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Fri February 5 08:00 am 2016 in category Stock exchange releases

Nokian Tyres plc Financial Statement Bulletin 2015: Success in Europe boosted sales. Strong profitability in Q4. Outlook for 2016 cautious.

Nokian Tyres plc Financial Statement Bulletin 2015, 5 February 2016, 8 a.m.

October-December 2015

  • Net sales increased 11.1% to EUR 422.3 million (380.0 in 10-12/2014). Currency rate changes cut net sales by EUR 21.0 million compared with the rates in 10-12/2014.
  • Operating profit increased 22.4% to EUR 94.8 million (77.5). Operating profit percentage was 22.5% (20.4%).
  • Profit for the period decreased 133.5% to EUR -16.8 million (50.1). This includes additional taxes and punitive interest of EUR 94.1 million.
  • Earnings per share were down 134.4% to EUR -0.13 (0.37).

January-December 2015        

  • Net sales decreased 2.1% to EUR 1,360.1 million (1,389.1 in 2014). Currency rate changes cut net sales by EUR 69.3 million compared with the rates in 2014.
  • Operating profit was down 4.1% to EUR 296.0 million (308.7). Operating profit percentage was 21.8% (22.2%).
  • Profit for the period increased 15.5% to EUR 240.7 million (208.4). In Q1 the company returned to the financial result the 2007-2010 total additional taxes and punitive interest of EUR 100.3 million, based on the annulment decision made by the Board of Adjustment of the Finnish Tax Administration. In December 2015 and in January 2016 the company received renewed reassessment decisions of EUR 94.1 million related to the ongoing tax dispute of years 2007-2010. The company recorded the amount as expenses in full in the financial statement and result for 2015. The net effect of the above described tax decisions related to the tax dispute 2007-2010 was EUR 6.2 million positive for the financial year 2015.
  • Earnings per share were up 15.1% to EUR 1.80 (1.56).
  • Cash flow from operations was EUR 311.1 (458.3).

Dividend

The Board of Directors proposes a dividend of EUR 1.50 (1.45) per share.

Financial guidance

In 2016, with current exchange rates, net sales and operating profit are to remain at the same level compared to 2015.

Key figures, EUR million

  10-12
/15
10-12
/14
Change
%
2015 2014 Change
%
Net sales 422.3 380.0 11.1 1,360.1 1,389.1 -2.1
Operating profit 94.8 77.5 22.4 296.0 308.7 -4.1
Operating profit % 22.5 20.4   21.8 22.2  
Profit before tax 72.9 65.0 12.1 274.2 261.2 5.0
Profit for the period -16.8 50.1 -133.5 240.7 208.4 15.5
Earnings per
share, EUR
-0.13 0.37 -134.4 1.80 1.56 15.1
Equity ratio, %       70.8 67.5  
Cash flow
from operations
417.0 579.1 -28.0 311.1 458.3 -32.1
RONA, %
(roll. 12 months)
      18.5 18.3  
Gearing, %       -16.9 -13.6  

Ari Lehtoranta, President and CEO:

“Despite the delayed winter season and Russia’s further deteriorating economic challenges, we were able to deliver strong results. Like we reported earlier, winter season deliveries moved later; in Central Europe in great extent even to the fourth quarter. Our teams were able to achieve market share gains based on the world’s safest product portfolio. North American and Russian winter seasons were almost non-existing and this resulted in lower sales in 2015 and higher inventory levels going to 2016 in these market areas.

Raw material cost decline supported our profitability in 2015. Good product mix, sales growth in 2H and improved productivity contributed also in profitability increase. Productivity improvement in passenger car tyre manufacturing was 5% in 2015 despite clearly lower volumes.

Heavy Tyres improved profitability and increased its net sales. Vianor was hit by the lack of winter and ended up in negative profitability.

One of our key strengths, our distribution network, continued to grow as planned. In 2015, we added over 500 new Vianor, NAD and N-Tyre outlets to our branded distribution network, and the current number of Vianor stores is 1,475 and the NAD/N-Tyre network has already grown to over 1,300 stores.

