Nokian Tyres plc

OMXH:TYRES

Q1-2025 Earnings Call

[Annukka Angeria, executive]

Good afternoon from Helsinki, and welcome to Nokian Tyres Q1 2025 Results Webcast and Conference Call. My name is Annukka Angeria, and I'm working at Nokian Tyres Investor Relations.

Together with me in this call, I have our President and CEO, Paolo Pompei, and our CFO, Niko Haavisto. As usual, Paolo and Niko will present the results and after that, there will be time for the questions. Without further ado, Paolo, please go ahead.

[Paolo Pompei, executive]

Good afternoon, all, from my side. I'm Paolo Pompei, I'm the President and CEO, and I will guide you through our quarter 1 interim report this afternoon. I start from Page 1. The headline is strong sales growth in all regions, actions accelerated to improve financial performance.

Moving to Slide #2. The agenda of this today call will be the financial performance in quarter 1. We will go through the numbers of the business unit. There will be some reflections from my side. And at the end, we will also address the situation of the tariff in North America as well as the guidance for 2025.

Moving to Slide #3, quarter 1 financial performance. Let's move to Slide #4. We had strong sales growth in quarter 1. This is continuing our journey and strong sales growth that we had also in quarter 4 and quarter 3 last year. This was succeeded in all markets and all regions.

Our Romanian factory is proceeding according to plan. We were starting to deliver tires already at the end of March. We had an extremely good performance in a declining market for the heavy tire division. And obviously, we are not fully satisfied actually with the financial performance, and we have accelerated actions to improve our financial performance in the next quarters.

The tariff, of course, are causing some disturbances and some uncertainties in North America. But of course, with our local-to-local strategy, we are working hard to mitigate any kind of impact.

Moving to Slide #5. The market has been pretty stable in North America when we talk about passenger car and light truck tires and has been actually growing by 5% in Europe. The truck tire market has been stable in the aftermarket in Europe, while the agri tire business was actually declining, both in the replacement market by 7% as well as in the OE segment by minus 20%. We are pleased to see that Nokian Tyres in terms of sales outperformed the market in all the segments where we are operating today.

Moving to Slide #6. Net sales at EUR 269 million was growing by 14.2% with comparable currency. We had a positive development in all the business units, and we improved our market position in all regions.

Our segment EBITDA was stable at EUR 12.5 million, and our percentage, 4.6% of net sales was declining compared to previous year. Our segment operating profit was minus EUR 18.5 million, compared to minus EUR 15.1 million previous year, at 6.9% on net sales -- minus 6.9% of net sales. The decline was mainly driven by the higher raw material and obviously, the necessary SG&A cost to reinforce our market position in the growing market areas. We have implemented price increases in quarter 1, which are obviously intended to offset the increased raw material costs, and this will be reflected in our quarter 2 onwards results.

Moving to Slide #7. You will see that we were, as anticipated, able to grow by almost 6% in the Nordics, where we have already a leading position. We have been growing fast in Central Europe once again by 34% and we were also growing fast in North America by 15%.

Moving to Slide #8, I will ask Niko to comment the following slides.

[Niko Haavisto, executive]

Thank you, Paolo, and welcome on my behalf as well. From the key figures, I want to point out the net sales, as Paolo said, we increased the net sales by some 14% compared to previous year. But at the same time, I need to say that the profitability is not where we want to be, and we must continue our tasks in order to improve the profitability with more control and a quicker way.

As everybody knows in this call, we are still final year in our investment phase. So the major investments to build on our new Nokian will be done by the end of this year. Within this 3 years period, we have been investing close to EUR 800 million, and that's a gross number.

I want to highlight as well that the Romanian state aid approved by EU that will be paid by Romania is not reflected in any of our numbers. And as said in the earlier calls throughout last year as well, we'll see that it will be in our cash flow in the next 3 years to come.

