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Interim Report for Nokian Tyres plc January-June 2001

Thu August 2 08:00 am 2001 in category Stock exchange releases
Nokian Tyres plc Stock Exchange Bulletin 2 August 2001 8 a.m.

INTERIM REPORT FOR NOKIAN TYRES PLC JANUARY - JUNE 2001

Net sales and operating result for the second quarter, and the first half of the year, saw marked improvement. Operating result in January-June 2001 was EUR 6.7 million (EUR -1.5 million in the corresponding period 2000) and earnings per share were EUR -0.07 (EUR -0.39). Net sales were up by 13 % to EUR 171.6 million (EUR 152.2 million). Nokian Tyres' objective is to reach a sales growth of more than 10 % and to make a better profit in 2001 than in the previous year.

NET SALES AND PROFIT

The tyre market remained highly challenging throughout the period. The Nordic tyre market fell. The slow growth of the global economy and the major problems affecting the European agricultural sector reflected on the heavy tyres business.

Nokian Tyres was able to increase its market share in its key market area, the Nordic countries. Sales also picked up considerably in the USA, Russia and Eastern Europe. Net sales and operating profit for the second quarter, and for the entire period, of both the manufacturing business and the Vianor tyre chain improved compared to the previous year.

April to June 2001

Net sales of Nokian Tyres were up by 11.7 %, totalling EUR 95.0 million (EUR 85.1 million in the corresponding period in 2000). Net sales generated by the manufacturing business rose by 8 % and Vianor's by 20 %.

Fixed costs grew by 7.4 % to EUR 36.1 million.

Operating result rose to EUR 8.5 million (EUR 3.0 million). Operating result from the manufacturing business amounted to EUR 6.6 million (EUR 2.4 million) while Vianor booked an operating result of EUR 1.9 million (EUR 0.0 million).

Profit before taxes was EUR 5.4 million (EUR 0.7 million). Net result for the period amounted to EUR 3.0 million (EUR 0.2 million).

January to June 2001

In the January to June period, Nokian Tyres booked net sales of EUR 171.6 million (EUR 152.2 million), showing an increase of 13 % on the corresponding period a year earlier. Net sales from manufacturing grew by 10 % and Vianor's by 24 % on the previous year.

Both manufacturing and Vianor were able to make a significant improvement in their profitability. This could be largely attributed to price increases, an improved sales mix featuring new products and lower than expected material costs in the manufacturing business. Corporate restructuring measures were successful. The synergy benefits derived from the tyre chain and manufacturing
business were put to more efficient use, which translated into higher sales volumes, a stronger position and increased market shares in the Nordic market.

Material costs were some 11,6 % higher than the average in the corresponding period a year earlier. Fixed costs increased by EUR 6.2 million, or 9.3 %, on the previous year and totalled EUR 72.6 million (EUR 66.5 million). Fixed costs represented 42.3 % (43.6 %) of net sales.

Operating result saw a significant improvement and rose to EUR 6.7 million (EUR -1.5 million). The operating result from the manufacturing business amounted to EUR 11.4 million (EUR 5.3 million), while Vianor booked an operating result of EUR -4.7 million (EUR -6.0 million).

Net financial expenses were EUR 6.3 million (EUR 4.4 million).

Profit before taxes climbed to EUR 0.4 million (EUR -5.9 million). Net profit for the period totalled EUR -0.8 million (EUR -4.1 million).

Return on net assets (RONA, 12 months average) was up to 12.4 %
(11.1 %).

Income financing after the change in working capital and investments (cash flow II) was EUR -22.8 million, representing an improvement of EUR 5.1 million on the previous year.

The Group employed an average of 2 572 (2 346) people and 2 572
(2 611) at the end of the period. At the end of the period, Vianor employed 1 065 (1 078) people.

MANUFACTURING

Passenger car tyres

The net sales generated from Nokian passenger car tyre business grew 17.5 % from the previous year in the January to June period, and stood at EUR 79.8 million (EUR 68.0 million).

Sales of Nokian passenger car tyres continued to grow steadily throughout the period in all the major markets, and the market shares for Nokian brand tyres increased in all the Nordic countries. Sales picked up considerably in the USA, Russia and Eastern Europe. Profitability improved thanks to new products, a good product mix, price increases and lower than expected material cost increases.

