Good afternoon from Helsinki, and welcome to Nokian Tyres Q1 Results Conference Call. My name is Taiv Jantola, and I'm the Head of Investor Relations in Nokian Tyres. And together with me in the call, I have Jokka Moisio, the President and CEO and Teemu Kangas Karki, the CFO. As usual, we will start the call with a brief Introduction into the results and that will be then followed by a Q and A. So Jokka, please go ahead.
Thank you, Paivi, and welcome on my behalf as well. I move directly to Page 2 on the presentation. Headings says net sales and operating profit increased Significantly. Our net sales was in the Q1, EUR 341,800,000. That's a 28.5% increase in comparable currencies.
All time high first quarter volumes In passenger car tires as well as in heavy tires, we also saw that the demand recovered in all markets. Most important recovery was in Russia, and then weakest recovery in terms of percentages was in Nordics, which was a single digit. All the other markets, with the exception of Nordics, recovered and grew by double digit numbers. Important to mention that Heavy Tyres achieved all time high quarterly net sales and segment operating profit in the Q1. Segment's operating profit was €50,300,000 versus €16,300,000 a year ago.
Most important factor to improve the profitability was increased volume. We also Recorded a negative impact on currencies, which was in about €10,000,000 negative impact. I move to Page 2 and some of the highlights in the financial key numbers, Starting with the capital expenditure, €17,100,000 in the quarter Versus €50,900,000 a year ago. You may remember that a year ago, we still had the investments in Dayton Factory as well as significant part of the investment in Spanish test truck going on in 2020, while These items were pretty much completed by the end of 2020. Small items in related to Spanish test track was recorded in the Q1 2021.
Net debt at the end of March was €31,000,000 €121,000,000 a year ago. And cash flow from operating activities, not including the investments, was minus €24,000,000 in €21,000,000 €39,000,000 in 2020. In addition, the operating profit percentage was 14.7% and that compares Strongly versus 2020 operating profit segment operating profit at 5.8 percent and segment EPS was €0.29 versus €0.09 a year ago. Gearing is 1.9% and our balance sheet remains Strong as we mentioned in the heading of the slides. And I now I hand over to Teemu Kallniskirk to talk about The segment performance business area performance, sorry.
Teodor, please go ahead.
Thank you, Jokka. Let's start with the Passenger Car Tyres business unit. Our net sales reached the level of 246,000,000 euros, our segment operating profit was on a level of €53,000,000 Net sales increased in all main markets, Led by strong volume growth in Russia, our average sales price declined And the main reasons behind that is naturally the weak Russian ruble that we have been highlighting In our previous calls, as well as the high share of volume in Russia and the strong summer and all season As we have communicated, we have Started the recruitment in Finland and in U. S. In order to increase the production in those two locations.
Then moving to the Passenger car tire net sales breakdown. Here we can see that volume was up close to 40%. Our pricemix was negative about 1%. And as I have been commenting in the previous calls, In the pricemix, we have also the country mix impact and because of high Share of Russia, the impact of that is about minus 3% negative in the first quarter. Then the currency impact or the headwind was about 9%.
And here, we can see The weaker ruble starting to impact our numbers in the second half of last year. In the Q1 of this year, we also got headwind from USD and Canadian dollar among others. Then moving to our Which is net sales and segment operating profit in euros. Yes, we can see that in euro terms, the net sales headwind from currency was about €18,000,000 And in the segment operating profit, it was on a level of €10,000,000 as anticipated in the previous call after Q4. Then the biggest contributor to profit improvement is naturally The sales volume up by €35,000,000 And here we can see also the Positive development in materials for the Q3.
And as we have been Estimating we will have a headwind from the raw materials for the full year, meaning That in the second half, the impact is significant. Currently, our Estimate for the headwind for the full year is about close to 9%. Then moving to Heavy Tyres, excellent start for the year, all time high net sales And segment operating profit, net sales was on a level of €57,000,000 and the segment operating profit Close to €13,000,000 with good profitability. The demand was strong in agriculture segment as well as in Mining and Truck Tyres. We had some softness in the Forestry segment because of their issues in their production.