Also, we are returning back to the more maintenance type of investments, i.e., the maintenance CapEx, estimating that to be around EUR 120 million starting next year, so clearly below our depreciations.

From the business units side, we'll start with the Passenger Car Tyres. So there, sales once again were on a good level, but the profitability was weakened mainly due to the higher raw material costs and the SG&A. And we see that the inventories are on a lower level, so more healthier than in the previous or the comparable Q1 last year.

From the sales bridge, there we can see that the volume plus EUR 31 million was then fairly neutral on the price and mix side in terms of net sales. And then when you look at the segment's operating bridge, those same elements there, i.e., EUR 10 million coming from the volumes, EUR 1 million from the price and mix, and then the materials and the supply chain as well as the SG&A were negatives in terms of the profitability.

Slide #13. This is the sales and the quarterly changes there. volume, but I would like -- volume up by close to 22%. But really, I think what is good is the price and mix. So there, the trend is positive, slightly positive, but we have ended the 2 quarters decline that we had last year, i.e., H2 last year. So that was changed in the Q1 of 2025.

Heavy Tyres, also, as Paolo pointed out, really solid performance, especially weak OE market. We were able to find new customers in the aftermarket. So even with the low volumes, we're able to make 13% EBIT. So really proud of this, something we need to continue and contribute to the whole of Nokian Tyres.

In terms of Vianor, there, the first quarter is always seasonally low and now the Easter was late actually in April. So the profitability was at the last year's level. But this is a constant balance of controlling our costs. Of course, the lower inflation will help us, but we need to monitor and be on top of the business at all times. And with that, I hand it back to Paolo and CEO reflections.

[Paolo Pompei, executive]

Thank you, Niko. Right. It's really time to -- in some way, summarize what happened since I joined the company in January 2025, and what are my reflections at this stage after leading the company for a few months.

I move to Page #17. Clearly, we have a really strong foundation to become a leader in this business when we talk about profitability. We have invested a lot. We will complete our investment phase by the end of this year. And then, of course, growth will be, as it is already today, an important item of the agenda of all our business units.

Clearly, as Niko anticipated, we are not satisfied with the financial performance. We know that the journey is not an easy journey after obviously activated our plan, exiting Russia and rebuilding Nokian Tyres outside the territory of Russia. But I have to say that we have initiated activities at the moment to accelerate our financial performance and cash generation for the next quarters.

What is really important to say is that who we are. Nokian Tyres has been a strong player in delivering safe product in extremely demanding weather conditions. And this is very important because this is -- and this will remain our main asset and our strong heritage. And we will carry on innovating, promoting our products in these applications because this is where we can make the difference, and this is where we deliver value to our customers.

Clearly, we are a small player. We don't play anywhere, and we don't want to play anywhere. We want to play in the profitable niches of the market, which today are winter tires, obviously, all season. We are delivering an extremely innovative new range of all-season tires and at the end, heavy tire as well. Those are extremely profitable niches. We are a small market player when we look even at the addressable market. And of course, we are still a small market player when we look at the global tire market, which is approximately EUR 250 billion.

So we have plenty of opportunities to grow, confident that we can leverage our value proposition and can leverage our extremely competitive and superior products.

So today, we can really found our business on a wide offering when we talk about winter tire and all season. But more importantly, we can really build our future on safe and sustainable and high-performing product.

Our brand is a premium brand in the Nordics, as we know very well. It's a very strong brand when we talk about winter tire in North America and in the rest of Europe. We will obviously need to build the brand in the other application in the other markets. We have an extremely good and efficient distribution network in the Nordics, which is Vianor that is helping us to keep our premium position in the market. And in the other markets outside Nordics, we have extended our retail network now to 46 countries. And this is also very important to support our future growth.

