Review by the President and CEO

Nokian Tyres plc, Hille Korhonen, President and CEO

Hille Korhonen, President and CEO (Financial Review 2018):

New financial targets guide us in executing our strategy

I am pleased to report that we reached many important milestones in 2018: we started construction work on our new US factory; we began building a new testing center in Spain; we initiated investments to increase Heavy Tyres’ production capacity by 50% in Finland; and we were again selected in Dow Jones’ DJSI World sustainability index, as well as DJSI Europe index. At the same time, we successfully continued to strengthen our position in North America and Russia.  

In 2018, we celebrated 120 years in business. That is an impressive track record for any company! Innovative products, a trusted brand, motivated employees, and a commitment to serving customers sustainably over the long-term, have all contributed to strengthening our position in the market.

We had a good year – delivering higher net sales and operating profit. Net sales increased by 5.7% with comparable currencies, driven by Passenger Car Tyres, despite a delayed summer as well as lower new car sales in Sweden and Norway. We experienced good growth in Heavy Tyres, especially in sales of agricultural and forestry tires. Vianor successfully continued to improve operational efficiency and sales management. Overall, we increased the operating profit for the Group, despite a significant negative currency impact. 

Key strategic ambitions will help us deliver our new financial targets

Nokian Tyres has now entered its next phase of growth. In line with our updated 2018 strategy, we will seize the opportunities for further growth in Russia, Central Europe and North America. Our financial targets for 2019–2021 are the following: 

  1. to grow faster than the market: CAGR above 5% with comparable currencies
  2. to maintain healthy profitability: EBIT at the level of 22%
  3. to deliver good returns for our shareholders: Dividend above 50% of net earnings 

We will reach these targets by meeting our six strategic ambitions: 

  1. We are the market leader in selected segments in the Nordic countries and Russia
  2. We increase our sales by 50% in Central Europe in five years
  3. We double our sales in North America in five years
  4. Our tires are available in all major winter tire markets
  5. We increase the EBITDA of Vianor (own) to +3% by the end of 2019
  6. We increase sales of Heavy Tyres by 50% in four years 

We have already made a good start in delivering on these ambitions during 2018. We grew by 14.7% in comparable currencies in Russia and by 17.0% in North America. We turned Vianor’s operating result positive one year ahead of the target schedule, and grew Heavy Tyres by 10.7% in comparable currencies. 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. Japan and China are attractive winter tire markets, and we are building the platform for future growth in these markets.

With our strategy update, we have re-designed our operating model, having both product centricity as well as customer and consumer focus. In the new model, shared processes and roles across the organization leverage synergies and support the scalability of operations. 

Our new factory in the US and testing center in Spain will support growth

Construction work at our new US factory in Dayton, Tennessee, is proceeding as planned, and commercial production is scheduled to begin in 2020. Annual capacity at the factory will be 4 million tires in 2023, with further expansion potential. The new factory will ensure we can meet increasing demand throughout North America. It will also allow us to free up capacity in our other factories to service growth markets elsewhere.

In 2018, we started a project to build a testing center in Spain. It is expected to be fully operational in 2020, enabling accelerated product development and range extension. Comprehensive testing and a thorough understanding of customer needs ensure that our premium tires perform in the best possible way in all conditions. High-quality, safe products are our number one priority.

Another initiative to support growth is our decision to increase production capacity by 50% in Heavy Tyres in Finland during 2018–2020. As part of this investment, Heavy Tyres is building a new research and development center, accelerating the testing phase of new tire models. 

We are committed to high standards in sustainability

Sustainability is an important part of our strategy, and I am particularly proud to announce that in 2018 we were again included in the Dow Jones’ DJSI World sustainability index. Nokian Tyres was also selected for the more strictly defined DJSI Europe index. In February 2019, in the RobecoSAM Sustainability Yearbook 2019, we received the Silver Class distinction.

During 2018, we joined the Science Based Targets initiative, which is a partnership between UN Global Compact, CDP, World Resources Institute and WWF for promoting the best practices in setting scientific climate goals. Being part of this initiative is a natural continuation of our long-term work for the environment.

Our growth journey continues in 2019

In 2019, we continue to pursue our growth agenda, outperforming the competition. Our focus is on executing our strategic projects, especially the US factory ramp-up. We aim to strengthen our market leadership in Russia through even stronger distribution and online sales. We are building the product offering and distribution in Central Europe to support our growth target in the region. In the Nordics, we have reorganized Vianor and Nokian Tyres Nordics under one leadership, which will increase synergies and help us further strengthen our position in Finland, Sweden and Norway. In Heavy Tyres, we continue to focus on growth especially in the Nordics, Central Europe and North America, supported by new products. 

Peace of mind in all conditions

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.