Nokian Sales “Down in Line With Market,” says Gran

Actual interim results for the January to March 2009 quarter show Nokian Tyres’ operating income to be even lower than the figure anticipated by a Reuters analyst poll. The company’s interim report, released May 7, reveals an EBIT of minus 2.7 million euros for the quarter, down from 54.4 million a year earlier. The mean estimated EBIT calculated from a Reuters survey of eleven analysts was four million euros. Net sales during the quarter stood at 155.6 million euros, 36.8 per cent lower year-on-year. A net loss of 10.4 million euros was recorded in the quarter, contrasting with a net profit of 45.1 million euros in the first quarter of 2008. The analysts surveyed by Reuters anticipated a net loss of seven million euros.

”Nokian Tyres’ first quarter net sales went down to the level of the corresponding period in 2006,” noted company president and CEO Kim Gran. “Nokian Tyres did not make profit in the first quarter due to low sales, operative streamlining measures, currency devaluation on our main markets, and the seasonal weakening in our sales mix. We took strong actions to adjust our preseason sales and production to the changed market conditions.

“Sales went down in line with the market, particularly in Russia, but we were able to maintain our market shares in all core markets. In North America, our sales grew significantly. The share of winter tyres in our sales was smaller than in the previous year as we postponed deliveries towards the end of the year.

In terms of production, we responded to the weakening demand already in late 2008. Most of the streamlining measures aiming at a lighter cost structure and enhanced profitability took place during the first quarter of this year, and their impact on our profitability will become evident in the second half of the year. The Russian plant’s share of our manufacture increased, which helps to defend our profitability. The strong devaluation of currencies and measures to limit currency related risks in our core market regions weakened our financial performance in the first quarter. The deployed price increases and seasonal mix improvement with higher share of winter tyres will improve average prices and profits from the second quarter on.”

Compared with the previous year, the Group’s net sales decreased by 27.1 per cent in the Nordic countries, by 57.3 per cent in Russia and the CIS countries and by 19.7 per cent in other European countries. North American sales increased 26.2 per cent. Raw material costs in manufacturing increased by 17 per cent in the first quarter compared to the corresponding period a year earlier.

Net sales of Nokian passenger car tyres were down 38.2 per cent on the previous year to 117.4 million euros, with an operating result of 16.0 million euros, down from 65.0 million euros a year earlier. Sales decreased in line with the tyre market development and Nokian states it was able to maintain market share in its core markets. Market share improved in Sweden, and sales increased in North America and Switzerland.

Heavy tyre net sales totalled 12.6 million euros, a decrease of 54.9 per cent on the corresponding period of the previous year. The segment’s operating result, at -2.2 million euros, contrasted with the 6.3 million achieved a year earlier. Financial performance in this segment suffered from weakened sales, reports Nokian, and drastic production streamlining measures taken due to high stock levels. The company states that production streamlining measures, initiated late last year in order to adjust production to demand levels, will continue. The aim is to reduce stock levels by 50 per cent by the end of this year. In 2009, says Nokian, the focus will be on bringing in new customers, speeding up the development process for new products as well as launching new logistics and customer service concepts.

Net sales of Nokian truck tyres reached 4.3 million euros, down 12.1 per cent from the previous year, and European market sales declined more than 30 per cent. Sales were also expanded to new market regions in Eastern Europe. The truck tyre product range, Nokian points out, mainly consists of winter products, which do not sell very well at the beginning of the year due to the seasonal nature of operations. The company is confident that new products launched in the first quarter will expand sales opportunities, while lower raw material prices are expected to gradually improve profitability during the rest of the year.

Nokian reports that the recession in key markets resulted in a clear decrease in car sales and machine manufacture. The global downtrend in the demand for tyres that started in late 2008 was further escalated during the quarter, the company adds. Aftermarket passenger car tyre sales declined in the Nordic countries and elsewhere in Europe, and tyre deliveries shrank drastically in Russia and the CIS countries, trailing the declining car sales. The decrease in vehicle production also led to an excess supply of summer tyres, Nokian adds. The truck tyre market declined, and the demand for special heavy tyres shrank down to one-half the previous year’s level. Significant price increases were implemented in order to offset the currency devaluation in Russia, the Ukraine, Sweden and Norway.

The economy in Nokian Tyres’ main markets – in the Nordic countries, Russia and the CIS countries – is declining, and GNP is estimated to fall in 2009. According to Nokian, new car sales are estimated to decrease 30–45 per cent. Tyre sales volumes are expected to decrease in line with car sales in Russia and slightly less in the Nordic countries. The demand and price levels of winter tyres are, however, expected to remain better than the general market development. Nokian notes that preseason deliveries of winter tyres will take place much later than last year, closer to the seasonal consumer sales.

Net sales for the company’s Vianor operation totaled 40.3 million euros, 13.6 per cent down on the corresponding period of the previous year. The outfit’s operating result amounted to -11.6 million euros. While Vianor’s sales and profits for the first quarter decreased, Nokian reports that Vianor’s market share in the core market areas is estimated to be greater than last year. The most successful national organisations were Vianor USA and Vianor Switzerland, both of which generated good net sales growth. During the quarter Vianor continued its cost adjustment measures, which included shutting down non-profitable outlets, making personnel cuts and reducing stock levels. Most of these savings will be realised in the latter half of the year. At the end of the review period, the Vianor network comprised 520 outlets in 15 countries. The network grew by 13 new outlets during the review period.

“In 2009, we will focus on improving cash flow by reducing stocks, receivables and cutting investments,” concluded Gran. “The strengthening of our distribution by expanding the Vianor chain will continue. A strong distribution, good seasonal logistics and new products will give us a good chance to strengthen our market leadership in the core markets.”