The manufacturing is today the area that is, in my opinion, representing long term, one of the main assets of the company because now we can say that we have developed a local-for-local strategy, being less vulnerable than what we were before and being able to service our customers with dedicated product to dedicated markets. And of course, we are not depending anymore on one giant production source, but we are depending on 3 strong manufacturing facilities when we talk about passenger car tires that are located in the Nordics in Europe, in Romania, in this case and as well as in North America. And of course, those facilities are really brand new. We have invested a lot, and this is representing, again, a strong foundation for our future growth.

In Heavy Tire also, we have a leading position -- global leading position in the forestry industry, but we are also expanding quickly our range in the agricultural tire segment, where obviously, we are aiming to grow in the near future.

When you look at this Page #20, you will see obviously that our profitability declined due to the responsible decision to leave the Russian market and to immediately focus on the construction of our new manufacturing facilities in Romania, while at the same time, building a strong alternative for North America as well as reinforcing our operation in Finland.

Clearly, the Dayton production ramp-up is now completed, so we can now leverage and higher output coming from our factories in North America. And of course, we are, at the moment, working hard in the deliveries and in the ramp-up of the production output in Oradea in Romania.

Of course, there is plenty of opportunity for us to grow and to improve our performance, in particular, when we talk about the commercial positioning in North America and in Central Europe. Manufacturing, of course, we have been focusing on growth. We need now to focus, as I said, several times on the efficiency of our manufacturing facilities. We need to focus on better procurement, enlarging our supplier base, renegotiating our existing contract and of course, in the SG&A cost competitiveness. And at the end of the day, this will result in a reinforcement on in strengthening our balance sheet. More precisely, when we talk about North America, we need to accelerate our effort, the commercial effort to gain premium market share in the market while enlarging our sales network.

In Central Europe, it's really about growth, but it's also about aligning our positioning to a premium brand segment. Manufacturing, we discussed about Dayton. Dayton obviously is now producing the expected output, but obviously, we will need to work on the optimization and on the cost efficiency. And this will also result now the increase of volume and efficiency coming from cost reduction through scaling.

When we talk about procurement, we will need -- we are working hard. We have initiated already plan to reduce our raw material cost and of course, to optimize our indirect spending. So we have created different work streams that are working in this multiple dimension. And by the way, we didn't complete at all the ramp-up in Oradea that will be completed late in 2027, and this is going to be a key item in the agenda of our excellent manufacturing team.

The new organization, as you know very well, that has been launched in quarter 1 is aimed actually to create a strong P&L and KPI ownership and at the same time, clear accountability. So for this reason, we have also created dedicated work stream that are supporting a systematic follow-up and reporting activities that are necessary for all of us and also for you in the future to follow up our progress and to make sure that we are delivering in line with the plan.

When we talk about our capital allocation, we've been investing a lot. I mean, you can see clearly that from 2022 to 2024, we have invested EUR 728 million so far. And obviously, this has increased our net debt position by EUR 472 million, and we have paid in the wild time EUR 224 million of dividends.

What are we expecting from this journey, what we are expecting as a result, an improvement of the operating cash flow. The CapEx level will return back to normal. We don't see at this stage any need after 2025 to further have investment in our business since we will be well set to manage the future growth. And of course, the ratio of 1x to 2x net debt EBITDA, this will be obviously our target towards 2027.

The road is, as I told you already since the very beginning, the road is bumping. There are -- obviously, there is a lot to do. We are working very hard really to deliver growth and at the same time, to improve our financial position. But I believe that, obviously, we can really position Nokian Tyres growing above the market level with our unique value proposition, safe and sustainable and high-performing products in demanding weather condition.

We are obviously targeting a strong improvement of our profitability that will come, you will start to see later in the year. And of course, with our efficient now new manufacturing footprint, we will see that, obviously, we will allocate lower CapEx, and we will then generate more cash and investor returns in the quarters to come up to 2027.

Moving to the final section that is about tariff and guidance in Slide 27. We see at the moment that the passenger car tire and the light truck tire industry will remain pretty stable in Central Europe as well as in Nordics and in North America, while we still see a weak market in the heavy tire industry, in particular on the OE side.

