level.
The top line change with comparable currencies was on a level of -14%. As we have been discussing earlier, the top-line development is lack of supply volumes, and at the same time, we have been increasing our prices net ASP strongly during the past quarters, starting already at the end of 2021. Moving to the next slide, where you can see the passenger car tire bridges. Looking the first, the net sales, here you can see that our price mix development in the quarter was in absolute terms, EUR 29 million, almost 15% in relative terms. If you look our segment operating profit development, naturally decline in sales volume, but then the price mix have been more than offsetting the decline in volume.
Moving to page 8, about heavy tires. There, the net sales was impacted by soft aftermarket. Our net sales in absolute terms in the second quarter was on a level of EUR 67 million. With comparable currencies, decline of about 6%, our segment operating profit was on a level of EUR 9 million, decline from the comparison period, which was EUR 16 million. As said earlier, the net sales decrease was due to the in-inventory levels in the aftermarket distribution. They are doing the destocking activities, that had an impact on our net sales, but as well as to the segment operating profit. Because of the softness in the market, we temporarily adapted the production during the summer break.
The Vianor business performance, that was stable in overall sense. Our net sales was on a level of EUR 94 million. With comparable currencies, there was an increase of more than 3%, and our segment operating profit remained on the same level than in comparison year, period. Yeah, you can see that there was a significant headwind from the currencies, both in the passenger car tire business unit, as in Vianor business unit. Handing over back to you, Jukka.
Thank you, Teemu. On Page 10, just to reflect that we've taken steps forward in sustainability. In March, we made a science-based commitment to achieve net zero standard by 2050 to reduce greenhouse gas emissions further. In May, we were awarded the platinum medal for EcoVadis for our sustainability performance, which then places us on top 1 percentile of the companies assessed. In June, we issued this EUR 100 million sustainability-linked bond, which Teemu was talking about, based on following greenhouse gas emission reduction targets. First of all, reduce the Scope 1 or 2 by intensity by 65% by 2030 from last year's base, and also reduce Scope 3 greenhouse gas emissions intensity from product used by 20% from 2022 base by 2030. I move to page 11.
Assumptions for 2023. The second half of the year is expected to be supported by the winter tire and all season tires and contract manufacturing volume. As mentioned earlier in this presentation, and especially in the first quarter, that we were lacking supply, and that had an impact on our net sales, top line, and profitability. The general economic development may have a negative impact on demand in the second half. This is something that everybody's assessing, that is there going to be a soft landing or some kind of a recessionary situation or what will happen. That may have an impact that is to be assessed once we go on in the second half.
Changes in the foreign currencies, especially as we mentioned, we had a strong headwind from Nordic currencies, especially NOK, but also from the Swedish SEK, as well as the $ and CAD. They have had a negative effect on the first half and especially second quarter sales. If they keep on trading that way, they may have a further negative effect in the second half. Our guidance for 2023 is unchanged, so we expect that the net sales will be between EUR 1.3 billion-EUR 1.5 billion, and the segment's operating profit percentage of net sales between 6%-8%. As mentioned, due to seasonality, the operating profit will be generated in the second half of the year.
You recall that the first half, our segment operating profit was the first six months, EUR 1 million, and then in the second quarter, we already had a stronger performance compared to the first sequentially compared to the first quarter. As of 2023, segments net sales and segments operating profit exclude Russia and other items which are not indicative of Nokian Tyres' underlying business performance, just as a reminder. Finally, we are building the new Nokian Tyres together, so we have an ambition to go back to EUR 2 billion in net sales. We have two different time horizons. One is to rebuilding the capacity, and the second one is then to benefit and build the market share and the volume once the rebuild and the investment phase is over.
Our financial targets long term: net sales in EUR 2 billion, segments operating profit at 15% level, as a new target, net debt segments, EBITDA between one and two terms, which means that we will have a longer-term different balance sheet compared to our history. We will expect to have net debt in the range of EUR 500 million-EUR 1 billion, depending on our EBITDA and net sales. Our EBITDA target longer term is on the range of 24%-25%. These are our key messages. Building new Nokian Tyres, progress is on track. Second quarter clearly better than the first quarter, we expect that profit of the year will be generated in the second half. Päivi, over to you.
Thank you, Jukka. Thank you, Teemu. Now, operator, we would be ready for the questions from the audience, please.
Thank you. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. Please make sure the mute function on your phone is switched off to allow the signal to reach our equipment. Again, please press star one to ask a question. Now, our first question comes from Mika Karppinen from Danske Bank. Please go ahead.
Yeah, hi, this is Mika from Danske. Could you comment a bit more about the sales pricing and mix development in terms of product area changes and then rim size changes?
The price mix development, it is a function of several factors. First, the real price increases that we have been executing diligently, as I said, already starting from second half 2021. Then on top of that, the mix effect, which is coming from product mix development, that has been also positive, as you can see in our release, that the share of winter tires has been increasing. Then on top of that, there is a positive mix impact from geographical point of view, when the share of Nordic has been increasing relative to the CE.
On top of that, the last mix impact is also the customer mix, where we have been discontinuing certain customers in Central Europe in order to focus with those that we want to build longer-term business. There are several mix effects, but the price impact has been the biggest one.
Is there any change in the rim sizes?
