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Good afternoon from Helsinki, and welcome to Nokian Tyres Q1 Results Conference Call. My name is Paivi Antola, and I am the Head of Investor Relations in Nokian Tyres. And together with me in the call, I have Jukka Moisio, the President and CEO; and Teemu Kangas-Karki, the CFO. As usual, we will start the call with a brief introduction into the results, and that will be then followed by a Q&A. So Jukka, please go ahead.
Thank you, Paivi, and welcome on my behalf as well. I move directly to Page 2 on the presentation heading, sales. Net sales and operating profit increased significantly. Net sales was in first quarter EUR 341.8 million, that's a 28.5% increase in comparable currencies. All-time high first quarter volumes in Passenger Car Tyres as well as in Heavy Tyres. We also saw that the demand recovered in all markets. Most important recovery was in Russia and the weakest recovery in terms of percentages was in Nordics, which was a single digit. All the other markets, with the exception of Nordics, recovered and grew by double-digit numbers. Important to mention that Heavy Tyres achieved all-time high quarterly net sales and segment operating profit in the first quarter. Segments operating profit was EUR 50.3 million versus EUR 16.3 million a year ago. Most important factor to improve the profitability was increased volume. We also recorded a negative impact from currencies, which was about EUR 10 million negative impact. I move to Page 2, some of the highlights in the financial key numbers. Starting with the capital expenditure, EUR 17.1 million in the quarter versus EUR 50.9 million a year ago. You may remember that a year ago, we still had the investments in Dayton factory as well as a significant part of the investment in Spanish test track going on in 2020. While these items were pretty much completed by the end of 2020, small items in -- related to Spanish test track was recorded in the first quarter 2021. Net debt at the end of March was EUR 31 million versus EUR 121 million a year ago. And cash flow from operating activities, not including the investments, was minus EUR 24 million in '21 and EUR 39 million in 2020. In addition, the operating profit percentage was 14.7%, and that compares strongly versus 2020 operating profit -- segment operating profit of 5.8%, and segment EPS was EUR 0.29 versus EUR 0.09 a year ago. Gearing is 1.9%, and our balance sheet remains strong as we mentioned in the heading of the slides. And now I hand over to Teemu Kangas-Karki who'll talk about the segment performance -- business area performance, sorry. Teemu, please go ahead.
Thank you, Jukka. Let's start with the Passenger Car Tyres business unit. Our net sales reached a level of EUR 246 million. Our segment operating profit was on a level of EUR 53 million. Net sales increased in all main markets led by strong volume growth in Russia. Our average sales price declined, and the main reasons behind that is naturally the weak Russian ruble that we have been highlighting in our previous calls as well as the high share of volume in Russia and the strong summer and all-season tire sales from the product mix point of view. As we have communicated, we have started the recruitment in Finland and in U.S. in order to increase the production in those 2 locations. Then moving to the Passenger Car Tyres net sales breakdown. Here, we can see that volume was up close to 40%. Our price mix was negative, about 1%. And as I've been commenting in the previous calls, in the price mix, we have also the country mix impact and because of high share of Russia, the impact of that is about minus 3% negative in the first quarter. Then the currency impact or the headwind was about 9%. And here, we can see the weaker ruble starting to impact our numbers in the second half of last year. In the first quarter of this year, we also got headwind from USD and Canadian dollar, among others. Then moving to our bridges, net sales and segment operating profit in euros. Here, we can see that in euro terms, the net sales headwind from currency was about EUR 18 million. And in the segment operating profit, it was on a level of EUR 10 million as anticipated in the previous call after Q4. Then the biggest contributor to profit improvement is naturally the sales volume, up by EUR 35 million. And here, we can see also the positive development in materials for the third quarter. And as we have been estimating, we will have a headwind from the raw materials for the full year, meaning that in the second half, the impact is significant. Currently, our estimate for the headwind for the full year is about close to 9%. Then moving to Heavy Tyres, excellent start for the year, all-time high net sales and segment operating profit. Net sales was on a level of EUR 57 million, and the segment operating profit close to EUR 13 million with good profitability. The demand was strong in agriculture segment as well as in mining and truck tires. We had some softness in the forestry segment because of their issues in their production. The profitability was positively impacted by the improved productivity that we have been doing in the factory and that paid off in the first quarter. Generally, the inventories are at the low level at the moment. Then moving to the last business unit, which is the Vianor. They had also a good performance in the first quarter, which is seasonally low. And looking at the net sales growth on reported numbers, 6.8% growth and the segment operating profit almost close to minus EUR 10 million improvement in the operating profit due to the fact that we have been able to manage our cost really well. And that is something that we have learned from the COVID times that we can improve the cost levels really well also in the coming quarters and years to come. With that, I will hand over back to you, Jukka.