Clearly, when we talk about North America, as you know very well, the situation is at the moment, creating some uncertainties. North America represent today more than 20% of our sales as a group. 85% of what we produce in U.S. is -- what we sell in U.S. is produced in Dayton. We supply Canada from both U.S. and Europe, mainly 100% of winter tires are coming from Europe, so they will not be affected by the tariff. But of course, they all some tires are made in Dayton in U.S., and they are supporting the Canadian market, where today, there are import duties up to 25%. Obviously, we see that this tariff can be also at the same time, representing an opportunity for us. The market in U.S. is today made by 60% of imported tires.

So the market in the U.S. is today importing more than 50%, actually 60% of the tires that are sold in the U.S. So obviously, for us, having a direct presence in Dayton can represent an extremely good element to play in the near future if the tariff will remain there. I would like to remind you that, obviously, the tariffs are in place only now at the beginning of May, while in April, obviously, the market was still not supporting tariff. There will be some also indirect impact that is generated by raw material costs.

Obviously, some uncertainties in the consumer that today obviously are more cautious in spending money due to different reasons, including currency fluctuations. We, as a Nokian Tyres, we are very well equipped to manage the future with a flexible supply chain, having the possibility to leverage our European factories, but at the same time, being well located in North America to support the North American market with our new -- brand-new factory in Dayton.

Now to Niko, the introduction of the guidance.

[Niko Haavisto, executive]

Thank you, Paolo. So the guidance, we have kept unchanged, i.e., we are expecting our sales to grow and operating profit as a percentage from the net sales to improve compared to that of last year. And this is regardless of the tariffs that's imposed now, we see that the guidance will remain as it was when we gave it in the beginning of February this year.

And with that, I hand back over to Annukka.

[Annukka Angeria, executive]

Thank you, Paolo and Niko. And operator, we are ready for the questions.

[Operator]

[Operator Instructions] The next question comes from Akshat Kacker from JPM.

[Akshat Kacker, analyst]

I have 3, please. The first one on your North American business. So starting off on the tariff side, could you please quantify the tariff impact on the P&L that you saw in Q1? And how do you expect that gross impact to change as we go into Q2 specifically, given your exports from Nokia into the U.S. as well as, as you mentioned, from U.S. into Canada?

And secondly, in terms of your North American local capacity, could you remind us what are your planned production levels for 2025? And how quickly could you increase local capacity in that market? And what kind of investments would that entail? That's the first question broadly around North America tariff capacity.

The second question is generally on the market, please. Could you broadly comment on the channel inventories in Europe and North America? And if you still expect positive sell-in trends to continue going into Q2.

And the final question is on pricing. Is it possible to quantify the extent of price increases that you're looking at, again, in both the markets, please, Europe and North America?

[Paolo Pompei, executive]

I will take this one. I mean about the tariff impact in quarter 1, obviously, the tariff were not really in place in quarter 1. So the effect of the tariff will be visible in quarter 2. Obviously, we don't disclose the impact, but this will require what I can say, a lot of discipline from our side. If there is inflation, obviously, we will need to face the inflation as well.

I think the second market was about the capacity in North America, which we don't disclose in terms of number of pieces, but we can clearly say that we are reaching this year approximately 80% of our capacity in North America. So we are well positioned to support our growth.

I think one of the question was about price. Of course, we don't comment about the price increase for competitor law reasons, and we cannot comment about that.

I think the last question was really about the growth outside of North America, if I'm correct. And of course, we are expecting growth, as we said in our guidance. And this growth is obviously provided by all our markets, all the markets where we operate.

And Niko, please complement if I missed anything in this answer.

[Annukka Angeria, executive]

Niko, you are muted.

[Niko Haavisto, executive]

Yes, sorry. Yes. But generally, same answers to Paolo, and it was about the market inventories that are at the dealer level. So we see that they are healthier level and the sell-in as such will continue and it's mainly in the Europe side. Then the North America, we went through what is the situation there. But I think those covered Akshat, your questions.