At the beginning of the year, winter tyres sold exceptionally well, because the winter tyre season was delayed until after the turn of the year. The launch of the summer tyre season was delayed, but business was very good and was boosted by new products introduced in the product range. One of them was Nokian NRZi, the ultra high performance, high-speed summer tyre, which was brought to the consumer market early in the year. Nokian brand summer tyres also performed well in the tyre tests of various trade magazines.

As a result of production investments and productivity-boosting measures, production volumes grew considerably, thereby contributing to an improved service level.

Heavy tyres

The downturn in economy that spread from the USA to Europe reduced the demand for heavy tyres in both the original equipment installation market and secondary markets. Demand for agricultural tyres was hampered by the hardships of the European agricultural sector. Demand for all heavy tyre product groups was low. In North America, sales of tyres for forestry machinery plummeted by nearly 40 %.

The slowdown of the markets began to affect the sales of Nokian heavy tyres in March, and sales failed to perk up by the end of the period under review. The net sales of Nokian heavy tyres shrank by 8.2 % to EUR 24.9 million (EUR 27.1 million). In the course of the period, production activities were adjusted to meet the demand, and sales-boosting measures were launched.

In the heavy tyres market, companies attempted to reduce their stocks by introducing price cuts and special offers. Despite the adverse conditions, Nokian Tyres was able to carry out the scheduled price increases and to strengthen its position as the leading manufacturers of tyres for forestry machines.

Bicycle tyres

Nokian bicycle tyres generated net sales of EUR 2.8 million (EUR 3.2 million), showing a decrease of 10.3 % on the previous year. The late spring in Europe delayed the start of the bicycling season and hampered sales in secondary markets.

Retreading materials

Net sales from the Nokian retreading materials business totalled EUR 4.6 million (EUR 4.1 million), showing an increase of 10.2 % on the previous year.

Sales of Nokian retreading materials developed well in all major market areas throughout the period, and the company cemented its market position in its key market, the Nordic countries. New customer relationships were established in Estonia, Hungary, Italy and Russia. Sales developed favourably in North America, too. New products were a major sales booster while the company's performance improved clearly with the extension of the mixing department, which provided more mixing capacity and thereby contributed to better delivery service.

VIANOR

In the January to June period, Nokian tyre chain Vianor posted net sales of EUR 77.0 million (EUR 62.2 million), showing an increase of 23.7 % on the corresponding period in 2000. The structural changes made during the review period and in 2000 contributed to the growth of net sales.

Vianor's operating result during the second quarter of the year improved clearly and was EUR 1.9 million (EUR 0.0 million). During the review period, the operating loss dropped to EUR -4.7 million (EUR
-6.0 million). The purchase advantages gained by standardising the product selection, helped raise the profit margins, as well as more effective cost management were achieved by integrating operations. Vianor's cash flow was positive and stronger than a year earlier. Vianor's profits are increasingly made during the last quarter of the year.

The tyre retail trade saw favourable development in January and February, as the winter tyre season extended all the way to January. The summer tyre season opened later than usual, but sales developed as planned. Integration and development projects continued at Vianor, and its information systems were upgraded. A real-time sales and stock follow-up system is now being used in Finland, Norway and Estonia. The system will also be introduced in Sweden by the end of August. Planned measures were taken to make the visual image of the Vianor outlets more consistent and to standardise the product selections.

Some EUR 1.5 million will be invested in the integration of the tyre chain this year, distributed evenly over the year.

The Vianor chain currently comprises 157 sales outlets. To streamline the structure of the chain, small sales-outlets were sold and new outlets were acquired in major consumer centres.

ROADSNOOP LTD

In the period under review, Nokian Tyres set up a subsidiary called RoadSnoop Ltd to take care of the product profiling and commercialisation of the intelligent tyre concept. Product development associated with the intelligent tyre concept continued. Co-operation negotiations with car, equipment and electronics manufacturers progressed favourably.

Nokian Tyres will introduce its first RoadSnoop product this autumn. Sales and deliveries of the product will begin in early 2002 in the Nordic countries, and across Nokian Tyres sales and distributor organisations in Europe and the USA. The company's first so-called smart product, which is based on the Bluetooth technology, will be introduced in 2002.

INVESTMENTS

Total investments in the period amounted to EUR 26.4 million (EUR 35.4 million). Fewer investments were made than a year earlier; instead, stronger emphasis was placed on more efficient utilisation of previous investments. During the period, the first phase of the mixing mill investment was completed, and it was brought fully on line two months ahead of schedule. As a result, the delivery capacity for all tyres improved considerably, and there was no longer any need to purchase mixtures from other manufacturers.

