Russia remains a Nokian strength

Nokian Tyres has released its 2012 annual report, and the Finnish manufacturer reports a 10.7 growth in net sales to 1.61 billion euros, 9.2 per cent rise in operating profit to 415.0 million euros and a 7.1 per cent increase in profit to 330.9 million euros. Russia proved a regional strength during the year and demand for Nokian’s passenger car tyres increased there, while demand “decreased clearly” in Central Europe. Combined output of the company’s plants in Nokia, Finland and Vsevolozhsk, Russia in 2012 was 15.7 million tyres, and the annualised capacity at year-end was 18 million pieces.

“In 2012, Nokian Tyres performed well in a challenging environment and recorded all time high sales and profits combined with excellent cash flow,” reported company CEO Kim Gran. “Our position is very strong in core markets, the company is debt-free and we are able to further develop our business from a healthy position.” Although Gran observed that “uncertainty and slowing growth” continued to be a feature of the global economy, he pointed out that Nokian Tyres’ two core markets, Russia and the Nordic countries, “were among the best of the developed world” from an economic development point of view.

Passenger car tyres

Sales of passenger car tyres in Russia, a market where Nokian Tyres describes itself as “the market leader and the biggest manufacturer of premium tyres,” grew three times faster than those in the overall market. In 2012, Russia and the CIS accounted for 35 per cent of the company’s total net sales. Nokian estimates that 41 million car and van tyres were sold on the Russian market during the year, and it anticipates that the premium tyre market there will grow by a yearly average of ten per cent.

Nordic sales “came in as planned,” Gran commented. Finland, Sweden and Norway, where Nokian claims to be “market and price leader,” accounted for some 34 per cent of Nokian’s net passenger car tyre sales last year. Annual passenger car and van tyre sales in these countries total some 10 million tyres units, 6 million of which are winter tyres. The markets in the Nordic region typically grow around one to three per cent a year, the Finnish tyre maker notes, and around 80 brands compete for a share of the market.

As previously mentioned, demand was significantly lower in Central Europe due to the region’s economic situation combined with high carry-over inventories. Nokian gives the size of the European market in 2012 (excluding the Nordic countries) as approximately 230 million car and van tyres. It adds that total market growth is slow, with the winter tyre segment growing faster.

The company’s net passenger car sales for all regions rose 13.9 per cent to 1.22 billion euros and operating profit increased 12.5 per cent to 410.8 million euros, with a 0.4 per cent decrease in the margin to 33.7 per cent.

Heavy Tyres

While overall sales in the Nokian Heavy Tyres business decreased 7.5 per cent to 104.4 million euros year-on-year, average selling price increased by six per cent due to an improved sales mix, price increases and a higher share of replacement market sales (these now account for around 60 per cent of the total). Production volumes for Nokian Heavy Tyres decreased 13 per cent compared with 2011, and Nokian says that during 2012 production was “optimised to match a lower demand from OE customers and to reduce the inventory level.” Segment operating profit declined 34.3 per cent to 11.3 million euros and the margin contracted from 15.3 to 10.8 per cent.

Investments are now in progress to modernise the Nokian Heavy Tyres factory, to open bottlenecks in production and to increase radial tyre output. The factory upgrade will be completed in 2013.

Truck Tyres

The Nokian Truck Tyres unit primarily focuses on tyres and retreading products for winter conditions. The Finnish manufacturer observes that the truck tyre market was “challenging” in Europe last year, and although increasing demand for winter tyres led to an increase in demand towards the end of the year, overall 2012 demand was down 19 per cent from the prior year. The company says its truck market share in Russia and the Nordic countries due to an “improved product range in both premium and standard tyres.”

Net sales of Nokian truck tyres and retreading materials declined 10.2 per cent year-on-year to 52.9 million euros. Nokian describes operating profit and cash flow as being “at a healthy level”; however it does not give any figures.

Vianor

By the end of 2012, Nokian’s Vianor retail network contained 1,037 outlets in 26 countries, 127 more outlets than at the start of the year. All but 182 of these are franchise/partner operated. Nokian claims that Vianor “achieved its strategic goals” in 2012, and expanding the partner network this year will continue “according to earlier plans.”

Vianor’s net sales for 2012 amounted to 315.3 million euros, a 5.7 per cent year-on-year increase. A zero operating result and margin was reported for the year.

Outlook

Gran says Nokian has “many reasons” to look towards the rest of 2013 with confidence. “Our main markets in Russia and Northern Europe are looking comparatively healthy, offering us a good base for profitable business. Europe’s economies are also expected to recover towards the end of 2013, which we expect will give a boost to demand and sales growth.”

The Nokian Tyres CEO made no reference in the annual report to any plans for establishing a factory in Eastern Europe, as has been reported by some publications. However he did share that following the opening of its second plant in Russia, the tyre maker now has additional capacity in this strong market. Gran says output there can be increased by a further 50 per cent simply by adding extra production lines in Russia.

Nokian Tyres is the largest exporter of consumer goods in Russia; tyres from the two Vsevolozhsk plants are now delivered to over 40 countries. Capacity in Russia will further increase with the installation of a 13th production line this year.

“The production costs of tyres are clearly lower in Russia than in Finland and other western countries,” states Nokian’s annual report. “Production in Russia has been supported by tax relief based on the amount of investment and the location of the factory within customs barriers. By Russia joining WTO, the tyre duties will go down gradually; duty of car and van tyres will decrease from 20 per cent to 18 per cent in 2013 and gradually to ten per cent in five years.”