Currency devaluation pulls down Nokian Q1 results

Finland’s Nokian Tyres Group has reported a year-on-year decline in sales, operating profit and earnings during the first quarter of 2014. Despite a growth in sales volumes, currency devaluation – particularly in the Russian rouble – led to net sales between 1 January and 31 March declining 6.3 per cent to €311.9 million. Operating profit for the period was €68.4 million, 10.4 per cent below the same period a year earlier, and profit for the period amounted to €38.7 million, a year-on-year drop of 39.1 per cent. Earnings per share came to €0.29 as opposed to €0.48 a year earlier.

“Nokian Tyres managed to show solid sales volume improvement and outperformed market growth in all key markets in Q1,” commented Kim Gran, president and CEO of Nokian Tyres. “Our strong market leader position in Russia and Nordic countries is intact and we managed again to increase both market share and our distribution footprint. Despite the drop in sales value, we improved the gross margin percentage, maintained a reasonably good level of profitability and improved cash flow. The company is debt free with a strong balance sheet, which together with inbuilt capacity reserves gives us a good platform to further develop our business.”

The company’s financial guidance remains unchanged from that issued on 3 April, namely that net sales and operating profit will decline this year compared with 2013. “In 2014 we see a recovery in our western markets in Central Europe, Nordic countries and North America,” Gran added. “We aim to continue to improve our market position and to provide healthy margins on the back of our renewed successful product lines, expanding distribution, efficient industrial structure and decreasing raw material cost.”

Segment performance

Net sales within Nokian’s Passenger Car Tyres business Unit totaled €246.9 million in the first quarter of 2014, down 9.8 per cent on the corresponding quarter last year. Operating profit declined 13.4 per cent to €80.0 million, and operating profit to sales ratio was 32.4 per cent, compared with 33.8 per cent a year earlier. Global sales volumes rose nine per cent year-on-year, while average selling price decreased due to a weaker sales mix in Russia and pricing pressure in all markets. Winter tyres represented 62 per cent of sales volumes, as opposed to 58 per cent a year earlier.

Heavy Tyres business unit net sales rose 4.3 per cent year-on-year to €34.6 million, and operating profit increased 12.5 per cent to €4.5 million. Operating profit to sales ratio was 12.9 per cent, as opposed to 12.2 per cent in Q1 2013. Nokian says demand is recovering in most heavy tyre product groups, with demand exceeding capacity in some groups during the first quarter of 2014, despite a 20 per cent increase in production tonnage. Forestry tyre sales were up 43 per cent year-on-year during the quarter. Average selling price decreased compared to a year earlier due to a challenging pricing environment, while margins were supported by lower raw material cost and improved productivity.

By 31 March, 182 equity-owned outlets in Finland, Sweden, Norway, USA, Switzerland and Russia belonged to the Vianor network, along with 1,049 franchised outlets. Vianor’s net sales rose 13.4 per cent year-on-year to €49.5 million. Operating result was €-12.0 million as opposed to €-15.9 million a year earlier and the operating result percentage was -24.2 per cent.

Outlook

As already mentioned, Nokian Tyres maintains the 2014 financial guidance it released on 3 April and anticipates lower net sales and operating profit for full-year 2014 despite growth in all western markets. Nokian Tyres expects that it will continue outperforming the market in Russia in 2014, but in the current market situation this implies a modest growth in sales volume against the stagnating market. The weaker rouble will most likely have a clear negative impact on reported sales in euros.

 
Within the Passenger Car Tyres business, Nokian Tyres’ target for 2014 is to increase unit sales volume in all markets, to win market share in its core markets and Central Europe with new products, to expand distribution further and to improve productivity and the utilisation of capacities. Within the Heavy Tyres business unit, a ramp up of utilisation rate from 65 per cent to over 90 per cent began in the first quarter and will be completed in the second. Demand in heavy and truck tyres are estimated to grow in both the OEM and replacement markets in 2014, and Nokian’s focus is to particularly increase sales in forestry, radial heavy tyres and truck winter tyres, to increase production output, and to improve productivity. Plans for Vianor include boosting overall outlet numbers to 1,340 by the end of 2014. A new softer partner franchise model initiated in 2012, Nokian Tyres Authorized Dealers (NAD), expanded in the first quarter by 104 to 536 outlets. The target is to reach 900 NAD stores by the end of 2014.

“In 2014 we target to excel on the back of our renewed tyre range, expanding distribution and our strong industrial structure. Every cloud has a silver lining and despite tougher times and present headwind we remain confident that also Russia, as many times before, will kick back to healthy growth in due course and that our Hakkapeliitta team is again able to capitalise on the changing market conditions,” concluded Gran.