Review by the Interim President and CEO

Andrei Pantioukhov, Interim President and CEO

Andrei Pantioukhov, Interim President and CEO (Financial Statement Release 2016):

"In 2016, Nokian Tyres demonstrated strong performance in all its main market areas despite quite challenging market environment. Our net sales and profitability improved, along with the market shares.

The fourth quarter exceeded our expectations. Sales in all our main markets increased compared to the same period in the previous year. Russia was the biggest contributor to the growth in sales in Q4 – for the first time in a few years. The first encouraging signals that we reported in connection with the Q3 results continued to come from Russia. Russia’s economy and consumer markets continue to gradually stabilize, but we expect the growth in 2017 to be moderate.

The winter season started early and continued strongly, especially in CE, the Nordic countries and Russia. We have succeeded in improving our market share in our target areas despite all the challenges, especially in Russia and Central Europe. Our overall performance in the fourth quarter was excellent, and led to a strong full-year result.

Our production volumes were higher than last year, and productivity continued to develop positively. Raw material costs started to increase, as forecasted. We estimate that the raw material costs will increase by approximately 15–20% for the full year 2017 vs. 2016. This development will definitely lead to price increases in the whole industry. We have already started to implement the necessary price increases in order to maintain our profitability.

The cash flow from operating activities was EUR 81 million better than last year. Investments in 2016 amounted to EUR 105.6 million. Profitability was weakened by bad debt provisions of EUR 18.6 million, most of which related to customer bankruptcies originated in year 2015 in Russia (EUR 16.9 million). However, the collection rate of 2016 current receivables in Russia was 100%.

The fourth quarter net sales in Passenger car tyres went up from last year, and so did the operating profit. ASP decreased only slightly this quarter, mainly due to currency effects. In Heavy Tyres, we continued making the necessary investments for the future. Net sales and operating profit were practically flat year-over-year.

Vianor’s net sales increased slightly, but profitability was below the targeted level driven by operational challenges and non-recurrent items (ICT development project write-offs). In order for Vianor to achieve a positive result, a comprehensive profit improvement program will be launched in 2017. The growth of our distribution network was positive, despite large-scale tyre shop closures in Russia caused by difficult economic situation in Russia. The number of Vianor, NAD, and N-Tyre outlets in our network grew by 286 in 2016. Currently, the network includes 3,102 stores in total.

We launched top quality products during 2016, and our products continued to perform very well in magazine tests. The new flagship products for our winter tyre range, the Nokian Hakkapeliitta 9 and Nokian Hakkapeliitta 9 SUV, along with new value-for-money products Nokian Nordman 7 and Nokian Nordman 7 SUV, will make our product portfolio even stronger.

Nokian Tyres is in great shape, and I am proud to be the interim President & CEO to lead the company forward. High customer satisfaction, an engaged organization, and the upcoming flow of new world’s safest tyres create an excellent ground for future growth. In 2017, we expect net sales and operating profit to grow by at least 5% compared to 2016."