Profitability was positively impacted by the improved productivity that we have been doing in the factory and that paid off in the Q1. Generally, The inventories are at the low level at the moment. Then moving To the last business unit, which is the VNR, they had also a good performance in the Q1, which is seasonally low. And looking at the net sales growth On reported numbers, 6.8 percent growth and the segment operating Profit almost close to minus €10,000,000 improvement in the operating Robert, due to the fact that we have been able to manage our costs really well. And that is something that we have learned from the COVID times that we can Improve the cost levels really well also in the coming quarters and years to come.
With that, I will And over back to you, Jukka.
Thank you, Teemu. And I'll recap some of the priorities for coming quarters. I I think that it's clear that driving growth and recovery, benefiting from the recovery is quite important. We have new product launches and Those will help. The most important one, as we discussed already in February full year 2020 result Presentation is, of course, Hakka Pelita 10, which will be coming to market for the latter part of 2021, but many other product ranging Product launches are also happening in the pipeline.
So taking cash flow, prioritizing investments is Another important topic is, as we indicated in our guidance, the CapEx expected to be lower than 2020 in 2021 and in the Q1, clearly lower cost. The reason there is that a year ago 2020, we still had important investments in Dayton and Spanish Test Track taking place. Brand expertise, enhanced production capacity, more shifts and so on help us to capture the volume and recovery in coming months and quarters. Some of the assumptions for 2021 guidance. We expect that demand for replacement tires It's expected to increase and stronger demand, but also increase in new car sales as the year goes on.
Demand for Nokian Heavy Tyres core products is estimated to increase. Uncertainties are related to COVID pandemic and also Grupo, just to recap the value of ruble, euro, ruble exchange rate. So in 2019, we had a €72.5 in 2020, €82.790.6 in January 2021 and €89.7 in January March 2021. So a visible Difference in the exchange rate and weakening of the ruble between 2019 to January, March 2021. As Teemu was saying, raw material unit costs are estimated to increase and have a significant impact on the second half.
And based on that, of course, there are price increases in the implementation. Finance for 2021 It's unchanged. We expect that net sales with Comparable Car Rental segment operating profit are expected to grow significantly. However, car tire demand is expected to pick up, but COVID will continue to cause uncertainties for the development. And our guidance for 2021 is unchanged after the Q1.
And this is the end of our prepared Presentation part. And I'll hand over back to Daivi and we go into questions.
Thank you, Jukka. Thank you, Teemu. And now operator, we would be ready for Questions from the audience, please.
Thank
Our first question comes from Ashik Thakkar from JPMorgan. Please go ahead. Thank you. Akshat from JPMorgan. 3 from my side, please.
The first one in production capacity. With the strong recovery that you are now seeing in the global markets And also in the U. S, is there a case to ramp up U. S. Capacity quicker than what was earlier planned?
Just trying to understand if there is some In terms of the units that you can produce going forward, are you also planning to increase production capacity in Russia? That's the first one. The second one is on the winter tire share. Obviously, in Q1, you had a disproportionately high summer tire sales in Russia. But given the low winter tyre inventories in the channel and the new product launch in the fall, should we expect a winter share Higher in 2021 versus 2020.
And the last one is on the U. S. Date and ramp up costs. They came in lower in the Q1 year on year. Just interested in hearing your thoughts for the full year in terms of total ramp up costs.
Thank you.
Thank you. So the capacity availability and ramp up, Yes. First of all, we do as quick as we can in terms of adding shifts and so on. Obviously, if can do it faster and have a high quality. We'll do it because, obviously, there's a case that demand is good and the recovery is good.
In terms of Russia, capacity was in full use in latter part of the year and also in early part of latter part of 2020 and also right now. And we look if there are any opportunities to debottleneck and so on, but there's no immediate relief in that. So That's why we've added shift in Nokia, and that's why we can flex the capacity, if needed, more in Nokia. But then these decisions have not been made. So The case for North America is understood, and we do as quickly as we can, but it's important to maintain the quality as well.