Russia is still our biggest single country in terms of sales. Russia’s economic outlook for 2016 is negative. This together with the North American inventory situation will limit our capability to grow this year. However, we are aiming at improving our profitability in 2016.

Our personnel has been doing great job everywhere. During 2015 we went through a difficult capacity reduction program in Nokia. At the same time, however, we have increased our investments in R&D, marketing and sales much more than the savings achieved in that program. These investments together with a strong balance sheet, positive cash flow and the whole organization delivering excellent results give us confidence about the positive future.”

Market situation

The global economy is estimated to pick up in 2016. The key issues influencing the global outlook: the gradual slowdown and rebalancing of economic activity in China, lower prices for energy and other commodities and a gradual tightening in monetary policy in the USA. Despite the anticipated improvement, the pace of the recovery is forecast to remain below pre-crisis levels. The USA continues still to be the growth engine. Also Europe is recovering. The global GDP is estimated to grow by 3.5% in 2016. The GDP growth estimates for Nordic countries are +0.5% – 3.8% and for Europe (including Nordics) +1.7%. The GDP in USA is estimated to grow by 2.7%. In Russia the GDP is expected to further decline between 0.3% and 3% depending on the scenario.

In the Nordic countries new car sales increased in 2015 by 9% year-over-year. The market volume of car tyres showed an increase of 5% compared to 2014, but for full year 2016 the increase is expected to be lower.

In Europe sales of new cars increased in 2015 by 9% year-over-year. Car tyre sell-in to distributors was up 3% compared with 2014, with winter tyre demand decreasing by 2%. Overall tyre demand is estimated to grow slightly in Central Europe in 2016. Pricing pressure is, however, tight.

In the USA estimated new car sales were up 6% 2015 vs. 2014. The market volume of car tyres was flat compared with 2014, due to specific reasons related to the punitive import duties imposed on Chinese tyre suppliers. Car tyre demand in North America is expected to grow by 2% in 2016 year-over-year.

Russia’s economic situation has remained challenging: according to the preliminary estimates, GDP contracted by 3.7% in 2015 vs. 2014. Year-on-year decline slowed down in Q4 compared to Q3; quarterly GDP is estimated to have grown in Q4 vs. Q3. Inflation continued to be high: consumer price index is estimated to have increased by 12.9% by year-end and by over 15% on average during the year, resulting in the cut of real wages of about 10%. Russian consumers’ purchasing power clearly weakened and consumer confidence remained at a very low level; in Q4 it continued to decline and approached historical minimum. As a result, consumers are holding back their spending: retail turnover remains quite sluggish, with only minor improvement on the way.

Sales of new cars in Russia in 2015 reached 1.601 million units, down by 35.7% vs. 2014. The decline in December (-45.7%) was higher than in the previous months, as expected, due to the peak in sales in December 2014 driven by the sharp devaluation of the ruble and consumers’ flight from the ruble. Car manufacturers have muted expectations for 2016. Their joint forecast for the year is 1.53 million units, further 4.4% decline from 2015, although many experts expect a bigger slump in sales, up to -25%. Nokian Tyres estimates new car sales in Russia to decline approximately 10 – 25%. Tyre market (sell-in in A+B segments) is estimated to have declined by approximately 20%, with continued shift towards cheaper segments and decrease of imports by 32%.

The global demand for special heavy tyres varied still strongly between product and market areas. OE forestry tyre demand continued to be strong. The increased use of wood and good profitability of pulp manufacturers will also support forestry machine and tyre demand during the following quarters.

In 2015 in Europe the sell-in of premium truck tyres was up 4%, and in the Nordic countries demand was flat year-over-year. Demand in North America showed growth. In Russia, however, demand for premium truck tyres decreased by 11% compared to 2014. Truck tyre demand in 2016 is estimated to show some increase or to be at the same level as in the previous year in all Nokian Tyres’ western markets; in Russia demand is expected to remain weak.

