Nokian Tyres Reports Positive Third Quarter Results

Despite announcing the need to idle workers at its Finland factory to adjust production, the latest financial figures for Nokian Tyres shows a company doing well in 2008. Results for the quarter ending September 30 show net sales, operating profit and net profit have increased both during the three-month period and during 2008 as a whole.

Net sales for the quarter, at 282.8 million euros, grew 19.8 per cent from the corresponding period in 2007. Sales in the Nordic countries increased by 4.2 per cent, in Russia and the other CIS countries by 54.9 per cent, in Eastern Europe by 1.6 per cent and in the USA by 15.4 per cent. Quarterly operating profit, at 71.9 million euros, jumped 39.3 per cent. Net profit bucked industry trends during the quarter to increase 40.1 per cent to 52.4 million euros. This profit came in spite of increased raw material prices, which Nokian reports increased by a year earlier.

Year to date results were equally enviable. Between the start of the year and the end of September Nokian Tyres generated sales of 813.2 million euros, as opposed to just 668.6 million euros in the same period last year. Operating profit, at 200.5 million euros, increased 42.4 per cent over 2007. And net profit, which in the first nine months of 2008 was 151.5 million euros, is 40.9 per cent improved on last year.

“The sales of Nokian Tyres continued to grow steeply, and operating profit improved also in the third quarter,” said company president and CEO, Kim Gran. “Most of the growth came from winter tyre deliveries to Russia and Ukraine. Winter pre-sales were higher than expected in the Nordic countries and North America.

“The average tyre prices were higher than the year before as a result of price increases and a good sales mix,” he added. “Production capacity was at full use in all operations. Russian manufacture increased in line with targets, and the advantages thereof improved profitability.

Gran added: “The steep economic slowdown decreased clearly the demand for forestry tyres and truck tyres. The outlook for the rest of the year has weakened due to the financial crisis. In Russia slower sales of new cars will have a negative impact on winter tyre sales. Conditions for better sales in Ukraine, Scandinavia and North America as well as a strong demand for pre-season summer tyre sales in Russia and Ukraine will help to offset the loss in the car dealer business.”

Both summer and winter passenger car tyre sales were up from the previous year, with sales focusing on the pre-sales of winter tyres. Growth was strongest in Russia, the other CIS countries and North America. Sales, however, also increased in the Nordic countries. The average tyre price rose as a result of improved sales mix, new products and successfully implemented price increases. Price increases of approximately three per cent planned for the latter part of the year were implemented and took effect on 1 October 2008. Passenger car tyre production volume rose following a planned capacity increase at the company’s Russian plant. Increased capacity was not, however, sufficient to meet the demand for tyres, and sales in Central European countries needed to be restricted.

The slowdown in the global economy and the resulting uncertainty, as well as the decline in the manufacture of forestry machinery, reduced clearly the demand for forestry tyres in the third quarter, says Nokian. As a result, Nokian Heavy Tyres’ manufacturing focus was directed from forestry tyres to products with a strong demand, such as harbour, mining, agricultural and industrial machinery tyres. These products sold well, but their margins are lower compared to forestry tyres. Production capacity was in full use during the period in question, and price increases planned for the latter part of the year were implemented and took effect on 1 October 2008.

Tyres manufactured in Russia represent an increasingly large portion of the Group’s sales and contribute to sustaining a good profit margin. Nokian Tyres states that the share of lower cost production in Russia will be increased and capacities in Finland will be ‘adjusted to reflect the market demand’. “The changing market in Russia and CIS is an opportunity and in 2008-2010 Nokian Tyres will continue to improve its market leader position,” stated Gran. “The share of lower cost production in Russia will be increased and we will continue to build our distribution network.”

As for the immediate future, Nokian expects results for the fourth quarter of 2008 to be below those for Q4 2007. “The outlook for the rest of the year has weakened due to the financial crisis,” said the company in a statement. “In Russia slower sales of new cars will have a negative impact on winter tyre sales. Conditions for better sales in Ukraine, Scandinavia and North America as well as a strong demand for pre-season summer tyre sales in Russia and Ukraine will help to offset the loss in the car dealer business.”