The rim size has been naturally also positive. I forgot to mention that one.
Okay, good. Thank you very much.
We will now take our next question from Akshat Kacker from JP Morgan. Please go ahead.
Thank you. Good afternoon, Akshat from JP Morgan. Three questions from my side, please. Clearly a lot to do in the second half versus what you have delivered in the first half. Could you just talk about a few drivers behind the improving underlying business profitability as you look into the second half? I know that there are offtake agreements that will kick in in the second half, but other than that, we see some negative momentum in heavy tires, and the profitability of passenger cars is still breakeven. Could you just talk about some more elements that will help improving profitability in the second half?
The second question is kind of linked and on the passenger car business: When do you expect the two plants in Dayton and Nokia to hit peak or optimal profitability, or the profitability that you have assumed in your midterm targets? Is it probably in the second half of 2024? The last question is on the pricing and inventory situation. Just overall, in terms of your markets in Europe and in North America, what are you seeing in terms of pricing trends, not just Nokian, but also competitors? If you could just talk about challenge inventories as well. Thank you.
Thank you. About the full-year guidance, we already knew late last year, early this year, that the early part of the year will be lacking volume. You're right to point it out that help will come from offtake. The other part where we get more volume is that we started a higher production or got higher production availability in Nokia in early part of the year, that will be fully available in the second half. Also we keep on improving the performance in Dayton. We hired additional people, and we start more equipment, that will, of course, bring benefits. Finally, heavy tires. Yes, we had a downtime and quite large inventories in the distribution.
And therefore, we took downtime, extended in relation to in connection of the summer shutdown. We expect that we are able to run relatively well in the second half, and then, let's see what will happen towards the end of the year and what the demand is. We expect that the heavy tire performance be nevertheless, our 13% segment operating profit, we expect that we are there or move towards longer term to 15%. We don't see any more negative deviation there. Obviously, it's dependent on the economic, macroeconomic, in terms of what will happen in the OE demand and so on. At this point of time, we see a relatively stable development.
Obviously, in the early part also, we had a number of cost items related to Russia exit and all kinds of things that are not on our way when we go forward in the second half. This will, of course, give a more focus to our team and more capability to deliver the results. In the early part, you still remember that we got the final exit from Russia at the end of March. The early part of the year included number of cost items and therefore, focus of the team that we needed to work on that one. We are more focused on building new Nokian Tyres with the whole team in the second half. That will also have a benefit and also reduces little bit the excess cost and these kind of items.
All in all, that helps now full year guidance. It was known upfront that the first half of the year will not deliver significant profitability, so that all of that will come with the winter tires and the second half capability to deliver. In Dayton and Nokian Tyres, in isolation, we will not comment these, how they go and how they trade, but we said that the long-term ambition to have a segment operating profit at 15% will be there. We will work step by step towards that. You can expect that every year, every quarter, we keep on improving. When we go to the second half of this year, you can expect that our segment operating profit will be higher in the second half. Also EBITDA will be higher.
When we move into next year, we will then have a sequentially improved performance, step by step. Our ambition is then to hit that 24%-25% EBITDA and about 15% segment operating profit. Pricing environment, Teemu, do you want to comment the pricing environment?
I would say that now we have reached the level where the price level has got its peak, so we don't expect that the prices are increasing in the coming quarters. We also then have the tough comparisons in the second half, so the price mix development doesn't continue like in the first half, and then what we see in the markets. It is quite stable in terms that no price increases and not necessarily price decreases on a face value level from our competitors.
Some of the competitors are starting to do some promotional activities in a sense that the net real price changes are going down in some markets, but then in other markets, like in the Nordics, we still expect some price increases because of the currency.
Great. Thank you for the details.
Thank you. As a reminder, to ask a question, please signal by pressing star one. We'll pause for a moment to allow you to signal. We have a question from Pierre-Yves Quemener from Stifel. Please go ahead.
Yes. Good afternoon, everyone. Would have one question to clarify, please, if I may. Do you expect a price mix to become negative at some point this year? Because the net price mix minus raw material has been very, very favorable in the first two quarters. Do you expect something to go towards neutrality or even to become negative? If we can have some idea regarding the phasing of the price mix into the last two quarters. That will be the first question. The other question I have, maybe I missed that, but have you already provided the pro forma figures for the passenger tires ex Russia for Q3?
Thank you for both on revenues and on, the operating profit for 2022. Thank you.
Starting with the pro forma, those we delivered in the beginning of February in connection with the Q3 result release. Going to your first question regarding the price mix development, we don't expect that to be negative on a comparable currency. This strong momentum that we have seen several quarters is not expected to continue in the second half because of the strong comparisons already recorded in the second half of 2022.
Thanks, Teemu. That will remain a tailwind. That's not gonna become a headwind, right? Even if it's much smaller tailwind.
We are not expecting to see a headwind with comparable currencies.
Okay. Okay, that's very clear. Thank you very much.
Thank you. As a final reminder, to ask a question, please signal by pressing star one. We'll pause for just a moment to allow you to signal. As there are no further questions in the queue, I'd like to hand it back over to Päivi Antola for any additional or closing remarks.
Thank you. If there are no additional questions, that means that we finish early this time. Thank you all for participating. From Nokian Tyres, we wish you all a nice summer.
Thank you.
Thank you.
This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.