Nokian Tyres has budgeted total investments of EUR 56 million for the year 2001. Major investments include machinery and equipment purchases

to eliminate production bottlenecks, and a heavy-tyre testing machine that will speed up the heavy tyres R&D and testing operations.

In addition, a 32,000 square metre logistics centre will be constructed for Nokian Tyres in the town of Nokia, Finland. Nokian Tyres will rent the premises from a real estate management company and will relocate its passenger car tyres product range and logistics operations to these facilities. Construction of the warehouse and logistics centre began this spring, and project completion is scheduled for January 2002. The facilities will provide storage capacity for 700,000 tyres.

OTHER MATTERS

Subscriptions for the bond loan with warrants directed to the personnel

The Board of Directors of Nokian Tyres plc has approved the subscriptions for the bond loan with warrants directed to the personnel of the Nokian Tyres Group. 42% of the whole personnel subscribed for the bond loan with warrants.

The Board of Directors approved a minimum subscription of FIM 320 for each subscriber. In addition, the Board of Directors approved a subscription of FIM 390.240 to Direnic Oy, a wholly owned subsidiary of Nokian Tyres plc to be later offered to the present or future personnel of the Nokian Tyres Group.

Bond certificates I and the attached warrants were offered to the subscribers of the 1999 bond loan with warrants provided that the warrant holder returns all his/her old 1999 warrants to the company. In the conversion 433.800 old 1999 warrants were returned to the company.

The maximum amount of the 2001 bond loan with warrants is FIM 2,400,000 and the maximum number of Nokian Tyres shares that can be subscribed for with the warrants is 600,000 during 1 March 2003-31 March 2007.

The Company will cancel a total of 433.800 1999 warrants, which have been returned to the Company in the conversion and entitle to subscription for 433.800 shares, as well as a total of 85.250 1999 warrants, which are in the possession of Direnic Oy, a wholly owned subsidiary of Nokian Tyres plc, and entitle to subscription for 85.250 shares.


OUTLOOK FOR THE YEAR-END

Nokian Tyres expects its overall performance to improve in the second half, and particularly in the final quarter of the year. The company will therefore focus sharply on the upcoming winter tyre season, and hone its manufacturing business and tyre chain for maximum performance.

Regardless of the evident downward economic trend, which is also likely to affect the automotive and tyre industry, the outlook for Nokian passenger car tyres, retreading materials and the Vianor tyre chain is relatively positive. The product range features a large number of new products with a high profit margin. Successful marketing efforts, good performance in the tyre tests of trade magazines and the widened distribution chain have helped further strengthen the market position of Nokian brand winter tyres. Nokian Tyres expects its winter tyre sales to grow from the previous year in the Nordic countries and in Russia. The new "All Weather Plus" category tyre will boost sales and increase the market share in the growing North American winter tyre markets.

As for the sales of motor vehicles and heavy tyres, demand is expected to stay low, although the autumn looks somewhat more promising for heavy tyres compared with the first half. Nokian Tyres will focus its sales on the secondary markets with special emphasis on North America, Eastern Europe and Russia. The production of heavy tyres will be adjusted to meet the demand.

Material costs are expected to remain on previous year's level. The extension of the mixing department, which was introduced in the early summer, will considerably improve the delivery capacity.
Production volumes and productivity have clearly picked up from the previous year, and the production volumes of passenger car tyres will continue to grow towards the year-end. Furthermore, outsourced manufacturing is going according to plan and better than a year earlier.

To improve cash flow and return on capital, stock management will be developed, productivity and structural investments will be introduced, and more investments will be made to deal with production bottlenecks. Measures will also be taken to curb the growth of fixed costs.
Nokian Tyres aims to reach sales growth of more than 10 % and to make a better profit in 2001 than in the previous year.
CONSOLIDATED PROFIT AND LOSS ACCOUNT

 