Raw materials

The tailwind from tyre industry raw material prices continued through 2015. Raw material costs (€/kg) for Nokian Tyres were down 13.1% in 2015 year-over-year, savings of approximately EUR 40 million. Raw material costs are estimated to decrease around 5% in full year 2016, providing a tailwind of approximately EUR 15 million versus 2015.

OCTOBER-DECEMBER 2015

Nokian Tyres Group recorded net sales of EUR 422.3 million (380.0), an increase of 11.1% compared with Q4/2014. Currency rate changes cut net sales by EUR 21.0 million. In the Nordic countries sales increased 6.4% year-over-year. Sales in Russia decreased 8.4%. Russia and CIS consolidated sales dropped 13.8%. In Other Europe sales were up 38.3% and in North America sales increased 10.7%.

The raw material cost (EUR/kg) in manufacturing increased 2.9% year-over-year and increased 4.1% versus the third quarter of 2015. Fixed costs amounted to EUR 114.2 million (109.6), accounting for 27.0% (28.9%) of net sales.

Nokian Tyres Group's operating profit amounted to EUR 94.8 million (77.5), an increase of 22.4% compared with Q4/2014. The operating profit was negatively affected by the recognition of credit losses and provisions of EUR 11.3 million (4.0).

Net financial expenses were EUR 21.9 million (12.5). Net interest expenses were EUR 21.0 million (4.6). Net interest expenses include EUR 19.2 million penalty interest related to the tax dispute of 2007-2010. Net financial expenses include EUR 0.9 million (7.9) of exchange rate differences.

Profit before tax was EUR 72.9 million (65.0). Profit for the period amounted to EUR -16.8 million (50.1), and EPS were EUR -0.13 (0.37), penalized by the additional taxes of EUR 94.1 million in Finland, including punitive tax increases and interests based on the renewed reassessment decisions from the Tax administration related to the tax dispute 2007-2010 received in December 2015 and January 2016.

Income financing after the change in working capital, investments and the disposal of fixed assets (cash flow from operations) was EUR 417.0 million (579.1).

JANUARY-DECEMBER 2015

Nokian Tyres Group recorded net sales of EUR 1,360.1 million (1,389.1), a decrease of 2.1% compared with 2014. Currency rate changes cut net sales by EUR 69.3 million.

Gross sales development by market areas

  Growth% % of total sales
in 2015
% of total sales
 in 2014
Nordic countries 4.7 43.6 40.3
Russia and CIS -34.0 17.4 25.5
Other Europe 4.7 26.4 24.4
North America 25.1 11.8 9.1

Net sales development by business units

  Growth% % of total sales
in  2015
% of total sales
in  2014
Passenger Car Tyres -5.2 66.3 68.4
Heavy Tyres 4.2 10.8 10.2
Vianor 4.1 22.8 21.5

The raw material cost (EUR/kg) in manufacturing decreased by 13.1 year-over-year. Fixed costs amounted to EUR 403.8 million (400.0), accounting for 29.7% (28.8%) of net sales. Total salaries and wages were EUR 197.1 million (195.4).

Nokian Tyres Group's operating profit amounted to EUR 296.0 million (308.7). The operating profit was negatively affected by the IFRS 2 -compliant option scheme accrual of EUR 9.1 million (9.6) and the recognition of credit losses and provisions of EUR 17.7 million (8.8).

Net financial expenses were EUR 21.8 million (47.5). Net interest expenses were EUR 10.7 million (16.7). Financial expenses have been adjusted with a EUR 20.2 million reversal of interest on back tax as the reassessment decisions on the years 2007-2010 were annulled and returned to the Tax Administration for reprocessing in April 2015. Net interest expenses include EUR 19.2 million penalty interest related to the ongoing tax dispute of 2007-2010 and based on the renewed reassessment decisions from the Tax Administration received in December 2015 and January 2016. Financial expenses include EUR 2.7 million premium related to Nokian Tyres voluntary buy-back of company’s bond maturing 2017 amounting to EUR 62.3 million. Net financial expenses include EUR 11.1 million (30.8) in exchange rate differences.

