Russia continues to pound Nokian Tyres’ sales and profits

It is hard to believe that little more than two years have passed since Nokian Tyres predicted the market for premium tyres in Russia would grow by an average of ten per cent each year, and even harder to grasp that as recently as 2012 the Russian and CIS markets accounted for 35 per cent of the tyre maker’s total net sales.

Fast forward to the first half of 2015, and this percentage had dropped to 21.9 per cent. And as for growth in the premium market, Nokian Tyres’ president and chief executive officer had an entirely different message to share: “In new car and tyre sales, [the] Russian market has been lower than we expected, and the tyre purchasing has moved more towards lower B and C segments,” said Ari Lehtoranta.

Nokian Tyres’ sales in Russia decreased 39.1 per cent year-on-year to €140.7 million, while CIS sales declined to €7.8 million; combined sales amounted to €148.6 million, 37.5 per cent lower than during the first half of 2014. The tyre maker lost sales volume and market share in Russia due to the weak economy and a consumer shift towards cheaper segments and brands. Devaluation of the rouble against the euro also pushed sales value down a long way, and even the double-digit rouble price increases implemented early in the year couldn’t compensate for the effects of the weakening currency.

One shred of good news within the Russia/CIS region was the successful restructuring of Nokian Tyres’ winter range and the launch of new B segment SUV tyres, which improved the company’s product mix and average sales price. Nokian also maintained its market leader position in the premium segment.

Weak performance in Russia and the CIS dragged overall net sales down 8.0 per cent to €626.8 million in the first half of the year, and down 6.5 per cent to €345.5 million in the second quarter. Half-year operating profit was 19.0 per cent lower, at €128.8 million, with a margin of 20.6 per cent, while second quarter 2014 operating profit was down 11.2 per cent to €80.6 million and had a margin of 23.3 per cent. The return of additional taxes and penalties following the annulment of a previous ruling caused net profit to increase 90.6 per cent to €199.8 million in the first half of 2015; in the absence of returned tax funds to prop the bottom line up, profit decreased 2.4 per cent to €64.5 million in the second quarter of 2015.

Reviewing the company’s performance by region and product, Lehtoranta commented that sales declined in Central Europe due to the delay of the winter tyre pre-sales and the high inventories of several large customers that therefore ordered fewer new tyres. “The whole tyre market has grown this year in Europe two per cent, but winter tyre deliveries are 11 per cent below first-half 2014 levels. We believe this will balance in second half, but the sell-in market volumes are now more dependent on a good winter season.” Nevertheless, Nokian estimates its market share growth in the region will “continue in coming quarters.”

Performance was “excellent” in North America, said Lehtoranta. “We have gained market share in our core segments and exceeded market growth now already for several quarters, achieving sales increase of 26.8 per cent versus the first half-year of 2014.”

Net sales of passenger car tyres declined due to volumes and currency issues in Russia, while sales and market share increased in North America and business there was further boosted by the local currencies’ strength against the euro. Sales were flat in the Nordic countries and down in Europe due to the abovementioned winter tyre issues. Sales of Nokian summer tyres increased in all key markets.

The company’s Heavy Tyres business unit continued to grow in terms of sales and profitability, with operating profit reaching 18.9 per cent during the first half of the year. The Vianor business “proceeded as planned” during the first six months of the year. “Our distribution network growth continued as planned. We added 213 new outlets to our branded distribution network and the current number of Vianor stores is 1,390 and the NAD/N-Tyre network has already grown to over 1,000 stores.”

Nokian Tyres’ full-year guidance has been adjusted since last given in May 2015 to more accurately reflect troubles in Russia and the CIS markets; the company now expects a slight decline in sales compared with 2014 and operating profit of approximately €270 million to €295 million.

See also: Nokian Tyres to lower production, lay off workers in Finland