Million euros 4-6/01 4-6/00 1-6/01 1-6/00 Last 12 1-12/00
months

Net sales 95.0 85.1 171.6 152.2 417.9 398.5
Operating expenses 78.3 76.5 148.2 141.7 336.6 330.1
Depreciation according
to plan 8.2 5.6 16.7 11.9 33.8 28.9
Operating result 8.5 3.0 6.7 -1.5 47.6 39.4
Financial income
and expenses -3.1 -2.3 -6.3 -4.4 -14.2 -12.3
Result before extra-
ordinary items and tax 5.4 0.7 0.4 -5.9 33.4 27.2
Extraordinary items 0.0 0.0 0.0 0.0 0.0 0.0
Direct tax for the
period 1) 2.5 0.5 1.2 -1.7 10.3 7.4
Profit applicable to
minority shareholders 0.0 0.0 0.0 0.0 0.0 0.0
Net result 3.0 0.2 -0.8 -4.1 23.2 19.8

NOKIAN TYRES
CONSOLIDATED BALANCE SHEET 30.6.01 30.6.00 31.12.00

Intangible assets 14.6 10.3 11.5
Goodwill 47.5 49.4 50.2
Tangible assets 198.0 171.6 190.1
Investments 0.3 0.5 0.4
Inventories 98.7 85.3 81.3
Receivables 101.4 95.6 116.5
Cash in hand and at bank 9.5 9.0 14.0

Shareholders' equity 123.4 108.4 131.3
Capital loan 36.0 36.0 36.0
Minority shareholders' interest 0.0 0.2 0.0
Long-term liabilities
interest bearing 161.2 144.9 125.7
non interest bearing 17.1 16.9 18.1
Current liabilities
interest bearing 64.3 48.7 70.4
non interest bearing 68.0 66.6 82.5

Total assets 470.1 421.6 464.0

Interest bearing net debt 216.0 184.6 182.1
Capital expenditures 26.4 35.4 67.5
Personnel average 2,567 2,346 2,462

NOKIAN TYRES Last 12
KEY RATIOS 30.6.01 30.6.00 months 31.12.00

Earnings per share, euro -0.07 -0.39 2.19 1.88
Shareholders' equity
per share, euro 11.66 10.24 12.41
Equity ratio, % 2) 33.9 34.3 36.1
Equity ratio, % 26.2 25.7 28.3
Gearing, % 2) 135.5 127.7 108.9

Number of shares
(1,000 units) 10,582 10,582 10,582

1) Direct tax in the consolidated profit and loss account is
based on the taxable profit for the period.
2) Capital loan is included in equity

SEGMENT INFORMATION 4-6/01 4-6/00 1-6/01 1-6/00 1-12/00

Net sales
Manufacturing 55.6 51.6 112.2 102.5 260.8
Vianor 47.6 39.8 77.0 62.2 176.5

Operating result
Manufacturing 6.6 2.4 11.4 5.3 43.0
Vianor 1.9 0.0 -4.7 -6.0 -1.7

CONTINGENT LIABILITIES Million euros

FOR OWN DEBT
Mortgages 0.7 1.2 1.4
Mortgages on company assets 0.0 1.3 0.0
Pledged assets 0.1 0.1 0.1
Guarantees 4.3 5.3 1.2

The amount of debts with security 2.9 4.1 3.6

ON BEHALF OF OTHER COMPANIES
Guarantees 0.0 0.0 0.0

OTHER OWN COMMITMENTS
Leasing and rent
commitments 30.2 15.7 17.2
Acquisition commitments 5.3 5.0 5.3
Not entered interest on
capital loan 0.7

INTEREST RATE DERIVATIVES
Interest rate swaps
Fair value 0.3 0.3 0.0
Underlying value 33.4 8.4 8.4
Options, purchased
Fair value 0.0 0.1 0.0
Underlying value 0.0 5.0 5.0

CURRENCY DERIVATIVES
Forward contracts
Fair value -0.8 -0.3 1.5
Underlying value 46.5 50.2 58.5

Options, purchased
Fair value 0.0 0.1 0.0
Underlying value 0.0 9.0 0.0

Options, written
Fair value 0.0 -0.4 0.0
Underlying value 0.0 22.0 2.0


Currency derivatives are used to hedge the Group's net exposure.

Currency derivatives are included in the financial result at market
value except for those relating to order stock and budgeted net
currency positions, which are entered in the profit and loss
account as the cash flow is received.
(Unaudited figures)

Nokian Tyres plc

Raila Hietala-Hellman
Vice President, Public Information

For more information: Mr. Kim Gran, President and CEO,
tel. +358 3 340 7336

Distribution: HEX and major media