Good Second Quarter Results From Nokian

The second quarter results from Nokian Tyres exceeded the expectations of many analysts, in a period which is traditionally a slow one for the Finnish manufacturer. Turnover rose in line with forecasts, by 11.7 per cent to 95 million Euro (Q2 2000: 85 m E), but the big surprise was operating income, which was 5 m Euro greater than predicted, at 8.

5 m Euro. The operating margin was impressive too, at 8.9 per cent, compared with 3.

5 per cent for Q2 last year. An encouraging sign for Nokian is the fact that the Vianor retail chain posted an operating profit of 1.9 m Euro (it broke even in Q2 2000).

Analysts believe that this indicates that restructuring efforts are bearing fruit. What made the results even more of a surprise is that the second quarter is traditionally a slow period for Nokian, as the company relies heavily on winter tyre sales. Indeed, the fourth quarter historically accounts for one third of yearly sales and over half of annual operating income.

Good Sales Performance At Home And Abroad Nokian posted some good sales performances in Q2, including an improvement in its market share in the core market of Nordic countries. Estimates are that Nokian’s market share in summer tyre sales in these countries for the first half of this year rose to 18.4 per cent from last year’s figure of 16.

8 per cent, and this in a market which is declining. Outside Scandinavia, results were encouraging, with sales to Russia doubling in the first half of 2001. It is reckoned by analysts that business from Russia could account for as much as 12 per cent of Nokian’s total sales by the year end (7 per cent last year).

Central Europe was another buoyant market, with Q2 sales up 80 per cent, and sales in North America rising by 50 per cent. This last figure would have been in the region of 80 per cent, had it not been for a decline in heavy and forestry tyre sales. Much of the good performance is due to an improved product mix, with V-rated tyres accounting for 30 per cent of summer tyre sales.

Having said that, the winter season remains vitally important to Nokian – in its home market of Finland, for example, Nokian’s winter tyre market share is approaching 30 per cent – and it is uncertainty over what may happen this winter that causes some analysts to counsel caution when looking at Nokian’s prospects for the year as a whole. According to Michelin, the mild winter last year means that there are four million winter tyres still in stock in Europe, with Germany accounting for a large number of these. This, coupled with the fact that the market as a whole is not showing signs of expansion, has led the financial analysts to warn of the possible risk (not just to Nokian, but to all involved in the winter tyre business) of increased pressure in the second half of the year.