Thank you, Teemu. And I recap some of the priorities for coming quarters in that it's clear that driving growth and recovery, benefiting from the recovery is quite important. We have new product launches, and those will help. The most important one, as we discussed already in February full year 2020 results presentation is, of course, Hakkapeliitta 10, which will be coming to market for the latter part of 2021, but many other product launches are also happening in the pipeline. Protecting cash flow, prioritizing investments is another important topic piece. As we indicated in our guidance, that CapEx is expected to be lower than 2020, in 2021 and in the first quarter, clearly lower. Of course, the reason there is that a year ago, 2020, we still had important investments in Dayton and Spanish test track taking place. Brand expertise, enhanced production capacity, more shifts and so on help us to capture the volume and the recovery in the coming months and quarters. Some of the assumptions for 2021 guidance, we expect that demand for replacement car tires is expected to increase and a stronger demand, but also increasing new car sales as the year goes along. Demand for Nokian Heavy Tyres core products is estimated to increase. Uncertainties are related to COVID pandemic and Russian ruble. Just to recap the value of ruble, euro-ruble exchange rate. So in 2019, we had RUB 72.5 to EUR 1; in 2020, RUB 82.7; and RUB 90.6 in January 2021; and to RUB 89.7 to EUR 1 in January-March 2021. So a visible difference in the exchange rate and weakening of the ruble between 2019 to January-March 2021. As Teemu was saying, raw material unit costs are estimated to increase and have a significant impact on the second half. And based on that, of course, there are price increases in the implementation. Guidance for 2021 is unchanged. We expect that net sales with comparable currency segment operating profit are expected to grow significantly. However, car tire demand is expected to pick up, but COVID will continue to cause uncertainties for the development. And our guidance for 2021 is unchanged after the first quarter. And this is the end of our prepared presentation part. And now I hand over back to Paivi, and we go into questions.
Thank you, Jukka. Thank you, Teemu. And now operator, we would be ready for questions from the audience, please.
[Operator Instructions] Our first question comes from Akshay Katkar from JPMorgan.
Akshay from JPMorgan. Three from my side, please. The first one in production capacity. With the strong recovery that you are now seeing in the global markets and also in the U.S., is there a case to ramp up U.S. capacity quicker than what was earlier planned? Just trying to understand if there is some restriction in terms of the units that you can produce going forward. Are you also planning to increase production capacity in Russia? That's the first one. The second one is on the winter tire share. Obviously, in Q1, you had a disproportionately high summer tire sales in Russia. But given the low winter tire inventories in the channel and the new product launch in the fall, should we expect a winter share higher in 2021 versus 2020? And the last one is on the U.S. data and ramp-up costs. They came in lower in the first quarter year-on-year. Just interested in hearing your thoughts for the full year in terms of total ramp-up costs.