[Akshat Kacker, analyst]

Just one quick follow-up. In terms of your overall capacity in the U.S., could you remind us how quickly could you increase capacity at your Dayton facility? And what kind of investments will that entail, please?

[Paolo Pompei, executive]

As I said, we are at the moment, planning to reach more or less 80% of our capacity this year in our U.S. factories. This, of course, will be strictly linked also to the tariff situation. Investing in expansion of capacity, obviously, is not something that is happening in 1 day. So if there will be a need to go beyond 100%, meaning that we need to invest even more for our future growth, then, of course, we will need to estimate that this will not happen immediately, which will happen in some time. But at the moment, we are still space for growth. And of course, we believe that whatever is happening, we will be able to face, obviously, our growth for at least the next couple of years.

[Niko Haavisto, executive]

Yes. The land plot and the layout would allow us to triple the capacity there, but it's not something that we are planning at this moment.

[Operator]

The next question comes from Artem Beletski from SEB.

[Artem Beletski, analyst]

I have 3 in total. So the first one is maybe on price/mix versus raw materials outlook for the full year. How do you expect it to look like? Should we think about neutral or positive picture there?

Then the second one is relating to ramp-up costs and basically non-IFRS exclusions. So the number was a bit more than EUR 70 million in Q1. Are you able to provide some full year estimate, numeric one, so I know that it should be coming down year-over-year. And the last one is just relating to net debt development and also working capital during the year. So net debt was roughly EUR 800 million. Where do you expect it to peak this year? I guess it should be happening in Q3 as normally.

[Paolo Pompei, executive]

Thank you. I suggest I take the first one, which is about price and mix. As we said and as we commented, Obviously, we didn't fully compensate the raw material cost increase in quarter 1, and we have implemented actions to compensate the raw material cost increase already starting from this quarter. So we are expecting a positive development of price and mix already starting from quarter 2. I would suggest Niko, that you take the number 2 and number 3.

[Niko Haavisto, executive]

Yes. So in terms of the ramp-up cost ever EUR 70 million, as Artem you pointed out, we haven't disclosed that. But if I give some type of a ballpark figure, as of today, we are seeing that it will be something between EUR 50 million to EUR 60 million in total this year. But then depends on how we are ramping the Oradea up, but that's the kind of the ballpark, nothing that we have printed out, but that's the ballpark number.

Then on the net debt development. So as you pointed out, once again, so it will reach its peak in Q3 and then Q4, we have the major inflows from the receivables coming in. So it will then start to lower towards the more desirable levels as well. And of course, we are doing utmost with the net working capital as such, but Q3 is the peak in terms of net debt.

[Operator]

The next question comes from Pasi Vaisanen from Nordea.

[Pasi Väisänen, analyst]

This is Pasi from Nordea. When looking at kind of the profitability, well, the first question is related to your supply chain. So what is exactly a problem there on your supply chain and now creating more costs than expected? I mean you have been buying raw materials quite a long time and prices should not be a surprise.

And secondly, well, when looking at the situation into North America, so how many tires you are actually shipping from Dayton to Canada? So would it be even over 1 million tires on an annual basis?

And lastly, regarding your financial targets. So would it be possible to reach this 15% EBIT margin by having this 2 million, 3 million offtake agreements still ongoing with Chinese tires?

[Paolo Pompei, executive]

Thank you for the question. Obviously, the first question is about our supply chain, which is including obviously the manufacturing cost. I think this is part of the journey that we need to consider. Again, we had completely lost our manufacturing footprint 2 years ago, 2, 3 years ago.

And then, of course, we started to rebuild our supply chain from the beginning. It's true that we didn't do it at the speed that we were supposed to do it, especially when we talk about building the growth in North America. But of course, now I believe we are on the right track really to follow this growth.

