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Good afternoon from Helsinki, and welcome to Nokian Tyres Q1 '24 Results Conference Call. My name is Paivi Antola, I'm heading the Investor Relations in Nokian Tyres. And in the call, I have the President and CEO, Jukka Moisio; and Niko Haavisto, CFO of Nokian Tyres. As usual, we will go through the results and talk about some other topicals as well. Romania, for example, of course, will be covered in the presentation and other highlights that will be coming to you next year. But let's -- then, of course, we have a Q&A at the end of the call. But let's start with the prepared notes, and you Jukka, you can start.
Thank you, Paivi, and on my behalf, and I'll go through the prepared notes and presentations, which is heading -- building the new Nokian Tyres contract in a challenging environment. And I move to Page 2, some of the important milestones we aim to achieve in 2024. Of course, our key innovation in the Tyres there's a private 90th anniversary this year. Our new and world's first year of CO2 emission tire factory in Romania will start production, I'll talk more about that later. U.S. investment phase in [Indiscernible] the factory will be completed and the factory will be fully invested to achieve its targets. And we keep on launching new innovative products because the rebuilding of Nokian Tyres building the company is based on organic growth so it requires, and we want to introduce and sell innovative successful and competitive products and then build the production capability behind those products. So therefore, innovation, new products are key elements in achieving the new Nokian Tyres. I move to Page 3, and this is a highlight and update of the Romanian factory. It's -- on the picture on the left-hand side, you will see the new mixing building, which is very much in progress. And the equipment installations there will begin in the end of April. In the middle, you will see the production building. So finishing work is continuing and equipment installations are progressing as we speak. And on the right-hand side, you see finished goods warehouse where we are paving the loading docks and outdoor area, but very much on track and recruitment of the team are progressing. And in fact, we have launched the training in Nokian as we speak, and they will be returning to Romania for the summer and be prepared for the manufacturing start. First tires will be produced in the second half of 2024 and as mentioned, according to our schedule, the commercial production will start in 2025 and we are on time and we are on budget or maybe even below budget. On Page 4, we take steps -- we'll take good steps forward in sustainability. Some of the examples of achievement in the first quarter, factory -- CO2 emission factory where first zero CO2 emission tire factory is ongoing. We had A- score from cargo disclosure project for actions aiming at reducing the free house gas emissions. We also made a long-term purchase agreement and commitment for the covered carbon black with the tire recycling joint venture. This is one step on our way to ensure that 2030, we have 50% -- at least 50% of recycled and renewable raw materials in our tires. And we also published our stability report for 2023. I move turn to Page 5, and we start with the financial part, net sales and operating profit at previous year level. Net sales at EUR 236 million and last year also to EUR 236 million. Segment EBITDA in the first quarter EUR 12.5 million; and last year, EUR 11.2 million. We, of course, had an impact of the political strikes in Finland as well as the Red Sea crisis, approximately the amount to EUR 20 million at the EBITDA level and more than half of this is in the first quarter. And segment's operating profit, minus EUR 15.1 million in the quarter and last year, minus EUR 14 million. If you look at the top line number without the impact of -- or neutralizing the impact of the political strikes as well as the Red Sea crisis, we would have been in the range of EUR 260 million in net sales and approximately 9% to 10% of EBITDA, which would have been about doubling out EUR 12.5 million EBITDA in the quarter. This impact of political strikes and Red Sea crisis consists of loss of revenue. This is, of course, timing issue that some of the products that they're on to ship on the way to Europe for how [offtake] did not land on time. However, we believe that we will and we can sell the products in the coming months and quarters. We had a block of production in Nokian in passenger car tires about 20 days and heavy tires about 5 days. Heavy tires is fully in the Q1 passenger car production, about 9 days of the 20 days of [3D] is in the second quarter as the strike we needed to stop the production due to the fact that we couldn't ship any products from Finland, and we had all our warehouses full and consequently, we couldn't keep on producing any more. In addition, we had these extra costs which are related to warehouse logistics and similar things rebooting and various other topics. But all in all, as said, impact for the company in the first half is more than -- is about EUR 20 million, more than half of that in the quarter in the EBITDA. I move to Page 6. Still, we have a strong balance sheet despite the lower-than-expected profitability in the quarter. We have a strong balance sheet, 58% of equity ratio is gearing at 30% net interest -- interest and net debt at EUR 395 million capital expenditure. We kept on investing in Romania as well as finalizing data and about EUR 70 million and cash flow from operating activities minus EUR 87 million. And then I will hand over to Niko to talk about the segment -- of segments and other topics. Niko, please go ahead.