Thank you. So the capacity availability and ramp up. Yes, first of all, we do, as quick as we can, in terms of adding shifts and so on. Obviously, if we can do it faster and have a high quality, we'll do it because, obviously, there's a case that demand is good and the recovery is good. In terms of Russia, capacity [ was in full use ] in the latter part of the year and also in early part -- latter part of 2020 and also right now, and we look if there are any opportunities to debottleneck and so on, but there's no immediate relief in that. So that's why we've added a shift in Nokia, and that's why we can flex the capacity if needed, more in Nokia. But then these decisions have not been made. So the case for North America is understood, and we do as quickly as we can, but it's important to maintain the quality as well. Winter share. Yes, indeed, the proportionably high summer tires in the first quarter and that's probably historical in the sense that this is the highest share of summer tires we've ever had. And so therefore, it clearly reflects the demand yes, the winter tire. We hope that Hakkapeliitta -- and we are convinced that Hakkapeliitta 10 will do well, but that remains to be seen in the latter part of 2021. But our expectation is that it's a great tire and it performs well.
And the last question was...
The last question was relating to...
Dayton ramp-up costs for the full year versus last year.
Yes, ramp-up cost of Dayton, full year expectations.
There, we are going slightly above the original thinking earlier because now we are ramping up a little bit faster than a year ago, we estimated, so we are recruiting more people and there, we will have some additional costs because of accelerated ramp-up of the stage 2.
Our next question comes from Gabriel Adler from Citi.
My first is on the raw materials headwind that you've guided for in the second half. How much of that 9% headwind do you think you'll be able to offset through price increases, particularly given that your price mix today remains negative? My second question would be on Russia and the market share gains in the first quarter. Maybe you could just provide a bit more color on what you think of those market share gains and how sustainable you think they are? And then my third and final question is on the CapEx. At about EUR 17 million, it looked to be quite significantly below G&A. What was the reason for this drop-off in CapEx other than the obvious investing in Dayton? And should we expect that CapEx to ramp up back towards G&A in the coming quarters as you plan to operate CapEx below G&A going forward?
So if I start with the raw material cost headwind and the price increases. So we are in the plan to offset the raw material prices in local currencies. Having said that, good to remember that if you look at our net ASP on an annual level, in euro terms, this year, we will have a higher share in -- coming from Russia and depreciated ruble having an impact. So in net -- in euro terms, there will be a headwind. But in local currencies, we plan to offset that, the raw material increases.
The next one was about the Russian market share. So of course, the market recovered, but we gained more volume and higher share than in previous year. And we expect that we can continue it in this year. We will, of course, see that -- how the competition will work and what kind of imports in Russia will happen. But at this point of time, our share is clearly higher than in 2020. And finally, a question about the CapEx. Teemu, can you take that one?
For the full year?
Yes.
So as we have anticipated for the full year, the overall CapEx is clearly below the last year level, which was on a level of EUR 150 million and let's see what is the level where we end up at the end of this year, but clearly lower than last year.
Our next question comes from Thomas Besson from Kepler Cheuvreux.
It's Thomas Besson, Kepler Cheuvreux. I have three questions as well, please. First, on the guidance, I know it's probably an intention, but the guidance remains unchanged and vague. Is there a way for you to position your guidance maybe versus 2019 or to -- I mean, you've clearly produced better results than we're expecting. Is there anything else you can say about the guidance? Or are we going to remain on this wording? The second question is on inventories. You had clearly lowered inventory substantially in the second half of last year. Can you comment on inventories' role in the massive volume jumps you've reported in Q1 2021? Do you still have room to effectively exceed a sellout with your sell-in in the coming quarters? Or have you done everything in the first quarter? And lastly, can you remind us the timing of your new key product launches? Have they already hit markets? Or are they hitting markets in coming quarters?
Okay. So we start with the guidance. I think that the wording remains the same. Obviously, what you will see -- and if you remember, 2020, and I'm sure you remember that the second quarter was quite weak in 2020. So in terms of comparables, 2020 -- the second quarter will be very easy to exceed. And then when we go to the second half, then we will need to see how the recovery takes place. But I believe that the more precise guidance can be visited after the second quarter when we go to the second half, and we see that -- how the raw material evolution takes place and what kind of trading environment we have in the second half. Right now, it looks quite strong recovery. But obviously, there are a number of uncertainties still in the air. But of course, compared to second quarter last year, then the momentum is quite good. Inventories, Teemu, would you want to take the inventories?