Our supply chain costs are really also related to the fact that we are working very hard on different dimensions. The growth in Dayton, which is extremely good growth in quarter 1, of course, is in some way, increasing our average cost.

And you mentioned about the raw material, of course, we knew about the raw material coming. And now obviously, we have implemented actions to compensate the raw material.

The second question is about Dayton to Canada, we don't disclose exactly. We just say that the all-season tires that we sell to Canada today are made in Dayton. It is, I would say, part of the business, but we have, in this case, 2 possibilities. In case Canada and U.S. will find an agreement, obviously, everything will run as normal. In case Canada and U.S. will not find an agreement, we can leverage our European manufacturing sources delivering tires to Canada.

The third question is about the financial target. I will leave it to Niko to follow up on this question.

[Niko Haavisto, executive]

Yes. So it was that are we able to generate the 15% EBIT market. So this is our view today on the longer horizon, i.e., we haven't changed the long-term financial guidance as such. So we are targeting the EUR 2 billion sales and then the plus 23% to 25% EBITDA and 15% EBIT and at the same time, between 1x to 2x net debt to EBITDA. So those are all intact, and that's what we believe in.

[Pasi Väisänen, analyst]

Yes, I hear you. But coming back to this Chinese offtake agreement, are the volumes something between 2 million to 3 million for this year?

[Paolo Pompei, executive]

The volumes are lower than 2 million at this stage. And then, of course, we disclosed that we will keep always a percentage of offtake in our product portfolio that is around 10% because we believe our suppliers will be able to compensate the gaps that we have in our manufacturing development as well as be able to support us in the production of product line that we believe is not strategic or convenient to keep in-house. But at the moment, we can say that the volumes are just below 2 million pieces.

[Operator]

The next question comes from David Shaw from Tire Industry Research.

[David Shaw, analyst]

I've got a couple of questions. The first one was about a spurious announcement about the EU potentially imposing tariffs on car and truck tires from China, an investigation starting later on this week. Can you tell us any more about that?

And the second question is about manufacturing flexibility. As I understand it, you were due to install in Russia a very flexible modern manufacturing system, and that is now potentially available to go into Romania. Again, can you comment on that, please?

[Paolo Pompei, executive]

Okay. Great. About the first question about the tariff study made by the EU. Obviously, this is true. This is potentially ongoing, but obviously, we are not influencing those things. And of course, I don't think we can comment about it. I mean this is an initiative. As you know, there are already some duties on the truck tires. And I think the authorities are simply investigating if there is any activities or any dumping activities in this direction, but we are not able really to comment about it.

About the flexibility of our operations, I want to be clear and loud that when we talk about Romania, we are talking about an extremely advanced manufacturing facilities. I've been myself 28 years in the business, and I can tell you that the investment we made in Romania is really state-of-the-art, not only giving us an extremely high level of automation and at the same time, giving extremely sustainable operations with 0 CO2 emission, but it's also a factory that is providing us the same flexibility, of course, in a lower scale at this stage that we have in Russia. So we really count on what we built in Romania. We really believe it's a great asset for the company to develop our future growth, our positioning and obviously, our business expansion.

[Operator]

The next question comes from Rauli Juva from Inderes.

[Rauli Juva, analyst]

Yes. It's Rauli from Inderes. Two more questions left from my side. So firstly, coming back to the North American production platform, regarding the volumes you are now shipping from Europe to the USA., what kind of investments and time frame would it require for you to actually produce those in the U.S. factory as well?

And then the second question is just technicality on the depreciation. Was the Romanian plant already kind of fully in the depreciation figures for Q1? Or will there be a step-up in Q2 as the shipment started in late March?

[Paolo Pompei, executive]

Thank you for your question. I mean, about North America, the volume that are going from Europe to U.S. are extremely limited. So we don't see really this issue when we talk about the flow from Europe to U.S. Of course, there are some product segments where that are still supported by Europe. But again, we don't see that as an issue, and that can be relatively quickly implemented in Dayton in North America in case it's needed. About the depreciation, Niko, can you please answer to this one?