Winter share, yes, indeed, the proportionately high summer tires in the Q1 and Yes, probably historical in a sense that this is the highest share of summer tires we've ever had. And so therefore, clearly, reflects the demand. Yes, winter tyre. We hope that Hakka Pelita and we are convinced that Hakka Pelita then will do well, but that remains to be seen in the latter part of 2021. But our expectation is that it's a great tire and it performs well.
And the last question was related to
Dayton ramp up cost for the full year
versus last year? Full year, yes, ramp up cost of Dayton full year expectation.
There we are going slightly above the original Thinking earlier because now we are ramping up a little bit faster than a year ago, we estimated. So we are recruiting more people. And there we will have some additional costs because of accelerating ramp up of the Stage 2.
Understood. Thank you very much. Thank you. Our next
My first is on the raw materials Headwind that you've kind of saw in the second half. How much of that 9% headwind do you think you're going to offset to price increases, Particularly given the price mix today remains negative. My second question would be on Russia and the market share gains in the Q1. Maybe you could just provide a bit more color on what you think drove those market share gains and how sustainable you think they are? And then my third and final question is on the CapEx.
At about €17,000,000
it looks to
be quite significantly below P and A. What was the reason for this drop off in CapEx other than the obvious You're right now investing in Dayton. And should we expect that CapEx to Rampart back towards D and A in the coming quarters as you plan to operate CapEx below D and A going forward? Thank you.
So if I start with raw material cost headwind and the price increases. So Yes. In the plan to offset the raw material prices in local currencies. Having said that, good to remember that if you look our net ASP on an annual level in euro terms this year, We will have a higher share in coming from Russia and Depreciated ruble having an impact. So in net in euro terms, there will be a headwind.
But in local currencies, we plan to offset that Raw material
increases. And the next one was about the Russian market share. So of course, the market recovered, but we gained more volume and higher share than in previous year. And We expect that we can continue it in this year. We will, of course, see that how the competition And what kind of imports to Russia will happen, but at this point of time, our share is clearly higher than in 2020.
And finally, question about the CapEx. Can you take that one? For the full year? Yes.
So as we have anticipated for the full year, the overall CapEx It's clearly below the last year level, which was on a level of €150,000,000 And let's see What is the level where we end up at the end of this year, but clearly lower than last year.
Okay. Thank you.
Thank you. Our next question comes from Thomas Benson Kepler Cheuvreux. Please go ahead.
Thank you very much. It's Thomas Vissmann, Kepler Cheuvreux. I have three questions as well, please. First, on the guidance, I know it's probably an intention, but the guidance remains unchanged And Vivek, is there a way for you to position your guidance maybe versus 2019 Or to I mean, you've clearly produced better results than we were expecting. Is there anything else you can say about the guidance?
Or are we going to remain on this The second question is on inventories. You have clearly lowered inventory substantially in the second half of last year. Can you comment on inventories roll in the massive volume jumps you reported in Q1 2021? Do you still have room to effectively exceed sell out with your sell in in the coming quarters? Or have you done everything in the first Quarter.
And lastly, can you remind us the timing of your new key product launches? Have they already hit markets? Or are they hitting markets in coming quarters?
Okay. So we Start with the guidance. I think that the wording remains the same. Obviously, what you will see in And if you remember 2020, and I'm sure you remember that the Q2 was quite weak in 2020. So in terms of comparables, 20 'twenty, the Q2 will be pretty easy to exceed.
And then when we go to the second half, then We will need to see how the recovery takes place. But I believe that the more precise guidance can be We see the update of the 2nd quarter when we go to the second half and we see that how the raw material evolution takes place and what Kind of a trading environment we have in the second half. Right now, it looks quite strong recovery, but obviously, there are A number of uncertainty is still in the air. But of course, compared to Q2 last year, then the The momentum is quite good. Inventories, Raymond, would you want to take the inventories?
So both in terms of our own inventories, they are on a low level because the demand It's strong and we don't see in the channel any issues in terms of high inventories, Quite the opposite at the moment.