So both in terms of our own inventories, they are now on a low level because the demand is strong, and we don't see in the channel, any issues in terms of high inventories, quite the opposite at the moment.
And new product launches, they happen actually step-by-step throughout the year. I think that we highlight some of the key products, and of course, us being historically a winter tire company. So we, of course, talked about Hakkapeliitta 10. But there are throughout the year, new product launches or upgrade of the current product offer. So it's not a particular time when it happens, but it happens throughout the year. So you could expect that in this year as well as in early 2022, there will be a continuous stream of new products.
Our next question comes from Artem Beletski from SEB.
Yes. I just have three to be asked. Could you maybe comment on profitability by different region at the moment? Basically, looking at Russia, so ruble has been very volatile and weakening quite a lot. Could you put that maybe into context? Then the second question is relating to Heavy Tyres. So you made a strong [ 20% ] margin in Q1. Could you maybe talk about the margin outlook for the rest of the year? I know that you are ramping up capacity there, the demand is strong, but also raw material prices will be going up quite significantly in second half. And the last one is related to new product introductions and especially Hakkapeliitta 10 this year, I guess, the key launch for the year. Is it fair to assume that we will see impacts of it in Q2 as you will see presumably clearly [ more in the ] Russian market and also Nordics?
So if I start with the profitability, and especially, you asked about the profitability in Russia. Clearly, this year, the profitability is improving because of the increasing volume. Having said that, good to remember that, in euro terms, the net ASP has been in decline because of the ruble impact. And as we have been discussing in the previous calls, extensively, our raw material input costs are in euros or in USD. So depending what is the reference here, there is a headwind in Russian profitability midterm if you look back to beyond 2019. Then in other markets, I think, in the Nordics, we are on a normal healthy level. And then in Central Europe, as an example, when the volume is in increase, it will also improve the profitability there. Then in terms of the Heavy Tyres margin outlook. As stated, the Q1 was a strong start for the year. And we are having a positive view, both on the development, top line development, and that should then benefit the profitability and the profit as well.
When talking about the product mix towards the year-end, so we expect, of course, that the winter tires will become more significant part of our net sales in coming quarters. Obviously, in the early part in the first quarter, having summer tires as the biggest category and then winter tires and only then all-season. I think that, that will change. And obviously, the shipments of Hakkapeliitta 10 and the season of the winter tires will be quite important for us. We have high hopes for Hakkapeliitta 10, but again, early days for the year.
All right, great. Our question comes from Pasi Vaisanen from Nordea.
This is Pasi from Nordea. Firstly, to start with -- I mean, well, is there something to be worried about regarding the component problem and production cuts in the truck sector? I mean especially in the Heavy Tyres, when looking at the Nokia tires segments and registrations in the quarter? And secondly, just to confirm, did you actually mean that the raw material effect is going to be flat margin-wise when looking at the second half in this year? And maybe lastly, when looking at the history, I mean, every other quarter has been very strong and every other quarter, very weak. So is this bumping demand or inventory effect is still going to be there in the second quarter? And then probably would it be so that the second quarter will be, for some reason, more or less disappointing after the very strong first quarter? These 3 issues.
Okay. If I start with the raw materials. So what I was saying that in local currencies, our ambition is to offset that as much as we can, the raw material increase. But then if you look our net ASP in euro terms, we need to take into account the increasing share of our Russian sales as well as the weaker Russian ruble. So in net, in euros, we are not expecting to offset the impacts.
And you were asking about the component shortage in the Heavy Tyres customer base. I mean that is obviously something that continues and will become more difficult, that may be an issue. But at this moment, we don't see significant impact in Heavy Tyres. So we expect good top line and margin development in Heavy Tyres in 2021. And then strong quarters automating with weaker quarters, unfortunately, that's how the business goes. And we don't plan that. And we, of course, ship as much as we can and service the customers in the best possible way. Clearly, the year is off to a good start. A big part of that is a recovery effect. The other part is that we've gained market share, for example, in Russia. And working on that and improving on that is our ambition. But of course, as I said, there are number of uncertainties in the marketplace and -- but we, as we guided, we expect that net sales and profitability increase significantly in 2021 versus 2020.
