Nokian Increasing Capacity in Second Half to Meet Demand

Net sales at Nokian Tyres rose 36.3 per cent year-on-year during the second quarter of 2010 to 260.4 million euros, giving the Finnish tyre maker total net sales of 444.2 million euros in the current financial year – an increase of 28.1 per cent over the first half of 2009. Operating profit for the quarter was 60.9 million euros, a year-on-year growth of 200 per cent, while operating profit for the first half stood at 82.0 million euros, up 369 per cent on the corresponding period of last year. Second quarter net profit amounted to 52.6 million euros, a growth of 342 per cent on the 11.9 million euro profit in quarter two of 2009. Profits for the first two quarters total 72.6 million euros, an impressive 4,740 per cent increase on the 1.5 million euro profit reached in the first half of the 2009 fiscal year.

”The positive current is gaining strength and our operations are ramped up accordingly,” stated Nokian Tyres president and CEO Kim Gran. “The demand on Nokian Tyres’ core products have recovered driven by improving economies, higher car sales, better consumer confidence and strong restocking by distributors. Sales during Q2 were strong in all tyre categories and have left us with low inventories. Strong summer tyre sales, preseason deliveries of winter tyres and OE demand for forestry tyres boosted top line and allowed us to increase capacity utilisation. Operating profit picked up due to improved productivity, lower year-over-year raw material cost and beneficial exchange rates of our main sales currencies.”

Net sales of Nokian passenger car tyres in the January to June period totalled 318.7 million euros, up 30.1 per cent from the corresponding period in 2009. Most of this sales growth came from a significant increase in winter tyre pre-season sales in Russia as well as in Central and Eastern Europe. Sales were up also in the Nordic Countries. Nokian Tyres increased its market share in all three sales areas mentioned, and winter tyres’ share of total sales grew year-on-year. Truck tyre net sales amounted to 15.9 million euros, an increase of 66.7 per cent from the previous year. Sales development was reported to be good in all market areas, with Nokian increasing its market share in the Nordic countries.

When looking at the company’s second quarter activities in terms of regions, the greatest year-on-year increase was seen in Russia and the CIS, where consolidated sales grew 122.8 per cent. For the half-year, sales within the region increased 41.4 per cent to 101.4 million euros, while sales within Russia alone amounted to 91.5 million euros, a 52.7 per cent year-on-year increase over the first half of 2009. Nokian reports that its sales in Russia “grew significantly” due to recovering consumer demand and the improved credit capability of its distributors. Pre-season winter tyre sales were particularly strong. The company reports it improved its market share in Russia and maintains its position as the market and price leader in the premium A-segment. Sales in other CIS countries declined due to the timing of pre-season sales and delivery restrictions relating to distributors’ carry-over stocks, Nokian adds.

Sales in Central and Eastern Europe increase 45.9 per cent in the second quarter and 39.7 per cent during the first half of the year; North American sales for the quarter decreased 10.7 per cent, and 5.6 per cent during the first half; Nordic market sales grew 26.3 per cent in the second quarter and 24.1 per cent over the first half of the fiscal year. This last region is still by far Nokian’s largest, contributing 41.9 per cent of the company’s total sales in the first half of the year. Central and Eastern Europe contributed 26.6 per cent, while Russia and the CIS contributed 21.8 per cent and North America 9.2 per cent.

Speaking on the second half of this current fiscal year, Gran noted: “Our order book is good and it provides us with a good possibility to increase sales and results and to provide a strong cash flow. Our restructuring operations have left us with potential to further increase capacity both in Russia and in Finland. An 8th production line will come on stream during Q3 in Russia and it will, combined with increased production in Finland, help us to improve output and productivity and to serve a growing market.

“However, many challenges remain and the second half of the year with consumer winter tyre sales will be decisive for Nokian Tyres’ results,” Gran cautioned. “Due to low factory inventories production needs to be increased in order not to restrict sales. Increased raw material prices present a major challenge and strong headwind to us during the rest of the year. Our target is to further improve sales mix and push for a price increase of two to six per cent in all product groups during summer and autumn.” To tackle the effects of increasing raw material prices during the second half of the year, Nokian is implementing price increases for both summer and winter products, although the company notes it has “less room” to increase winter tyre prices in 2010 due to a pricing environment it sees as still being a challenging one. However it believes prices will be “defended” by an improving market together with strong core market currencies. Heavy tyre prices also increased by four to six per cent in July as a result of growing material costs.

Production capacity of both passenger car tyres and heavy tyres needs to be boosted in order not to restrict sales during the second half of the year, states Nokian. One place where capacity set to grow is in Russia, where the eighth production line at the company’s plant is set to enter operation during the third quarter. The factory has been operating seven production lines since early June. Two further stated focuses for the second half of 2010 are an extension of the Hakkapeliitta winter truck range and the continued expansion of the Vianor truck service concept in Russia, the CIS and Eastern Europe.