Nokian Reports Strong Growth, Especially in Key Markets

Nokian Tyres’ interim report for the period between January and June 2007 was released on August 8, and the figures contained within show sales and profits heading in a welcome direction. In contrast with the figures recorded during the January-June 2006 period, sales increased by 23.8 per cent during the recent half year and totalled 432.5 million euros. Operating profit was 89.2 million euros, up from 48.6 million a year earlier. Net profit, which in January-June 2006 was 31.8 million euros, more than doubled to reach 70.1 million euros. Also more than doubled was earnings per share, which jumped from 0.26 euros to 0.57 euros.

“Nokian Tyres had a clearly better second quarter and first half of the year in 2007 compared to the previous year,” said Nokian president and CEO Kim Gran. “Net sales increased and operating profit improved in all profit centres in the company’s core markets. While most of the increase in sales came from Russia, steep year-over-year sales growth was also recorded in Eastern Europe and the Nordic countries. Passenger car tyre sales mainly consisted of winter tyres, but summer tyres also sold well. The latter were boosted by the Nokian Hakka summer tyre family, which saw its first season in consumer sales. Average tyre prices rose as a result of the improved sales mix, price increases and new products. The benefits gained from manufacturing operations in Russia improved profitability. The outlook for the rest of the year is good and the order book is strong, but sales growth and profit improvement will be more moderate than in the first part of the year.”

Nokian report that the passenger car replacement tyre market in Russia, the CIS countries and Eastern Europe grew on the previous year, and total net sales for passenger car tyres during the half-year increased by 29.7 per cent to 288 million euros. Growth in the Nordic countries and Western Europe was moderate. The strongest growth was recorded in the markets for winter tyres, SUV tyres and high-speed summer tyres, with the sales of the Hakkapeliitta 5 and Hakkapeliitta SUV 5 tyre ranges recording the largest growth. Tyre production volume rose as a result of the planned capacity increase at Nokian’s Russian plant. Russian manufacturing accounted for a markedly larger share than in 2006, and the benefits gained improved profitability.

The half-year net sales of Nokian Heavy Tyres totalled 50.5million euros, 11.9 per cent more than in the first half of 2006. Sales grew in all of the Heavy Tyres unit’s product groups and in all key markets, both in original equipment installation and replacement markets. A price increase implemented in early 2007, combined with a good sales mix, increased average prices. Production volume increased from the previous year, however the unit did not have sufficient delivery capacity to respond to the steep growth in market demand.

The company’s strongest growth area was indisputably the Russia and CIS markets, for which half-year sales increased by 52.1 per cent and market share improved. In these markets Nokian’s distribution network was expanded through new distribution
agreements and Vianor outlets. The three production lines at Nokian’s Russian plant currently operate continuously in three shifts, and the company reports that the plant’s production volume and quality level are on target. A fourth production line has been installed and will enter operation in autumn 2007.

On 15 February 2007, Nokian Tyres’ board of directors agreed to initiate measures to further increase capacity at the company’s Vsevolozhsk plant in Russia, and this program will see production more than double, with a production volume of 10 million tyres by 2001 targeted. A 32,500 square metre extension is being constructed adjacent to the existing 4 million units per annum plant. Earth construction work began in March 2007, and on 21 June Nokian
Tyres and Lemcon Oy, which is part of the Lemminkäinen Group, signed a contract agreement on the expansion of the plant, with an anticipated completion date of March 2008.

Nokian expects that demand for key products, such as winter tyres, UHP tyres and SUV tyres will continue in its key markets of Russia, the CIS and Eastern Europe during the second half of 2007, while in the rest of Europe “moderate” growth is anticipated. The company however does not expect any immediate resolution to its problems meeting the demand for industrial tyres.