Our next question comes from Michael Jacks from Bank of America.
I just have two, which are follow-ups from the prior ones. And please forgive me for reasking on the raw material impact. But I just want to make sure that I clarify or I just get clear on what you were saying earlier. In the presentation, you mentioned an impact of around 9% from raw materials. Are we talking a 9% increase in raw material expenses on like-for-like volumes or are we talking about the EBIT impact there that you expect for the year? And then my second question is I know you've discussed pricing already, but how should we think about your ability to offset these raw material increases with price increases this year? Do you think you'll be able to get full offset or perhaps something less?
So the 9% guidance was the raw material input cost like-for-like. So that is the guidance that we have stated. And then next -- yes. And then in terms of the price offsetting that, as stated, we are planning to offset as much as we can in local currencies, but the net ASP development for this year is expected to be negative in euros because of increasing share of Russia sales and weaker Russian ruble.
That's very clear. If I can just sneak in one more question, please. You commented that winter tires played a smaller role in Q1. And I guess this was despite the fact that there was higher snowfall towards the end of the quarter versus prior years. Can you maybe just give us some color on how the winter tire markets developed over the last couple of months, please?
In the last couple of months, I think that pretty much as in 2020, so not really a significant difference.
Yes. And I would say that on an annual level, we are expecting to see a good winter sale as well. And as we have been commenting in the earlier calls, there are shifts between the quarters within the year. And therefore, you shouldn't draw any major conclusions based on one quarter.
No. And I think that this is post-2020/'21 season. And now I think we are looking ahead to '21, '22 season, which is ahead of us rather than behind.
[Operator Instructions]. Our next question comes from Victoria Greer from Morgan Stanley.
Three from me, please. I wanted first to come back to the sell-in versus sellout question. Vianor, plus 8% year-over-year, excluding FX, excluding the U.S. disposal. Is that kind of a fair guide for where you think sellout is trending across your markets? Yes. I guess another way of asking, how much of the restock do you think is already complete now?And the second question is around adding the shift in Finland. Obviously, understand the need to produce as much as possible at the moment. And also that, yes, you want to ramp up in the U.S. in a sustainable way. But there have been sensitivities around moving the passenger tire production away from Finland in the past. Would you expect to continue to have that shift in Finland? Or would you think about it more as a temporary measure? And then the third one on Vianor. Could you comment at all on your cost control expectations for the full year? Obviously, a bit of an improvement into Q1. Could you think about that sort of -- yes, I guess, EUR 2 million or so improvement continuing at that level for the rest of the year?
Okay. So if we take the Vianor and you talk about Vianor sellout and the top line, and that is related to Nordics, right? And so yes, we saw the Nordics sell-in also at a 7% improvement year-on-year. And I think that, that is reflecting what the Nordic markets trades at this moment. The other markets actually had a double-digit recovery and growth while the Nordics was about 7% to 8%. And then a question about the moving the tire production from Finland to other places, I don't see that being a major issue because what we are doing in Nokia is that we are continuously expanding the Heavy Tyres capacity and making investments. So therefore, Nokian factory is increasing its output and so on. We said a year ago already that the important thing is to run Russia pool, ramp up Dayton and achieve the targets that we set out to ourselves in Dayton and then use Nokia as a swing capacity. Now the swing capacity usage in Nokia came faster than anticipated. And so therefore, we added a shift in Nokia, [indiscernible] shift in Nokia in 2021 because this is the swing opportunity we have.
Then you had a question regarding the cost...
Cost measures in Vianor.
Cost measures in Vianor, and this is an ongoing activity within the Vianor that we manage the costs as effectively in every quarter. And as stated, Vianor is a seasonal business and the main seasons are in the second and fourth quarter when we are making the result. And especially in the first and third quarter, we need to be actively managing the cost in order to minimize the losses.