New product launches, they happen actually Step by step throughout the year, I think that we highlight some of the key products and, of course, PASP historically and by It's a winter tire company. So we, of course, talked about half a year, but then, but there are, throughout year, new product Which is our upgrade of the current product offer. So it's not a particular time when it happens, but it happens throughout the year. So you could expect that this year as well as in early 2022, there will be a continuous stream of new products.
Great. Thank you very much.
Thank you. Our next question comes from Artem Birenzky from SEB. Please go ahead.
Yes. Hi, thank you for taking my questions. I actually have 3 to be asked. Could you maybe comment on profitability By different reasons at the moment, basically looking at Russia, so Rubel has been very volatile and weakening quite a lot. Could you put that maybe into A context, then the second question is relating to Heavy Tyres.
So you made a strong over 20% margin in Q1. Could you maybe talk about margin outlook for the rest of the year? I know that you are ramping up capacity there, the demand is strong, but also Raw material price will be going up quite significantly in second half. And the last one is related to new product introductions And especially how company intends this, I guess, the key launch for the year. Is it fair to assume that we will The impact of it in Q2 as you will see progressively clearly more in the tires for Russian market and also Nordics?
So if I start with the profitability and especially you asked about the profitability in Russia. Clearly, this year, the profitability is improving because of the increasing Volume, having said that, good to remember that in euro terms, the net ASP Has been in decline because of the ruble impact. And as we have been discussing in the previous calls extensively, Our raw material input costs are in euros or in USD. So Depending what is the reference year, there is a headwind in Russian profitability Mid, if you look back to beyond 2019. Then in other markets, I think in the Nordics, we are on a lower, more healthy Level and then in Central Europe, as an example, when the volume is in Increase, it will also improve the profitability from there.
Then in terms of the Heavy Tyres margin outlook, As stated, the Q1 was a strong start for the year, and we are Having a positive view on both on the development, top line development, and that should then benefit Yes, profitability and profit as well.
When talking about the product mix towards the year end, so We expect, of course, that winter tires will become more significant part of our net sales in the coming quarters, obviously, in the early part in Q3, Having summer tires as the biggest category and tending to tires and only then all season, I think that, That will change. And obviously, shipments of Hakka Beliketen and the season of the winter tires will be quite important for us. We have high hopes for Hakka Beliketen, but again early days for the year.
All right, great. Thank you.
Thank you.
Our next question comes from Pasi Faisalyn from Nordea. Please go ahead.
Thanks. This is Basif Unoria. Firstly, to start with, I mean, Well, is there something to be worried about regarding the component problem and production cuts in the truck sector? I mean, especially in the heavy Tyres, When looking at the Nokia Tyres segments and registrations in the second quarter. And secondly, Just to confirm, did you actually mean that the raw material effect is going to be flat in margin wise when looking at the second half in this year?
And maybe lastly, when looking at the history, I mean, every other quarter has been very strong and every other quarter Very weak. So is this pumping demand or inventory effect still going to be there in the second quarter? And then probably would it be so that the second quarter will be for some reason more or less disappointing after the very strong first quarter, But these three issues. Thanks.
Okay. If I start with the raw material. So what I was saying that in local currencies, our ambition is to offset that as much as we can The raw material increased, but then if you look our net ASP in euro terms, we need to take into account The increasing share of our Russian sales as well as the weaker Russian ruble. So In net in euros, we are not expecting to offset the impact.
And you were asking about the component shortage in the Heavy Tyres customer base. I mean, that is obviously something that continues and will become more difficult. That may be an issue. But at this moment, we don't see Significant impact in Heavy Tyres. So we expect good top line and margin development in Heavy Tyres in 2021.
And then strong quarters, alternating with weaker quarters. Unfortunately, that's how the business goes and We don't plan that. And we, of course, ship as much as we can and service the customers in the best possible way. Clearly, the year is off to a good start. A big part of that is the recovery effect.
The other part is that we gain market share, for example, in Russia. And working on that and improving on that is our ambition. But of course, as said, there are a number of uncertainties In the marketplace and but we as we guided, we expect that net sales and profitability increase significantly in 21 versus 2020.