Profit before tax was EUR 274.2 million (261.2). Profit for the period amounted to EUR 240.7 million (208.4), and EPS were EUR 1.80 (1.56). The tax expense has been adjusted by EUR 80.1 million as the tax reassessment decisions on the years 2007-2010 were annulled in April 2015 and returned to the Tax Administration for reprocessing. The tax expense was again adjusted by EUR 74.9 million based on the renewed reassessment decisions from the Tax Administration received in December 2015 and January 2016.

Return on net assets (RONA, rolling 12 months) was 18.5% (18.3%). Income financing after the change in working capital, investments and the disposal of fixed assets (cash flow from operations) was EUR 311.1 million (458.3).

Investments

Investments in the review period amounted to EUR 101.7 million (80.6). This comprises of production investments in the Russian and Finnish factories, moulds for new products, ICT and process development projects, and the Vianor expansion projects.

Financial position on 31 December 2015

The gearing ratio was -16.9% (-13.6%). Interest-bearing net debt amounted to EUR -209.7 million (-164.6). Equity ratio was 70.8% (67.5%).

The Group’s interest-bearing liabilities totalled EUR 219.6 million (275.2), of which current interest-bearing liabilities amounted to EUR 19.9 million (0.6). The average interest rate for interest-bearing liabilities was 3.2% (3.6%). Cash and cash equivalents amounted to EUR 429.3 million (439.9).

At the end of the review period the company had unused credit limits amounting to EUR 508.7 million (606.5), of which EUR 155.7 million (255.7) were committed. The current credit limits and the commercial paper program are used to finance inventories, trade receivables and subsidiaries in distribution chains and thus control the typical seasonality in the Group’s cash flow.

Group’s Total comprehensive income was negatively affected by translation differences on foreign operations by EUR 55.2 million (202.1). Total comprehensive income for the period amounted to EUR 185.2 million (4.4). 

Tax rate

Dispute concerning 2007-2010

In April 2015 the Board of Adjustment of the Finnish Tax Administration annulled the reassessment decision from the Tax Administration, according to which the Company was obliged to pay EUR 100.3 million additional taxes with punitive tax increases and interest concerning the tax years 2007-2010, and returned the matter to the Tax Administration for reprocessing. According to the Board of Adjustment, the Tax Administration neglected the obligation to hear the taxpayer. Because of the procedural fault by the Tax Administration, the Board of Adjustment annulled the decision without considering the actual substance of the matter.

The Company returned the 2007-2010 total additional taxes of EUR 100.3 million in full to the financial statement and result for the first quarter of 2015. The Company had recorded the same amounts as expenses in full in the financial statement and result for 2013.

In December 2015 and in January 2016 the Company received renewed reassessment decisions from the Tax Administration, according to which the Company is obliged to pay EUR 94.1 million additional taxes with punitive tax increases and interests concerning tax years 2007-2010. Payment was due in January 2016. The total sum demanded by the tax authorities is EUR 94.1 million, of which EUR 62.8 million are additional taxes and EUR 31.3 million punitive tax increases and interests. The Company considers the decision unfounded and appeals against it by leaving the claim to the Board of Adjustment.

Based on the renewed reassessment decisions the Company has recorded the total additional taxes of EUR 94.1 million as expenses in full in the financial statement and result for 2015.

Dispute concerning U.S subsidiary 2008-2012

Nokian Tyres U.S. Finance Oy, a subsidiary of Nokian Tyres plc (ownership 100% of shares), received a reassessment decision from the Finnish Tax Administration, according to which the company is obliged to pay EUR 11.0 million in additional taxes with punitive tax increases and interest concerning the tax years 2008 to 2012. EUR 7.9 million of this is additional taxes and EUR 3.1 million is punitive tax increases and interest. The company recorded them in full in the financial statement and result for Q1/2014.

The Large Taxpayers’ Office carried out a tax audit concerning the Finnish Business Tax Act, where the Tax Administration raised an issue about the restructuring of the sales company and acquisitions by Nokian Tyres Group in North America, totally ignoring the business rationale and corresponding precedent rulings presented by the company.