Okay. So an ongoing project to manage the Vianor costs. But yes, you don't want to commit to a certain level of improvement there for now?
No, no. As we have been saying that Vianor is an important asset in our Passenger Car Tyres business in general and the profitability is on a retail profitability level.
Our next question comes from Edoardo Spina from HSBC.
I have two questions. One on the network development. If you can comment on the plans for growth, where do you plan to grow the network distribution? And we can see over the last few years that there's been a shift from Vianor partners to Nokian-authorized dealers with no growth for N-Tyre. And I was curious to understand how this impacts your pricing and maybe cost as a Nokian group and how you plan to grow from here? And the second question is more on Asia and especially on China. I was wondering if you think that you need local production in order to exploit the market better? Or if you actually invest in marketing or -- for the network expansion to see higher growth in those markets especially considering, I think, very good relationship between Finland and China?
Maybe if I start with the China question, this is, of course, a larger strategy development. And as we said that we are working on the strategy right now. We will have the Capital Markets Day by we -- has been announced already.
Yes, 9th of September.
9th of September. So we come back to the China questions about how and what we think that is appropriate to do in China. Right now, as you correctly pointed out, we are on an export basis in China this moment. Vianor stores' growth into N-Tyres...
I think it's good to separate that when we are talking about our own-run Vianor stores that we have in the Nordics, they are vital in order to have a good market position in the Nordics as a whole. And then outside Nordics, we don't have our own Vianor stores we have in Russia. Our partners who use the Vianor brand and N-Tyre and other branded stores.
So they are all franchise basis outside Nordics. Now in winter, we have divested the North American operations, 11 outlets in 2020.
Our next question comes from Sascha Gommel from Jefferies.
Yes. I have a few follow-ups. The first one would be on the pricing offset that you've been talking about. Have you already implemented your price increases to fully offset your anticipated raw material headwinds? Or is this still something that needs to come in the coming months? My second question would be on the car tire sell-in you show in your slide deck, which looks quite weak in the Nordics, minus 2%. I was just wondering if you can share some insights why the Nordics unlike the rest of the region is not recovering yet. And then my last question would be on the structural -- or the potential structural shift away from winter tires to all-season tires in some not kind of strong winter markets like in Central Europe, for instance. Is that something you observe as well, that customers opt more for all-season tires versus winter tires? Or is that not something you're seeing right now?
Okay. So we start with the pricing. So the pricing is in implementation, as I mentioned, and obviously, we keep an eye on the raw material development. Our anticipation is, as Teemu was saying, [ 9% ] like-for-like increase, but we follow that and we do the pricing decision seasonally and step by step. But obviously, they are in implementation right now. Away from winter tires, that is something that we have seen, and we think that especially the all-season tires are something that consumers choose for their -- for example, for the second car of the family and so on, there was actually a recent study that we showed some information about that. We did the study in Continental Europe about all-season tires about when and how people use them and why do they like them and so on. We believe that winter tires very much have their role, especially in the markets where the winter is coming [ as normal ]. So typically, Nordics, Russia and Canada, Northern states of the U.S. And then friction tires are somewhere in between to help people to be prepared for harsh winters and snow and so on, but still not having studied the products. So all of these are people are choosing, depending on their own priorities and so on. But we clearly want to gain more volume and opportunity in all-season. So this is something that we are launching new products, and we want to achieve more volume in that particular segment. But this is not so that we would see that the winter tire opportunity would be less. It's only that we complement our product range and are more competitive across these key categories: summer, all-season, winter. Nordic minus 2%. We believe that that's something that is really related to imports, less imports to Nordic markets. I think the established players pretty much saw the volumes grow in the range where we were trading in growth in the Nordics, while the decline is mostly related to imported products to the markets.
There appears to be no further questions registered. So I'll hand back to the speakers.
Thank you. If there are no additional questions, then this ends today's conference call. Thank you all for participating, and have a nice day. Thank you.
Thank you.
Thank you.