Yes. Thank you, Jukka. I will go through the segment numbers a little bit more in detail and I'm in Page 7. So in the passenger car tire segment, our net sales increased due to the higher volumes and that of course, was driven by increased product availability. Our average [Indiscernible] -- comparable currencies were at the previous year level. And profitability improved driven by higher volumes and lower costs. Net sales being EUR 143 million compared to EUR 133.3 million in last year's same quarter. And then on the operating profit level at the segment, we were at the level of minus EUR 2.8 million compared to EUR 4.6 million last year same quarter. On Page 8, there is a bridge on the passenger car tire segment. And there, you see on top, the kind of the sales breakdown, so the volume up by close to 10%. At the same time, we were able to keep the price and mix at previous year's level, more or less. And then we had a little bit negative [Indiscernible] from the currency, all in all, landed at EUR 143 million. In terms of operating profit, there, we see the -- especially the material costs were coming down, so we were there gaining some EUR 8 million but at the same time, the [ superwide ] saying they increased logistic costs, warehousing and freight, especially hit us by EUR 11 million in this segment. Final slide on the passenger car tire segment. So there, you see the volume changes by quarter so still coming out from a fairly okay Q4 into Q1, plus 10% price and mix, that was kind of flat, but I think that is a good achievement in the market and still getting a little bit headwind from the currencies, but not so much trial as it was during most of the last year. On Page 10, with the heavy tires, the weak market is affecting us in terms of sales and profitability. And there, especially we see the -- in the Nordics and also on the road, heavy tires products that we are having some difficulties will last most likely toward H1 this year. Net sales, EUR 55 million compared to last year's EUR 68 million and then on the operating profit level, we were at the level of close to 12% with the actual numbers of EUR 6.3 million compared to EUR 9.6 million last year. And then on the Vianor side there, we landed pretty much on the level of last year in terms of sales. Operating profit was minus EUR 16 million compared to minus EUR 13 million and half last year. and of course, this is a seasonality thing, but of course, the inflation is hurting us in this business, and we need to understand better going forward how to put that into our earnings as such. Then I have the guidance slide, so Slide 13. And we have kept our guidance unchanged and we say that -- this year '24, our net sales with comparable currencies and segments operating profit are expected to grow significantly compared to that of last year. And by significant, we mean at least double-digit growth, and we will be more precise what we mean with that when we go more into the year. And with that, I hand over back to Jukka.
Thank you, Niko. Just to wrap up the presentation, as we said that the rebuild of new Nokian Tyres is very much focused on the new products. So we have a very good product of [Indiscernible] products and when [Indiscernible] their factory goes onstream that will be based on completely new products that are in the pipeline and will be introduced during the course of the remainder of the year so that when we start operations, we have a highly competitive new products. But also the portfolio right now, as you see, keeps on involving continuously. And the rebuild of the company is based on organic growth so in the heart of that is a good portfolio of new products. I move to Page 15 to wrap up the presentation. Again, we come back to the Capital Markets Day presentation of 2023 that we have the investment phase, and then we have the growth phase and you see roughly where we are at this point of time in the investment phase and that -- those activities consist of the capacity increase in Finland done, U.S. factory completion, about to be done right now, a new factory in Romania will be making the first tires in the second half of this year and we will start commercial production in early 2025, and then we go in contract manufacturing, which is very much ongoing. So most of the growth in the Continental Central Europe is based on contract manufacturing of the products. As we mentioned, unfortunately, some of those in the ship when they were supposed to be landing in Europe, however, we believe that this is only temporary based on Q1 dislocation, but we will be able to sell those products later on. Growth phase, then starting in 2026, increasing market penetration, which is build new products, increased capacity and enhanced operational capabilities. And that way, we would be on our way towards EUR 2 billion from passenger car tires point of view. In heavy tires, we expect that despite the weakness of the heavy tires markets, whether it's Nordics or whether it's fees Nordic OEM, Finnish OEM in this particular quarter, we will continue to the -- above market level growth and in the Vianor, we'll continue to have the distribution excellence in the Nordics. In combination, that will allow us to move towards EUR 2 billion. And with that, I end the presentation of prepared notes and hand over back to Paivi for Q&A. Paivi, please go ahead.
