Review by the President and CEO
Hille Korhonen, President and CEO (Financial Review 2019, Feb 28, 2020):
“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.”
Hille Korhonen, President and CEO (Financial Statement Release 2019, February 4, 2020):
“In 2019, the car and tire markets continued to be soft in Europe, which resulted in tightening competition. Winter tire demand in October-December was negatively impacted by the warm winter in Nokian Tyres’ key markets. During the year, the Russian market declined against expectations, driven by low new car sales and consumer spending.
Our net sales were on the previous year’s level and operating profit decreased due to the weaker markets and increased expansion costs of approximately EUR 20 million in Passenger Car Tyres in the US. Heavy Tyres and Vianor continued to perform well.
During the year, we continued with our important strategic projects to support Nokian Tyres’ long-term growth: we successfully started ramping up our new US factory, continued the construction of our new testing center in Spain, and proceeded with the Heavy Tyres capacity increase with great results. These growth projects lay an important basis for our future.
In line with our strategy, we are targeting growth in Russia, Central Europe and North America. In 2020 however, net sales and operating profit in Russia are expected to decline substantially, which will have a negative impact on Passenger Car Tyres in 2020 especially during the first and second quarters of the year. Carry-over stocks in the distribution in Russia are on a high level, and in 2020, our focus in Russia is on increasing our sell-out and decreasing distributors’ stock levels. In addition, our B segment winter products in Russia will be repositioned in order to make them more competitive. 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 the short term, we are facing headwind in Russia. Nevertheless, in line with our strategy, 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.”
Hille Korhonen, President and CEO (Interim Report January–September 2019, October 30, 2019):
“In January-September 2019, our net sales with comparable currencies were at the previous year’s level. The good progress in Heavy Tyres and Vianor continued, while net sales in Passenger Car Tyres decreased as the car and tire market in Europe continued to be soft. This together with higher material and expansion costs impacted our profitability negatively. In Russia, the market has turned weak, which is a clear change compared to our expectations in the beginning of the year. It is expected that markets will remain soft in 2020.
Regardless of the headwind in the market, we focus on executing our strategy. In October, we reached a significant milestone when we celebrated the opening of our US factory in Dayton, Tennessee. We are extremely excited about the opportunities the new facility provides us to further expand our presence in North America. We will start the commercial tire production in US in January 2020. In addition, the construction of our new testing center in Spain and the project to increase Heavy Tyres’ capacity are proceeding according to plan.
In September, we received great recognition for our sustainability achievements when Nokian Tyres was again selected in the DJSI World index and also in the more strictly defined DJSI Europe index. I’m also very pleased with the occupational safety development, especially in the Heavy Tyres business, which has been an entire year with no occupational accidents leading to absence. We want Nokian Tyres to be seen as a sustainability benchmark in the industry and these results prove that we are on the right track.”
Hille Korhonen, President and CEO (Interim Report January–June 2019, August 6, 2019):
“In the first half of the year, our net sales with comparable currencies were slightly higher than in the same period last year. The progress we made in Heavy Tyres and Vianor was offset by lower net sales in Passenger Car Tyres. The drop in the passenger car tire sales volumes, mainly in Central Europe, had a negative impact on our operating profit. In addition, the result was impacted by currencies and higher material and production costs.
In H1/2019, the development in the car and tire sector continued to be weak in Europe. The competitive landscape in the Central European replacement car tire market is tight due to weakness in the OE segment, as there is a high supply of tires in the market. We expect short-term weakness in sales volume growth in Central Europe to continue during the remainder of the year. There is also some level of uncertainty in the Russian market.
Despite market uncertainties, we will continue to pursue our growth agenda going forward. Our focus is on executing our strategic projects, especially the US factory ramp-up. During the first half, we invested EUR 148 million including the US factory, testing center in Spain and Heavy Tyres capacity increase. In the US, in line with the original schedule, we reached a significant milestone by producing the first test tire in the new factory in summer. Commercial production is expected to start in early 2020.
In Spain, the construction work of our new testing center is proceeding on schedule. The center enables year-round testing of summer, winter, and all season tires, and it is the largest single investment in testing in Nokian Tyres’ history. A good example of our strong R&D and testing capabilities are the new Central European summer tires, which are showing a good commercial success.
In Heavy Tyres, the project to increase the production capacity of the factory in Finland by 50% and more than double the number of new products is well underway. A new R&D center, which is being built as part of the investment to accelerate the testing phase of new tire models, will be completed this year.”
Hille Korhonen, President and CEO (Interim Report January–March 2019, May 8, 2019):
“Nokian Tyres had a diverse start to the year. With comparable currencies, our net sales increased by 3.8% with good progress in Heavy Tyres and Vianor. Car tire sell-in in the Nordics and Central Europe declined which, together with the timing of deliveries in North America, had a negative effect on Passenger Car Tyres’ net sales. This was partly offset by earlier deliveries in Russia. Operating profit decreased due to the highly competitive tire market in Central Europe, as well as currencies.
In March 2019, we received the final ruling on the tax dispute for 2007−2010, as well as concerning the year 2011. Both decisions were positive for the company, and adjustments to the financial reporting have been done during the first quarter of 2019.
Sustainability is an important part of our strategy, and I am particularly proud that in February the company received the Silver Class distinction in the RobecoSAM Sustainability Yearbook 2019. As a premium tire brand, we want to set an example as a responsible company that aims for sustainable growth.
In 2019, we continue to pursue our growth agenda, despite softness in the car and tire market in Europe. Our focus is on executing our strategic projects, especially the US factory ramp-up which is proceeding according to plan, and commercial production is expected to start in early 2020.”
Hille Korhonen, President and CEO (Financial Statement Release 2018, February 5, 2019):
“In 2018, we made good progress especially in Russia and North America. With comparable currencies, Nokian Tyres’ net sales increased by 5.7%. The growth was driven by Passenger Car Tyres, despite the negative impact of a delayed summer and lower new car sales in Sweden and Norway. Operating profit increased, although the negative currency impact was significant.
The construction work at our new US factory as well as Heavy Tyres’ capacity increase in Finland are proceeding as planned. The test center project in Spain is ongoing and on schedule. All these investments will be major assets to us as we have now entered our next phase of growth. We are aiming at doubling our sales in North America and growing our sales by 50% in Central Europe in the next 5 years, as well as maintaining our market leader positions in the Nordics and Russia.
The tire market in Central Europe got highly competitive in 2018. At the end of 2018, we split Business Area Europe into two separate Business Areas, Central Europe and Nordics, in order to have even more focus on these regions. Utilization rate of increased capacity in Finland is planned to be adjusted as the Central European car tire market is not as robust as we estimated a year ago.
In November, we published our new financial targets for 2019–2021. Our targets are as follows: growing faster than the market, healthy profitability, and dividend above 50% of net earnings. These targets will guide us in reaching our strategic ambitions.
Nokian Tyres is a life driven company, facilitating safe driving. As people drive home in their everyday lives, we offer peace of mind in all conditions. Our mission is powerful, giving all of us at Nokian Tyres a high purpose for our work, every day. I would like to thank our customers, employees, and other stakeholders for another successful year in 2018. We have an impressive 120 year history and are committed to continue building on our success together in years to come.”