Nokian Tyres U.S. Finance Oy considered the reassessment decision of the Tax Administration as unfounded and submitted a claim for rectification to the Board of Adjustment. If necessary, the company will continue the appeal process in the Administrative Court.

Tax rate outcome and estimate

The Group’s tax rate was 12.2% (20.2%) in the review period. The tax rate excluding the additional taxes was 14.2%. The tax rate was positively affected by tax incentives in Russia for current investments and further investments in the future. The new agreed tax benefits and incentives came into force in the beginning of 2013. The agreement will extend the benefits and incentives until approximately 2020.

The tax rate in the coming years will depend on the timetable and final result of the ongoing back tax disputes with the Finnish Tax Administration. The Group's corporate annual tax rate may rise from its medium-term average of 17% as a result of these cases.

Personnel

In 2015 the Company was forced to reduce capacity at the Nokian plant. This resulted in reduction of 122 employees. In 2015 the Group employed an average of 4,421 (4,272) people, and 4,389 (4,204) at the end of the review period. Despite of the above-mentioned reductions, the headcount in Finland increased and the Group employed in Finland 1,732 (1,657) people at the end of the review period, and in Russia 1,327 (1,326) people. The main increase took place in the equity-owned Vianor tyre chain, which employed 1,681 (1,508) people at the end of the review period.

BUSINESS UNIT REVIEWS

Passenger Car Tyres

  10-12
/15
10-12
/14
Change
%
2015 2014 Change
%
Net sales, M€ 276.5 237.9 16.2 951.5 1,003.2 -5.2
Operating profit,
M€
80.3 55.4 44.8 285.5 292.2 -2.3
Operating profit,
%
29.0 23.3   30.0 29.1  
RONA, %
(roll. 12 m.)
      27.8 23.5  

Net sales dropped in 2015 mainly due to clearly lower sales volumes in Russia and the devaluation of the ruble. Sales increased and market share improved in North America. Sales were stable in the Nordic countries. In Other Europe sales increased slightly. Nokian Tyres summer tyre sales increased in all key markets.

In 2015 the Average Selling Price in euros decreased due to currency rate devaluations. The share of winter tyres in the sales mix was 73% (79%). Overall sales mix development was positive, as the share of premium tyres in the winter segment increased and successful SUV tyre sales improved the summer tyre mix. Local price increases in Russia supported the ASP development. Minor price reductions have taken place in some countries, which reflect the tight competitive situation and reductions in material costs partly passing through to tyre prices.

Raw material costs (€/kg) were down by 13.2% year-over-year, which together with improved productivity supported margins.

Like in 2014, Nokian Tyres has again succeeded in the winter tyre tests with several car magazine victories globally. The new Nokian Tyres summer tyre range also won several car magazine tests in Central Europe in spring 2015. A constant flow of product launches with new innovations - improving safety, comfort and ecological driving - have supported the brand image and price position of Nokian Tyres.

In 2015 capacity was not fully utilized, and production output (pcs) decreased by 7%. Productivity (kg/mh) improved by 5% year-over-year. In 2015, 81% (80%) of Nokian car tyres (pcs) were manufactured in the Russian factory.

Heavy Tyres

  10-12
/15
10-12
/14
Change
%
2015 2014 Change
%
Net sales, M€ 41.8 41.0 1.9 155.3 149.1 4.2
Operating profit,
M€
6.7 7.8 -14.1 28.7 24.6 16.9
Operating profit,
%
15.9 18.9   18.5 16.5  
RONA, %
(roll. 12 m.)
      28.9 22.9  

Demand remained at a good level in the western markets in most of Nokian Heavy Tyres’ core product groups. The delivery capacity improved year-over-year, resulting in higher net sales. Forestry tyre sales remained on a good level and other product groups developed moderately. North America showed the strongest sales growth and the outlook for the start of the year is good. Also the Nordic countries and Other Europe showed growth. Weak economies and currency devaluations against the euro weakened Russia and CIS sales.