Thank you, Jukka. Thank you, Niko. And now after -- just shared your presentation we would be ready for the questions from the audience, please.
[Operator instructions]. The next question comes from Michael Jacks from Bank of America.
Hi. Good afternoon, Jukka and Niko. A few short questions for me, please. Firstly, what was the volume contribution from contract manufacturing in Q1? And where do you stand now from a run rate perspective? Secondly, can you just give us a little bit more color on the split between price and mix? I understand that the net amount was negligible in Q1 but just wondering if there was a few moving parts to that between price and mix contributions? And maybe attached to that, where to from here on pricing and mix for the coming quarters?
All right. So the first question is that what's the contribution of the offtake volumes in the first quarter, it's roughly about 1/3 of the total volume in PCT.
Yes. And in terms of price and mix, as I said, we are fairly okay with what we saw in the Q1. Most likely, we will also a little bit going forward now this summer season, but then gradually picking up in the end of the -- towards the H2. So fairly okay situation there.
Very clear. And if I could just slip in one follow-up. Just on heavy tires, are there any signs of improvement in activity levels going into Q2?
We -- of course, the OEM, especially in Finland, the OEM was impacted by the political strikes because like us, they weren't able to ship their products. However, of course, if you think about the Forest 2 equipment segment, for example, which is an important one for us you'll see that the pipeline price, the strong good prices and so on are going up so obviously, there will be more activity and more interest in that particular segment and that combined with the expected lower interest rates, so we think that there is clearly a positive opportunity going forward. In the aftermarket, we would expect that aftermarket will also be stronger this year because the pipeline is so to the entity now compared to prior year and so therefore, the possibility of developments expected. So -- especially in the second half, we can see a much stronger performance.
The next question comes from Sam Will Hansen from Nordea Markets.
In 2 parts, I could start, first of all, about the effects of the Red Sea and the Finnish strikes. You stated that it had an effect of EUR 20 million on the EBITDA but can you disclose how much was it on sales and to what extent these sales could be shifted to another quarter?
You say that the sales dislocation was about [Indiscernible].
EUR 25 million level.
And that can be -- for most part, that can be kicked forward but obviously, the loss of production where we actually lost the volumes with the downtime that is difficult to cash back.
All right. And then how about your guidance for this year going forward, given that there was some limited growth in Q1? So I would presume that the shift sales probably aren't the game changer, so will you be projecting most of the growth to retail the second half of this year or how would you see it?
Yes. That's how we see, we are -- is this is the seasonality business in that meaning. So it's more towards the Page 2 of the year that we see the growth.
And just to add that -- remember the political strikes continued until 8th or 9th of April, and we actually did not produce in PCT in the early -- [Indiscernible] of April, and we are not able to ship until the 9th of April. So obviously, if you look at the quarter, unfortunately, there're a little number of days in the quarter and so 10% of the days were lost in the beginning of the quarter from early days and 9 of those were lost out of the [gate], unfortunately. But we believe that the strong momentum will then start in there.
Thank you for the clarification.
The next question comes from Miika Ihamaki from DNB Markets.
It's Miika from DNB. In passenger car tires, still on the mix, just slightly down, where you reported flat average sales price at comparable currencies. However, at the same time, sales to Europe increased significantly and then you mentioned that you had quite a big share of offtake in the mix. So could you still open up on the mix performance? And how do you see this developing forward? What are the drivers?
Yes, the mix was mostly what we lose in actually the summer tires and such, we were able to secure winter tires and early volumes for those, and we were able to secure a good volume of all-season tires, and we were also able to secure good availability in the Nordics. So that in combination, that helped us to have a good price mix. And of course, the North American sales very much the 3 orders and so on into also partially into the winter. But also, we start to see already also that the mix in [Indiscernible] is improving so that there is more LT and such that helps the price mix.
Okay. So you say that the mix should hold up fairly well going towards the end of the year?
The mix is very much to our liking, so that we actually have been achieving a good mix that what we wanted to deliver but clearly, more winter tires will come into second half and into the winter season. So we are quite positive about how the mix looks going into the second half.