Great. Thanks. I hear you. That was all from my side. Thanks.
Our next question comes from Michael Jackson from Bank of America. Please go ahead.
Hi, good afternoon. Thanks I just have 2, which are follow ups from the prior ones. And please forgive me for re asking on the raw material impact. And I just want to make sure that I clarify or I just get clear on what you were saying earlier. In the presentation, you mentioned an impact of around 9% From raw materials, are we talking a 9% increase in raw material expenses on like for like volumes?
Or are we talking about the EBIT impact there that You expect for the year? And then my second question is, I know you've discussed pricing already, but how should we think about your ability to offset these raw material increases With price increases this year, do
you think you'll be able to
get full offset or perhaps something less?
So the 9% guidance was the raw material input cost like for like. So That is the guidance that we have stated.
And then in terms of
yes, and then in terms of the price offsetting that As stated, we are planning to offset as much as we can In local currencies, but the net ASP development for this year is expected to be Negative in euros because of increasing share of Russia sales and weaker Russian ruble.
Thanks. It's very clear. If I could just sneak in one more question, please. You commented that winter tires played a smaller role in Q1, and I guess this was Despite the fact that there was higher snowfall towards the end of the quarter versus prior years, can you maybe just give us some color on how the winter tire markets developed over the last couple of months, please?
In the last couple of months, I think that pretty much As in 2020, so not really a significant difference. Thank you.
Yes. I would say that on an annual level, we are expecting to see a good winter sale as well. And as we have been Commenting in the earlier calls, there are shifts between the quarters within the year and therefore, You shouldn't draw any major conclusions based on one quarter. No. And I
think that this is post 2020, 2021 season and now We are looking ahead to 2021, 2022 season, which is ahead of us rather than behind. Thank
Our next question comes from Victoria Greer from Morgan Stanley. Please go ahead.
Afternoon, 3 from me, please. I wanted first to Come back to the sell in versus sell out question. Your VINOR plus 8% year over year excluding FX, excluding the U. S. Disposal, Is that kind of a fair guide for where you think sellout is trending across your markets?
Yes, I guess another way of asking, how much of the restock you think it's already complete now? And the second question is around adding the shift in Finland. Obviously, understands the need To produce as much as possible at the moment. And also that, yes, you want to ramp up in the U. S.
In a sustainable way, but There have been sensitivities around moving the passenger tire and production away from Finland in the past. Would you expect to continue to have that shift in Finland? Or Would you think about it more as a temporary measure? And then the third one on Vianor. Could you comment Tal, on your cost control expectations for the full year, obviously, a bit of an improvement in the Q1.
Could you think about that sort of, I guess, €2,000,000 or so improvement continuing at that level for the rest of
the year. Okay. So if
you take the VNO and you talk about the VNO sellout and the top line and that is related to Nordics, right? So yes, we saw the Nordics selling also at about 7% improvement year on year. And I think that, that is Reflecting what the Nordic markets trades at this moment. The other markets actually had a double digit recovery and growth, While the Nordics was about 7% to 8%. And then a question about the moving tire production from Finland to other I don't see that being a major issue because what we are doing in Nokia is that we are Continuously expanding the heavy Tyres capacity and making investments.
So therefore, Nokian factory is Increasing its output and so on. We said a year ago already that important thing is to run Russia pool, Ramp up Dayton and achieve the targets that we set out to ourselves in Dayton and then use Nokia as a swing capacity. Now the swing capacity usage in Nokia came faster than anticipated. And so therefore, we added a shift in Nokia I announced that shift in Nokia in 2021 because this is the swing opportunity we have.
Then you had a question regarding the cost
Questions are in Vienna? Yes, we
have got measures in Vienna, and this is an ongoing activity within the Vienna that we manage the costs As effectively in every quarter and as stated, Yes. No, it's a seasonal business and the main seasons are in the second and fourth quarter when we are making The result and especially in the first and third quarter, we need to be actively managing The cost in order to minimize the losses.
Okay. So an ongoing project to manage the Vianor costs, but Yes, you don't want to commit to a certain level of improvement there for now?
