REVIEW BY THE PRESIDENT AND CEO
Half Year Financial Report January–June 2023, July 21, 2023
Jukka Moisio, President and CEO:
“During the second quarter, we progressed in our long-term journey to build the new Nokian Tyres in line with our plan.
The car and tire market environment is demanding, and during the quarter, we also faced some currency headwinds, impacting our net sales negatively. Segments operating profit turned positive as anticipated and segments EBITDA rose to 14%. We expect the second half of 2023 to be stronger due to winter and all-season tire sales and contribution from contract manufacturing.
During the quarter, we progressed with our strategic investments to build up new capacity in our core markets. In May, we reached a significant milestone as we celebrated the start of the building work on our new passenger car tire factory in Romania, which will be the world’s first zero CO2 emission tire factory.
In the coming months, our focus will be on adding new capacity, retaining a competitive premium product portfolio and serving our customers. We have a clear action plan for growth and a strong team that can execute it. Our new financial targets indicate our ambition for the future. We in Nokian Tyres team have an inspiring journey ahead of us towards EUR 2 billion business and strong profits in the long term.”
Jukka Moisio, President and CEO:
Building the new Nokian Tyres after a year of major change
2022 was a significant turning point for Nokian Tyres. We decided to exit Russia, build a new factory in Romania, and start producing certain passenger car tires through contract manufacturing. Amidst all the change and uncertainty, our organization showed exceptional resilience, strength, and confidence in turning challenges into opportunities. The year 2023 will be a new start for Nokian Tyres.
We started 2022 strongly, driven by good demand and new products. The situation, however, changed rapidly at the end of February as we witnessed the horrific events unfolding in Ukraine. The war brought about unexpected and rapid developments in our operating environment, causing exceptionally high levels of uncertainty and discontinuity. Sanctions imposed during the spring prohibited, among other things, the import of tires from Russia into the EU. Our tire imports from Russia to Europe and North America ended after a transition period in July.
In June, Nokian Tyres’ Board of Directors decided to initiate a controlled exit from Russia, as it was no longer feasible nor sustainable for us to continue operating there. In October, we signed an agreement to sell our Russian operations. As I am writing this, the sale process is ongoing.
Lower passenger car tire supply volumes and changed factory mix due to lower production in Russia contributed negatively on the Passenger Car Tyres business unit and on the Nokian Tyres Group results in 2022. Despite the many challenges we faced during the year, we also had many successes. In Heavy Tyres, we had a record year in terms of net sales, profitability and productivity. Vianor delivered all-time high net sales, and in North America, we reached the highest ever sales volume of passenger car tires. We were also able to implement price increases during the year to combat the rising cost inflation and its impacts. Cost inflation is expected to continue in 2023, which will require careful cost control going forward, while investing in strategic key projects to restore our growth.
Investing in a new factory in Romania
During the latter half of 2022, we took the first steps in building the new Nokian Tyres without Russia. The most significant step was the decision made in November to invest approximately EUR 650 million in a new passenger car tire factory in Romania. This investment is extremely important in terms of additional capacity and our future growth. We estimate that the first tires will be manufactured at the new factory during the latter half of 2024, and that commercial tire production will start in 2025.
At our factories in Finland and the US, we continued to increase production capacity by adding new machines and modernizing the existing ones. I am proud to say that our factories are among the most efficient and productive in the tire industry and set a benchmark in sustainability. For example, our production and administration facilities in the US have received the LEED certificate which is only awarded to the most energy-efficient buildings, and our new factory in Romania will be the first zero CO2 emission factory in our industry.
Contract manufacturing provides additional flexibility
In addition to increasing production at our own factories, we plan to produce selected passenger car tires via contract manufacturing. This will further improve our agility and flexibility to meet customer demand.
Tires manufactured by the contract manufacturers will be designed by us and tested at our own test centers to meet our high requirements for safety and quality. The first tires will be available on the Central European market during the latter half of 2023. Contract manufacturing partners are expected to collectively produce between 1 to 3 million tires annually in 2023 and beyond.
Steps forward in sustainability
Sustainability is one of the cornerstones of Nokian Tyres’ strategy. Last year, our sustainability work was once again recognized by independent rating agencies. Among the companies selected into the Dow Jones Sustainability Europe Index, we received the highest scores in our industry for occupational health and safety. Excellent safety development is also demonstrated in our LTIF figure that dropped in 2022 to the lowest level in our company’s history. This is a significant achievement and underlines the importance of the safety and well-being of our employees.
We have also been working hard to mitigate climate change by reducing our greenhouse gas emissions. Between 2015 and 2022, we have cut carbon dioxide emissions from our production by over 40%. Our scope 1 and 2 emissions are the lowest in the tire industry in relation to turnover and production tons. We are also increasing the amount of renewable and recycled raw materials in our products – without compromising on safety. Our ambitious target is to increase the proportion of renewable and recycled raw materials in our products to 50% by 2030. This focus on sustainability is long-term and requires both new innovations and close cooperation with our partners.
Towards a new Nokian Tyres
The past year was exceptional and demanding in many ways. I am proud of how our team was able to react to the fast-changing situations, while at the same time caring for customers and for each other. Today, we are looking ahead with confidence and focusing on building the new Nokian Tyres.
In Passenger Car Tyres, adding new capacity, retaining a competitive premium product portfolio and serving our customers’ needs are the key priorities to restore growth and profitability. We have the leading position in premium tires in the Nordic countries, supported by Vianor, and a strong ambition to grow in North America. In Central Europe, we will have a limited supply of products in 2023. After that, we expect volumes to start picking up again, driven by contract manufacturing and production ramp-up in the new Romanian factory. In Heavy Tyres, we see attractive opportunities to continue on a strong growth track as well as further improving profitability. We have a strong financial position, allowing us to invest in our future and deliver sustainable stakeholder value.
Even though this is a period of considerable change, the core of our business remains the same. Sustainably produced premium tires that are reliable and predictable in all conditions is our key success factor – together with our resilient and talented team. We have for decades safeguarded people’s lives and are committed to continuing this effort through even safer, smarter and more sustainable driving.
I want to thank everyone at Nokian Tyres for their valuable work and commitment to the future of our company during 2022. I also thank our customers, shareholders and other stakeholders for their continuing support and trust. Let’s build the new Nokian Tyres together.