[Niko Haavisto, executive]

Yes. The depreciation, we didn't include depreciations in Q1 in terms of Romania.

[Rauli Juva, analyst]

All right. Can you give any ballpark what will be like the depreciation in Q2 once, I guess, there will be all the depreciation for the equipment installed as of now?

[Niko Haavisto, executive]

I don't want to give a number now. I will come back with the Q2 numbers that -- what is that. It's still under investigation, so to say.

[Operator]

The next question comes from Thomas Besson from Kepler Cheuvreux.

[Thomas Besson, analyst]

Apologies if I ask about things that have been mentioned on the call, I was listening to another call until very recently. Can you please confirm your annualized capacities at the end of March for each of your plants and what you do expect to have in terms of annualized capacities at the end of '25?

And as a result, also confirm the planned offtake volumes for both '25 and '26 and remind us the origin, at least the geographic origin of the towers you're using in offtake contracts? That's the first question.

The second, could you confirm the CapEx for '25? I think I remember you were talking about EUR 150 million, but you spent EUR 52 million in Q1. Is that still EUR 150 million? Or should we count on a bit more than that with tariffs and potential adjustments in local capacities?

And lastly, your cash and cash equivalents kind of melted substantially. Can you remind us where you -- well, what kind of liquidity position do you feel comfortable with? Remind us your key maturities and remind us how much flexibility you have with your balance sheet and your net debt going up apparently still until the end of Q3.

[Paolo Pompei, executive]

Thank you very much for your question. I will take the first 2 questions. The first one about capacity. Obviously, we don't disclose externally our total production capacity. We have disclosed a few important information for you to give you some guidance. The first one is that in Oradea, we will be able to produce 6 million pieces by the end of 2027.

So you can clearly see that, obviously, we have an important addition in terms of capacity compared to today's situation that is coming from Oradea. We also disclosed that we keep more or less 10% of our total volume in offtake, again, supporting the gaps where we believe it's more strategic for us to use external partners more than produce internally specific product line. I kindly ask Niko to answer about the CapEx and the cash.

[Niko Haavisto, executive]

Yes. In terms of the CapEx, we have guided EUR 200 million gross, i.e. once again repeating myself, so not including the potential part of the EUR 100 million state aid from Romania. So EUR 200 million is the CapEx that we see for this year.

And then in terms of the net debt, I said that it will peak in highest number in Q3. And as a backup facilities, we have the commercial paper program and then the committed credit limits and those credit limits are not in use. So in terms of the cash position or liquidity, we are on the safe side, so to say.

[Thomas Besson, analyst]

Okay. Can I ask just a quick follow-up? Your passenger car margins in absolute and in percentage terms deteriorated further. And I think this Q1 was the weakest quarter you've ever posted. Can you give us an indication on when we are going to see the lowest figure in absolute or in percentage terms for passenger car margins as much as you've indicated that the peak debt would be end of Q3?

[Paolo Pompei, executive]

Yes. I mean the main issue, I would say, in our margins in quarter 1 was the ratio between price and mix and raw material as it is visible from our bridge. We had the raw material increase coming in, and we were not compensating the raw material increase. However, we have initiated actions to compensate this gap in quarter 2 and following in H2 2025.

So I would say that this quarter was some way an exceptional quarter, where obviously, we had also to follow many other priorities at the same time. So I'm pretty confident that you will see the margins moving up in the second half of the year.

[Operator]

No more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Annukka Angeria, executive]

If there are no further questions, it is time to end this webcast. Thank you, Paolo and Niko and all the participants on the line, and we wish you a nice rest of the day. Bye.

[Paolo Pompei, executive]

Thank you very much for participating to the call.

[Niko Haavisto, executive]

Thank you.