No, no. As we have been saying that Vianor is an Important asset in our Passenger Car Tyres business in general and the profitability is on a retail profitability level.
Okay. Thank you.
Thank you. Our next question comes from Eduardo Espinha from HSBC. Please go ahead.
Good afternoon. Thank you. I have two questions. 1 on the network development. If you can comment on the plans for growth, where do you plan To grow the network distribution and we can see over the last few years that there's been a shift from Avianor Partners to Nokian Contourised Dealers With no growth for the EnerTyres, I was curious to understand how this impacts your pricing and maybe cost As a Nokian Group, and how you plan to grow from here?
And the second question is more on Asia, especially on China. I was wondering if you think that you need local production in order to exploit the market better or if you're actually Investing marketing or further network expansion to see higher growth in those markets, especially considering, I think, very good relationship between Finland and China. So, Ingen, thank you.
Maybe if I start with the China question. This is, of course, made it a Larger strategy development. And as we said that we are working on the strategy right now, we will have the Capital Markets Day, baby. That has been announced already, yes. 9th September.
9th September. So we come back to the China questions that how and what we think that is Appropriate to do in China. Right now, as you correctly pointed out, we are on an export basis in China at this moment. Vienna stores growth into N tires. Yes.
I think it's good To separate that, when we are talking about our own run VNO stores that we have in the Nordics, Yes, vital in order to have a good market position in the Nordics as a whole. And then Outside Nordics, we don't have our own Vianor stores. We have in Russia, Our partners who use the Vianor brand and in Tyre and other branded stores.
So they're all franchise bases outside Nordics. Now we have divested the North American operations, 11 outlets
Thank you. Our next question comes from Sascha Gorma from Jefferies. Please go ahead.
Yes, good afternoon. Good morning, everyone. Thanks for taking my question.
I have
a few follow ups. The first one would be on the pricing offset that you've been talking about. Have you already implemented your price increases to fully offset You anticipate the raw material headwinds or is this still something that needs to come in the coming months? My second question would be on the Kartfire sell in you show in your slide deck, which looks quite weak in the Nordics minus 2. I was just wondering if you can share some insight why the Nordics, unlike the rest of the region, is not recovering yet?
And then my last question would be on the structural or the potential structural shift away from winter tires To all season tires in some not kind of strong winter markets like in Central Europe for instance, is that something you observe as well that Customers opt more for all season tires versus winter tires or is that not something you're seeing right now? Thank you.
Okay. So we'll start with the pricing. So the pricing is in implementation, as I mentioned. And obviously, we keep an eye on the raw material development. Our anticipation is, as Tim was saying, about 9% like for like increase, but We follow that and we do the pricing decisions seasonally and step by step, but obviously they are in implementation right now.
Away from winter tires, that is something that we have seen and we think that especially the all season tires are Something that consumers choose for their for example, for the 2nd car of the family and so on. There was actually a recent study that we Showed some information about that. We did a study in Continental Europe about the all season tires that When and how people use them and how why do they like them and so on. We believe that winter tires very much have their role, especially in the markets where the winter It's coming as normal. So typically Nordics, Russia and Canada, Northern States of the U.
S. And then friction tires are somewhere there in between to help people to be prepared for harsh winters And snow and so on, but still not having studied products. So all of these are people are choosing depending on their own priorities But we clearly want to gain more volume and opportunity in all seasons. So this is something that We are launching new products and we want to achieve more volume in that particular segment. But this is not So that we would see that the winter tire opportunity would be less.
It's only that we complement our product range and are more competitive across these Key category, summer or season winter. Nordic minus 2%, we believe that that's something that is really related to Imports, less imports to Nordic markets. I think the established players pretty much saw the volumes grow In the range of the VEVER trading in growth in the Nordics, while the decline is mostly related to
There appears to be no further questions registered. So I'll hand back to the speakers.
Thank you. If there are no additional Questions then this ends today's conference call. Thank you all for participating and have a nice day. Thank you.
Thank you. Bye bye. Bye.