Nokian’s Strong Growth Continues

Net sales of Nokian Tyres plc were up by 17.8% to 295.4 million euros in the first half of the year (250.8 million euros in the corresponding period in 2004). Operating profit amounted to 46.1 million euros (32.8 million euros).

Kim Gran, President and CEO, commented: “Nokian Tyres continued to make good progress throughout the review period. The Group’s net sales increased and operating profit saw a clear improvement. The main growth regions were Russia, the USA and the Nordic countries. Growing production capacity enabled us also to increase sales in Eastern Europe. Production at our new plant in Russia started on schedule with the first Nokian Hakkapeliitta 4 winter tyres being manufactured in early June. We believe that the company is well-positioned to outperform the previous year’s results in terms of net sales and profit in 2005.”

Although demand for passenger car tyres picked up in European replacement markets in the spring, market growth was smaller than the year before. Healthy demand, however, continued in Russia. In the Nordic countries, the main season for summer tyres started later than the previous year, taking place in the second quarter.

The upward trend strengthened in heavy tyres, and there was a global shortage of harbour, mining and excavation machinery tyres. The manufacture of forestry machinery and other industrial machines was brisk, boosting the demand for tyres. Meanwhile, the demand for new and retreaded truck tyres was somewhat down on the previous year throughout Europe.

Raw material prices increased as expected, and tyre manufacturers raised their prices.

The net sales of the Nokian Tyres Group increased, operating profit was positive and improved over the previous year. The sales of Nokian-branded passenger car tyres grew especially in Russia, the USA, Eastern Europe and the Nordic countries. Sales to Nordic car dealers were better than the year before, and heavy tyres sold well in all product groups and in all of the main markets. Sales of new and retreaded truck tyres were weaker than the year before, which slowed growth in the Vianor tyre chain.

A good sales mix, price increases and growth in profitability boosted sales profits.

The Group’s cash flow decreased due to investments in the construction of the Russian plant, which were higher than the previous year, as well as an increase in receivables from pre-sales of winter tyres. In terms of receivables, the situation is expected to normalise once the winter tyre season starts later in the year.

Passenger Car Tyres

The net sales of Nokian passenger car tyres in January to June increased to Euro 185.2 million (148.4 million euros), or 24.9% over the previous year. Operating profit improved, totalling 44.1 million euros (32.3 million euros). The operating profit percentage increased to 23.8% (21.8%).
The summer tyre season and advance winter tyre deliveries enhanced the market in Nordic countries and in Russia. The emphasis of Nokian Tyres’ summer tyre sales was in the UHP (ultra-high performance) segment tyres. The strongest growth areas were Russia, Eastern Europe and the USA, as well as Sweden where sales improved considerably over the previous year. Sales to car dealers were also good. Market shares remained at the previous year’s level in the Nordic countries. Sales profitability improved thanks to a good product mix and price increases. The prices of tyres manufactured as contract manufacturing also rose. Winter tyres accounted for the majority of sales, amounting to 68.6% (60.0%) of the unit’s net sales.

The production volumes at the Nokia plant increased by 10.4%, while labour productivity (kg/mh) rose by 11.3% over the corresponding period in the previous year. The amount of contract manufacturing of Nokian-branded tyres increased over the previous year, and the first tyres manufactured in China (Giti) for the US markets were introduced in the period under review. However, the increased capacity could not meet the growth in demand in all markets.

An innovation introduced during the review period was a Nokian-branded run flat tyre designed for winter driving. Nokian Tyres will start off by manufacturing nine different run flat products, which will complement the product range of normal-structured winter tyres. Tyre deliveries will begin in the autumn.

Heavy Tyres

The net sales of Nokian heavy tyres in January to June totalled 36.3 million euros (28.9 million euros), showing an increase of 25.8% on the corresponding period of the previous year. The operating profit for heavy tyres improved, totalling 6.2 million euros (4.5 million euros). The operating profit percentage increased to 17.0% (15.7%).

The manufacture of forestry machinery and other industrial machines continued at a brisk pace, and the demand for tyres reached record heights. The sales of Nokian heavy tyres saw significant growth over the previous year in all product segments and in all of the main market areas. The price increases carried out in response to the rise in raw material prices improved sales profitability.

Production capacity of Nokian heavy tyres was at full use, and thanks to enhancement measures the plant’s delivery capacity improved, with production volumes increasing by 30% compared to the same period a year earlier i.e. to a daily total of 40 tonnes. The increase in capacity could not, however, meet the steep growth in demand. Contract manufacturing proceeded as planned.

Vianor

Vianor’s net sales in the period January to June totalled Euro 96.3 million euros (93.0 million euros), showing an increase of 3.5% on the corresponding period a year earlier. Operating result amounted to 0.6 million euros (1.2 million euros), and the operating profit percentage decreased to 0.6% (1.3%).

The main season for summer tyres started later than the year before in the Nordic countries. The season went well, reaching the good level of the previous year. Wholesale to car dealers and transport companies increased from the previous year. The demand for new and retreaded truck tyres, however, was slow. Nokian-branded tyres represented an increasingly large part of Vianor’s sales, especially in Sweden.

Acquisitions of new sales outlets in Sweden and Russia, as well as the expenses resulting from the establishment of tyre hotels and reorganisation of retreading operations, weighed on the Vianor chain’s financial performance.

The number of Vianor service outlets increased, totalling 180 at the end of the review period. Eight new Vianor outlets were opened in Russia, some of them owned by the company and others operating on a franchise basis. The chain will continue its expansion through both acquisitions and franchising.

Other Operations

Demand for new and retreaded truck tyres decreased in the Nordic countries and all of Europe. Demand in Finland came to a near standstill due to the almost 7 weeks shut-down in the forest industry. The net sales from retreading operations and truck tyres totalled 8.9 million euros (11.5 million euros) in the period January to June. The unit’s product range consists mainly of winter products, the sales of which are highest in the second half of the year.

In the early part of the year, the company divested its passenger car tyre retreading operations to Mc. Ripper AB in Sweden.

Finnish retreading operations were centralised by opening a new retreading plant in Nurmijärvi, which, together with the plant in Kuopio, will handle all of the company’s retreading activities in Finland. August 4, 2005, one employee died in an accident occurred at the Nurmijärvi plant. The plant has been closed for the time being and investigations are going on in order to find out the reason for the accident. In May, Nokian Tyres acquired the truck retreading business of the Swedish AGI Däck AB. Contract manufacturing of truck tyres began as planned at a Bridgestone plant in Spain. Bridgestone’s ownership of Nokian shares is approximately 17%.

Investments

The budgeted overall investments for 2005 total 95 million euros (57.8 million euros) including the investments of 55 million euros in the new plant to be constructed in Russia. Other investments are related to the capacity increase at the plant in Finland and to Vianor’s acquisitions. The construction of the Russian plant has progressed as planned, and tyre sales will start in the second half of the year. The installation of the second production line will begin at the end of this year. The company also decided to construct a mixing department and a warehouse the construction of which will start in autumn 2005. The timetable of the Russian factory investment has been accelerated so that a total of 140 million euros will be invested in the plant in order to reach the manufacturing target of 4 million tyres by 2008.

Looking ahead, Nokian’s target for 2005 is to outperform the results of 2004 in terms of net sales and profit.