The Average Selling Price decreased slightly year-over-year due to a challenging pricing environment and a bigger share of OE sales. Operating profit, however, improved clearly on the back of increased sales volumes and reduced fixed costs. Margins were supported by lower raw material costs and productivity improvement.

Continuous investments to production and new products increased production output (tonnes) in 2015 9% year-over-year.

Vianor

Equity-owned operations

  10-12
/15
10-12
/14
Change
%
2015 2014 Change
%
Net sales, M€ 119.4 117.5 1.6 327.6 314.8 4.1
Operating result,
M€
11.1 13.1 -15.7 -1.9 2.1 -189.2
Operating result,
%
9.3 11.2   -0.6 0.7  
RONA, %
(roll. 12 m.)
      -1.0 1.2  

At the end of the review period Vianor had 198 (189) equity-owned stores in Finland, Sweden, Norway, USA, Switzerland and Russia.

Net sales grew in the Nordic countries, Norway showing the strongest development. Car tyre sales increased, whereas truck tyre sales decreased slightly. Heavy tyre sales was flat. Service sales increased by 6%, including growth of 8.5% in car service sales. Retail sales formed 51% of Vianor’s total sales. As the season did not start properly during Q4, operating result decreased compared to 2014.

The gradual change in the operating model from tyre sales to full car service in the stores continues with investments and local acquisitions of car service shops. At the end of the year 2015 a total of 64 car service operations have been acquired and integrated with existing Vianor stores in the Nordic countries.

Franchising and partner operations

Vianor expanded the retail network in Nokian Tyres’ key markets by 120 stores during 2015. At the end of the year the Vianor network comprised in total 1,475 stores, of which 1,277 were partners. Vianor operates in 26 countries; most extensively in the Nordic countries, Russia and Ukraine. Expanding the partner franchise network will continue.

A softer partner model, Nokian Tyres Authorized Dealers (NAD), expanded in the review period by 370 stores and totals 1,239 stores under contract in 19 European countries and China. N-Tyre, a new Nokian Tyres partner network, is operating with 102 stores in Russia and CIS.

SPECIAL REVIEWS

Russia and the CIS countries 2015

Nokian Tyres’ sales in Russia decreased year-over-year by 34.8% to EUR 237.0 million (363.4). Sales in the CIS countries (excluding Russia) were EUR 18.1 million (23.2). Consolidated sales in Russia and CIS decreased by 34.0% to EUR 255.1 million (386.7).

Sales volume in Russia decreased clearly compared to the previous year. Nokian Tyres’ market share in winter tyres on the sell-in level (distributor sales) somewhat decreased in Russia measured in sales volume due to consumers’ shift towards cheaper segments and brands driven by the weak purchasing power as well as aggressive pricing of some competitors. Nokian Tyres’ market share on the sell-out level (consumer sales) is estimated to remain intact. The sales value decreased clearly also due to the ruble devaluation against the euro. Double-digit price increases in rubles were made in early 2015, but this does not fully compensate for the impact of the currency devaluation. However, Nokian Tyres’ product mix and ASP in the local currency clearly improved due to the restructuring of the winter tyre range and the launch of new SUV models in the B segment.

The sell-out of winter tyres in the 2015 season (in the overall market, including Nokian Tyres products) was very weak due to the lack of proper winter season in most regions of Russia. This resulted some carry-over stocks of winter tyres in distribution, which will negatively affect further sell-in for 2016 season.

At the same time, Nokian Tyres maintained its market leader position in the premium segment. The company also became the market leader in summer tyres in both A and B segments. The biggest growth categories for Nokian Tyres in summer tyres were SUV, UHP (ultra-high performance) and other high value-added product lines.

Nokian Tyres factory in Vsevolozhsk playes a very important role in the Group’s supply chain. In the review period 67% of the Russian factory’s production output was exported, mostly to Central Europe and North Amer


Attachments

Financial Statement Bulletin 2015
Presentation