Okay. Then just one, if I may. Just on the offtake. So can you please open up in a rough ballpark that what's the margin profile? Is it closer to 10%, closer to 5%, just to get an idea?
We have always said that the offtake for us is an important way to stay relevant in the market and also obviously make money. So one thing is that we have the right kind of a selection of winter all season and summer for the Central -- mostly on Central European markets and we will not ship them so that we lose money. So all of them are expected to make money. Some of the all season make more money -- summers relatively modest in terms of profitability and winter is stronger in profitability but we haven't opened up the offtake and we will not do it here either.
The next question comes from Anne Kauranen from Reuters.
Hello, can you hear me? Thank you for the presentation. I wanted to ask if you could provide any update on the EU cartel investigation, has Nokian Tyres been involved in any cartel-like activities that would justify the investigation for your part?
We -- first of all, we are fully cooperating with the authorities in this investigation but as this is an ongoing investigation, we cannot comment more than that.
The next question comes from Akshat Kacker from JPMorgan.
Three questions from my side please. The first one on inflation and the different cost buckets. Could you just help us understand the puts and takes in terms of the impact on the P&L for -- on a full year basis? If it's possible to quantify your assumptions for raw material tailwinds and how much of that is offset by labor, trade or supply chain challenges that you see on the course of the full year 2024? The second question is on pricing. Just in terms of pricing alone in terms of different geographies. Could you talk about your assumptions for the rest of the year? That would be very helpful. And the last one is on your assumptions for working capital and CapEx. Could you just confirm, do you still expect working capital tailwinds in 2024 and the CapEx amount net of the subsidy that you expect in Romania?
Yes, I'll take the first one, and it was about inflation and of course, we are getting some help from -- as you saw in the presentation from the raw material crisis. So there have been decreasing as such and we see that now they are more stabilizing on that level. Of course, we have some of our agreements are paid so with -- especially in the heavy tire that the buyer gets part of those savings as well. In terms of labor, I think we disclosed that at some point as well. We are talking about roughly 5% increase. All in all, within all our geographical sections that we see increase in the labor and of course, we are trying to have that either through efficiencies or with the pricings embedded into the -- our sales as such. Then Jukka if you take the second one.
So you asked about the pricing. So obviously, the pricing environment is relatively flat because the raw materials are a little bit [Indiscernible], but the inflation in the environment is there. So we will follow the market-based pricing depending on the product and the innovation and the novelty value of the product, we will follow the market [Indiscernible]. In terms of working capital, obviously, we were in Finland, which is our main factory. We were 4 weeks without being able to ship any products. We produced as much as we could and everything for the inventories and warehouses are full. So new products or, let's say, finished goods, while we exhausted most of our raw material inventories, so we were low on raw material, we are high on the finished goods, and then we stopped the production because there was no ability to put any products anywhere. So -- this is what happened due to political strike, so this is the situation. And in terms of capital, CapEx, we expect in the range of EUR 350 million and this is across subsidies and the subsidy decisions when it comes and then it helps as we will report that. But obviously, you will remember that we are seeking to have up to EUR 99 million of European Commission approved subsidies by Romanian government for our investment in Romania. If that happens, then we talk about the investment level, which is then clearly below EUR 350 million, but it's too early to report that until we have the decision.
As a reminder, if you wish to ask a question, [Operator instructions] The next question comes from Rauli Juva from India.
One question from me. You mentioned in the report that you are evaluating the ownership of the Spanish Test Center, I guess that means partial or full divestment of that. So can you elaborate a bit on that? What's the reason for that and so timetable for this?
Yes, you are correct. We had a tax there in the report so we are looking at possibility to have ownership changes there. And of course, we continue to test our guarantee as a spot there to continue our testing at that track. But we are trying to find an owner who could develop that area and have even more potential out of it, while guaranteeing our own test capacity at the center. So it's part of this [Indiscernible] monetarization counterprogram that we've been discussing during the past half year.
Okay. And any comment on the potential time they will offer something actually happening?
So of course, it's difficult to say but hopefully, we have something there to tell you during this year's still.
There are no more questions at this time. So I hand the conference back to the speakers.
Thank you. If there are no additional questions, and it's time to finish the call. Tomorrow is, of course, an important day. We have the Annual General Meeting so it's going to be nice to meet shareholders face-to-face. But for you on the line, thank you for joining the call, and have a good day. Thank you.