Review by the President and CEO
Interim Report January-March 2020, May 5, 2020
Hille Korhonen, President and CEO:
“In the first quarter of 2020, we initiated measures to reduce high carry-over stocks in the Russian distribution channel in line with plan announced in February 2020. This, together with the mild winter and the COVID-19 impact toward the end of the quarter, had a significant negative effect on Passenger Car Tyres’ net sales and operating profit. Despite this challenging environment, we were able to keep our strong market position in the Nordics. In Central Europe, our market share in summer tires improved. In Heavy Tyres, the performance was solid.
In the exceptional circumstances and uncertainties posed by COVID-19, we immediately took all necessary preventive actions not only to mitigate the spread of the pandemic but, above all, to safeguard health and safety of our employees and stakeholders. As part of our business continuity plan, we initiated measures to reduce our cost base in order to minimize the negative business impact of the weakening demand. These include suspending production, temporary personnel layoffs, cutting executive pay for a month and postponing all non-critical projects. Along with a strict cost control and efficient cash flow management, we are continuously monitoring the market situation and taking further actions accordingly.
Going forward, we expect the second quarter of 2020 - as we see the situation today - to be severely impacted by COVID-19. At this point of time the financial impacts are very difficult to predict due to limited visibility to customer and consumer behavior. We have a solid foundation, including a valued brand, leading position in home markets and a strong balance sheet, to navigate through this difficult situation.
Nokian Tyres’ success is built on close customer partnerships, which are increasingly important in times like this. Given our sound financial structure, organizational resilience and a clear strategy geared towards sustainable, long-term success, I am confident that we are well positioned to take advantage of the opportunities that arise when the demand recovers.”
Financial Review 2019, February 28, 2020
Hille Korhonen, President and CEO:
“In 2019, we made good progress on our strategic journey and took important steps to deliver future growth, despite the weak market conditions. Our key projects – the new US factory, the testing center in Spain, and the Heavy Tyres capacity expansion – proceeded according to plan. We, once again, received recognition for our important work on sustainability and reached new levels in occupational safety. These achievements lay an important basis for our future.
In 2019, the car and tire markets continued to be soft in Europe, which resulted in tightening competition. During the year, the Russian market declined against the expectations. In spite of this, our net sales in 2019 were on the previous year’s level. Operating profit, however, decreased due to the weaker markets and expansion costs in Passenger Car Tyres. Heavy Tyres made good progress and delivered a strong result, driven by new products and healthy demand for agricultural and forestry tires, in particular. Vianor also delivered further positive financial performance.
We are making good progress on our strategy
During 2019, we retained our strong position as the market leader in premium tires in the Nordic countries and Russia, and continued to strengthen our distribution network and product portfolio both in Central Europe and North America. Along with winter tires that represent approximately 70% of our Passenger Car Tyres business, we continued to develop competitive products in the summer and all-season segments for market specific needs. I am especially proud of the great performance and commercial success of our new range of Central European summer tires. In our product offering, we have a specific focus on the most profitable tire segments, which are winter tires and larger sizes in all product categories.
Our new testing center under construction in Spain enables us to test tires all year round in various tracks and conditions, complementing our existing winter tire testing facilities in the Northern Finland. The foundation work for the test tracks was completed during 2019, and the center is scheduled to open at the end of 2020. Rigorous and continuous testing is a fundamental part of our product development. We want all our products to be safe, durable, and sustainably manufactured. This allows us – as our mission implies – to offer peace of mind in all conditions.
Global production platform increases flexibility
In line with our strategy announced in 2018, we are pursuing growth also in North America supported by the capacity investment in Dayton, Tennessee. We completed the factory building project in 2019 – on time and on budget. This was a major achievement.
The new production facility is the largest single investment in our company’s history and the most advanced tire factory in the world. It will substantially improve our service capabilities in North America. Commercial production started earlier this year in January, and our aim is to gradually ramp up production to 4 million tires per year by 2023, leveraging the same technology and competence as already tested in our Russian factory. This makes us a truly global tire supplier and increases the flexibility of our production, as we can manufacture all sizes and models in all our three passenger car tire factories.
Heavy Tyres delivers strong growth and record results
2019 was a record year for Heavy Tyres, delivering the best-ever net sales and operating profit supported by the highest ever production volume. With the ongoing capacity expansion, we will increase Heavy Tyres’ capacity by 50%. At the same time, we will more than double the number of products launched per year, which supports the growth in our core product groups of agricultural and forestry tires. Last year, we also opened our Heavy Tyres’ R&D center, which will speed up the development and launch of new products.
Significant advances in occupational safety and sustainability
As a responsible employer, we want to ensure the competence, well-being and occupational safety of our employees. In 2019, we reached new levels in occupational safety, as our LTIF dropped to 4.3. At Heavy Tyres, we had no lost-time injuries for an entire year, which is a truly great achievement.
Our work on sustainability again received recognition last year, with Nokian Tyres being selected for inclusion in the Dow Jones’ DJSI World and DJSI Europe sustainability indices. Our sustainability initiatives focus on producing safe and high-quality products, reducing our environmental impact, and ensuring transparent and ethical supply chain. Our Corporate Sustainability Report contains more information on our goals and progress in sustainability.
Strategic journey continues
Nokian Tyres has a valued brand and competitive advantages to build on. In 2020, growth in Central Europe and North America will be supported by several new product launches and related go-to-market activities. We have actions in place to grow with existing and new customers both in the summer and all-season segments in addition to our core business in winter products. In Russia, we will focus on sell-out activities in order to reduce high carry-over stocks of B segment winter tires in the distribution channel.
All in all, in 2020, we continue to build a more balanced portfolio across the Nordics, Russia, Central Europe, and North America, which will lead to a sustainable, positive impact on our long-term performance.
I want to warmly thank all our customers, personnel, shareholders, and other stakeholders for their good cooperation and trust.”